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For the year ended March 31, 2010SKY Perfect JSAT Holdings Inc.
Annual Report 2010
Quality for Value
SKY
Perfect JSA
T Ho
lding
s Inc. Annual R
epo
rt 2010
www.skyperfectjsat.co.jp
Full-Scale Rollout
SUE-1007-0229 スカパー 表-1/4 07/15‐KT
Satellite Business
Multichannel Pay TV Business
Forward-Looking StatementsStatements about the SKY Perfect JSAT Group’s forecasts, strategies, management policies and objectives contained in this report that are not based on historical facts constitute forward-looking statements. These statements are strictly based on management’s assumptions, plans, expectations and judgments in light of information currently available. These forward-looking statements, facts and assumptions are subject to a variety of risks and uncertainties. Therefore, actual results may differ materially from forecasts.
Our Business 1
2 4
8
To Our Shareholders and Investors 9
SKY Perfect JSAT Group Growth Strategy
15 Creating New Levels of Value That Envisage Future TV Lifestyles
Review of Operations 20
Management Structure 24
28
29
Financial Section 30
31 38
43
Independent Auditors' Report 65
Corporate Data and Investor Information 66
Group Companies 67
Annual Report 2010 For the year ended March 31, 2010SKY Perfect JSAT Holdings Inc.
Our B
usinessSK
Y Perfect JSAT G
roup G
rowth Strateg
yReview
of Op
erationsM
anagem
ent StructureFinancial Section
Indep
endent A
uditors'
Report
Corp
orate Data
and Investor Information
Group C
omp
aniesTo O
ur Shareholders
and Investors
SUE-1007-0229 スカパー 表-2/3 07/21‐KT
The SKY Perfect JSAT Group is a corporate group born in 2007 through the integration of broadcasting and satellite businesses. In the Multichannel Pay TV Business, we were the first in Japan to offer digital Multichannel Broadcasting, and we are now the “top runner” with around 3.7 million subscribers—among the highest in Japan. In this position, we have opened up new possibilities for the television viewing culture and are now a leader in our industry. In the Satellite Business, we are the largest private-sector satellite operator in Asia, delivering the SKY PerfecTV!PerfecTV!PerfecTV service and linking regions not covered by existing communications networks. We also have a highly reliable infrastructure for emergency communications in times of natural disasters or accidents.
Today, the broadcasting and Today, the broadcasting and communications businesses are witnessing a communications businesses are witnessing a diversification of viewing media, from televisions to diversification of viewing media, from televisions to personal computers and mobile phones. Meanwhile, personal computers and mobile phones. Meanwhile, the industry, which is undergoing dramatic structural the industry, which is undergoing dramatic structural changes as both broadcasters and carriers enter changes as both broadcasters and carriers enter each other’s territory, is playing a deeper role in each other’s territory, is playing a deeper role in the lives of citizens. Under these circumstances, the lives of citizens. Under these circumstances, we strongly recognize our social responsibilities we strongly recognize our social responsibilities as a group that provides the highly public-oriented as a group that provides the highly public-oriented services of broadcasting and communications. services of broadcasting and communications. To this end, we will deploy our satellite-based To this end, we will deploy our satellite-based infrastructure to offer peace of mind and enjoyment infrastructure to offer peace of mind and enjoyment in our quest to help create richer social lifestyles and in our quest to help create richer social lifestyles and thus maximize corporate value. thus maximize corporate value.
Creating Richer Social Lifestyles through Future-Oriented Broadcasting and Communications Services
1Full-Scale Rollout Annual Report 2010
Multichannel Pay TV Business
Business Overview
The SKY Perfect JSAT Group is Japan’s largest multichannel pay TV provider. We are also the sole platform provider in Japan’s CS digital broadcasting market, operating the SKY PerfecTV!PerfecTV!PerfecTV service. This business covers the provision of transponders to broadcasters that operate various channels on SKY PerfecTV!on SKY PerfecTV!on SKY PerfecTV . It also includes the transmission of video and information using optical fiber. In our role as a platform operator, we also engage in customer management and promote the proliferation of multichannel pay TV broadcasting, which generates income based on subscription fees and commissions as a platform. Other services include digitization and the encoding of broadcast signals.
Profit Structure
Profit from the Multichannel Pay TV Business consists of three major services of SKY PerfecTV!major services of SKY PerfecTV!major services of SKY PerfecTV . Able to generate stable cash flows from its amassed subscriber base, the Multichannel Pay TV Business serves as a key growth driver for the SKY Perfect JSAT Group.
Offering various content from entertainment such as music, movies, sports and documentaries to information, shopping and pay-per-view programs.
Selecting programming/packages that fit their lifestyle and tastes.
Providing platform services to broadcasters including program transmission, subscriber management, promotions to attract subscribers, etc.
SKY Perfect JSAT
SubscribersBroadcastersProgram Providers
Platform Service
Program/PackagesProgram/Packages
At a Glance
Revenue
Operating Income
¥108.5billion
¥9.0billion
76.4%
58.0%
Service Image
(Year ended March 31, 2010)
2
Major Services
The SKY PerfecTV!The SKY PerfecTV!The SKY PerfecTV service portfolio encompasses SKY PerfecTV!SKY PerfecTV!SKY PerfecTV and SKY PerfecTV!PerfecTV!PerfecTV e2, which are direct-to-home (DTH) services transmitted directly from satellites, as well as SKY PerfecTV!SKY PerfecTV!SKY PerfecTV HIKARI, a fiber-to-the-home (FTTH) service delivered via optical fiber networks.
Satellite BusinessBusiness Overview
In this business, we provide communications services that capitalize on the ascendant features of satellites, including wide-area multicasting, flexibility and imperviousness to natural disasters. Our services are used for communications by government institutions and other public-sector entities. For example, they provide a key communications infrastructure for disaster prevention and mitigation management and facilitate communications with mountainous regions and isolated islands without access to terrestrial networks. We also offer communications within corporations, such as educational and medical treatment services delivered via high-quality digital images—a promising new business for the Group—as well as deliver the video footage of live performance and other events to terrestrial TV stations.
In addition, we sell satellite circuits in Asia and we operate a business in North America in partnership with Intelsat, the world’s largest satellite operator. In these and other ways, we are actively advancing our global business.
Profit Structure
The satellite business generates stable revenue via usage fees for satellite services, underpinned by a stable subscriber base that includes governments, local public entities and corporations.
Control Center(SKY Perfect JSAT)
CorporateCustomer/Government
Images, Sound, Data Images, Sound, Data
Largest number of channels and HD programs
SKY PerfecTV! HD! HD!Compatible
Tuner
SKY PerfecTV!Compatible
Antenna
Necessary device for viewing
Number of Channels Number of Channels Number of Channels
Necessary device for viewing
Necessary device for viewing
110°E CS CompatibleDigital TV
or Recorder
BS+110°E CSCompatible
Antenna
HD ±85
SD ±280
Easy to view with digital TV View through optical fiber without antenna
SKY PerfecTV! HIKARI! HIKARI!Compatible Tuner
SKY PerfecTV! HIKARISKY PerfecTV! HD SKY PerfecTV! e2
HD ±11
SD ±57
HD ±70
SD ±270
Revenue
Operating Income
¥33.5billion
¥6.5billion
23.6%
42.0%
Service Image
(Year ended March 31, 2010)
HD: High Definition; SD: Standard Definition
At a G
lance
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et An
alysis
Con
solid
ated Fin
ancial H
igh
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3Full-Scale Rollout Annual Report 2010 Annual Report 2010 Annual Report 2010
SKY Perfect JSA
T Group
Grow
th Strategy
Review of O
perations
Manag
ement Structure
Financial SectionInd
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ata and Investor Inform
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roup Com
panies
To Our Sharehold
ers and Investors
Our B
usiness
Shift from Terrestrial Digital Broadcasting Leads to Higher Uptake of Digital Televisions
Over the one-year period ended March 2010, the total number of three-wavelength digital televisions shipped reached 46,595,000 units. This number far exceeded the 30,748,000 units shipped in the previous year. Digital televisions on the market today feature not only terrestrial digital and Broadcast Satellite (BS) digital broadcast capabilities but also a built-in SKY PerfecTV!a built-in SKY PerfecTV!a built-in SKY PerfecTV e2 tuner, which enables viewers to watch digital television without having to buy a separate set-top box.
In March 2010, more than 2 million digital televisions were shipped, the second highest number since the end of the previous year. Of total DVD and Blu-ray Disc recorders shipped, the ratio of those equipped with terrestrial digital tuners was 99.7%.
Broadcasting MarketIn Japan’s broadcasting market, the advertising-based business model is undergoing a reassessment due to a decline in advertising revenues in the wake of the economic downturn. Also, the market is becoming more and more diversified as viewers shift away from television to access programs via other media, such as the Internet and mobile phones. In addition, we are witnessing a merging of broadcasting and communications, as exemplified by the industry’s changing structure caused by the entry of both broadcasters and communications service providers to the industry.
SKY PerfecTV! Service Keeps Top Spot in Multichannel Pay TV Market
The entry of IP broadcasting providers has led to intensified competition within the multichannel broadcast market, which previously centered on cable television and satellite broadcasting providers. Ahead of the scheduled cessation of analog broadcasting in 2011, market players are escalating campaigns to obtain new subscribers and retain existing ones. Cable television and IP broadcasting providers offer programs via a single transmission route. In contrast, the SKY Perfect JSAT Group seeks to expand its market share by diversifying transmission routes to include optical fiber networks and satellites that cover the whole of Japan.
Households subscribing to a multichannel pay TV service: At the end of 2009, around 11 million households in Japan subscribed to a multichannel pay TV service (market worth ¥550 billion). With 3.70 million subscribers, accounting for around ¥100 billion, SKY PerfecTV!PerfecTV!PerfecTV is the top provider.
Source: “Shipments of Digital Enabled Receivers,” Japan Electronics and Information Technology Industries Association (JEITA)
Market Analysis
Multichannel Pay TV Market in Japan
Domestic Shipments of Three-Wavelength Digital Televisions
(Millions of subscribers)
■ SKY PerfecTV! e2 ■ SKY PerfecTV! HIKARI■ SKY PerfecTV!
Source: (CATV) HOSO Journal Magazine, published by Hoso Journal Co., Ltd.; (IPTV) Report by the Ministry of Internal Affairs and Communications
■ J:COM ■ CATV ■ IPTV
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009
2003 2004 2005 2006 2007 2008 20090
10
20
40
30
50
0.5 2.1 5.210.7
18.7
28.3
41.9
(Millions of units shipped)
4
Intergenerational Divergence in an Aging Society: SKY PerfecTV! Offers Diverse Genres and
Channels to Meet a Wide Range of Needs
In recent years, there has been considerable divergence in the selection of viewing media and content among the different generations. Demographic distribution in Japan shows a progressively aging population. SKY PerfecTV!progressively aging population. SKY PerfecTV!progressively aging population. SKY PerfecTV and other multichannel pay TV broadcasters are able to meet the needs of a diversified demographic audience, including the elderly, by providing a wide range of program genres and a large number of channels. Another reason for the Group’s dominance in the market is that it offers the most channels via a variety of transmission routes. The older a viewer’s age, the more hours he/she spends watching BS programs. Consequently, we expect an increase in viewers who will watch both new BS programs, which will commence upon the cessation of analog television in 2011, and special satellite broadcasting transmitted via our SKY PerfecTV!PerfecTV!PerfecTV e2 service. Accordingly, television viewing hours are trending upward both on weekdays and weekends.
Source: Population Census from the Ministry of Internal Affairs and Communications for the 1990 data; Population Statistics of Japan from the National Institute of Population and Social Security Research for the 2010 data.
1990 versus 2010 Population Distribution by Age
Economic Recession and Large-Screen TVs behind Jump in Viewing Hours
Among the 50% of respondents who said that the economic recession had influenced their television viewing, 60% of those in their 30s said they were now watching more television. Eighty percent of viewers claiming to spend more time at home with their families due to the recession said that their viewing behavior had changed. The two most common responses were that family members were watching more hours of television and that families were watching more television together. The Multichannel Pay TV service offered by the SKY Perfect JSAT Group is benefiting from the consumer trend for “inexpensive, accessible, and short-duration” products and services, as well as the tendency to stay at home during hard economic times in order to save money. In addition, because content offered by SKY PerfecTV!because content offered by SKY PerfecTV!because content offered by SKY PerfecTV meets the needs of all age groups, we expect demand for our offerings to increase as families watch more television together.
1990
1,200 1,2001,000 1,000800 800600 600400 400200 2000 0
(Thousand)
Male(Age)
90+80706050403020100
Female
2010 (Forecast)
At a G
lance
Mark
et An
alysis
Con
solid
ated Fin
ancial H
igh
lights
5Full-Scale Rollout Annual Report 2010
SKY Perfect JSA
T Group
Grow
th Strategy
Review of O
perations
Manag
ement Structure
Financial SectionInd
epend
ent Aud
itors' Rep
ortC
orporate D
ata and Investor Inform
ationG
roup Com
panies
To Our Sharehold
ers and Investors
Our B
usiness
47.628.1
19.510.5
8.61.0
19.0
Increase in total TV viewing hours as family unit
Increase in frequency of TV viewing as family unit
Change in genres of TV programs viewed
More limitations on programs viewed
Other
Neither
Increase in frequency of family individualsviewing TV independently
(%)
10 20 30 40 50 600
Information sourceSource of amusement/laughter;
enjoyment of hobbies and moviesOpportunity to pass time
Necessity; part of life
Rest and relaxation
Akin to background music
Akin to a friend
Not necessary; waste of space
Normal part of surroundings (like air)
Change of pace; release stress 1414
2325
3540
111164
216266
50 100 150 200 250 3000
Source: SKY PerfecTV!Source: SKY PerfecTV!Source: SKY PerfecTV “2010 Television Survey.” In January 2010, we surveyed 1,000 men and women aged 20 and older living in the Kanto and Kansai regions.
Changes in TV Viewing Habits due to Increase in Family Time Spent at Home
Approach to TV (What does TV mean to you?) Results of voluntary questionnaire (items with 10 or more responses displayed, N = 1,000)N = 1,000)N
Viewers’ Perception of TV Shifts from Entertainment to Source of Information
A survey of television viewers has found that more and more people regard television as a means of gathering information rather than simply as entertainment allowing them to watch movies or indulge in hobbies, or as a means of passing time. Nearly all respondents considered television
a necessary part of their daily lives. Only a small minority responded that they could go without TV and that watching it was a waste of time. More viewers perceive television not as a passive activity, but rather as something to be actively enjoyed, as well as a source of information. Consequently, we expect to see growing demand for our services, which offer a variety of high-resolution content, including entertainment, business and news.
6
Satellite Communications MarketSKY Perfect JSAT is the only private-sector satellite operator in Japan and the largest in Asia. It also boasts the fifth highest sales in the global satellite industry. Operating as a private company since the integration of the former JSAT and the former Space Communications Corporation in 2008, we continue to develop our satellite business in our role as the sole player in the domestic market. In Japan, our satellite services include providing data transmission service via satellite and network solutions for government, local autonomy and private companies, as well as mobile satellite communications services. Our Satellite Business segment generates annual revenues of around ¥33 billion.
2009 Revenue of World Satellite Operators (Millions of U.S. dollars)
1. Intelsat (Luxembourg) 2,500
2. SES (Luxembourg) 2,440
3. Eutelsat (France) 1,410
4. Telesat (Canada) 750
5. SKY Perfect JSAT Corp. (Japan)* 363
6. SingTel Optus (Singapore/Australia) 237
Source: Space News*This figure does not include revenues from providing transponder services for SKY PerfecTV!services for SKY PerfecTV!services for SKY PerfecTV and SKY PerfecTV! and SKY PerfecTV! and SKY PerfecTV e2.
Growth in Global Demand for Satellites
According to the Satellite Industry Association of the United States, from 2003 to 2008 the global satellite market grew at an annual average rate of 14.2%. Notable expansion occurred in 2007 and 2008, when the market grew 19%. The worldwide satellite industry consists of four sectors: telephone and broadcast reception at satellite ground stations, satellite launch industry, satellite manufacturing and satellite services. The global market for satellite services, including those provided by the Group, is worth around US$84.0 billion and grew 16% from 2007 to 2008. Expansion of the satellite manufacturing and satellite launch industries is being driven by growth in the satellite services and ground equipment sectors. There are few countries with domestic terrestrial broadcasting and communications infrastructures like those in Japan. Consequently, the use of satellites is highly cost-effective from the standpoint of developing satellite TV broadcasting services.
Increasing Global Demand for Mobile Satellite Services
More than 70% of the satellite industry’s total revenue is derived from transponder lease agreements and broadcasting. From 2007 to 2008, demand for transponder lease agreements rose 6%, whereas mobile data communications and network services also recorded steady growth. These figures show the strong global demand for satellite services and the potential for expansion of the SKY Perfect JSAT Group.
World Satellite Industry Revenues by Sector World Satellite Service Revenues
Source: State of the Satellite Industry Report (June 2009 issue) of the Satellite Industry Association.
2003 2004 2005 2006 2007 2008
74.3 82.7 88.8105.5
121.7
144.4
(Billions of U.S. dollars)
0
60
120
18019% UP
Ground Equipment Launch IndustrySatellite Manufacturing Satellite Service
39.8
9.8 10.2 7.8 12.0 11.610.5
3.2 2.8 3.0 2.7 3.23.9
21.5 22.8 25.2 28.8 34.3 46.0
46.9 52.862.0
72.684.0
2003 2004 2005 2006 2007 2008
(Billions of U.S. dollars)
0
30
60
90 16% UP
Fixed (Transponder Lease, VSAT Service, etc.)Mobile Broadcasting
28.5
1.6 1.8 1.7 2.0 2.1 2.2
9.8 9.5 10.1 11.5 13.0 14.5
35.6 41.048.5
57.567.3
39.946.9
52.862.0
72.6
84.0
At a G
lance
Mark
et An
alysis
Con
solid
ated Fin
ancial H
igh
lights
7Full-Scale Rollout Annual Report 2010
SKY Perfect JSA
T Group
Grow
th Strategy
Review of O
perations
Manag
ement Structure
Financial SectionInd
epend
ent Aud
itors' Rep
ortC
orporate D
ata and Investor Inform
ationG
roup Com
panies
To Our Sharehold
ers and Investors
Our B
usiness
SKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries For the years ended March 31, 2008, 2009 and 2010
Consolidated Financial Highlights
Notes: 1. U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥93.04 to $1, the approximate rate of exchange at March 31, 2010.
2. EBITDA is calculated as Operating Income + Depreciation and Amortization.3. For 2008, ¥300 of the ¥1,500 cash dividend is a commemorative dividend.
Millions of Yen, except per share data
Thousands of U.S. Dollars,
except per share data
(Note 1)
2008 2009 2010For the Year:
Revenues ¥ 121,402 ¥ 145,412 ¥ 141,069 $ 1,516,214
Cost of Services 70,565 87,181 86,151 925,956
Selling, General and Administrative Expenses 39,582 41,342 39,825 428,036
Operating Income 11,255 16,889 15,093 162,222Income before Income Taxes and Minority InterestsMinority Interests 6,712 4,438 16,446 176,773
Net Income 9,107 4,047 14,223 152,873
EBITDA (Note 2) 27,382 38,926 38,900 418,105
Capital Expenditures 36,193 32,507 29,710 319,317
Depreciation and Amortization 16,127 22,037 23,807 255,882
Research and Development Expenses 547 561 588 6,324
Net Cash Provided by Operating Activities 50,064 31,431 39,340 422,833
Net Cash Used in Investing Activities (51,080) (27,778) (23,887) (256,739)
Net Cash Provided by (Used in) Financing Activities 1,457 (7,766) 10,836 116,465
Per Share Data (Yen and U.S. dollars):
Net Income (Basic) ¥ 2,662.00 ¥ 1,190.35 ¥ 4,226.16 $ 45.42
Total Equity 49,801.39 50,341.69 53,560.19 575.67
Cash Dividend (Note 3) 1,500.00 1,200.00 1,200.00 12.90
At Year-End:
Cash and Cash Equivalents ¥ 45,000 ¥ 40,420 ¥ 66,727 $ 717,190
Net Property and Equipment 158,238 164,285 167,516 1,800,473
Total Assets 322,213 309,812 335,164 3,602,363
Total Liabilities 145,713 136,310 151,826 1,631,812
Common Stock 10,000 10,000 10,000 107,481
Total Equity 176,500 173,502 183,338 1,970,551
Interest-Bearing Debt 96,843 92,534 107,511 1,155,530
Number of Shares Issued 3,696,037 3,446,037 3,446,037
Number of Employees 948 876 829
8
To Our Shareholders and Investors
Full-Scale RolloutFull-Scale RolloutAggressive Business Approach Aggressive Business Approach Aggressive Business Approach Aggressive Business Approach Aimed at Converting Change Aimed at Converting Change Aimed at Converting Change into Opportunityinto Opportunity
Overcoming Turbulence to Achieve Growth:
99Full-Scale Rollout Annual Report 2010
Year of “Consolidation” and “Preparation” ahead of Future GrowthIn the fiscal year ended March 2010, the SKY Perfect JSAT Group pursued a strategy of “consolidation” and “preparation” to set the stage for a new phase of growth.
In the year under review, consolidated revenues were about the same as for the previous period, excluding the impact of the bulk sale of satellite transponders. We also reported a significant increase in net income thanks to a substantial year-on-year drop in the impairment loss on marketable securities, which had an adverse effect on earnings in the previous year, and the sale of a cable television subsidiary in line with the Group's “selection and concentration” policy for management resources. The jump in net income helped fulfill the Group's “consolidation” strategy in readiness for bolstering our earnings base.
On the operational front, meanwhile, we laid the groundwork for growth by responding positively to changes within the industry.
In the Multichannel Pay TV Business, which holds the key to future growth, in October 2009 we expanded our SKY PerfecTV! HD (High Definition) service, which now offers 83 channels. We also ran an aggressive sales campaign that included commercials and promotional activities in electronic retail stores. Aided by the proliferation of digital televisions with built-in tuners, we surpassed the one million mark for the total number of subscribers to the SKY PerfecTV! e2 service. We also reduced new subscriber acquisition costs by adopting a cost-efficient approach emphasizing direct registration via telephone and our Web site. In June 2009, the Ministry of Internal Affairs and Communications awarded SKY Perfect JSAT a license to offer a new Broadcast Satellite (BS) service platform and a broadcast license. In the run-up to the October 2011 launch of the new BS service, we are preparing for new subscribers by enhancing content and services in conjunction with SKY PerfecTV! e2, which is delivered by a communications satellite in the same orbital slot as BS.
In the Satellite Business, we successfully launched two satellites to bolster our fleet in line with the Group's strategy of stable service delivery. In January 2010, we established the Space Business Development Division to tap into demand from the Japanese government following its implementation of the Basic Plan for Space Policy. The new division establishes a framework to take advantage of the shift from public-sector to private-sector demand for space and satellite services. It also paves the way for earnings growth through government projects said to be worth several tens of billions of yen.
“The sale of a cable television subsidiary contributed to the jump in net income and helped fulfill the Group's consolidation strategy in readiness for bolstering our earnings base.”
“We offer 83 HD channels in our Multichannel Pay TV service, which is the key to future growth. In addition,
governmental needs in the satellite business will pave the way for future earnings growth.”
To Our Shareholders and Investors
10
Full-Scale RolloutFull-Scale Rollout
“Our goal is to acquire a 97,000 net increase
in subscribers from the SKY PerfecTV! services by
strengthening the HD content and improving
customer relations.”
Initiatives for Fiscal 2010 and Beyond: Targeting Aggressive Expansion of the Broadcasting and Communications BusinessesMultichannel Pay TV Business: Increasing Total Subscribers to Three SKY PerfecTV! Services through HD and Enhanced Customer Services
The Multichannel Pay TV Business is the growth driver of the SKY Perfect JSAT Group. In the year ending March 2011, our goal is to acquire a 97,000 net increase in subscribers through a campaign to increase the total number of subscribers to the three SKY PerfecTV!total number of subscribers to the three SKY PerfecTV!total number of subscribers to the three SKY PerfecTV services (HD, e2 and HIKARI). We have adopted a two-pronged approach to achieving this objective: expand services by increasing the appeal of HD and enhance subscriber relations.
The first strategy entails gradually increasing the number of channels from the current 83 to 100 channels in 2012. We will work hard to attract new subscribers by establishing attractive basic packages tailored to subscribers’ tastes. In addition, we will upgrade existing subscriber services and attract new subscribers with topical, distinctive content, such as live HD broadcasts of all matches from the FIFA World Cup in South Africa. On June 19, 2010, for example, we launched a dedicated 3D channel with a commemorative live broadcast of a World Cup match in 3D. Going forward, we will actively embrace the new 3D broadcasting medium, with a focus on live and realistic content, such as sporting matches and musical performances, as we forge ahead in the spirit of industry leadership. To promote subscriptions to the SKY PerfecTV!SKY PerfecTV!SKY PerfecTV e2 service, we will raise its profile through television commercials and newspaper and magazine advertisements, as well as by offering free trials. This campaign will seek to educate the many viewers who are unaware that their digital television sets have a built-in tuner. In May 2010, we complemented our SKY PerfecTV!May 2010, we complemented our SKY PerfecTV!May 2010, we complemented our SKY PerfecTV HIKARI offerings with an HD service.
With respect to enhancing customer relations, we will upgrade our subscriber retention program. Subscribers will be divided into different groups depending on the number of years they have held subscriptions. We will also encourage the Standard Definition (SD) subscribers to switch to the HD service and employ other measures to prevent subscribers from canceling their contracts. As an incentive to shift to the HD service, we will provide free rental for a six-month period to attract existing subscribers. Moreover, we will offer long-time subscriptions for HD tuners at a special price. To retain relatively new subscribers of the e2 service who have subscribed for less than a year, we will offer free broadcasts and the chance to try out new channels. A special team will be deployed to serve multiyear subscribers who are contemplating canceling or amending their contracts. Team members will encourage these subscribers to stay by offering tailor-made proposals and reminding them of the various attractions of SKY PerfecTV!.of the various attractions of SKY PerfecTV!.of the various attractions of SKY PerfecTV
We plan to expand our
HD channel offerings to 100 channels in fiscal 2012.
83100
2008 Oct.
Channels
2009 Oct. 2010 Jun. 2012
60
15
11Full-Scale Rollout Annual Report 2010
Our B
usinessSK
Y Perfect JSAT G
roup G
rowth Strateg
yReview
of Op
erationsM
anagem
ent StructureFinancial Section
Indep
endent A
uditors'
Report
Corp
orate Data
and Investor Information
Group C
omp
aniesTo O
ur Shareholders
and Investors
Service Area of Maritime Broadband (Roaming service in cooperation with KVH*)
KVH service area SKY Perfect JSAT service area
Satellite Business: Meet Government-Related Demand and Work with Strategic Partners to Advance into the “Mobile” and “Global” Markets
The Satellite Business is the cornerstone that underpins the growth of the entire Group. The integration of the former JSAT and the former Space Communications Corporation (SCC) allows us to provide even more efficient services. We work hard to retain contracts by presenting value-added proposals customized to individual corporate needs when contracts come up for renewal.
There are several promising prospects in the satellite field. In addition to the provision of disaster mitigation and safety services to the public sector, for example, we hope to cultivate public-sector demand in association with the Basic Plan for Space Policy. We will also increase earnings by strengthening alliances with strategic partners in the “mobile” and “global” fields. One partner is Intelsat, the world’s largest satellite operator, and the other is Inmarsat, the world’s largest mobile satellite service provider with a strong track record in maritime mobile services.
In the mobile sector, we offer a maritime broadband service called “Ocean BB,” which provides information needed for safe passage, allows vessel crew members and passengers to communicate with their families and provides an entertainment service offering movies and music. We are endeavoring to expand our shipping communications business by bolstering services that make use of the satellite we own jointly with Intelsat, which was launched above the Indian Ocean in 2009. We are also working to expand JSAT MOBILE Communications Inc., our joint venture business with Inmarsat.
In the global sector, we will broaden our operations in North America, the Middle East and Asia, while strengthening our collaboration with Intelsat. At the same time, we will tap into markets in Southeast Asia and Oceania, where there is firm demand for satellite circuits.
To Our Shareholders and Investors
“In addition to the demand from the public for disaster and safety mitigation, we expect further governmental needs associated with space development. We will also cultivate private-sector demand for the mobile and global markets with two industry-leading partners.”
*KVH Industries, Inc. (Rhode Island, USA), designs, manufactures and sells the mobile satellite antennas used by ships and aircraft, and provides satellite communications services that use these devices. KVH offers television entertainment services identical to those they can access at their homes and offices, a well as digital communications and worldwide Internet connection services to mobile users around the world.
12
Targeting Aggressive Investments in Growth and Stable Shareholder Returns: Fiscal 2010 Forecast for Revenue Growth and Earnings Declines; Dividend to Remain Unchanged
The environment surrounding the SKY Perfect JSAT Group is undergoing tumultuous change. For both the Multichannel Pay TV and Satellite businesses, the fiscal year ending March 2011 will mark the first year of aggressive initiatives in our ongoing campaign to lay the groundwork for future growth. We expect revenues to total ¥143.0 billion, largely unchanged from the year just ended. However, we project a decline in operating income to ¥7.4 billion. This estimate is based on a number of factors, including costs incurred by the content fee for the FIFA World Cup games, investment in measures aimed at acquiring HD subscribers and an increase in depreciation costs associated with satellites launched in the year ended March 2010.
We recognize that a long-term and comprehensive approach to shareholder returns is an important management priority. We will strive to pay stable dividends while retaining sufficient earnings to underpin business development and maintain a sound financial position. In line with this policy, for the year ending March 2011, we plan to pay an annual dividend of ¥1,200 per share, unchanged from the year under review.
SKY Perfect JSAT Group Performance ForecastsFor the year ending March 31, 2011
(¥ million)
Full-Scale Rollout
Targeting Aggressive Investments in Growth and Stable Shareholder
Full-Scale Rollout
“The next fiscal year will mark the first year
of aggressive initiatives to lay the
groundwork for future growth for both the
Multichannel Pay TV and Satellite businesses.”
Revenues 143,000Operating Income 7,400Net Income 2,000Cash Dividend per Share (¥) 1,200
13Full-Scale Rollout Annual Report 2010
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SKY Perfect JSAT Group Objectives: Target Sustainable Growth by Delivering Peace of Mind and Enjoyment to People’s LivesThe broadcasting and communications businesses require licenses in order to operate and, as such, are extremely public in nature. As Japan’s largest multichannel pay TV provider, our role in the broadcasting market is to address the diverse needs of the public by creating a next-generation broadcast culture that delivers both amazement and enjoyment. In the satellite market, we have the important role of providing a communications infrastructure that protects the safety and security of society.
To meet its social and ethical obligations as a provider of such highly public services, the Group adheres to a code of conduct entitled “3C + 1.” Adding “Compliance” to “Communication,” “Collaboration” and “Creation,” this code of conduct is actively promoted across the entire Group. A unique feature is “Creation,” which expresses the Group’s pioneering spirit. For example, the Group has established two new markets from scratch—first in 1985 as a private satellite business and then in 1996 as Japan’s first multichannel pay TV platform provider. In 2007, after years of strong growth, we made a new start through the merger of the Multichannel Pay TV Business and the Satellite Business, which created a new corporate entity unlike any other in the world. I have every confidence that the SKY Perfect JSAT Group has inherited an abundant supply of the pioneering spirit needed to achieve sustainable growth in the tumultuous times ahead.
With the Multichannel Pay TV Business and the Satellite Business as its two pillars, the Group stands ready at the starting line to seize business opportunities. The elements needed for future business development and the strategies needed to link these elements to growth are clear. In the year ahead, as we charge out of the starting blocks, we will unify as a Group to enhance the Group's corporate value.
I look forward to your ongoing support.
July 2010July 2010
Masanori AkiyamaRepresentative Director,
President and Chief Executive Officer
To Our Shareholders and Investors
“With our pioneering spirit, we will seize the business opportunities from the rapidly changing broadcasting and communications market.”
14
Creating New Levels of Value That Envisage Future TV Lifestyles
The increase in sales of three-wavelength digital television sets accompanying
the scheduled July 2011 full switchover to terrestrial digital broadcasting is a
huge boost for the multichannel pay TV broadcasting industry. The SKY Perfect
JSAT Group’s Multichannel Pay TV Business is also reaping the benefits of the government’s stimulation of demand for digital televisions and other eco-friendly home appliances
as part of its environmental strategy. Meanwhile, competition is escalating
within the multichannel pay TV broadcasting market, which provides satellite
broadcasts, cable television, IPTV and other services as operators compete to
attract new subscribers and retain existing ones for high-definition (HD) channels, 3D programs and triple-play services offering Internet, voice and TV. Against this background, the
SKY Perfect JSAT Group has created the environment and laid the groundwork
for growth, including by offering 83 channels in its HD service—
unrivalled in Japan and overseas—and by rolling out a dedicated 3D channel in
June 2010.
SKY Perfect JSAT Group Growth Strategy
Multichannel Pay TV Business: Driver of Growth
Special Feature
Full-Scale Rollout Annual Report 2010 15
EarningsModel
and Marketing
Collaboration with Broadcasters and Rigorous Subscriber-Oriented Approach
Special Feature
Change in Revenue Model in Response to Market Changes
To differentiate itself from other pay TV broadcasters, the SKY Perfect JSAT Group is working hard to deliver multichannel services offering more channels and HD programs with high picture quality. By adopting the revenue-sharing method, we can reduce the costs incurred by broadcasters when entering the HD market, as well as change our revenue structure to one based primarily on revenue from viewer fees. By having the ability to structure our services in this way, we can offer flexible packages tailored to the needs of subscribers.
Strategic Direction 1
Revenue Structure of SKY PerfecTV! and SKY PerfecTV! and SKY PerfecTV! ! e2! e2!
Revenue Structure of SKY PerfecTV! HD (Revenue Share Model)! HD (Revenue Share Model)!
BroadcastersSKY Perfect Broadcasting Corporation(100% subsidiary)
Broadcasters (Program Providers)
Program Providers
Subscribers
Programming FeeCommissions,
Transmission Fee,Transponder Fee, etc.
Subscribers
Subscription Fee
Commissions,Transmission Fee,
Transponder Fee, etc.
Subscription Fee
Providing Platform Service and Transponder
Providing Platform Service and Transponder
BroadcastersSKY Perfect Broadcasting Corporation(100% subsidiary)
Broadcasters (Program Providers)
Program Providers
Subscribers
Programming FeeCommissions,
Transmission Fee,Transponder Fee, etc.
Subscribers
Subscription Fee
Commissions,Transmission Fee,
Transponder Fee, etc.
Subscription Fee
Providing Platform Service and Transponder
Providing Platform Service and Transponder
SKY PerfecTV! HD assumes a revenue sharing (R/S) model. ! HD assumes a revenue sharing (R/S) model. !R/S model: The content fee to be paid to program providers from the total subscription fee is reported as profit.
Aggressive Marketing Campaign to Attract HD Subscribers
Our goal is to increase our SKY PerfecTV!Our goal is to increase our SKY PerfecTV!Our goal is to increase our SKY PerfecTV HD subscriber base by adding new subscribers and encouraging the switch from standard definition (SD) quality. We are adopting a multipronged approach to attracting new subscribers. In addition to offering 3D and other appealing content, we will raise our profile through an advertising campaign, release low-priced SKY PerfecTV!advertising campaign, release low-priced SKY PerfecTV!advertising campaign, release low-priced SKY PerfecTVHD set-top boxes, hold demonstrations at electronic mass merchandiser retail outlets, offer an antenna installation support service and increase the range of HD-compatible recorders. To encourage existing subscribers to switch to our HD service, we will run a six-month free set-top box rental campaign and offer tuners at special prices to loyal customers.
16
In-DepthAnalysis
ofHD’s Appeal
Standard Definition (SD)
High Definition (HD)
© J.LEAGUE PHOTOS© J.LEAGUE PHOTOS
Amazing Picture QualitySKY PerfecTV! HD uses MPEG-4 AVC
(Advanced Video Coding), the latest
video compression standard allowing the
delivery of HD video data. HD broadcasts
use 1,080 effective scan lines (1,125 actual
lines) to provide extremely high-quality
pictures. This compares with standard
definition (SD) broadcasts provided by
SKY PerfecTV!, which use 480 effective
scan lines (525 actual lines).
Multifunctional SKY PerfecTV! HD Set-Top Box HD set-top boxes have a diverse array of functions
that amaze viewers while satisfying their every
whim. These include a program search function
that performs searches based on genre or
keywords, an economic automatic power-off
function, an HD recording function, a terrestrial
digital viewing function using a terrestrial digital
tuner, an Internet browser and an English subtitle
function to help with language study.
High Definition (HD)
© J.LEAGUE PHOTOS
HD Recorders Offer Large Storage and High Picture QualitySubscribers are able to record programs on a hard-disk
drive (HDD) recorder or Blu-ray Disc recorder by simply
connecting a SKY PerfecTV! HD tuner to a recorder made
by major Japanese consumer electronic manufacturers
using a LAN cable. Using a SKY PerfecTV! HD recorder
with a built-in one-terabyte HDD allows subscribers to
build a library of programs so they can watch whatever
they want, whenever they want. The recorder has the
capacity to store roughly 120 movies, 240 dramas or
480 cartoons. The emergence of HD recorders with high
compression efficiency gives viewers the opportunity to
tailor their viewing to suit their individual lifestyles and
tastes. Moreover, it is expected that viewers will access
programs more than once, such as by downloading
recorded programs to hand-held terminals.
© SKY PerfecTV!
Photo: Action Images/Aflo
Press conference for Kumi Koda's "Dream Music Park" via SKY PerfecTV!, the first 3D live music broadcast in Japan
ProductAppeal
Surge in 3D Television Overseas
The use of HD gives viewers the opportunity to enjoy the thrill of live broadcasts and movies. 3D programs also have the potential to spark an increase in the uptake of high-definition viewing. With the successive launch of 3D content and television sets compatible with 3D, 2010 has become the inaugural year of 3D television. The phenomenal success overseas of the movie Avatar has prompted a huge upsurge in interest in the 3D medium. In Japan, too, leading electronic manufacturers have launched sales of 3D televisions. It is estimated that worldwide shipments of 3D televisions will increase by an average annual rate of 80% in the years ahead. Based on this projection, total annual shipments will reach 78 million sets by 2015 compared with 4.2 million sets in 2010.
Content Differentiation: 3D to Spark Growth in HD Services
Recognizing that 3D holds the key to expanding SKY PerfecTV! services, on June 19, 2010, SKY Perfect JSAT launched its dedicated 3D channel, broadcasting the Japan-Netherlands match of the FIFA World Cup in South Africa in 3D. The main features of the new 3D service on SKY PerfecTV! HD are its ability to leverage the Group’s strengths in live broadcasting to show live programs in 3D, the compatibility of existing broadcasting equipment and HD tuners, and the delivery of 3D programs covering a variety of genres in collaboration with other corporations including broadcasters. We will upgrade our 3D broadcasting content lineup, centering on movies and live programs including sports and music.
Strategic Direction 2
Potential of 3D as a Driving Force for HD Market Expansion
Source: iSuppli
(Millions)
78
4.2
80% UP! / year
2010
20
40
60
80
2011 2012 2013 2014 2015
Forecast for World Shipments of 3D TVs
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Multichannel Pay TV Business
Review of Operations
Performance Overview
Despite a successful campaign to increase e2 subscribers, new subscribers for our three main services decreased about 20,000 due to the sale of the CATV business. In the year ended March 31, 2010, the number of SKY PerfecTV! e2 subscribers increased due to the growing proliferation of digital television, and by September 2009 the number had topped the one million mark. We attracted more viewers because digital televisions launched recently are capable of receiving our SKY PerfecTV! e2 service. In line with the expansion in coverage for our SKY PerfecTV! HIKARI service, in April 2009 we launched a SKY PerfecTV! e2 retransmission service using optical fiber networks.
In the second half of the period, we conducted an active subscription campaign for SKY PerfecTV!SKY PerfecTV!SKY PerfecTV HD, which offers programs in high definition. As a result, new subscriptions for all three services increased 1.62% year on year to 547,189. However, we recorded a net decrease of about 20,000 subscribers for our three main services. This was mainly due to the sale of subsidiary Cable Television Adachi Corp., which resulted in the loss of around 40,000 subscribers. Consequently, we had a total of 3,687,699 subscribers at the fiscal year-end.
Number of New Subscribers to theThree SKY PerfecTV! Services and the Churn Rate
1Q FY2008 2Q FY2008 3Q FY2008 4Q FY2008 1Q FY2009 2Q FY2009 3Q FY2009 4Q FY2009
143
1.141.21
1.271.35 1.34 1.341.38
1.19
13
84
46
15
104
23
18
119
22
12
84
35
8
111
17
4
112
22
13
82
27
6
88
20
131122
142159
136
114
138
(%)(Thousands)
0
50
100
150
200
250
SKY PerfecTV! SKY PerfecTV! e2 SKY PerfecTV! HIKARI Churn Rate
0.00
0.50
1.00
1.50
The annualized churn rate rose 0.8 percentage point year on year to 15.7%. This stemmed from the significant impact of the churn rate among SKY PerfecTV!rate among SKY PerfecTV!rate among SKY PerfecTV e2 subscribers. Although the number of SKY PerfecTV!Although the number of SKY PerfecTV!Although the number of SKY PerfecTV e2 subscribers increased, a relatively large number of people subscribe at the beginning of each professional baseball or soccer season and cancel their contracts at the end of the season, causing a high churn rate.
As a result, in the fiscal year under review the Multichannel Pay TV Business segment recorded revenues of ¥108,488 million and operating income of ¥9,015 million.
ARPU and SAC
The average revenue per user (ARPU) consists of a basic fee, a monthly subscription fee, revenue from own content, a rental fee and a pay-per-view (PPV) subscription fee.The ARPU for SKY PerfecTV!The ARPU for SKY PerfecTV!The ARPU for SKY PerfecTV and SKY PerfecTV! and SKY PerfecTV! and SKY PerfecTVe2 decreased slightly compared with the previous year. Subscription-fee-based ARPU decreased 2.3% to ¥3,238, and subscriber-related revenue-based ARPU dipped 1.9% to ¥1,304. These decreases stemmed largely from a decline in basic fees due to discounts for those with multiple set-top
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SKY Perfect JSA
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Grow
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boxes, as well as a fall in flat-rate viewing charges. The ARPU for SKY PerfecTV!The ARPU for SKY PerfecTV!The ARPU for SKY PerfecTV HIKARI edged down 0.1% to ¥3,543.
The subscriber acquisition cost (SAC) consists of advertising expenses, sales incentives and sales promotion expenses. In the year under review, the total SAC for the three services decreased 4.4% to ¥18,538 million as a result of an increase in subscribers joining SKY PerfecTV!an increase in subscribers joining SKY PerfecTV!an increase in subscribers joining SKY PerfecTVe2 directly via telephone and our Web site and a decline in sales incentives for electronic retail stores. SAC per subscription decreased 5.9% to ¥33,879, largely due to declines in sales promotional expenses and incentives.
Operating Highlights
Full-Scale Deployment of SKY PerfecTV! HD ! HD !Drives Growth of Multichannel Pay TV BusinessThe number of HD channels offered by SKY PerfecTV!PerfecTV!PerfecTV increased from 58 in October 2009 to 72 by the end of March 2010. At present, there are 148,000 subscribers to this service.
In August 2009, for the first time in Japan, we broadcast a 3D movie made for cinema release. As a first step toward 3D movie programming, we gave subscribers the opportunity to see Jules Verne’s Journey to the Center of the Earth in this Journey to the Center of the Earth in this Journey to the Center of the Earthexciting life-like dimension.
Promotional activities included setting up special stands at the large television and Blu-ray Disc recorder sections of major home appliance stores to give shoppers the chance to experience 3D programs firsthand. We also ran a cash-back campaign for new subscribers to our SKY PerfecTV!PerfecTV!PerfecTV HD service when they purchased a new television or recorder. There has been an increase in recorders capable of recording our high-definition programs, and leading manufacturers have already sold large numbers of these HD-enabled recorders.
Business Reforms Aimed at Improving Profitability: Reorganization of OptiCast Business The Group strengthened the marketing structure of the three basic SKY PerfecTV!of the three basic SKY PerfecTV!of the three basic SKY PerfecTV services and implemented a phased reorganization of its OptiCast business with the goal of expanding the SKY PerfecTV!SKY PerfecTV!SKY PerfecTV HIKARI service. As a first step, in 2009 we dissolved the joint sales company established by OptiCast Inc. (a subsidiary of SKY Perfect JSAT Holdings Inc.), NIPPON TELEGRAPH AND TELEPHONE EAST CORPORATION and NIPPON TELEGRAPH AND TELEPHONE WEST CORPORATION. OptiCast has now absorbed that company’s sales functions. We have since joined forces with OptiCast to boost sales in preparation for the full-scale launch of our SKY PerfecTV! for the full-scale launch of our SKY PerfecTV! for the full-scale launch of our SKY PerfecTV e2 retransmission service.
ARPU SAC—Three Services Total (Year ended March 31, 2010) (Year ended March 31, 2010)
2009 2010 2009 2010
19,383 18,538
36,007 33,879
6,155
5,4134,5983,215
6,368
5,4503,8202,898
11,434
10,057
8,543
5,973
11,639
9,961
6,982
5,298
Total SAC (Millions of Yen) SAC per Subscriber (Yen)
38416
2,587
172154
3,313 3,238 3,548 3,543
1,329 1,304
125156
26154 221562,565
2,659 2,720
317 311572 512
748 73519 16 19
373 384 3732009 2010 2009 2010 2009 2010
SKY PerfecTV! and SKY PerfecTV! e2 (Yen)
Subscription Fee per Subscriber
Subscriber-RelatedRevenue
per Subscriber
SKY PerfecTV! HIKARI* (Yen)
Basic feePPV subscription fee Revenue from SKY PerfecTV!’s own content
Rental fee Monthly subscription fee
*Optical fiber communication system usage fees for each home pass are not included.
2009 2010 2009 2010
Sales incentivesOthers
Promotional expenses Advertising expenses
19,383 18,538
36,007 33,879
6,155
5,4134,5983,215
6,368
5,4503,8202,898
11,434
10,057
8,543
5,973
11,639
9,961
6,982
5,298
Total SAC (Millions of Yen) SAC per Subscriber (Yen)
Notes: 1. Advertising expenses exclude public relations expenses. 2. Others include outsourcing service fees and subscription discounts and
deductions for the sales commission profits, etc., of OptiCast.
38416
2,587
172154
3,313 3,238 3,548 3,543
1,329 1,304
125156
26154 221562,565
2,659 2,720
317 311572 512
748 73519 16 19
373 384 3732009 2010 2009 2010 2009 2010
SKY PerfecTV! and SKY PerfecTV! e2 (Yen)
Subscription Fee per Subscriber
Subscriber-RelatedRevenue
per Subscriber
SKY PerfecTV! HIKARI* (Yen)
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Satellite Business
Performance Overview
Stable Satellite Services Lead to Steady RevenueIn December 2009, we successfully launched the Intelsat 15 (JCSAT-85) satellite in collaboration with Intelsat, Ltd., a leading U.S. provider of satellite services. Following the launch, we introduced full-scale marine broadband services for vessels.
As a result of the above, as well as the impact of the sale of transponders in fiscal 2008, operating revenues in the Satellite Business segment amounted to ¥33,458 million. Operating income totaled ¥6,520 million.
Horizons-2 (74°W)
JCSAT-85 (85°E)Horizons-1 (127°W)
Superbird B2 (162°E)
JCSAT-2A (154°E)
JCSAT-1B (150°E)
Superbird-C2 (144°E)
Superbird-C
JCSAT-5A (132°E)
JCSAT-4A (124°E)
N-SAT-110 (110°E)JCSAT-110 / Superbird-D
JCSAT-RA(Backup)
JCSAT-3A (128°E)
Mainly for Multichannel Pay TV Broadcasting Services Mainly for Communications Services
New Business Expands Revenue Base: License for New BS Digital ServiceIn June 2009, the Ministry of Internal Affairs and Communications announced that it had allocated licenses to eight companies and organizations to offer the new Broadcast Satellite (BS) digital broadcasting service, scheduled for launch in October 2011. SKY Perfect Entertainment Corporation, a member of the SKY Perfect JSAT Group, was one of the successful applicants and intends to broadcast one HD channel on the BS frequency. We plan to provide platform and transmission services to nearly all the other BS license holders. The establishment of this digital broadcast environment, which uses BS and 110˚ CS services, is expected to further boost revenues and subscriber numbers owing to the increase in HD channels offered through the SKY PerfecTV!HD channels offered through the SKY PerfecTV!HD channels offered through the SKY PerfecTV e2 service, as well as expanded content.
Fleet (as of March 31, 2010)
The Group owns and operates 13 satellites in geostationary orbit, covering not only Japan but all of Asia, as well as Oceania and North America. Four of these satellites are mainly for multichannel pay TV broadcasting services (including a backup satellite), and nine are mainly for satellite communications services. The satellites include JCSAT-3A and JCSAT-4A, positioned at 128° and 124° east longitude, respectively, which deliver the SKY PerfecTV! service. Also, there is N-SAT-110 in the 110° east longitude orbital slot delivering the SKY PerfecTV!delivering the SKY PerfecTV!delivering the SKY PerfecTV e2 service.
22
Satellite Business
Operating Highlights
Reliable Operation of Satellite Services and Expansion of Satellite Fleet for Full-Scale Deployment of Marine Broadband Services In August 2009, we launched and began operating the JCSAT-12 (JCSAT-RA) satellite, which will replace the backup satellite JCSAT-R. The deployment makes it possible to provide highly reliable satellite communications services underpinned by a stable satellite fleet.
The Intelsat 15 (JCSAT-85), launched in 2009, covers Asia, the Indian Ocean, the Middle East and Russia. By using our partially owned transponder of the satellite, we are now able to provide direct broadband communication between Japan and vessels out at sea and in coastal waters mainly around the Indian Ocean.
Space Business Development Division to Pursue New OpportunitiesIn January 2010, we established the new Space Business Development Division within the Satellite Business to work exclusively on promoting business related to the government’s Basic Plan for Space Policy and other space-related business following the enactment of the Basic Space Law. The division is preparing to seize business opportunities arising from the projected shift in demand from the public sector to the private sector in line with the Basic Plan for Space Policy. Following the merger of the satellite control center of the former Space Communications Corporation (SCC) and former JSAT, we integrated and restructured the Group’s satellite services. In April 2010, we launched a new VSAT service. We have also begun offering other new services, including a dispersed storage service and a satellite time distribution service.
Full-Scale Rollout Annual Report 2010
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232323Full-Scale Rollout Annual Report 2010
The SKY Perfect JSAT Group recognizes the importance of fulfilling its responsibilities to shareholders and achieving sustained growth. For this reason, we place top priority on maintaining effective corporate governance, risk management and legal compliance systems.
Corporate Governance
Status in the Year under Review
The Board of Directors met 15 times in the year under review. The attendance rate for all directors was 90% and for outside directors was 85%. At those meetings, directors conducted wide-ranging discussions on such topics as development and procurement of business equipment and long-term management issues (including mid- and long-term strategies and risk management).
The Management Committee met 16 times during the year and discussed such topics as the integration of subsidiaries.
The Board of Corporate Auditors met 14 times during the year. The attendance rate for all corporate auditors was 99% and for outside auditors was 93%. At those meetings, corporate auditors confirmed the business performance status of directors, including the content of Board of Directors meetings.
Appointment of Independent Directors/Auditors
In December 2009, the Tokyo Stock Exchange (TSE) introduced regulations requiring listed companies to appoint at least one independent director or auditor. Based on the TSE’s Listing System Improvement Action Plan 2009, the regulations seek to protect the general shareholders as part of efforts to enhance the corporate governance of listed companies. Independent directors/auditors are to be outside directors/auditors who are unlikely to cause conflicts of interest in relation to the general shareholders. At the end of March 2010, SKY Perfect JSAT Holdings Inc. notified the TSE of its three independent directors and one independent auditor. These directors and auditor must not have any interests that are likely to conflict with those of the general shareholders and may not be any of the following:
An executive of the parent company or a company affiliated with said listed company.An individual or executive that has significant business dealings with said listed company.A consultant, accountant or legal expert that receives significant remuneration or other financial benefit from said listed company except as remuneration for being an independent director/auditor.A major shareholder of said listed company.A close relative of the above.A close relative of an executive of said listed company or any subsidiary company.
Appropriate, Speedy and Highly Transparent Business Operations
At the fiscal year-end, the Board of Directors had 13 members, including seven outside directors with abundant experience and expertise in corporate management and the broadcasting and telecommunications fields. Through multifaceted deliberation, the Board works to raise the effectiveness of corporate governance. The Management Committee is a consultative body that meets as necessary to support the decision making of the President and Chief Executive Officer. The committee consists of the executive directors. It discusses important items pertaining to business execution in the Company and the Group and supports information-sharing related to control of subsidiaries, as well as Group-wide governance.
Management Policy and Frameworkanagement olicy and ramework
24
The Information Disclosure Committee, headed by the President and Chief Executive Officer, consists of the director in charge of information disclosure, the full-time directors who handle information to be disclosed and others. Full-time corporate auditors also attend these meetings as observers. The general manager of the Corporate Communications and Investor Relations Division serves as secretary of the committee, which functions as the official entity for studying and confirming items related to timely disclosure.
Management Oversight: Board of Corporate Auditors, Internal Audit Division, Nomination and Remuneration Committee
The Board of Corporate Auditors has four members, including three outside auditors with experience and expertise in internal control, risk management, accounting and taxation, and broadcasting. The Board receives audit reports submitted by the independent accounting auditor and reports on the status of internal audits submitted by the Internal Audit Division, with the aim of raising overall auditing effectiveness. Corporate auditors also attend meetings of the Board of Directors and the Management Committee, conduct investigations of departments and subsidiaries based on annual plans, and audit the business performance of directors.
The Internal Audit Division monitors the internal control and group management conducted mainly by the Corporate Planning Division, with the aim of raising overall effectiveness.
The Nomination and Remuneration Committee is a consultative body attached to the Board of Directors. It was established to provide recommendations on director nominations and remuneration decisions in an impartial manner. The Committee has five members, including three outside directors.
Internal Institutions and Controls
General Meeting of Shareholders
Board of Corporate Auditors
Internal Audit Div.
Internal Control Promotion Div.
Corporate Planning Div.
Human Resource Div.
Corporate Communications &Investor Relations Div.
Finance & Accounting Div.
General Affairs Div.
Legal & Credit Div.
Information Systems Div.
Management Committee
Information Disclosure Committee
Nomination & Remuneration Committee
Board of Directors
President & CEO
25Full-Scale Rollout Annual Report 2010
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Risk Management System
Compliance
Basic Policy and Recent Initiatives
We have a Group-wide risk management system that determines risk management rules, identifies and evaluates risks related to business execution, and addresses risks appropriately. The Chief Risk Management Officer, appointed by the President and Chief Executive Officer from among the Company’s directors, is responsible for examining and implementing specific risk management measures for each department and division.
To improve risk management, in the year under review we issued all executives and employees (permanent, contract and seconded employees) an Emergency Response Handbook and an Emergency Card as part of the Group’s business contingency plan.
In May 2009, we established an office to oversee measures related to the recent outbreak of swine flu. The office devised guidelines and a business contingency plan as measures to prevent the spread of infection and mitigate any risk to employees.
Basic Policy and Recent Initiatives
The Group’s Compliance Committee, consisting of full-time directors, auditors, division heads and the presidents of subsidiaries, meets once every three months. At these meetings, members monitor the implementation of basic policies established by the committee on compliance-related matters, including information security, personal information and the establishment of an internal control system.
In the year under review, we implemented job-specific training for executives, line managers and regular employees. We continued and augmented efforts to establish an internal reporting system, including a help line that puts callers in direct contact with our compliance office and outside persons including our legal counsel. To keep abreast with legal changes, we introduced a system that issues notices and information on revisions to laws and regulations. We take timely action in areas requiring rigid compliance with consumer law. We identify problem areas without delay by taking various measures, including running training programs on specific topics and making voluntary inspections.
Director Remuneration System: Embracing the Interests of Stakeholders to Improve Business Performance
The Company has adopted a performance-linked cash remuneration system for directors aimed at providing them with incentives to improve business performance. In the common interests of shareholders and executives, we strive to raise the corporate value of all companies in the Group. To this end, stock options issued by the Group’s business companies (the former SKY Perfect Communications and the former JSAT) have, with some exceptions, been retained by the holding company.
In the year under review, the Company’s 13 directors received a total of ¥119 million in remuneration. This included ¥35 million paid to the seven outside directors. The Company’s four corporate auditors received a total of ¥48 million. This sum includes ¥32 million paid to the three outside auditors.
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Message from Iwao Nakatani, Non-Executive DirectorRole and Mission of Independent Directors/Auditors
Effective the fiscal year ending March 2010, the Tokyo Stock Exchange requires that listed companies appoint at least one independent director or auditor to its Board of Directors or the Board of Auditors. Companies are also required to notify the TSE of the names of suitably qualified independent directors/auditors. The TSE has introduced this requirement in the belief that neutral, independent directors/auditors who do not act in the direct interests of specific shareholders or management are necessary to ensure the protection of general shareholders’ interests in the carrying out of a company’s business operations. The requirement is based on the idea that a framework is necessary to ensure that management maximizes the company’s corporate value from the standpoint of the general shareholders, and reflects a worldwide trend.
The role of independent directors/auditors is to ensure that management does not go against the interests of the general shareholders when making decisions on important matters, such as business policy formulation or executive remuneration and appointment. It is important that independent directors/auditors act in the interests of “all shareholders,” not in the interests of “specific
shareholders.” The history of SKY Perfect JSAT Holdings since its establishment reveals that there are several “major shareholders” who hold the majority of the Company’s shares. When I reflected on this fact, I realized the huge importance of the independent directors’ role in protecting the interests of the general shareholders because they have no beneficial relationship with any major shareholders. It is only natural that major shareholders have considerable influence on business policy. However, this does not mean that decisions should be made at the expense of the general shareholders. From their objective positions, independent directors/auditors are responsible for protecting the interests of all shareholders and not just specific shareholders.
Since its establishment, SKY Perfect JSAT Holdings has regarded effective corporate governance as the top priority of management. It has appointed three independent directors to the Board of Directors and one independent auditor to the Board of Auditors. As one of the four independent officers, I will do my utmost to ensure the objective and transparent management of the Company.
Other Information Related to Corporate Governance and Compliance
Other reports related to the Group’s corporate governance and compliance systems can be downloaded from the Web site below. These include the Corporate Governance Report, Policies for Internal Control Systems, Information Security Basic Policy and Personal Information Protection Group Basic Policy. http://www.skyperfectjsat.co.jp/en/company/policy.html
Graduate, Dept. of Economics, Hitotsubashi University. Ph.D. in Economics, Harvard University. Professor of Economics, Osaka University. Professor, Dept. of Commerce, Hitotsubashi University. Currently serves as Director of Research, Mitsubishi UFJ Research and Consulting Co., Ltd.
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The SKY Perfect JSAT Group participates in a corporate training program for mainly junior and senior high school students. The program is aimed at promoting understanding of the Group’s business, which provides a significant public service through the use of satellites for broadcasting and communications.
Sponsorship of a Program that Teaches Students How to “Live in the Real World”
of each company. At the end of the course, the students give team presentations.
In the previous fiscal year, we gave our students the challenge of coming up with proposals for unique SKY PerfecTV!for unique SKY PerfecTV!for unique SKY PerfecTV “new multichannel programs” for family audiences that would move viewers to tears.
The students accepted our challenge with enthusiasm and submitted 90 imaginative and ingenious proposals. We screened the eight teams and selected one to represent the Group in the Quest Cup 2010 National Competition held on February 27, 2010. Our team and those representing other companies gave presentations, competing with each other for the title.
Through our involvement in the program, we seek to ensure a better understanding of our businesses and services, as well as their social significance, among students who are next-generation stakeholders and potential viewers, aswell as their families and educational institutions.
The Group sponsors the Quest Education Program, which is designed to teach students “life skills” and how to develop an “inquiring mind” by learning from actual companies and individuals. The Corporate Quest Program offers a Corporate Access Course, which gives students corporate internships using workplaces as classrooms. The aim of the course is to raise students’ awareness of their role as members of society and give them goals for everyday learning activities. SKY Perfect JSAT is one of the six companies that supports student learning by providing these internships.
By working on tasks given to them by participating companies, the junior and senior high school students who participate in the program gain a better understanding of what “working” involves, and experience the joy of solving problems and engaging in work that benefits others. Questionnaires, data gathering and group learning by the students give them the opportunity to learn about the work, social role and corporate culture
Corporate Social Responsibility
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Board of Directors and Corporate Auditors
Representative Director,President and Chief Executive Officer
Masanori Akiyama
Representative Director,Senior Executive Vice President
Shinji Takada
Board of DirectorsMasao NitoYutaka NagaiKeiichiro DemizuOsamu Kato
Board of Directors (Non-Executive)Iwao NakataniMasakatsu MoriHiromasa OtsukaKazunobu IijimaKohei ManabeTetsuro TakeokaKanji Koide
Corporate Auditors (Standing)Bunji ShinodaRyosuke Tsuruma
Corporate AuditorsToshiaki KatsushimaShinji Takeda
Left to Right: Osamu Kato / Shinji Takada / Yutaka Nagai / Masanori Akiyama / Masao Nito / Keiichiro Demizu
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Profitability:
Revenue Growth Ratio (%)Revenue Growth Ratio (%) -2.2% 19.8% -3.0%
Operating Income Growth Ratio (%)Operating Income Growth Ratio (%) -13.6% 50.1% -10.6%
EBITDA Margin (%)EBITDA Margin (%) 22.6% 26.8% 27.6%
Operating Margin (%)Operating Margin (%) 9.3% 11.6% 10.7%
Net Income Margin (%)Net Income Margin (%) 7.5% 2.8% 10.1%
Efficiency:
Cost of Services to Revenue (%)Cost of Services to Revenue (%) 58.1% 60.0% 61.1%
Return on Equity (ROE) (%)Return on Equity (ROE) (%) 5.3% 2.4% 8.1%
Stability:
Current Ratio (%)Current Ratio (%) 144.4% 157.2% 231.4%
Equity Ratio (%)Equity Ratio (%) 52.9% 54.7% 53.8%
Debt-to-Equity Ratio (%)Debt-to-Equity Ratio (%) 54.9% 53.3% 58.6%
Stock-Related and Other Indices:
Price-to-Earnings Ratio (PER)Price-to-Earnings Ratio (PER) 15.1 31.8 9.5
Price-to-Book Value Ratio (PBR)Price-to-Book Value Ratio (PBR) 0.81 0.75 0.75
Dividend Yield (%)Dividend Yield (%) 3.7% 3.2% 3.0%
Dividend on Equity (%)Dividend on Equity (%) 3.0% 2.4% 2.3%
Operating Figures:
Cumulative Total Subscribers (thousand)Cumulative Total Subscribers (thousand) 3,683 3,708 3,688
Annualized Churn Rate (%)Annualized Churn Rate (%) 12.0% 14.9% 15.7%
Number of SatellitesNumber of Satellites 12 12 13
SKYSKY PerfectPerfect JSATJSAT HoldingsHoldings Inc.Inc. andand ConsolidatedConsolidated SubsidiariesSubsidiariesForFor thethe yearsyears endedended MarchMarch 31,31, 2008,2008, 20092009 andand 20102010
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3030
Operating Environment
In the fiscal year ended March 31, 2010, the Japanese In the fiscal year ended March 31, 2010, the Japanese economy was affected by a negative cycle of falling retail economy was affected by a negative cycle of falling retail prices, weak employment conditions and depressed prices, weak employment conditions and depressed personal consumption. During the year, however, personal consumption. During the year, however, personal consumption showed signs of recovering, personal consumption showed signs of recovering, albeit moderately, with the added benefit of healthy albeit moderately, with the added benefit of healthy economic performances in newly emerging nations. economic performances in newly emerging nations. Moreover, several factors had a positive impact on the Moreover, several factors had a positive impact on the Group’s Multichannel Pay TV Business. These included Group’s Multichannel Pay TV Business. These included growing consumer preferences for reasonable prices, growing consumer preferences for reasonable prices, geographical proximity and short time frames, as well geographical proximity and short time frames, as well as the comfort of “remaining in the nest.” Also beneficial as the comfort of “remaining in the nest.” Also beneficial was the introduction of an eco-points system for digital was the introduction of an eco-points system for digital televisions, which helped promote demand. However, the televisions, which helped promote demand. However, the economic outlook remains unclear, due to such factors economic outlook remains unclear, due to such factors as the European economic situation and fiscal problems as the European economic situation and fiscal problems in Japan, making confident predictions difficult.in Japan, making confident predictions difficult.
The multichannel pay TV broadcasting market The multichannel pay TV broadcasting market benefited from an increase in sales of digital television benefited from an increase in sales of digital television sets ahead of the full switchover to terrestrial and BS sets ahead of the full switchover to terrestrial and BS digital broadcasting in July 2011. Moreover, 2010 is digital broadcasting in July 2011. Moreover, 2010 is recognized as the first year of 3D television and 3D recognized as the first year of 3D television and 3D broadcasting is expected to attract increased attention broadcasting is expected to attract increased attention as a result. Amid these conditions, new keywords as a result. Amid these conditions, new keywords are coming to the fore, such as HD channels, 3D and are coming to the fore, such as HD channels, 3D and triple play. Accordingly, the competition to attract new triple play. Accordingly, the competition to attract new subscribers and retain existing ones is intensifying in the subscribers and retain existing ones is intensifying in the multichannel pay TV broadcasting market, which includes multichannel pay TV broadcasting market, which includes
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satellite broadcasting, cable television and Internet satellite broadcasting, cable television and Internet protocol television (IPTV).protocol television (IPTV).
In the satellite communications market, In the satellite communications market, competition with communications service providers competition with communications service providers in such areas as optical-fiber networks and wireless in such areas as optical-fiber networks and wireless broadband is growing. For these reasons, we are broadband is growing. For these reasons, we are developing and offering various types of broadcasting developing and offering various types of broadcasting and communications services that exploit the superior and communications services that exploit the superior advantages of satellites, including their versatility and advantages of satellites, including their versatility and suitability for disaster-mitigation efforts. Moreover, suitability for disaster-mitigation efforts. Moreover, operation for space- and satellite-related services has operation for space- and satellite-related services has shifted from the public sector to the private sector shifted from the public sector to the private sector since 2009, when the Japanese government’s Basic since 2009, when the Japanese government’s Basic Plan for Space Policy was enacted—opening up new Plan for Space Policy was enacted—opening up new opportunities in this market.opportunities in this market.
Performance Overview
Facing these conditions, the SKY Perfect JSAT Group Facing these conditions, the SKY Perfect JSAT Group succeeded in maintaining consolidated revenues close succeeded in maintaining consolidated revenues close to the previous year’s level, underpinned by stable to the previous year’s level, underpinned by stable revenue from its core Multichannel Pay TV and Satellite revenue from its core Multichannel Pay TV and Satellite businesses. Despite efforts to cut costs and a decline businesses. Despite efforts to cut costs and a decline in sales incentives for electronic retail stores, earnings in sales incentives for electronic retail stores, earnings declined year on year. This was due to the absence of declined year on year. This was due to the absence of one-time revenue generated by the Satellite Business in one-time revenue generated by the Satellite Business in the previous fiscal year.the previous fiscal year.
Revenues
The Group generated steady revenues from the The Group generated steady revenues from the stable subscriber base of the Satellite Business, stable subscriber base of the Satellite Business, which complemented revenues from the accumulated which complemented revenues from the accumulated subscriber base of the Multichannel Pay TV Business. subscriber base of the Multichannel Pay TV Business. Consolidated revenues from the Multichannel Pay TV Consolidated revenues from the Multichannel Pay TV Business increased year on year, owing largely to a rise Business increased year on year, owing largely to a rise in revenues from SKY PerfecTVin revenues from SKY PerfecTV!! HIKARI subscribers. HIKARI subscribers. !! HIKARI subscribers. !!However, due to the absence of one-time revenue However, due to the absence of one-time revenue generated by the Satellite Business in the previous fiscal generated by the Satellite Business in the previous fiscal year—from the bulk sale of satellite transponders—year—from the bulk sale of satellite transponders—consolidated Group revenues declined 3.0% to ¥141,069 consolidated Group revenues declined 3.0% to ¥141,069 million.million.
RevenuesRevenues
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Cost of Services
The Group’s cost of services consist mainly of depreciation and amortization, program purchasing costs and personnel expenses. In the year under review, cost of services fell 1.2% to ¥86,151 million, thanks to efforts to reduce operating expenses, which outweighed an increase in depreciation on satellites launched in the previous fiscal year.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses declined 3.7% to ¥39,825 million. The ratio of SG&A expenses to revenues fell 0.2 percentage point to 28.2%. This was mainly due to the year-on-year decline in revenues stemming from the bulk sale of satellite transponders in the previous fiscal year, which outweighed a decrease in subscriber acquisition costs (SAC), as well as the decline in SG&A expenses stemming from cost-reduction efforts.
Operating Income
Operating income declined 10.6% to ¥15,093 million, mainly due to depreciation associated with broadcasting-related equipment and satellites, as well as the absence of revenue from the bulk sale of satellite transponders in the previous fiscal year.
Other Income/Expenses
Net other income was ¥1,353 million compared with net other expenses of ¥12,451 million in the previous year. Among other income, we generated steady interest income from the management of surplus capital. Among other expenses, we posted interest expense and a loss on investments under the equity method.
Income before Income Taxes and Minority Interests
Income before income taxes and minority interests jumped 270.6% to ¥16,446 million. The main factors included extraordinary income in the form of a ¥3,207 million gain on sale of shares of a consolidated subsidiary and a ¥700 million gain on redemption of investment securities, as well as a substantial year-on-year drop in the extraordinary loss, due to a major write-down of investment securities in the previous fiscal year.
Income Taxes
For the year under review, the Group undertook a review of the recoverability of its deferred tax assets in light of that fact that its income base has stabilized and concluded that the recoverability of such assets would be recognized as recoverable longer term. As a result, the
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tax rate after the application of tax-effect accounting fell significantly below the legal tax rate. Accordingly, income taxes for the year dropped 63.2% to ¥1,115 million.
Net Income
After income taxes and other adjustments stemming from the aforementioned review of the recoverability of deferred tax assets, net income surged 251.4% to ¥14,223 million.
Performance by Business Segment
Multichannel Pay TV Business
In the first half of the year, we enjoyed an increase in subscribers to the SKY PerfecTV! e2 service, boosted by the proliferation of digital television sets. In the second half, we aggressively promoted subscriptions to our SKY PerfecTV! HD service, which offers HD (High Definition) broadcasts. Accordingly, the Group attracted 547,000 new subscribers during the year. However, the churn rate increased to 15.7%, mainly due to the greater impact of churn following the conclusion of major sporting events, as well as the fact that the increase in SKY PerfecTV! e2 subscribers was largely due to migration from other
services. In February 2010, meanwhile, the Group sold all of its shares in consolidated subsidiary Cable Television Adachi Corp., which led to a decline of about 40,000 subscriptions to other fixed-line services and about a 20,000 net decline in total subscribers. Accordingly, the number of subscribers was 3,687,699 at the fiscal year-end. Revenues in this segment edged up 0.2% to ¥108,488 million, mainly owing to an increase in subscribers to the SKY PerfecTV! HIKARI service. However, segment operating income declined 11.8% to ¥9,015 million, primarily due to an increase in depreciation and amortization expenses.
Satellite Business
In the year under review, we commenced a full-scale marine broadband service for private-sector commercial vessels following the launch of a communications satellite owned jointly with Intelsat. We also worked actively to attract orders for space- and satellite-related projects from the national government. Revenues in this segment amounted to ¥33,458 million, down 13.8% from the previous year, mainly due to the impact of the bulk sale of satellite transponders in the previous year. Segment operating income declined 9.7% to ¥6,520 million.
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Equity
Total equity (net assets plus minority interests) increased ¥9,836 million to ¥183,338 million. The main factor boosting equity was net income of ¥14,223 million. This contrasted with ¥4,039 million in dividend payments appropriated from retained earnings. The equity ratio at the fiscal year-end was 53.8%, down 0.9 percentage point from a year earlier.
Liquidity and Capital Resources
Cash Flows
Net cash provided by operating activities amounted to ¥39,340 million, up 25.2% from the previous fiscal year. In addition to income before income taxes and minority interests of ¥16,446 million, this was mainly due to non-cash-related expenses, such as ¥23,807 million in depreciation and amortization and ¥1,203 million in the amortization of goodwill. Net cash used in investing activities totaled ¥23,887 million, down 14.0% from the previous year. Major factors included ¥30,922 million in purchases of tangible and intangible fixed assets, which more than offset ¥4,456 million in proceeds from sale of shares of a
Financial Position
The SKY Perfect JSAT Group’s policy on asset management is to invest temporary surplus funds in highly safe financial assets. As for fund-raising, we procure funds via bank borrowings and the issuance of corporate bonds.
Total Assets
At March 31, 2010, the Group had total assets of ¥335,164 million, up ¥25,352 million from a year earlier. Within this amount, total current assets increased ¥28,655 million to ¥108,200 million. This was mainly due to a ¥31,990 million rise in marketable securities. Net property and equipment rose ¥3,231 million to ¥167,516 million.
Total Liabilities
Total liabilities increased ¥15,516 million to ¥151,826 million, mainly due to the issuance of corporate bonds totaling ¥20 billion. Interest-bearing debt, including short-term obligations, stood at ¥107,511 million. The debt-to-equity ratio rose 5.3 percentage points to 58.6%.
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consolidated subsidiary and ¥3,734 million in proceeds from sales and redemption of investment securities. Net cash provided by financing activities was ¥10,836 million compared with ¥7,766 million in net cash used in such activities in the previous fiscal year. Major factors included ¥19,911 million in proceeds from issuance of bonds and ¥8,964 million in proceeds from long-term debt. These contrasted with ¥13,653 million in repayments of long-term debt and ¥4,035 million in dividends paid. As a result, cash and cash equivalents at the fiscal year-end totaled ¥66,727 million, up ¥26,307 million from ¥40,420 million a year earlier.
Research and Development
Both segments of the SKY Perfect JSAT Group—the Multichannel Pay TV Business and the Satellite Business—conduct their own research-and-development activities. In the year under review, the Group’s overall research-and-development expenses amounted to ¥588 million, which was allocated to a number of areas. These included the development of receivers necessary to handle next-generation broadcasting technologies and the development of video compression technologies.
Capital Expenditures
In the year under review, the Group made capital expenditures totaling ¥29,709 million. In the Multichannel Pay TV Business, spending was allocated mainly to upgrading broadcasting facilities at the SKY PerfecTV! Tokyo Media Center. In the Satellite Business, spending was directed at the procurement of satellites to ensure a stable and reliable fleet and to facilitate efficient fleet operation.
Dividend Policy
We maintain a long-term, comprehensive approach to shareholder return as an important management
priority. Our aim is to pay stable dividends while retaining sufficient earnings to fund our aggressive business development plans. Our policy is to determine cash dividend amounts following extensive consideration of our financial position, level of earnings and payout ratio. At its meeting on May 12, 2010, the Board of Directors declared a year-end dividend of ¥600 per share. The total dividend paid for the year was ¥1,200 including the second quarter dividend of ¥600.
Performance Forecasts
Looking at the year ending March 2011, in the Multichannel Pay TV Business we expect overall market growth to slow and competition to intensify. Against this background, our forecast is to attract 575,000 new subscriptions, benefiting from an increase in SKY PerfecTV! HD programs and our plan for live HD broadcasts of all 64 matches of the 2010 FIFA World Cup South Africa™ (World Cup). We also expect a year-on-year decline in the churn rate, to 14.8%, bringing the total number of subscribers to 3,784,000. In the Satellite Business, we will continue expanding our business in areas where satellite technologies excel and in peripheral areas while working to enhance business efficiency. For the year, we forecast a 1.4% increase in consolidated revenues to ¥143.0 billion, reflecting expansion of the SKY PerfecTV! HD business and the addition of new subscribers to the SKY PerfecTV! e2 service. However, we project a 51.0% decline in operating income to ¥7.4 billion, due to cost increases in many areas. These include costs associated with promoting the uptake of the SKY PerfecTV! HD service, significant fees for World Cup broadcasting rights, and higher depreciation and amortization expenses. Moreover, the absence of factors that boosted earnings during the year under review—such as a gain on sale of shares of a consolidated subsidiary and a gain on redemption of investment securities—is expected to result in an 85.9% drop in net income to ¥2.0 billion. The forecast for net income per share is ¥594.26.
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Financial Risk
Financial Products, Associated Risks and Risk Management System
Notes and accounts receivable, which constitute the Group’s operating receivables, are subject to credit risk on the client side. Management of such risk is based on relevant time periods and the balance of receivables of each client, pursuant to the credit management criteria established by the Group. A system allowing regular monitoring of the credit status of major subscribers is also in place. Marketable and investment securities held by the Group are mainly in the form of bonds for the temporary management of retained earnings, and of shares in client and other corporations with which the Group has business relationships. Although such securities are subject to the risk of market price fluctuations, the Group regularly monitors market prices and the financial situations of bond issuers (client corporations) and submits reports to the Board of Directors. Practically all notes and accounts payable, which constitute the Group’s operating payables, are due within one year. The Group also makes bank borrowings and issues corporate bonds in order to raise funds for operating transactions and capital expenditures. Borrowings with variable interest rates are subject to the risk of interest rate fluctuations. The Group endeavors to mitigate interest rate risk on interest payable by fixing the rates of some of its long-term borrowings. To this end, the Group enters into derivative (interest rate swap) contracts for each loan as a hedge mechanism. Operating payables and borrowings are also subject to liquidity risk. Each Group company manages such risk in various ways, including by preparing monthly financing plans. With respect to derivatives, the Group enters into forward exchange contracts as a hedge against currency fluctuation risk affecting funds raised to purchase broadcasting rights and communications satellite equipments. The Group also enters into interest rate swap transactions as a hedge against interest rate risk affecting its borrowings.
The execution and management of derivative transactions is based on internal regulations that determine transaction authority. To alleviate credit risk, the Group enters derivative contracts only with financial institutions with high credit ratings.
Business Risks
Below is a summary of the main factors deemed by the Group as potential risks that could affect its future business performance and/or financial position. Forward-looking statements contained in the following are based on the Group’s judgment at the end of the fiscal year under review.
1. General Risks
(1) Legal restrictionsThe Group’s business involves domestic satellite broadcasting and the launch, operation and commercial use of satellites in domestic and overseas markets. Any changes to legal requirements regarding satellites could have a potentially negative effect on our operation. The Group currently carries out our business without any hindrance from legal regulations, however, there is no guarantee that these regulations will continue in their current format or that the Group will not be adversely affected by these regulations, nor is there any guarantee that we will not be required to halt part of our operations.
(2) Security of subscriber informationThe Group gives the highest attention to the protection of client information, including subscriber information. However, in cases where subscriber information leaks from the Group or business partners after illegal access by third parties or other factors, the loss of confidence and/or the burden of unexpected costs might affect our business results.
(3) Heavy damage to equipment due to large-scale natural disasters
In cases where unanticipated large-scale disasters cause destruction of broadcasting facilities or uplink equipment, the Group does not possess full backup equipment, and therefore our business results might be affected.
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2. Risks regarding Satellite Infrastructure
(1) Operational failure of satellitesAs the Group’s satellite operation business relies on the operation of a satellite fleet, there is inherent risk involving possible launch failure and in-orbit operational failure (e.g., breakdown, excessive fuel consumption, collision with space debris, control problems). The Group maintains one satellite in orbit exclusively for emergency backup. However, the backup satellite might not be able to replace all of a failed satellite’s capacity and cannot replace transponder capacity on certain satellites.
(2) Procurement of communications satellitesThe manufacturing and launch of communications satellites involve considerable risks, such as production delay, launch failure, disturbance and breakdown, inaccurate placement in orbit and unfavorable weather for launch. Should any delay occur in the course of manufacturing or launch of a satellite for any reason and in case the backup satellite cannot replace all the capacity of the aforementioned satellite, the Group’s operation would be largely and negatively affected in the form of loss of profit or loss of competitiveness and/or strategic advantage through the shift of existing and potential subscribers to competitors.
(3) Insurance covering communications satellitesThe Group purchases launch and in-orbit insurance covering almost all of its satellite manufacturing costs, re-launch costs and the cost of obtaining new insurance. However, not all costs that might result from satellite launch failures are covered by such insurance. Moreover, in-orbit insurance is not based on the satellite’s book value and does not cover the replacement cost. There is no guarantee that the Group can renew or purchase such insurance under the same conditions.
3. Risks regarding Multichannel Pay TV Platform Services
(1) Subscriber acquisition and maintenanceThe acquisition and maintenance of subscribers is a crucial factor for the profit growth of the Group. Should a decrease in subscriber numbers occur despite marketing activities such as investing in advertising and promotions and content development and due to an increase of churn, our business results might be affected.
(2) Broadcaster-related concernsThe services of the Group are distributed by broadcasters. In cases where the broadcasters stop services or debase the quality of programs due to financial trouble or other reasons, the business results of the Group might be affected. Moreover, the broadcasters hold rights to determine subscription fees, and in cases where subscriber numbers do not increase in response to lower prices, our revenues might decrease and our business results might be affected.
(3) Security of IC cards and other security concernsIn cases when the security of IC cards is breached and the inability to prevent the viewing of charges and account information occurs, our business results might be affected. This risk might also affect the copyright issue of broadcasters.
37Full-Scale Rollout Annual Report 2010
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SKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesSKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesMarch 31, 2009 and 2010March 31, 2009 and 2010
2009 2010
Millions of yen Millions of yenThousands of
U.S. dollars (Note 1)
ASSETS
Current Assets:
Cash and cash equivalents Cash and cash equivalents (Note 11)(Note 11) ¥ 40,420 ¥ 66,727 $ 717,190
Short-term investmentsShort-term investments (Notes 3 and 11) (Notes 3 and 11) 1,500 4,499 48,360
Receivables Receivables (Note 11)(Note 11)::
TradeTrade 17,234 18,353 197,263
Affiliated companiesAffiliated companies 396 309 3,319
OtherOther 4,695 4,746 51,007
Allowance for doubtful receivablesAllowance for doubtful receivables (491) (572) (6,143)
Inventories:Inventories:
Broadcasting rightsBroadcasting rights 4,049 3,553 38,183
OtherOther 683 881 9,464
Deferred tax assets Deferred tax assets (Note 8)(Note 8) 5,313 1,680 18,061
Short-term loans Short-term loans (Note 11)(Note 11) 2,222 2,248 24,164
OtherOther 3,524 5,776 62,068
Total current assetsTotal current assets 79,545 108,200 1,162,936
Property and Equipment:
Buildings and structuresBuildings and structures 24,731 21,023 225,957
Machinery, equipment and vehiclesMachinery, equipment and vehicles 47,211 56,074 602,682
Telecommunications satellitesTelecommunications satellites 211,799 221,625 2,382,045
Construction in progressConstruction in progress 32,299 12,429 133,587
OtherOther 10,414 11,244 120,847
TotalTotal 326,454 322,395 3,465,118
Accumulated depreciationAccumulated depreciation (162,169) (154,879) (1,664,645)
Net property and equipmentNet property and equipment 164,285 167,516 1,800,473
Investments and Other Assets:
SoftwareSoftware 6,551 6,233 66,997
GoodwillGoodwill 12,051 10,691 114,907
Investment securities Investment securities (Notes 3 and 11)(Notes 3 and 11) 18,160 14,492 155,762
Investment in and advances to affiliated companies Investment in and advances to affiliated companies (Note 11)(Note 11) 18,466 15,699 168,738
Deferred tax assetsDeferred tax assets (Note 8) (Note 8) 6,957 9,370 100,711
OtherOther 3,982 3,094 33,250
Allowance for doubtful accountsAllowance for doubtful accounts (185) (131) (1,411)
Total investments and other assetsTotal investments and other assets 65,982 59,448 638,954
Total ¥309,812 ¥ 335,164 $ 3,602,363
CConsolidated onsolidated BBalance alance SSheetsheets
See notes to consolidated financial statements.See notes to consolidated financial statements.
3838
2009 2010
Millions of yen Millions of yenThousands of
U.S. dollars (Note 1)
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt (Notes 4 and 11) ¥ 13,589 ¥ 9,780 $ 105,114
Payables (Note 11):
Trade 12,352 14,838 159,476
Affiliated companies 92 45 481
Income taxes payable (Note 11) 506 446 4,796
Subscription fees received (Note 11) 13,242 13,141 141,240
Accrued bonus 457 423 4,548
Allowance for long-term sales commitments 359 359 3,860
Other 10,006 7,726 83,035
Total current liabilities 50,603 46,758 502,550
Long-Term Liabilities:
Long-term debt (Notes 4 and 11) 78,946 97,731 1,050,416
Liabilities for retirement benefits (Note 5) 2,742 2,901 31,184
Allowance for long-term sales commitments 359 — —
Deferred tax liabilities (Note 8) 502 551 5,922
Other 3,158 3,885 41,740
Total long-term liabilities 85,707 105,068 1,129,262
Commitments and Contingent Liabilities (Notes 9 and 12) :
Equity (Notes 6, 7 and 17) :Common stock Authorized, 14,500,000 shares; Issued, 3,446,037 shares in 2009 and 2010 10,000 10,000 107,481
Capital surplus 158,194 158,194 1,700,278
Stock acquisition rights 71 62 673
Retained earnings 7,140 17,324 186,203
Unrealized loss on available-for-sale securities (759) (474) (5,094)
Deferred gain (loss) on derivatives under hedge accounting (206) 33 358
Foreign currency translation adjustments (1,059) (936) (10,056)
Treasury stock—at cost, 80,518 shares in 2009 and 2010
(3,884) (3,884) (41,745)
Total 169,497 180,319 1,938,098
Minority interests 4,005 3,019 32,453
Total equity 173,502 183,338 1,970,551
Total ¥309,812 ¥335,164 $3,602,363
39Full-Scale Rollout Annual Report 2010
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SKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesSKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesFor the yFor the years ended March 31, 2009 and 2010ears ended March 31, 2009 and 2010
CConsolidated onsolidated SStatements of tatements of IIncomencome
2009 2010
Millions of yen Millions of yenThousands of
U.S. dollars (Note 1)
Revenues (Note 16)(Note 16) ¥145,412 ¥141,069 $1,516,214
Operating Expenses:
Cost of services Cost of services (Note 16)(Note 16) 87,181 86,151 925,956
Selling, general and administrative expenses Selling, general and administrative expenses (Notes 10 and 16)(Notes 10 and 16) 41,342 39,825 428,036
Operating Income (Note 16)(Note 16) 16,889 15,093 162,222
Other Income (Expenses):
Interest and dividend incomeInterest and dividend income 1,376 1,024 11,008
Interest expenseInterest expense (Note 4) (Note 4) (1,847) (1,607) (17,270)
Foreign currency transaction gain (loss)—netForeign currency transaction gain (loss)—net 20 (117) (1,252)
Equity in net losses of affiliated companiesEquity in net losses of affiliated companies (837) (1,072) (11,522)
Gain on sales of property and equipmentGain on sales of property and equipment 6 787 8,463
Gain on redemption of investment securitiesGain on redemption of investment securities — 700 7,524
Gain on sale of shares of a consolidated subsidiary Gain on sale of shares of a consolidated subsidiary (Note 14)(Note 14) — 3,207 34,470
Gain on sale of investment securities Gain on sale of investment securities (Note (Note 33)) 340 — —
Reversal of allowance for doubtful accountsReversal of allowance for doubtful accounts 728 9 97
Loss on disposals of property and equipmentLoss on disposals of property and equipment (333) (453) (4,871)
Write-down of investment securities Write-down of investment securities (Note 3)(Note 3) (10,275) (426) (4,579)
Other—netOther—net (1,629) (699) (7,517)
Other Income (Expenses)—NetOther Income (Expenses)—Net (12,451) 1,353 14,551
Income before Income Taxes and Minority Interests 4,438 16,446 176,773
Income Taxes Income Taxes (Note 8)(Note 8)::
CurrentCurrent 3,032 1,115 11,986
DeferredDeferred (1,309) 950 10,206
Total Income TaxesTotal Income Taxes 1,723 2,065 22,192
Minority Interests in Net Income (Loss) (1,332) 158 1,708
Net Income (Note 13)(Note 13) ¥ 4,047 ¥ 14,223 $ 152,873
2009 2010
Yen Yen U.S. dollars (Note 1)
Per Share of Common Stock (Notes 2.t and 13)(Notes 2.t and 13):
Net IncomeNet Income
BasicBasic ¥1,190.35 ¥4,226.16 $45.42
DilutedDiluted — — —
Cash dividends applicable to the year Cash dividends applicable to the year ¥1,200.00 ¥1,200.00 $12.89
See notes to consolidated financial statements.See notes to consolidated financial statements.
4040
CConsolidated onsolidated SStatements of tatements of CChanges in hanges in EEquityquity
Millions of yen
Outstanding number of shares of
common stock
Common stock Capital surplusStock
acquisition rights
Retained earnings
Unrealized gain (loss) on
available-for-sale securities
Deferred gain (loss) on
derivatives under hedge accounting
Foreign currency
translation adjustments
Treasury stock Total Minority
interests Total equity
Balance at March 31, 2008Balance at March 31, 2008 3,421,243 ¥10,000 ¥175,577 ¥66 ¥ 8,237 ¥(3,129) ¥(1,176) ¥ 40 ¥(19,166) ¥170,449 ¥ 6,051 ¥176,500
Net incomeNet income 4,047 4,047 4,047
Cash dividendsCash dividends (5,471) (5,471) (5,471)
Purchase of treasury Purchase of treasury stockstock
(55,727) (2,101) (2,101) (2,101)
Disposal of treasury Disposal of treasury stockstock
3 0 0 0
Retirement of treasury Retirement of treasury stockstock
(17,383) 17,383 — —
Adjustment to retained Adjustment to retained earnings for change in earnings for change in the number of the number of consolidated consolidated subsidiariessubsidiaries
(2) (2) (2)
Adjustment to retained Adjustment to retained earnings for change in earnings for change in the number of equity the number of equity method affiliatesmethod affiliates
329 329 329
Net change in the yearNet change in the year 5 2,370 970 (1,099) 2,246 (2,046) 200
Balance at March 31, 2009 3,365,519 ¥10,000 ¥158,194 ¥71 ¥ 7,140 ¥ (759) ¥ (206) ¥(1,059) ¥ (3,884) ¥169,497 ¥ 4,005 ¥173,502
Net incomeNet income 14,223 14,223 14,223
Cash dividendsCash dividends (4,039) (4,039) (4,039)
Net change in the yearNet change in the year (9) 285 239 123 638 (986) (348)
Balance at March 31, 2010 3,365,519 ¥10,000 ¥158,194 ¥62 ¥17,324 ¥ (474) ¥ 33 ¥ (936) ¥ (3,884) ¥180,319 ¥ 3,019 ¥183,338
Thousands of U.S. dollars (Note 1)
Outstanding number of shares of
common stock
Common stock Capital surplusStock
acquisition rights
Retained earnings
Unrealized gain (loss) on
available-for-sale securities
Deferred gain (loss) on
derivatives under hedge accounting
Foreign currency
translation adjustments
Treasury stock Total Minority
interests Total equity
Balance at March 31, 2009 3,365,519 $107,481 $1,700,278 $765 $76,737 $(8,156) $(2,213) $(11,381) $(41,745) $1,821,766 $ 43,046 $1,864,812
Net incomeNet income 152,873 152,873 152,873
Cash dividendsCash dividends (43,407) (43,407) (43,407)
Net change in the yearNet change in the year (92) 3,062 2,571 1,325 6,866 (10,593) (3,727)
Balance at March 31, 2010 3,365,519 $107,481 $1,700,278 $673 $186,203 $(5,094) $ 358 $(10,056) $(41,745) $1,938,098 $ 32,453 $1,970,551
SKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesSKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesFor the years ended March 31, 2009 and 2010For the years ended March 31, 2009 and 2010
See notes to consolidated financial statements.See notes to consolidated financial statements.
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SKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesSKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesFor the years ended March 31, 2009 and 2010For the years ended March 31, 2009 and 2010
CConsolidated onsolidated SStatements of tatements of CCash ash FFlowslows
2009 2010
Millions of yen Millions of yenThousands of
U.S. dollars (Note 1)
Operating Activities:Income before income taxes and minority interestsIncome before income taxes and minority interests ¥ 4,438 ¥ 16,446 $ 176,773Adjustments for:Adjustments for:
Depreciation and amortizationDepreciation and amortization (Note 16) (Note 16) 22,037 23,807 255,882Amortization of goodwillAmortization of goodwill 1,247 1,203 12,926Interest and dividend incomeInterest and dividend income (1,376) (1,024) (11,008)Interest expenseInterest expense 1,847 1,607 17,270Equity in net losses of affiliated companiesEquity in net losses of affiliated companies 837 1,072 11,522Gain on sale of shares of a consolidated subsidiary Gain on sale of shares of a consolidated subsidiary (Note 14)(Note 14) — (3,207) (34,470)Loss (gain) on sales of investment securitiesLoss (gain) on sales of investment securities (340) 80 860Loss on disposals of property and equipmentLoss on disposals of property and equipment 321 453 4,871Write-down of investment securitiesWrite-down of investment securities 10,275 426 4,579Increase in receivables—trade and affiliated companiesIncrease in receivables—trade and affiliated companies (6,055) (1,377) (14,795)Decrease in broadcasting rightsDecrease in broadcasting rights 703 496 5,332Decrease in other receivablesDecrease in other receivables 281 257 2,758Increase (decrease) in payables—trade and affiliated companiesIncrease (decrease) in payables—trade and affiliated companies (1,617) 2,799 30,086Decrease in deferred revenuesDecrease in deferred revenues (443) (220) (2,363)Other—netOther—net 4,136 (1,500) (16,135)
SubtotalSubtotal 36,291 41,318 444,088Interest and dividends receivedInterest and dividends received 1,270 1,104 11,878Interest paidInterest paid (1,635) (1,732) (18,619)Income taxes paidIncome taxes paid (4,495) (1,350) (14,514)
Net cash provided by operating activitiesNet cash provided by operating activities 31,431 39,340 422,833Investing Activities:Payments for time depositsPayments for time deposits (310) (2,100) (22,571)Refunds of time depositsRefunds of time deposits 1,602 2,100 22,571Purchases of short-term investmentsPurchases of short-term investments — (2,496) (26,822)Proceeds from collection of short-term loansProceeds from collection of short-term loans 2,527 — —Purchases of property and equipmentPurchases of property and equipment (29,793) (28,890) (310,517)Proceeds from sales of property and equipmentProceeds from sales of property and equipment 72 475 5,102Purchases of intangible fixed assetsPurchases of intangible fixed assets (2,714) (2,032) (21,844)Proceeds from sales of intangible fixed assetsProceeds from sales of intangible fixed assets 11 — —Purchases of investment securitiesPurchases of investment securities (616) (47) (505)Proceeds from sales and redemption of investment securitiesProceeds from sales and redemption of investment securities 3,093 3,734 40,135Payments of long-term loansPayments of long-term loans (510) — —Proceeds from collection of long-term loansProceeds from collection of long-term loans 1,420 2,287 24,578Payments for additional acquisition of shares of subsidiariesPayments for additional acquisition of shares of subsidiaries (844) (294) (3,156)Payments for additional acquisition of shares of affiliatesPayments for additional acquisition of shares of affiliates (1,748) (1,203) (12,925)Proceeds from sale of shares of a consolidated subsidiaryProceeds from sale of shares of a consolidated subsidiary (Note 14) (Note 14) — 4,456 47,896Other—netOther—net 32 123 1,319 Net cash used in investing activitiesNet cash used in investing activities (27,778) (23,887) (256,739)Financing Activities:Payments of long-term payablesPayments of long-term payables (43) — —Repayments of finance lease obligationsRepayments of finance lease obligationsRepayments of finance lease obligationsRepayments of finance lease obligations — (332) (3,572)Proceeds from long-term debtProceeds from long-term debt 14,510 8,964 96,346Repayments of long-term debtRepayments of long-term debt (14,727) (13,653) (146,745)Proceeds from paid-in capital from minority shareholdersProceeds from paid-in capital from minority shareholders 77 — —Purchase of treasury stockPurchase of treasury stock (2,101) — —Proceeds from issuance of bondsProceeds from issuance of bonds — 19,911 214,000Dividends paidDividends paid (5,463) (4,035) (43,361)Dividends paid to minority shareholdersDividends paid to minority shareholders (19) (19) (203) Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities (7,766) 10,836 116,465Foreign currency translation adjustments on cash and cash equivalents (467) 18 198Net increase (decrease) in cash and cash equivalents (4,580) 26,307 282,757Cash and cash equivalents, beginning of year 45,000 40,420 434,433Cash and cash equivalents, end of year ¥ 40,420 ¥ 66,727 $ 717,190
See notes to consolidated financial statements.See notes to consolidated financial statements.
4242
The accompanying consolidated financial statements have The accompanying consolidated financial statements have
been prepared in accordance with the provisions set forth in been prepared in accordance with the provisions set forth in
the Japanese Financial Instruments and Exchange Act and its the Japanese Financial Instruments and Exchange Act and its
related accounting regulations and in conformity with accounting related accounting regulations and in conformity with accounting
principles generally accepted in Japan (“Japanese GAAP”), which principles generally accepted in Japan (“Japanese GAAP”), which
are different in certain respects as to application and disclosure are different in certain respects as to application and disclosure
requirements of accounting principles generally accepted in the requirements of accounting principles generally accepted in the
United States of America and International Financial Reporting United States of America and International Financial Reporting
Standards. Standards.
In preparing these consolidated financial statements, In preparing these consolidated financial statements,
certain reclassifications and rearrangements have been made to certain reclassifications and rearrangements have been made to
the consolidated financial statements issued domestically in order the consolidated financial statements issued domestically in order
to present them in a form that is more familiar to readers outside to present them in a form that is more familiar to readers outside
Japan. In addition, certain reclassifications have been made in Japan. In addition, certain reclassifications have been made in
the 2009 financial statements to conform to the classifications the 2009 financial statements to conform to the classifications
used in 2010.used in 2010.
The consolidated financial statements are stated in The consolidated financial statements are stated in
yen, the currency of the country in which SKY Perfect JSAT yen, the currency of the country in which SKY Perfect JSAT
Holdings Inc. (the “Company”) is incorporated and operates. The Holdings Inc. (the “Company”) is incorporated and operates. The
translations of yen amounts into U.S. dollar amounts are included translations of yen amounts into U.S. dollar amounts are included
solely for the convenience of readers outside Japan and have solely for the convenience of readers outside Japan and have
been made at the rate of ¥93.04 to $1, the approximate rate of been made at the rate of ¥93.04 to $1, the approximate rate of
exchange at March 31, 2010. Such translations should not be exchange at March 31, 2010. Such translations should not be
construed as representations that the yen amounts could be construed as representations that the yen amounts could be
converted into U.S. dollars at that or any other rate. converted into U.S. dollars at that or any other rate.
The consolidated financial statements as of March 31, 2010, The consolidated financial statements as of March 31, 2010,
include the accounts of the Company and its significant include the accounts of the Company and its significant
subsidiaries (together, the “Companies”). Consolidation of the subsidiaries (together, the “Companies”). Consolidation of the
remaining subsidiaries would not have a material effect on the remaining subsidiaries would not have a material effect on the
accompanying consolidated financial statements. accompanying consolidated financial statements.
The number of consolidated subsidiaries and affiliated The number of consolidated subsidiaries and affiliated
companies, in which investments are accounted for under the companies, in which investments are accounted for under the
equity method, at March 31, 2009 and 2010, are summarized equity method, at March 31, 2009 and 2010, are summarized
below. below.
over which the Companies have the ability to exercise significant over which the Companies have the ability to exercise significant
influence are accounted for by the equity method. Investments influence are accounted for by the equity method. Investments
in unconsolidated subsidiaries and associated companies are in unconsolidated subsidiaries and associated companies are
accounted for by the equity method. accounted for by the equity method.
Investment in the remaining associated company is Investment in the remaining associated company is
stated at cost. If the equity method of accounting had been stated at cost. If the equity method of accounting had been
applied to the investment in this company, the effect on the applied to the investment in this company, the effect on the
accompanying consolidated financial statements would not be accompanying consolidated financial statements would not be
material. material.
Goodwill, the excess of the cost of an acquisition over Goodwill, the excess of the cost of an acquisition over
the fair value of the net assets of the acquired subsidiaries and the fair value of the net assets of the acquired subsidiaries and
associated companies at the date of acquisition, is amortized associated companies at the date of acquisition, is amortized
on a straight-line basis over its estimated useful life. Goodwill on a straight-line basis over its estimated useful life. Goodwill
incurred from the acquisition of JSAT Corporation (JSAT) and incurred from the acquisition of JSAT Corporation (JSAT) and
Space Communications Corporation (SCC) is amortized over 15 Space Communications Corporation (SCC) is amortized over 15
years. years.
All significant intercompany balances and transactions All significant intercompany balances and transactions
have been eliminated in consolidation. All material unrealized have been eliminated in consolidation. All material unrealized
profit included in assets resulting from transactions within the profit included in assets resulting from transactions within the
Companies is eliminated. Companies is eliminated.
SKY Perfect JSAT Holdings Inc. and Consolidated SubsidiariesSKY Perfect JSAT Holdings Inc. and Consolidated Subsidiaries
NNotes to otes to CConsolidated onsolidated FFinancial inancial SStatementstatements
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation
2009 2010
Consolidated subsidiariesConsolidated subsidiaries 13 11
Affiliated companies:Affiliated companies:
Unconsolidated Unconsolidated subsidiariessubsidiaries 6 6
Associated companiesAssociated companies 9 8
Under the control or influence concept, those companies Under the control or influence concept, those companies
in which the Company, directly or indirectly, is able to exercise in which the Company, directly or indirectly, is able to exercise
control over operations are consolidated, and those companies control over operations are consolidated, and those companies
43Full-Scale Rollout Full-Scale Rollout Annual Report 2010 Annual Report 2010
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In May 2006, the Accounting Standards Board of Japan (the
“ASBJ”) issued ASBJ Practical Issues Task Force (PITF) No. 18,
“Practical Solution on Unification of Accounting Policies Applied
to Foreign Subsidiaries for the Consolidated Financial
Statements.” PITF No. 18 prescribes: (1) the accounting
policies and procedures applied to a parent company and
its subsidiaries for similar transactions and events under
similar circumstances should in principle be unified for the
preparation of the consolidated financial statements, (2) financial
statements prepared by foreign subsidiaries in accordance
with either International Financial Reporting Standards or the
generally accepted accounting principles in the United States of
America tentatively may be used for the consolidation process,
(3) however, the following items should be adjusted in the
consolidation process so that net income is accounted for in
accordance with Japanese GAAP unless they are not material:
1) amortization of goodwill; 2) scheduled amortization of actuarial
gain or loss of pensions that has been directly recorded in the
equity; 3) expensing capitalized development costs of R&D; 4)
cancellation of the fair value model accounting for property, plant
and equipment and investment properties and incorporation of
the cost model accounting; 5) recording the prior years’ effects
of changes in accounting policies in the income statement where
retrospective adjustments to financial statements have been
incorporated; and 6) exclusion of minority interests from net
income, if contained. PITF No. 18 was effective for fiscal years
beginning on or after April 1, 2008 with early adoption permitted.
The Company applied this accounting standard effective
April 1, 2008. There was no effect of this change on income and
loss.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements
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, commercial
paper, and mutual funds investing in bonds and commercial
paper that represent short-term investments, all of which mature
or become due within three months of the date of acquisition.
Inventories consist primarily of broadcasting rights. The Companies purchase rights relating to broadcasting of programs, which are
capitalized amortized based on the number of showings.
Securities are included in short-term investments and investment
securities in the consolidated balance sheets.
Securities are classified as trading securities, held-to-
maturity debt securities or available-for-sale securities depending
on management’s intent.
Held-to-maturity debt securities are stated at amortized
cost.
Marketable available-for-sale securities are stated at
fair value with unrealized gains and losses, net of applicable
taxes, reported in a separate component of equity. The cost
of securities sold is determined based on the moving-average
method.
Non-marketable available-for-sale securities are stated at
cost determined by the moving-average method. For other than
temporary declines in fair value, securities are reduced to net
realizable value by a charge to income.
c. Cash Equivalents
d. Inventories
e. Securities
The allowance for doubtful receivables is stated in amounts considered to be appropriate based on the Companies’ past credit loss
experience and evaluation of potential losses in the receivables outstanding.
f. Allowance for Doubtful Receivables
Property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful
lives of the assets. The estimated useful lives for property and
equipment are principally as follows:
g. Property and Equipment
Buildings and structures 2–50 years
Machinery, equipment and vehicles 2–15 years
Telecommunications satellites 11–15 years
Other 2–20 years
44
Software is stated at cost less accumulated amortization and is amortized on a straight-line method over the estimated useful lives (mainly
5 years).
Bond issue costs are charged to income as incurred.
The Companies review their long-lived assets 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.
h. Software
j. Bond Issue Costs
i. Impairment for Long-Lived Assets
At February 21, 2006, JSAT entered into an agreement with a
third party to sell its whole ownership interest in Japan Cable
Cast, Inc. (JCC). At March 27, 2006, JSAT also entered into an
agreement with JCC to sell its facilities relating to the JC-HITS
business on March 31, 2006. In connection with this assignment
of the JC-HITS business, JSAT is committed under a service
contract with JCC to provide the usage right of JSAT’s broadcast
and video distribution services over the next five years. Under the
service contract, JSAT will earn annual service fees during the
contract term. However, the Company expects the related costs
to exceed the service fees each year, and the allowance for long-
term sales commitments is established in an amount to provide
for such expected losses over the five years.
k. Allowance for Long-Term Sales Commitments
The subsidiaries of the Company have unfunded defined benefit
severance indemnity plans covering substantially all of their
employees other than directors, executive officers and corporate
auditors.
Certain subsidiaries of the Company also participate in
a contributory multi-employer pension plan covering all of their
employees. The costs of the multi-employer plan are accrued
based on the contribution amounts.
The Companies record the liabilities for retirement
benefits based on the projected retirement benefit obligation
required at the balance sheet date to provide for future
payments. Unrecognized actuarial differences are amortized on
a straight-line method over the average remaining service years
of the employees or a shorter period (10–19 years), starting
from the year following the year in which the differences occur.
Unrecognized prior service cost is amortized on a straight-
line method over the average remaining service years of the
employees (12, 17 years), starting from the year in which it
occurs.
The annual provision for retirement benefits for directors,
executive officers and corporate auditors is calculated to state
the liability at the amount that would be required if all directors
retired at each balance sheet date.
l. Retirement and Pension Plans
On December 27, 2005, the ASBJ issued ASBJ Statement
No. 8, “Accounting Standard for Stock Options,” and related
guidance. The new standard and guidance are applicable to
stock options newly granted on and after May 1, 2006. This
standard requires companies to recognize compensation
expense for employee stock options based on the fair value at
the date of grant and over the vesting period as consideration
for receiving goods or services. The standard also requires
companies to account for stock options granted to non-
employees based on the fair value of either the stock option or
the goods or services received. In the balance sheet, the stock
option is presented as a stock acquisition right as a separate
component of equity until exercised. The standard covers equity-
settled, share-based payment transactions, but does not cover
cash-settled, share-based payment transactions. In addition, the
standard allows unlisted companies to measure options at their
intrinsic value if they cannot reliably estimate fair value.
m. Stock Options
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Bonuses to directors and corporate auditors are accrued at the year-end to which such bonuses are attributable.
o. Bonuses to Directors and Corporate Auditors
The provision for income taxes is computed based on the pretax
income included in the consolidated statements of income. The
asset-and-liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Deferred taxes are measured by
applying currently enacted tax laws to the temporary differences.
The Companies file a tax return under the consolidated
corporate tax system, which allows companies to base tax
payments on the combined profits or losses of the parent
company and its wholly owned domestic subsidiaries.
p. Income Taxes
The balance sheet accounts of the consolidated foreign
subsidiaries are translated into yen at the current exchange rate
as of the balance sheet date except for equity, which is translated
at the historical rate. Differences arising from such translation
were shown as “Foreign currency translation adjustments” in a
separate component of equity. Revenue and expense accounts
of the consolidated foreign subsidiaries are translated into yen at
the average exchange rate.
r. Foreign Currency Financial Statements
All monetary receivables and payables denominated in foreign
currencies are translated into yen at the exchange rates at the
consolidated balance sheet date.
The foreign exchange gains and losses from transactions are
recognized in the consolidated statements of income to the
extent that they are not hedged by forward exchange contracts.
q. Foreign Currency Transactions
The Companies use derivative financial instruments to manage
their exposures to fluctuations in foreign exchange and interest
rates. Foreign exchange forward contracts and interest rate
swaps are utilized by the Companies to reduce foreign currency
exchange and interest rate risks. The Companies do not enter
into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency
transactions are classified and accounted for as follows:
a) all derivatives are recognized as either assets or liabilities
and measured at fair value, and gains or losses on derivative
transactions are recognized in the consolidated statements
of income and b) for derivatives used for hedging purposes,
if derivatives qualify for hedge accounting because of high
correlation and effectiveness between the hedging instruments
and the hedged items, gains or losses on derivatives are deferred
until maturity of the hedged transactions.
Certain liabilities hedged by foreign exchange forward
contracts are translated at the forward exchange contract rates.
The interest rate swaps that qualify for hedge accounting
and meet specific matching criteria are not remeasured at
market value, but the differential paid or received under the swap
agreements is recognized and included in interest expense or
income.
s. Derivative Financial Instruments
In March 2007, the ASBJ issued ASBJ Statement No. 13,
“Accounting Standard for Lease Transactions,” which revised
the previous accounting standard for lease transactions issued
in June 1993. The revised accounting standard for lease
transactions is effective for fiscal years beginning on or after April
1, 2008, with early adoption permitted for fiscal years beginning
on or after April 1, 2007.
Under the previous accounting standard, finance leases
that deem to transfer ownership of the leased property to the
lessee were to be capitalized. However, other finance leases were
permitted to be accounted for as operating lease transactions
if certain “as if capitalized” information is disclosed in the note
to the lessee’s financial statements. The revised accounting
standard requires that all finance lease transactions should be
capitalized to recognize lease assets and lease obligations in
the balance sheet. In addition, the accounting standard permits
leases that existed at the transition date and do not transfer
ownership of the leased property to the lessee to be accounted
for as operating lease transactions.
The Companies applied the revised accounting standard
effective April 1, 2008. In addition, the Companies accounted
for leases that existed at the transition date and do not transfer
ownership of the leased property to the lessee as operating lease
transactions. The effect of this change on income and loss was
not significant. All other leases are accounted for as operating
leases.
n. Leases
46
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.
Diluted net income per share reflects the potential dilution
that could occur if stock options were exercised.
Cash dividend per share presented in the accompanying
consolidated statements of income refers to the dividends
applicable to the respective years including dividends to be paid
after the end of the year.
t. Per Share Information
(1) Business Combinations
On December 26, 2008, the ASBJ issued a revised accounting
standard for business combinations, ASBJ Statement No. 21,
“Accounting Standard for Business Combinations.” The major
accounting changes under the revised accounting standard are
as follows:
(1) The current accounting standard for business combinations
allows companies to apply the pooling-of-interests method
of accounting when certain specific criteria are met such that
the business combination is essentially regarded as a uniting
of interests. The revised standard requires accounting for
such business combination by the purchase method, and
the pooling-of-interests method of accounting is no longer
allowed.
(2) The current accounting standard accounts for the research
and development costs to be charged to income as incurred.
Under the revised standard, an in-process research and
development (IPR&D) acquired by the business combination is
capitalized as an intangible asset.
(3) The current accounting standard accounts for a bargain
purchase gain (negative goodwill) to be systematically
amortized within 20 years. Under the revised standard, the
acquirer recognizes a bargain purchase gain in profit or loss
on the acquisition date after reassessing whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed with a review of such procedures used.
This standard is applicable to business combinations
undertaken on or after April 1, 2010, with early adoption
permitted for fiscal years beginning on or after April 1, 2009.
(2) Unification of Accounting Policies Applied to Foreign
Associated Companies for the Equity Method
The current accounting standard requires the unification of
accounting policies within the consolidation group. However,
the current guidance allows the application of the equity method
for the financial statements of the Group’s foreign associated
companies that have been prepared in accordance with generally
accepted accounting principles in their respective jurisdictions
without unification of accounting policies.
On December 26, 2008, the ASBJ issued ASBJ
Statement No. 16 (Revised 2008), “Revised Accounting
Standard for Equity Method of Accounting for Investments.”
The new standard requires adjustments to be made to conform
the associate’s accounting policies for similar transactions
and events under similar circumstances to those of the parent
company when the associate’s financial statements are used in
applying the equity method unless it is impractible to determine
adjustments. In addition, financial statements prepared by foreign
associated companies in accordance with either International
Financial Reporting Standards or the generally accepted
accounting principles in the United States tentatively may be
used in applying the equity method if the following items are
adjusted so that net income is accounted for in accordance with
Japanese GAAP unless they are not material: 1) amortization
of goodwill; 2) scheduled amortization of actuarial gain or loss
of pensions that has been directly recorded in the equity; 3)
expensing capitalized development costs of R&D; 4) cancellation
of the fair value model accounting for property, plant and
equipment and investment properties and incorporation of the
cost model accounting; 5) recording the prior years’ effects of
changes in accounting policies in the income statement where
retrospective adjustments to the financial statements have been
incorporated; and 6) exclusion of minority interests from net
income, if contained. This standard is applicable to the equity
method of accounting for investments effective on or after April 1,
2010, with early adoption permitted for fiscal years beginning on
or after April 1, 2009.
(3) Asset Retirement Obligations
On March 31, 2008, the ASBJ published a new accounting
standard for 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.” Under this accounting
standard, an asset retirement obligation is defined as a legal
obligation imposed either by law or contract that results from the
acquisition, construction, development and the normal operation
of a tangible fixed asset and is associated with the retirement of
such tangible fixed asset.
The asset retirement obligation is recognized as the
sum of the discounted cash flows required for the future asset
retirement and is recorded in the period in which the obligation
is incurred if a reasonable estimate can be made. If a reasonable
estimate of the asset retirement obligation cannot be made in
the period the asset retirement obligation is incurred, the liability
should be recognized when a reasonable estimate of the asset
retirement obligation can be made. Upon initial recognition of a
liability for an asset retirement obligation, an asset retirement cost
is capitalized by increasing the carrying amount of the related
fixed asset by the amount of the liability. The asset retirement
cost is subsequently allocated to expense through depreciation
over the remaining useful life of the asset. Over time, the liability
u. New Accounting Pronouncements
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Short-term investments and investment securities as of March 31, 2009 and 2010, consisted of the following:
3. SHORT-TERM INVESTMENTS AND INVESTMENT SECURITIES
Millions of yenThousands of U.S. dollars
2009 2010 2010
Short-term investments:
Debt securities ¥ 1,500 ¥ 2,502 $ 26,893
Other — 1,997 21,467
Total ¥ 1,500 ¥ 4,499 $ 48,360
Investment securities:
Equity securities ¥ 3,856 ¥ 3,345 $ 35,951
Debt securities 12,950 9,854 105,917
Other 1,354 1,293 13,894
Total ¥18,160 ¥14,492 $155,762
is accreted to its present value each period. Any subsequent
revisions to the timing or the amount of the original estimate
of undiscounted cash flows are reflected as an increase or a
decrease in the carrying amount of the liability and the capitalized
amount of the related asset retirement cost. This standard is
effective for fiscal years beginning on or after April 1, 2010, with
early adoption permitted for fiscal years beginning on or before
March 31, 2010.
(4) Accounting Changes and Error Corrections
In December 2009, the ASBJ issued ASBJ Statement No.
24, “Accounting Standard for Accounting Changes and
Error Corrections,” and ASBJ Guidance No. 24, “Guidance
on Accounting Standard for Accounting Changes and Error
Corrections.” Accounting treatments under this standard and
guidance are as follows:
(1) Changes in Accounting Policies
When a new accounting policy is applied with revision of
accounting standards, a new policy is applied retrospectively
unless revised accounting standards include specific
transitional provisions. When revised accounting standards
include specific transitional provisions, an entity shall comply
with the specific transitional provisions.
(2) Changes in Presentations
When the presentation of financial statements is changed,
prior period financial statements are reclassified in accordance
with the new presentation.
(3) Changes in Accounting Estimates
A change in an accounting estimate is accounted for in the
period of the change if the change affects that period only,
and is accounted for prospectively if the change affects both
the period of the change and future periods.
(4) Corrections of Prior Period Errors
When an error in prior period financial statements is
discovered, those statements are restated.
This accounting standard and the guidance are
applicable to accounting changes and corrections of prior
period errors which are made from the beginning of the fiscal
year that begins on or after April 1, 2011.
(5) Segment Information Disclosures
In March 2008, the ASBJ revised ASBJ Statement No. 17,
“Accounting Standard for Segment Information Disclosures,”
and issued ASBJ Guidance No. 20, “Guidance on Accounting
Standard for Segment Information Disclosures.” Under the
standard and guidance, an entity is required to report financial
and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations
of operating segments that meet specified criteria. Operating
segments are components of an entity about which separate
financial information is available and such information is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. Generally,
segment information is required to be reported on the same
basis as is used internally for evaluating operating segment
performance and deciding how to allocate resources to operating
segments. This accounting standard and the guidance are
applicable to segment information disclosures for the fiscal years
beginning on or after April 1, 2010.
48
The costs and aggregate fair values of certain short-term investments and investment securities at March 31, 2009 and 2010,
were as follows:
Millions of yen
2009
Cost Unrealized gain Unrealized loss Fair value
Securities classified as:
Available-for-sale
Equity securities ¥ 2,591 ¥34 ¥ 177 ¥2,448
Debt securities 10,788 — 1,338 9,450
Other 650 1 89 562
Held-to-maturity
Debt securities ¥ 5,000 ¥ 0 ¥ 447 ¥4,553
Millions of yen
2010
Cost Unrealized gain Unrealized loss Fair value
Securities classified as:
Available-for-sale
Equity securities ¥ 2,277 ¥176 ¥ 123 ¥2,330
Debt securities 10,187 447 1,778 8,856
Other 638 — 78 560
Held-to-maturity
Debt securities ¥ 5,498 ¥ 3 ¥ 189 ¥5,312
Thousands of U.S. dollars
2010
Cost Unrealized gain Unrealized loss Fair value
Securities classified as:
Available-for-sale
Equity securities $ 24,473 $1,889 $ 1,324 $25,038
Debt securities 109,492 4,801 19,106 95,187
Other 6,863 — 838 6,025
Held-to-maturity
Debt securities $ 59,091 $ 36 $ 2,027 $57,100
Available-for-sale securities and held-to-maturity debt securities for which the fair value was not readily determinable at March 31,
2010, were as follows:
Millions of yenThousands of U.S. dollars
2010 2010
Carrying amount Carrying amount
Equity securities ¥1,015 $10,914
Other 732 7,870
Total ¥1,747 $18,784
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Impairment loss of available-for-sale securities for the year ended March 31, 2010 was ¥426 million ($4,579 thousand).
The carrying values of debt securities and other investments by contractual maturities for securities classified as available-for-sale
and held-to-maturity at March 31, 2010, were as follows:
Millions of yenThousands of U.S. dollars
2010 2010
Due within one year or less ¥31,502 $338,583
Due after one year through five years 743 7,986
Due after five years through ten years 3,098 33,302
Due after ten years 6,286 67,558
Total ¥41,629 $447,429
Long-term debt at March 31, 2009 and 2010 was as follows:
Millions of yenThousands of U.S. dollars
2009 2010 2010
Long-term debt:
Unsecured 1.23% yen bonds, due 2014 ¥ — ¥ 20,000 $ 214,961
Government-owned banks, maturing serially through 2018, annual interest rates of 0%–1.95% at both March 31, 2009 and 2010
14,877 16,247 174,622
Adachi-ku, Tokyo, maturing serially through 2015, annual interest rate of 0% at both March 31, 2009 and 2010
375 — —
Banks and insurance companies, maturing serially through 2018, annual interest rates of 0.86%–3.49% at March 31, 2009 and 0.70%–2.70% at March 31, 2010
77,283 71,264 765,947
Total 92,535 107,511 1,155,530
Less current portion 13,589 9,780 105,114
Long-term debt, less current portion ¥78,946 ¥ 97,731 $1,050,416
4. LONG-TERM DEBT
Proceeds from sales of available-for-sale securities for the year ended March 31, 2009, were ¥625 million.
Gross realized gains and losses on these sales, computed on the moving-average cost basis, were ¥340 million and ¥228 million,
respectively.
The information of available-for-sale securities which were sold during the year ended March 31, 2010 was as follows:
Millions of yen
2010
Proceeds Realized gain
Realized loss
Available-for-sale: Equity securities ¥408 ¥56 ¥81
Thousands of U.S. dollars
2010
Proceeds Realized gain
Realized loss
Available-for-sale: Equity securities $4,384 $603 $867
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At March 31, 2010, certain domestic subsidiaries of the
Company had unused lines of credit that totaled ¥6,589 million
($70,819 thousand). Under these programs, the subsidiaries are
authorized to obtain short-term financing at prevailing interest
rates.
Certain agreements require the borrower, upon the
request of the lender, to reduce outstanding loans before
scheduled maturity dates when the lender concludes that the
borrower is able to reduce such loans as a result of increased
earnings or through the proceeds from the sales of common
stock or bonds and notes. During the year ended March 31,
2010, the subsidiaries did not receive any requests of the kind
described above, and there is no expectation that any such
requests will be made.
Millions of yenThousands of U.S. dollars
2010 2010
Year ending March 31:
2011 ¥ 9,780 $ 105,114
2012 22,990 247,100
2013 20,490 220,230
2014 16,990 182,612
2015 27,990 300,840
Thereafter 9,271 99,634
Total ¥107,511 $1,155,530
The annual maturities of long-term debt at March 31, 2010, were as follows:
The subsidiaries of the Company have unfunded defined benefit
severance indemnity plans under which substantially all of their
employees, other than directors, executive officers and corporate
auditors, are entitled, under most circumstances, to lump-sum
severance indemnities based on the level of compensation at
retirement or earlier termination of employment, the length of
service and other factors, upon mandatory retirement at normal
retirement age or earlier termination of employment.
Certain subsidiaries of the Company also participate in
a contributory multi-employer pension plan covering all of their
employees. The benefits for the multi-employer pension plan are
based on a standard remuneration schedule under the Welfare
Pension Insurance Law, the length of participation, and other
factors. However, assets contributed by an employer are not
segregated in a separate account or restricted to provide benefits
only to employees of that employer. Therefore, the contributions
to the multi-employer plan are recognized as paid and accounted
for as a component of net periodic retirement benefit costs.
5. EMPLOYEES’ BENEFIT PLANS AND DIRECTORS’ SEVERANCE INDEMNITIES
Millions of yenThousands of U.S. dollars
2009 2010 2010
Projected benefit obligation ¥2,427 ¥2,562 $27,536
Fair value of plan assets — — —
Unrecognized actuarial gain (loss) (25) 61 655
Unrecognized prior service cost 291 272 2,927
Net liabilities ¥2,693 ¥2,895 $31,118
The liability for employees’ retirement benefits at March 31, 2009 and 2010 consisted of the following:
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The components of net periodic retirement benefit costs for the years ended March 31, 2009 and 2010, were as follows:
Millions of yenThousands of U.S. dollars
2009 2010 2010
Service cost ¥ 593 ¥339 $3,641
Interest cost 38 43 460
Recognized actuarial loss 10 6 65
Amortization of prior service cost (17) (23) (245)
Contribution to multi-employer defined benefit plan 163 223 2,395
Effect of application of benchmark method for calculation of retirement benefit obligation (46) — —
Net periodic retirement benefit costs ¥741 ¥588 $6,316
Assumptions primarily used for the years ended March 31, 2009 and 2010, were as follows:
2009 2010
Discount rate 1.7%–1.9% 1.7%–2.0%
Recognition period of actuarial loss 10–19 years 10–19 years
Amortization period of prior service cost 12, 17 years 12, 17 years
The subsidiaries of the Company also have directors’
unfunded severance indemnity plans. Benefits under the
directors’ plans are based on the level of compensation at
retirement, length of service, and other factors. Liabilities for
severance payments under the directors’ plans at March 31,
2010, amounting to ¥6 million ($66 thousand), were stated on the
vested benefit obligation basis, which represents the amount that
would be required to be paid if all directors and executive officers
terminated their appointments as of the balance sheet date.
Since May 1, 2006, Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”). The significant
provisions in the Companies Act that affect financial and accounting matters are summarized below:
6. EQUITY
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. For companies that
meet certain criteria such as (1) having the Board of Directors, (2)
having independent auditors, (3) having the Board of Corporate
Auditors and (4) the term of service of the directors is prescribed
as one year rather than two years as a 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 all 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 million.
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 aggregate
amount of the 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 the legal reserve may be
reversed without limitation. The Companies Act also provides that
common stock, the 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.
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The Companies Act 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 Companies Act, stock acquisition rights,
which were previously presented as a liability, are now presented
as a separate component of equity.
c. Treasury Stock and Treasury Stock Acquisition Rights
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.
Because the Company was established as a joint holding company on April 2, 2007, that owns SKY Perfect and JSAT as wholly owned
subsidiaries through a stock transfer among the shareholders, the stock options granted by both companies were succeeded by the
Company.
The following is the detail of stock options of the Company granted in exchange for stock options of SKY Perfect and JSAT upon
the stock transfer.
7. STOCK OPTIONS
Stock option
Person grantedNumber of optionsgranted (shares)
Date of grant Exercise price Exercise period
2nd
1 director 6 employees 3 directors of subsidiaries 3 executive officers of subsidiaries 81 employees of subsidiaries 16 others
2,909 April 1, 2004 ¥152,000($1,633.71)
From April 2, 2007, toMarch 31, 2010
3rd 1 director 3 directors of subsidiaries 4 executive officers of subsidiaries 4 others
1,158 December 1, 2004 ¥126,105($1,355.38)
From April 2, 2007, toNovember 30, 2010
4th
2 directors 6 employees 3 directors of subsidiaries 5 executive officers of subsidiaries 75 employees of subsidiaries 15 others
2,522 August 1, 2005 ¥85,953($923.83)
From August 1, 2007, toJuly 31, 2011
5th 2 directors 4 directors of subsidiaries 6 executive officers of subsidiaries
1,180 October 1, 2006 ¥70,256($755.12)
From October 1, 2008, toSeptember 30, 2012
7th
2 directors 1 external director 5 employees 6 directors of subsidiaries 4 executive officers of subsidiaries 21 employees of subsidiaries 8 others
3,460 August 13, 2004 ¥85,038($913.99)
From April 2, 2007, toJune 30, 2009
8th 1 director 1 external director 3 directors of subsidiaries
1,200 January 9, 2007 ¥77,150($829.21)
From December 22,2008, to June 30, 2011
9th
1 director 18 employees 3 directors of subsidiaries 5 executive officers of subsidiaries 224 employees of subsidiaries 3 others
4,760 January 9, 2007 ¥77,150($829.21)
From December 22,2008, to June 30, 2011
The stock option activity is as follows:
For the year ended March 31, 2009
1st(shares)
2nd(shares)
3rd(shares)
4th(shares)
5th(shares)
6th(shares)
7th(shares)
8th(shares)
9th(shares)
Vested
March 31, 2008—outstanding 1,644 2,909 1,158 2,522 1,180 3,400 3,404 1,200 4,660
Vested — — — — — — — — —
Exercised — — — — — — — — —
Canceled 1,644 — — — — 3,400 — — 32
March 31, 2009—outstanding — 2,909 1,158 2,522 1,180 — 3,404 1,200 4,628
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The Companies are subject to a number of different income taxes which, in the aggregate, indicate a normal effective statutory tax rate of
approximately 40.7% for the years ended March 31, 2009 and 2010, respectively.
The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets and liabilities at
March 31, 2009 and 2010, were as follows:
8. INCOME TAXES
Millions of yenThousands of U.S. dollars
2009 2010 2010
Deferred tax assets: Operating loss carryforwards ¥ 10,354 ¥ 2,843 $ 30,554 Depreciation 6,726 5,928 63,713 Write-down of investment securities 2,085 1,845 19,835 Deferred gain on derivatives under hedge accounting 612 429 4,608 Liabilities for retirement benefits 1,114 1,206 12,957 Accrued expenses 667 568 6,100 Tax-deductible goodwill 372 290 3,112 Unrealized losses on available-for-sale securities 638 593 6,372 Other 1,756 1,545 16,633 Less valuation allowance (11,743) (4,001) (43,005) Total 12,581 11,246 120,879Deferred tax liabilities: Depreciation in foreign subsidiaries (599) (573) (6,162) Other (214) (178) (1,911) Total (813) (751) (8,073) Net deferred tax assets ¥11,768 ¥10,495 $112,806
For the year ended March 31, 2010
2nd(shares)
3rd(shares)
4th(shares)
5th(shares)
7th(shares)
8th(shares)
9th(shares)
Vested
March 31, 2009—outstanding 2,909 1,158 2,522 1,180 3,404 1,200 4,628
Vested — — — — — — —
Exercised — — — — — — —
Canceled 2,909 — — — 3,404 — 32
March 31, 2010—outstanding — 1,158 2,522 1,180 — 1,200 4,596
Exercise price ¥152,000 ¥126,105 ¥85,953 ¥70,256 ¥85,038 ¥77,150 ¥77,150
$1,633.71 $1,355.38 $923.83 $755.12 $913.99 $829.21 $829.21
Average stock price atexercise — — — — — — —
Fair value price at grant date — — — — ¥8,172 ¥28,208 ¥28,208
$87.83 $303.18 $303.18
2009 2010
Normal effective statutory tax rate 40.7% 40.7% Expenses not deductible for taxation 3.9 0.9 Revenues not taxable (51.4) (12.6) Change in valuation allowance (38.8) (47.1) Loss carryforwards nullified due to consolidated corporate tax system — 13.8 Consolidation adjustment for dividend income 51.4 12.6 Equity in net losses of affiliated companies 7.7 2.7 Amortization of goodwill 11.4 3.0 Gain on sale of subsidiaries for tax purposes 10.7 — Other 3.2 (1.4)Actual effective tax rate 38.8% 12.6%
A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statements of income for the years ended March 31, 2009 and 2010 is as follows:
54
9. LEASES
a. Finance Lease
Millions of yen
2009 2010
Machinery and
equipment
Tools and equipment Software Total
Machinery and
equipment
Tools and equipment Software Total
Acquisition cost ¥3,100 ¥4,980 ¥76 ¥8,156 ¥2,877 ¥3,070 ¥53 ¥6,000
Accumulated depreciation 1,013 2,296 37 3,346 1,209 2,241 25 3,475
Net leased property ¥2,087 ¥2,684 ¥39 ¥4,810 ¥1,668 ¥ 829 ¥28 ¥2,525
Thousands of U.S. dollars
2010
Machinery and
equipment
Tools and equipment Software Total
Acquisition cost $30,926 $32,996 $570 $64,492
Accumulated depreciation 12,994 24,089 272 37,355
Net leased property $17,932 $ 8,907 $298 $27,137
Pro forma information of leased property whose lease
inception was before March 31, 2008
ASBJ Statement No. 13, “Accounting Standard for Lease
Transactions,” requires that all finance lease transactions should
be capitalized to recognize lease assets and lease obligations
in the balance sheet. However, ASBJ Statement No. 13 permits
leases without ownership transfer of the leased property to
the lessee whose lease inception was before March 31, 2008
to be accounted for as operating lease transactions if certain
“as if capitalized” information is disclosed in the note to the
financial statements. The Company applied ASBJ Statement
No. 13 effective April 1, 2008 and accounted for such leases as
operating lease transactions. Pro forma information of leased
property whose lease inception was before March 31, 2008 such
as acquisition cost, accumulated depreciation, accumulated
impairment loss, obligations under finance leases, depreciation
expense, interest expense and other information of finance leases
that do not transfer ownership of the leased property to the
lessee on an "as if capitalized" basis was as follows:
Obligations under finance leases:
Depreciation expense, interest expense and other information under finance leases:
Depreciation expense and interest expense, which are not reflected in the accompanying statements of income, are computed by
the straight-line method and the interest method, respectively.
Millions of yenThousands of U.S. dollars
2009 2010 2010
Due within one year ¥1,667 ¥ 989 $10,632
Due after one year 2,565 1,623 17,446
Total ¥4,232 ¥2,612 $28,078
Millions of yenThousands of U.S. dollars
2009 2010 2010
Depreciation expense ¥1,707 ¥1,398 $15,030
Interest expense 132 89 956
Total ¥1,839 ¥1,487 $15,986
Lease payments ¥1,847 ¥1,495 $16,067
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Millions of yenThousands of U.S. dollars
2009 2010 2010
Due within one year ¥ 2,238 ¥ 2,235 $ 24,027
Due after one year 14,602 12,518 134,548
Total ¥16,840 ¥14,753 $158,575
b. Operating Lease
The minimum rental commitments under noncancellable operating leases at March 31, 2009 and 2010, were as follows:
The major components of selling, general and administrative expenses for the years ended March 31, 2009 and 2010, were as follows:
10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Millions of yenThousands of U.S. dollars
2009 2010 2010
Salaries and wages ¥ 4,677 ¥ 4,663 $ 50,120
Provision for accrued bonuses 307 285 3,059
Provision for liabilities for retirement benefits 286 243 2,610
Advertising expenses 6,921 7,019 75,436
Sales promotion expenses 6,548 6,838 73,500
Sales incentives 5,586 4,333 46,575
Subcontracting fees 4,252 5,229 56,206
Provision for doubtful receivables 343 430 4,622
Research and development expenses 561 588 6,324
Other 11,861 10,197 109,584
Total ¥41,342 ¥39,825 $428,036
a. Policy for Financial Instruments
The Companies are financed by bank loans and issuance of
bonds. Temporary cash surpluses, if any, are invested in low-
risk financial assets. Derivatives are used, not for speculative
purposes, but to manage exposure to financial risks as described
in Note 12.
In March 2008, the ASBJ revised ASBJ Statement No. 10,
“Accounting Standard for Financial Instruments,” and issued
ASBJ Guidance No. 19, “Guidance on Accounting Standard for
Financial Instruments and Related Disclosures.” This accounting
standard and guidance are applicable to financial instruments
and related disclosures at the end of fiscal years ending on or
after March 31, 2010, with early adoption permitted from the
beginning of the fiscal years ending before March 31, 2010. The
Companies applied the revised accounting standard and new
guidance effective March 31, 2010.
11. FINANCIAL INSTRUMENTS
b. Nature, Extent of Risks Arising from Financial Instruments and Risk Management for Financial Instruments
Receivables such as trade notes and trade accounts are
exposed to customer credit risk. The Companies manage due
dates and balances by customers and periodically evaluate the
credit standing of major customers based on their credit control
rules.
Marketable and investment securities, mainly bond
securities invested for the purpose of temporary cash surplus and
equity instruments of customers and suppliers of the Company,
are exposed to the risk of market price fluctuations. The Board of
Directors of the Company is periodically provided a report on the
fair value and financial position of the issuing entities (customers
and suppliers).
Payment terms of payables, such as trade notes and
trade accounts, are less than one year.
56
c. Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted price
in active markets. If quoted price is not available, other rational
valuation techniques are used instead. The results of valuations
may differ based upon assumptions used because rational
valuation techniques include variable factors. The nominal
amounts disclosed in Note 12 do not reflect market risks
regarding derivative transactions.
(1) Cash and cash equivalents
The carrying values of cash and cash equivalents approximate
fair value because of their short maturities.
(2) Receivables
The carrying values of receivables which are collectible within
a short period approximate fair values. The fair values of
receivables with long-term collection periods are measured at the
amount to be received discounted at a rate considering period to
maturity and credit risk.
(3) Short-term investments and investment securities
The fair values of short-term investments and investment
securities are measured at the quoted market price of the
stock exchange for equity instruments, and at the quoted price
obtained from the financial institution for certain debt instruments.
The information of the fair value for short-term investments and
investment securities by classification is included in Note 3.
(4) Short-term loans and advances to affiliated companies
The carrying values of short-term loans and advances to affiliated
companies approximate fair values because the interest rates of
the loans are variable and reflect market interest rates for a short
period, unless the credit standings of borrowers vary greatly.
(5) Payables, income taxes payable, and subscription fees
received
The carrying values which will be settled within a short period
approximate fair values.
(6) Current portion of long-term debt and long-term loans
The carrying values of the current portion of long-term debt and
long-term loans with floating interest rates approximate fair values
because the interest rates of the debt are variable and reflect
market interest rates for a short period, and the credit standing of
the Company does not vary greatly.
The fair values of the current portion of long-term debt
and long-term loans with fixed interest rates are measured at
the present value of both interest and principal by each period
of the debt (if the Company has entered into interest rate swaps
with specific matching criteria, both interest and principal
are measured at present values considering the swap rates),
discounted at the Company’s assumed corporate borrowing rate.
(7) Bonds
The fair values of bonds are measured at the present value,
which is the amount of both interest and principal to be paid,
discounted at the rate considering the period to maturity and
credit risk.
(8) Derivatives
The information of the fair value for derivatives is included in
Note 12.
Bank loans and bonds are the financing related to
operation and capital expenditures. Although loans with floating
rates are exposed to risk of changes in interest rates, a portion
of long-term risks are hedged by using derivatives of interest-rate
swaps to fix payments of interest rates.
Although trade accounts and loans are exposed to the
risk of liquidity, the Companies manage by preparing monthly
statements of cash receipts and disbursements.
Derivatives include forward foreign currency contracts
and interest rate swaps, which are used to manage exposure to
market risks from changes in foreign currency exchange rates
regarding financing for purchase of broadcasting rights and
capital expenditures of telecommunications satellites, and from
changes in interest rates on loans. Please see Note 12 for more
detail about derivatives.
The Company executes and manages derivative
transactions in accordance with the internal policies that regulate
the authorization and guidelines follows. The Company enters
into derivative transactions only with financial institutions with high
credit standing to reduce credit risks.
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Fair value of financial instruments:
Millions of yen
2010Carrying amount
Fairvalue
Unrealizedgain/loss
Cash and cash equivalents ¥ 66,727 ¥ 66,727 ¥ —Short-term investments 4,499 4,499 —Receivables 23,408Allowance for doubtful receivables (572) Net 22,836 22,828 (8)Short-term loans 2,248 2,248 —Investment securities: Held-to-maturity securities 3,000 2,815 (185) Available-for-sale securities 9,744 9,744 —Investment in and advances to affiliated companies: Advances 8,993 8,993 —Total 118,043 117,850 (193)
Current portion of long-term debt 9,780 9,786 6Payables 14,882 14,882 —Income taxes payable 446 446 —Subscription fees received 13,141 13,141 —Long-term debt: Bonds 20,000 20,186 186 Long-term loans 77,731 77,930 199Total 135,980 136,371 391
Derivatives ¥ (761) ¥ (761) ¥ —
Thousands of U.S. dollars
2010Carrying amount
Fairvalue
Unrealizedgain/loss
Cash and cash equivalents $ 717,190 $ 717,190 $ —Short-term investments 48,360 48,360 —Receivables 251,590Allowance for doubtful receivables (6,143) Net 245,447 245,360 (87)Short-term loans 24,164 24,164 —Investment securities: Held-to-maturity securities 32,244 30,255 (1,989) Available-for-sale securities 104,734 104,734 —Investment in and advances to affiliated companies: Advances 96,655 96,655 —Total 1,268,794 1,266,718 (2,076)
Current portion of long-term debt 105,114 105,174 60Payables 159,956 159,956 —Income taxes payable 4,796 4,796 —Subscription fees received 141,240 141,240 —Long-term debt: Bonds 214,961 216,961 2,000 Long-term loans 835,455 837,597 2,142Total 1,461,522 1,465,724 4,202
Derivatives $ (8,179) $ (8,179) $ —
58
Financial instruments whose fair value cannot be reliably determined:
Maturity analysis for financial assets and securities with contractual maturities:
Millions of yenThousands of U.S. dollars
2010 2010
Non-listed investment in equity ¥7,722 $82,997
Investment in anonymous association 732 7,870
¥8,454 $90,867
Millions of yen
2010
Due in one year or less
Due after one year through
five years
Due after five years through
ten years
Due after ten years
Cash and cash equivalents ¥64,735 ¥ — ¥ — ¥ —
Short-term investments 4,502 — — —
Receivables 18,512 2,781 1,894 221
Short-term loans 2,248 — — —
Investment securities:
Held-to-maturity securities — — 3,000 —
Available-for-sale securities — 743 98 6,286
Investment in and advances to affiliated companies:
Advances — 8,993 — —
Total ¥89,997 ¥12,517 ¥4,992 ¥6,507
Thousands of U.S. dollars
2010
Due in one year or less
Due after one year through
five years
Due after five years through
ten years
Due after ten years
Cash and cash equivalents $695,771 $ — $ — $ —
Short-term investments 48,385 — — —
Receivables 198,970 29,891 20,354 2,375
Short-term loans 24,164 — — —
Investment securities:
Held-to-maturity securities — — 32,244 —
Available-for-sale securities — 7,986 1,058 67,558
Investment in and advances to affiliated companies:
Advances — 96,655 — —
Total $967,290 $134,532 $53,656 $69,933
Certain consolidated subsidiaries of the Company use derivative
financial instruments, which include foreign exchange forward
contracts and interest rate swap contracts. Foreign exchange
forward contracts are used for the purpose of reducing the risk
arising from changes in anticipated cash flows of forecasted
transactions associated with certain payments for overseas
broadcasting rights and telecommunications satellites. Interest
rate swap contracts are used to reduce the risk of increased
interest payment on borrowings and debt due to increases in
market rates.
Foreign exchange forward contracts and interest rate
swap contracts are subject to market risk.
12. DERIVATIVE INSTRUMENTS
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Derivative transactions to which hedge accounting is applied at March 31, 2010:
Millions of yen
2010
Contract amount
Contract amount due
after one yearFair value Unrealized
gain/loss
Foreign currency forward contracts
Buying U.S. dollars ¥ 477 ¥ 248 ¥ (21) ¥ (21)
Interest rate swap 16,000 14,000 (810) (810)
Millions of yen
2010
Hedged item Contract amount
Contract amount due
after one yearFair value
Foreign currency forward contracts
Buying U.S. dollars ¥ 3,978 ¥1,989 ¥(148)
Fair value and deferral Forecasted foreign currency transactions 17,318 2,588 217
Designation Forecasted foreign currency transactions 21,296 4,577 69
Interest rate swap Long-term debt ¥ 147 ¥ — *1
Thousands of U.S. dollars
2010
Contract amount
Contract amount due
after one yearFair value Unrealized
gain/loss
Foreign currency forward contracts
Buying U.S. dollars $ 5,131 $ 2,661 $ (221) $ (221)
Interest rate swap 171,969 150,473 (8,702) (8,702)
Millions of yen
2009Notionalamount
Fairvalue
Unrealizedloss
Foreign currency forward contracts:
Buying U.S. dollars ¥44 ¥41 ¥(3)
The notional amounts of derivatives that are shown in the above table do not represent the amounts exchanged by the parties
and do not measure the Company’s exposure to credit or market risks.
As noted in Note 11, the Companies applied ASBJ Statement No. 10 “Accounting Standard for Financial Instruments” and ASBJ
Guidance No. 19 “Guidance on Accounting Standard for Financial Instruments and Related Disclosures”. The accounting standard and
the guidance are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31,
2010; therefore, the required information is disclosed only for 2010.
Derivative transactions to which hedge accounting is not applied at March 31, 2010:
The Companies had the following derivative contracts that do not qualify for hedge accounting and were outstanding at March
31, 2009.
Because the counterparties to those derivatives are
limited to major international financial institutions, the Companies
do not anticipate any losses arising from credit risk.
Derivative transactions are executed and controlled
by the Finance and Accounting Division of those certain
subsidiaries in accordance with the internal policies that regulate
the authorization and guideline, and the transaction status and
performance are periodically reported to the Board of Directors of
those subsidiaries.
60
*1. The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements are recognized and included in interest expense or income. In addition, the fair value of such interest rate swaps in Note11 is included in that of hedged items (i.e, long-term debt).
Thousands of U.S. dollars
2010
Hedged item Contract amount
Contract amount due
after one yearFair value
Foreign currency forward contracts
Buying U.S. dollars $ 42,752 $21,376 $(1,587)
Fair value and deferral Forecasted foreign currency transactions 186,134 27,814 2,331
Designation Forecasted foreign currency transactions 228,886 49,190 744
Interest rate swap Long-term debt $ 1,576 $ — *1
Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2009 and 2010
was as follows:
The assets and liabilities of Cable Television Adachi Corporation, which was sold and excluded from consolidation during the year ended
March 31, 2010, was as follows:
Diluted net income per share is not disclosed because it is anti-dilutive.
13. NET INCOME PER SHARE
14. SUPPLEMENTAL CASH FLOW INFORMATION
Millions of yen Yen U.S. dollars
Net incomeWeighted averageshares
EPS
For the year ended March 31, 2010
Basic EPS
Net income available to common shareholders ¥14,223 3,365,519 ¥4,226 $45.42
Millions of yen Yen
Net incomeWeighted averageshares
EPS
For the year ended March 31, 2009
Basic EPS
Net income available to common shareholders ¥4,047 3,399,970 ¥1,190
Millions of yenThousands of U.S. dollars
2010 2010
Current assets ¥2,133 $22,924
Non-current assets 2,903 31,208
Current liabilities (878) (9,439)
Long-term liabilities (492) (5,290)
Minority interests (823) (8,846)
Gain on sale of shares of a consolidated subsidiary 3,207 34,470
Total ¥6,050 $65,027
Cash and cash equivalents 1,594 17,131
Proceeds from sale of shares of a consolidated subsidiary ¥4,456 $47,896
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The Companies operate in the following businesses:
Multichannel Pay TV Business—Multichannel pay TV broadcasting and related broadcasting business
Satellite Business—Various communications businesses utilizing communications satellites and construction, control and operation of
communications satellite infrastructure
Information about business segments of the Companies for the years ended March 31, 2009 and 2010 is as follows:
(1) Sales and Operating Income
16. SEGMENT INFORMATION
Millions of yen
2009Multichannel
Pay TVBusiness
Satellite Business
Eliminations/Corporate
Consolidated
Sales to customers ¥107,948 ¥ 37,464 ¥ — ¥145,412
Intersegment sales 323 1,331 (1,654) —
Total sales 108,271 38,795 (1,654) 145,412
Operating expenses 98,046 31,572 (1,095) 128,523
Operating income ¥ 10,225 ¥ 7,223 ¥ (559) ¥ 16,889
a. Business Segments
(2) Total Assets, Depreciation and Capital Expenditures
Millions of yen
2009Multichannel
Pay TVBusiness
Satellite Business
Eliminations/Corporate
Consolidated
Total assets ¥114,980 ¥127,930 ¥66,902 ¥309,812
Depreciation 10,707 11,072 258 22,037
Capital expenditures ¥ 22,968 ¥ 11,966 ¥ 286 ¥ 35,220
The balances due to or from the Companies with associated companies at March 31, 2009 and 2010 were as follows:
Millions of yenThousands of U.S. dollars
2009 2010 2010
Short-term loans ¥ 2,222 ¥2,248 $24,164
Long-term loans 11,111 8,993 96,655
Other current assets ¥ 158 ¥ 47 $ 502
Transactions of the Companies with associated companies for the years ended March 31, 2009 and 2010 were as follows:
15. RELATED PARTY DISCLOSURES
Millions of yenThousands of U.S. dollars
2009 2010 2010
Payment of loans ¥ 510 ¥ — $ —
Collection of loans 2,526 2,287 24,578
Interest income ¥ 667 ¥ 298 $ 3,201
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Millions of yen
2010Multichannel
Pay TV BusinessSatellite Business
Eliminations/Corporate
Consolidated
Sales to customers ¥108,423 ¥32,646 ¥ — ¥141,069
Intersegment sales 65 812 (877) —
Total sales 108,488 33,458 (877) 141,069
Operating expenses 99,473 26,938 (435) 125,976
Operating income ¥ 9,015 ¥ 6,520 ¥(442) ¥ 15,093
(1) Sales and Operating Income
(1) Sales and Operating Income
(2) Total Assets, Depreciation and Capital Expenditures
Thousands of U.S. dollars
2010Multichannel
Pay TV BusinessSatellite Business
Eliminations/Corporate
Consolidated
Sales to customers $1,165,340 $350,874 $ — $1,516,214
Intersegment sales 700 8,725 (9,425) —
Total sales 1,166,040 359,599 (9,425) 1,516,214
Operating expenses 1,069,140 289,535 (4,683) 1,353,992
Operating income $ 96,900 $ 70,064 $(4,742) $ 162,222
Millions of yen
2010Multichannel
Pay TV BusinessSatellite Business
Eliminations/Corporate
Consolidated
Total assets ¥124,005 ¥117,867 ¥93,292 ¥335,164
Depreciation 12,670 10,572 565 23,807
Capital expenditures ¥ 23,936 ¥ 5,580 ¥ 194 ¥ 29,710
Thousands of U.S. dollars
2010Multichannel
Pay TV BusinessSatellite Business
Eliminations/Corporate
Consolidated
Total assets $1,332,819 $1,266,845 $1,002,699 $3,602,363
Depreciation 136,179 113,625 6,078 255,882
Capital expenditures $ 257,260 $ 59,977 $ 2,080 $ 319,317
(2) Total Assets, Depreciation and Capital Expenditures
b. Geographical Segments
Under Japanese accounting regulations, the Companies are not required to disclose geographical segment information because sales
and total assets in Japan represented more than 90% of those of the Companies for the periods presented herein.
Under Japanese accounting regulations, the Companies are not required to disclose information on sales to foreign customers because
sales to foreign customers represented less than 10% of the Companies’ sales for the periods presented herein.
c. Sales to Foreign Customers
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The following appropriation of retained earnings at March 31, 2010, was approved at the Board of Directors’ meeting held on May 12,
2010:
a. Appropriations of Retained Earnings
17. SUBSEQUENT EVENTS
Millions of yenThousands of U.S. dollars
Year-end cash dividend, ¥600 ($6.45) per share ¥2,019 $21,704
b. Merger of Consolidated Subsidiary to be Wholly-Owned
Based on a decision at the Board of Directors’ meeting
held on February 9, 2010, SKY Perfect JSAT Corporation,
a wholly-owned subsidiary of the Company, acquired the
remaining 49% of shares outstanding of Data Network Center
Corporation, a 51% owned consolidated subsidiary of the
Company, from NIPPON TELEGRAPH AND TELEPHONE EAST
CORPORATION, NTT DoCoMo, Inc., NTT DATA Corporation,
and NTT Communications Corporation on the effective date of
April 1, 2010. Subsequent to the completion of this transaction,
Data Network Center Corporation has become a wholly-owned
subsidiary of SKY Perfect JSAT Corporation.
(1) Purpose of acquisition of the shares
To enhance the information provided to meet the needs of
existing customers and to gain new subscriptions by promoting
the Company's Multichannel Pay TV services.
(2) Name, business and scale of the company acquired
Name: Data Network Center Corporation
CEO: Toshiyuki Ishikawa
Head office: 3-6, Maruyama-cho, Shibuya-ku, Tokyo
Establishment: December 22, 1999
Business description: Customer management services for
Multichannel Pay TV services
Capital: ¥100 million
Number of shares issued: 120,000 shares
(3) Number of shares acquired, acquisition cost and ratio of
ownership after acquisition
Number of shares acquired: 58,800 shares
Acquisition cost: ¥2,940 million
Ratio of ownership after acquisition: 100%
(4) Funding method
Own funds
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65Full-Scale Rollout Full-Scale Rollout Annual Report 2010 Annual Report 2010
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CCorporate orporate DData and ata and IInvestor nvestor IInformationnformation
(As of June 25, 2010)(As of June 25, 2010)
Corporate Name: SKY Perfect JSAT Holdings Inc. SKY Perfect JSAT Holdings Inc.
Headquarters: 14-14, Akasaka 1-chome, Minato-ku, Tokyo 107-0052, Japan 14-14, Akasaka 1-chome, Minato-ku, Tokyo 107-0052, Japan
Telephone: +81-3-5571-1500+81-3-5571-1500
URL: www.skyperfectjsat.co.jp/www.skyperfectjsat.co.jp/
Established: April 2, 2007 April 2, 2007
Number of Employees (consolidated): 829 (374*) 829 (374*) *Average number of part-time employees in fiscal 2009*Average number of part-time employees in fiscal 2009
Capital: ¥10 billion¥10 billion
Stock Listing: First Section, Tokyo Stock Exchange (Code 9412)First Section, Tokyo Stock Exchange (Code 9412)
Number of Shares Issued: 3,446,037 (As of March 31, 2010) 3,446,037 (As of March 31, 2010)
Total Number of Shareholders: 44,297 (As of March 31, 2010) 44,297 (As of March 31, 2010)
Fiscal Year-End: March 31March 31
Annual General Meeting of Shareholders: JuneJune
Payment of Dividends (dividend record date): March 31 (and September 30 for interim dividends)March 31 (and September 30 for interim dividends)
Transfer Agent of Common Stock: Mizuho Trust & Banking Co., Ltd.Mizuho Trust & Banking Co., Ltd.
Major Shareholders (As of March 31, 2010): Number of
shares held
Shareholding
ratio (%)
Mizuho Trust & Banking Co., Ltd. (Pension trust account for ITOCHU Corporation) Mizuho Trust & Banking Co., Ltd. (Pension trust account for ITOCHU Corporation) 346,572 10.3%
Fuji Media Holdings, Inc. Fuji Media Holdings, Inc. 283,058 8.4
Sony CorporationSony Corporation 283,058 8.4
NTT Communications Corporation NTT Communications Corporation 260,570 7.7
Sumitomo CorporationSumitomo Corporation 222,584 6.6
Nippon Television Network CorporationNippon Television Network Corporation 208,914 6.2
Tokyo Broadcasting System Holdings, Inc.Tokyo Broadcasting System Holdings, Inc. 184,340 5.5
ITOCHU CorporationITOCHU Corporation 136,058 4.0
Japan Trustee Services Bank, Ltd. (Pension trust account for Mitsui & Co., Ltd.)Japan Trustee Services Bank, Ltd. (Pension trust account for Mitsui & Co., Ltd.) 134,052 4.0
Japan Trustee Services Bank, Ltd. (Trust account)Japan Trustee Services Bank, Ltd. (Trust account) 108,894 3.2
Breakdown of Shareholders (As of March 31, 2010):
Breakdown by Breakdown by Number of ShareholdersNumber of ShareholdersBreakdown by Breakdown by Number of ShareholdersBreakdown by Breakdown by Number of
shareholders % of Total
Government and Government and Local Public AuthoritiesLocal Public Authorities 1 0.00%
Financial InstitutionsFinancial Institutions 43 0.09
Securities FirmsSecurities Firms 26 0.05
Other CorporationsOther Corporations 487 1.09
Foreign CorporationsForeign Corporations 285 0.64
Individuals and OthersIndividuals and Others 43,454 98.09
Breakdown by Breakdown by Number of ShareholdingsNumber of ShareholdingsBreakdown by Breakdown by Number of ShareholdingsBreakdown by Breakdown by Number of
shares held % of Total
Government and Government and Local Public AuthoritiesLocal Public Authorities 100 0.00%
Financial InstitutionsFinancial Institutions 907,653 26.33
Securities FirmsSecurities Firms 34,437 0.99
Other CorporationsOther Corporations 1,730,903 50.22
Foreign CorporationsForeign Corporations 323,245 9.38
Individuals and OthersIndividuals and Others 369,181 10.71
As of March 31, 2010, the Company owned 80,518 shares of treasury stock.As of March 31, 2010, the Company owned 80,518 shares of treasury stock.
As of March 31, 2010, the Company owned 80,518 shares of treasury stock.As of March 31, 2010, the Company owned 80,518 shares of treasury stock.
6666
Notes: 1. The above companies are consolidated subsidiaries of the Company. 2. The percentages of ownership include indirect investment.
Corporate Name: SKY Perfect JSAT CorporationCapital: ¥50,083 million
Ownership: 100.0%
Corporate Name: SKY Perfect Mobile Inc.Capital: ¥480 millionPrincipal Activities: Content distribution service for
mobile phones
Ownership: 100.0%
Corporate Name: JSAT International Inc.Capital: US$25 millionPrincipal Activities: U.S. subsidiary working with joint
venture partner, Intelsat, to market capacity on satellites in North America
Ownership: 100.0%
Principal Activities: Provision of satellite communications and multichannel pay TV services
Corporate Name: Data Network Center CorporationCapital: ¥100 millionPrincipal Activities: Involved in customer management for
multichannel broadcasting services, including interactive services
Ownership: 100.0%
Corporate Name: SKY Perfect Broadcasting CorporationCapital: ¥2,500 millionPrincipal Activities: A provider of Pay-Per-View and
SKY PerfecTV! HD servicesOwnership: 100.0%
Corporate Name: Satellite Network, Inc.Capital: ¥1,600 millionPrincipal Activities: A major Type II telecommunications
carrier and a systems integrator for satellite communications and broadcasting services
Ownership: 92.0%
Corporate Name: OptiCast Inc.Capital: ¥6,000 millionPrincipal Activities: Entity for content distribution
through optical fiber networks Ownership: 100.0%
Satellite Business
Multichannel Pay TV Business
SKY Perfect Broadcasting Corporation
SKY Perfect Entertainment Corporation
SKY Perfect JSAT Corporation
Satellite Network, Inc.
JSAT MOBILE Communications Inc.
JSAT International Inc.
Data Network Center Corporation
SKY Perfect Mobile Inc.
SKY Perfect JSAT Holdings Inc.
OptiCast Inc.
Corporate Name: JSAT MOBILE Communications Inc.Capital: ¥200 million
(Capital appropriation: ¥175 million)Principal Activities: A provider of mobile satellite
communications (Inmarsat) services.Ownership: 53.3%
Corporate Name: SKY Perfect Entertainment CorporationCapital: ¥10 millionPrincipal Activities: Licensed broadcaster providing
multichannel high-definition pay broadcasting services via CS-110 degree platform
Ownership: 100.0%
Forward-Looking StatementsStatements about the SKY Perfect JSAT Group’s forecasts, strategies, management policies and objectives contained in this report that are not based on historical facts constitute forward-looking statements. These statements are strictly based on management’s assumptions, plans, expectations and judgments in light of information currently available. These forward-looking statements, facts and assumptions are subject to a variety of risks and uncertainties. Therefore, actual results may differ materially from forecasts.
Our Business 1
2 4
8
To Our Shareholders and Investors 9
SKY Perfect JSAT Group Growth Strategy
15 Creating New Levels of Value That Envisage Future TV Lifestyles
Review of Operations 20
Management Structure 24
28
29
Financial Section 30
31 38
43
Independent Auditors' Report 65
Corporate Data and Investor Information 66
Group Companies 67
Annual Report 2010 For the year ended March 31, 2010SKY Perfect JSAT Holdings Inc.
As of June 30, 2010
Full-Scale Rollout Annual Report 2010
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Annual Report 2010
Quality for Value
SKY
Perfect JSA
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www.skyperfectjsat.co.jp
Printed in Japan
Full-Scale Rollout
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