ANNUAL REPORT

LETTER TO SHAREHOLDERS AND BUSINESS REVIEW
Niles successfully strengthens its capital structure
During the fiscal year ended March 31, 2009, Niles suffered from
the US auto market slowdown that gradually expanded to Asia,
forcing some of Niles’ main customers into reducing and even
temporarily halting production. In addition to the downturn in the
automotive industry, Niles saw demand for contact switches
decrease in a challenging global cellular handset market. Niles’
revenue for the fiscal year ended March 31, 2009, consequently
decreased by 23.4 %, from JPY 59,318 million during the
previous fiscal year, to JPY 45,444 million.
Especially in the US, the volume decline was so significant that
Niles’ US operations ran at negative gross profit margins,
bringing down the overall gross profit margin from 17.3% during
the fiscal year ended March 31, 2008 to 13.3% during the fiscal
year ended March 31, 2009. Niles designed and started the
implementation of a series of drastic short term restructuring
measures focused on mitigating the impact from the volume
shortfall on its financial performance. By the end of March 31,
2009, Niles had significantly reduced headcount, cut salaries
and bonuses, and limited capital expenditures. Notwithstanding
those cost saving measures, Niles reported an operating loss of
JPY 1,265 million for the fiscal year ended March 31, 2009,
compared to an operating profit of JPY 2,351 million a year
earlier. Consequently EBITDA for the fiscal year ended March
31, 2009, amounted to JPY 2,846 million, down from JPY 6,299
million a year earlier. In addition to the results reported in the
table above, the Company recorded an impairment charge of
JPY 9,770 million on goodwill recorded at the time of the initial
contribution of Niles to RHJI.
production levels that are not expected to significantly increase
during the next twelve months.
Despite the operational restructuring efforts, Niles faced a
liquidity shortfall and engaged in discussions with the Company,
its main customer and its lenders with a view to securing
sufficient liquidity and strengthening its financial position. On
May 20, 2009, Niles bolstered its capital structure through a
total capital injection of JPY 6 billion of which JPY 3.5 billion was
provided by the Company and JPY 2.5 billion by a third party,
which resulted in the Company's ownership being reduced from
96.4% to 77.3%. Part of the proceeds was used to repay JPY 2.5
billion of short-term debt that was previously secured by a cash
deposit from the Company. Furthermore, syndicate lenders
agreed on a refinancing of the existing debt structure with new
bullet loans maturing in June 2011.
Further to the short term restructuring measures, Niles decided
to (a) reduce its manufacturing footprint, mainly in the US, by
transferring production to Japan and Thailand, (b) further
reduce headcount and (c) scale down capital expenditure to
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