Stage Growth Profile Founded 1881 Kibataro Oki, Electric Ind
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Year ended March 2004
Stage Growth
Profile
Founded 1881 Kibataro Oki, Electric Industry Co., Ltd. Japan's first manufacturer telecommunications equipment. Driven progressive spirit, cultivated ability develop technology continued grow step with evolution information telecommunications technologies. Group strengths fields information systems, telecommunications electronic devices that apart from other manufacturers, recent years used those strengths supply unique products services. also actively working bring about convergence information technology telecommunications technology broadband Internet protocol (IP) networking environment. aims contribute realization "e-society staying true corporate vision "Oki, Network Solutions Global Society." Specifically, this vision entails individuals being able communicate "the desired information right format, wherever, whenever, with whomever, safely, reliably appropriate price."
Companies
Financial Institutions
Service Bridges
Families
sactio Tran
Individuals
Multimedi
Network Infrastructure
"e-Society"
defines "e-society" society where wide range information being exchanged beyond time space over global networks, which breaks down boundaries among countries, regions cultures, allowing individuals take part various social activities impartial, secure way.
Governments Distribution
Transportation Education Communities
e-society
Printing Solutions onen onsOptical Comp
Contents
Profile Financial Highlights Message from President Features Overview Operations Research Development Corporate Social Responsibilities Management Financial Section Six-Year Summary Financial Review Consolidated Balance Sheets Consolidated Statements Operations Consolidated Statements Shareholders' Equity Consolidated Statements Cash Flows Notes Consolidated Financial Statements Report Independent Auditors Products Head Office Other Related Offices Major Consolidated Subsidiaries Affiliates Investor Information
Financial Highlights
Electric Industry Co., Ltd. consolidated subsidiaries Years ended March
Billions 2004 2003
Percentage change 2004/2003
MIllions U.S.dollars 2004
Sales Operating Income Income (Loss) Total Assets Total Shareholders' Equity Common Stock
654.2 21.6 609.6 110.5 67.9
585.5 (6.6 622.9 101.3 67.9
11.7 (2.1)
Percentage change
6,230.6 205.8 12.7 5,079.7 920.8 566.5
U.S.dollars
Income (Loss) Share Number Employees
2.17 20,960
(10.72 22,520
(6.9)%
0.02
Note: U.S. dollar amounts this annual report translated from yen, convenience only, rate approximate exchange rate prevailing March 2004.
Sales
(Billions yen)
Operating Income (Loss)
(Billions yen)
Income (Loss)
(Billions yen)
740.3
28.3
669.8
604.6
654.2
585.5
13.8
21.6
(27.2)
(34.1)
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
(6.6)
2004
Disclaimer Regarding Forward-Looking Statements
plans, predictions, strategies beliefs this annual report, other than those historical fact, forward-looking statements about future performance Oki, which based management's beliefs light information currently available. Actual results differ materially from those anticipated these statements. Potential uncertainties include, limited economic conditions major markets, changes product demand currency exchange fluctuations.
Message from President With business structure that allows adapt quickly flexibly changes market environment, realizing vision "Oki, Network Solutions Global Society," through creation unique powerful technologies, products services
Consolidated Performance Year Ended March 2004
have implemented series structural reforms under Phoenix Plan, midterm business plan launched year ended March 2000, Phoenix Sky-High Plan, which covers period from year ended March 2003 2006. Through these reforms have been able significantly improve profit structure have achieved positive results enhancing operating foundations. consolidated results year ended March 2004 have moved into positive figures terms both operating income income. Consolidated sales amounted 654.2 billion yen, increase 11.7% over previous year's result. Consolidated operating income substantially above previous year's level 21.6 billion yen, consolidated income returned positive figures billion yen. These financial results attributed building flexible business structure capable adapting environmental change, focusing business areas which have unique abilities.
Building Flexible Adaptable Business Structure
business activities center areas information systems, telecommunications systems, electronic devices. These sectors experience extremely radical environment changes because factors including continuous innovation deregulation Japan overseas. maximize income this environment, needed build business structure capable adapting quickly flexibly rapid market change while supporting sustainable growth business areas which excel. From that point view, pursuing distinctive management style called Network-style Company Management. This style management aims concentrate resources some major subsidiaries growth fields organically link businesses within each field speed management process. This flexible management style involves "plugging-in" "unplugging" businesses match changes operating environment. present, have nine internal companies, which independent operations ranging from product development sales through finance. also have seven internal venture companies which specialize
development products solutions growth fields. This management style injected dynamism flexibility into corporate culture showing tangible results.
Focusing Management Resources Areas Advantage World Markets
survive against competition harsh business environment, must only adapt changes flexible manner, also create business activities which maintain advantage world markets. have sold withdrawn from business activities with profit levels. same time, have identified core business areas within information systems, telecommunications systems electronic device segments which take advantage unique technologies. Those areas include voice over (VoIP), computer telephony integration (CTI), security, video distribution, mechatronics, settlements system LSIs. Solutions financial institutions area activity information systems segment. this area, focuses solutions settlement well mechatronics, including automated teller machines (ATMs). example, working replace modify ATMs accommodate Japanese banknotes scheduled introduced fall 2004. priorities include Adevelopment rapidly growing Chinese market, expansion into market ATMs convenience stores Japan. also supply advanced solutions relating back office operation concentration systems, which have become increasingly important aspect efficiency improvement efforts financial institutions. addition, have been enjoying favorable sales reservation ticketing systems travel industry. have invested stable income from serial impact dot-matrix (SIDM) printers non-impact monochrome printers into color printer business. This reflected steady rise market share, especially Europe North America.
telecommunications systems segment, were first industry recognize amazing possibilities VoIP. Since then have been leading provider VoIP solutions. core this segment range highly competitive products, including VoIP gateways private branch exchanges (IP-PBX) systems corporate users, switching equipment carriers, systems call centers. These achievements allow lead industry introduction products designed connect core business applications with internal communication networks. involvement electronic devices segment changed with decision 1998 withdraw from advanced DRAM business. This decision prompted extreme volatility market prices, need massive sustained investment. Since then focused system LSIs, logic LSIs system memories personal mobile markets. This strategy allowed take full advantage technological strengths, including extremely power consumption, high speeds high voltage processes. result these strategies, have been able record favorable sales with range unique products. These include wireless LSIs radio-controlled watches with various wireless standards. There also VoIP LSIs, area which excels, personal handyphone system (PHS) base band LSIs, which there strong demand China. have also gained large share market sound generator LSIs mobile telephones. Other products include driver LSIs liquid crystal displays (LCDs), system memories, which established ultra-fast delivery capability. year ended March 2004, sales grew faster rate than semiconductor market. investing management resources technologies, products services that reflect Oki's strengths characteristics, have been able raise profile world markets. create network solutions that enable individuals communicate "the desired information right format, wherever, whenever, with whomever, safely, reliably appropriate price." policy will continue call clear definition originality strengths, dynamic development alliances with companies that possess advanced technologies global market shares.
Message from President
Targeting Further Growth
building next-generation businesses that will become core income sources each business segments. also established efficient production structure. believe that this brought important turning point structural reform program. have completed creation infrastructure income expansion, ready enter significant growth phase. Based strengths prospects future market growth, have identified three priority policies: convergence information telecommunications, development unique LSIs, expansion share color printer market. convergence information telecommunications business that provides solutions combining these technologies based know-how broadband believes that spread broadband access will take convergence information telecommunications beyond infrastructure development phase into when wide spectrum services used. Based this belief, integrated diverse powerful hardware software technologies combined them with various business applications establish, AP@PLAT concept that converges information telecommunications create value customers. raise level customer satisfaction providing integrated solutions various problems without need customers aware technical complexities involved. regards development unique LSIs, will actively utilize "fab-free" structure concentrate management resources into personal mobile markets where will able take full advantage unique technologies such areas compact designs, power consumption, high speeds, high voltage processes. will develop supply numerous products with potential gain large shares world markets. will further consolidate positive income structure that emerged from structural reform process. expansion share color printer market will achieved through product differentiation. will continue developing
range compact, high-speed printers with superior resolution based extensive knowledge light emitting diode (LED) technology. Over past year, have rapidly expanded share Europe North American markets, goal also increase sales Chinese market, which expected grow future. same time, will target further income growth through cost reductions made possible through development overseas production bases.
Enhanced Corporate Governance Harmonious Growth
sustained implementation these initiatives achievement continuing income growth will require further enhancement corporate governance. improvement management fairness transparency, clarification decision-making processes compliance with laws regulations all-important priorities with potential influence corporate value. That have introduced executive officer system external director system established various advisory committees. will continue strengthen management systems. ensure continuing growth business corporation, obviously need focused economic perspective, also need raise awareness corporate social responsibilities (CSR), including social environmental considerations. important that maintain dialog with stakeholders, including customers, shareholders, investors, suppliers, local communities employees, that deal good faith with such issues human rights, employment environment. will actively disclose information these areas work build mechanisms facilitate dialog with stakeholders. continued understanding support shareholders, customers friends.
Katsumasa Shinozuka, President Chief Executive Officer
Features
Major Growth Opportunities Networked Society
Three Core Business Areas Group
Developing Unique LSIs Convergence Information Telecommunications
Expanding Share Color Printer Market
2004
stage growth Creation unique products applications Convergence concentration resources
Information Systems
Expansion software services
Telecommunications Systems
Electronic Devices
Establishment alliances
Development Chinese market
1998
Establishment Phoenix plan
Under corporate vision "Oki, Network Solutions Global Society," implemented program structural reforms designed concentrate resources core areas which strengths terms market potential, technology, product values market share. same time, withdrawn from sold business operations that offer limited income potential. result, enhanced competitive position world markets number areas, including financial system solutions printers information systems segment, VoIP products telecommunications systems segment, system LSIs, logic LSIs system memories electronic device segment. These segments have grown into core business areas capable driving business performance. Focusing these areas particular, also actively building presence Chinese market, which starting expand rapidly. taken challenge market development China supplement production activities. structural reform process allowed Group identify strengths position them unifying force while actively building alliances with companies various countries, which have unique technologies. will leverage those strengths help maximize value customers providing total solutions encompassing only hardware, also software services. reached important turning point structural reform process. goal accelerate growth these three core business segments networked environment, which promises give individuals desired information right format, wherever, whenever, with whomever safely, reliably appropriate price.
Features
Convergence Information Telecommunications
Customers Users
Customer contact Operational system Partner contact
Partner companies
Voice data switching VoIP
AP@PLAT
Multi-service contact
IP-based integration information networks
Solution models
Ubiquitous network linkage Communication assist Mission-critical business linkage Business application servers
Clients
Telecommunication carriers/ISPs
carriers
Exchange servers
Carrier server
Application servers
Application development environment Process management functions
Application communication convergence function
This function enables multiple business applications work with communication functions process flows. Based service-oriented architecture, combines multiple services, including voice contacts, verification, reservations, purchasing settlements, create chain services specific purposes. This means that added-value services offered end-users. function consists external interface components enterprise resource planning (ERP), personnel information, customer databases, settlements verification, video distribution other applications.
Portal Customer information Personnel information
Enterprises
telephones telephones enterprises terminals cameras
contact center
interface Business interface
telephony server
CONVERGENCE Server SS9100
Java environment
Real-time collaboration function
This function provides basic means collaboration required internal corporate systems, including VoIP, conferencing, instant messaging, screen sharing application sharing. result will communication environment with rich sense presence reality, based only voice communications also data video. addition cost savings resulting from switch VoIP, there will also improvements precision speed business operations.
AP@PLAT: Creating value businesses integrating
Communication exchange function
This function converts media according means communication selects means communication according presence other party. ability select means communication automatically suit situation user will bring improvements both promptness communications efficiency operations.
Information telecommunication converged solutions crucial advancement networked society
line with corporate vision "Oki, Network Solutions Global Society," focused creation unique information systems, network equipment services. Particularly area integration voice data networks using VoIP technology, offers various one-stop solutions with extensive varied product range. example, 1999 became first Japanese manufacturer announce IP-PBX. established position itself leading supplier broadband products businesses. using this success stepping-stone expanded role encompassing only convergence voice data through networks, also convergence information technologies (IT) telecommunications (IP) provide customers with ways enhance their productivity operating efficiency. Many internal systems enterprises currently divided into customer contacts, which contact points with their customers, operational systems, including personnel, accounting order processing, partner contacts, which include information sharing with partner companies. There problems with this structure. example, while improve efficiency call center, there many cases which necessary obtain input data again because there linkage between call center operational systems. Moreover, when business applications used day-to-day basis, efficiency been limited need face-to-face telephone contacts between human beings various purposes, such detailed confirmation coordination. This situation establish AP@PLAT concept that only systemizes various types hardware, software, services, also integrates links information system applications. Under AP@PLAT, will generate customer value that goes beyond cost reductions productivity improvements supplying one-stop content service solutions that integrate voice, data video.
facilitate deployment AP@PLAT-based solutions according characteristics each customer's industry operations, developed range business solution models. This enables quickly supply applications optimized each client's business model with minimal customization, after undergoing detailed consultations with each client.
Examples AP@PLAT-based applications
Creating optimized travel plan
user inputs destination budget home public information terminal. system then produces optimized travel plan based preference family information previously registered. Other information taken into account includes past travel data inquiry information. user's request, system allows user view images travel destinations seek advice from contact center operator PCs, mobile telephones kiosk terminals. There also seamless automation processes, including reservations ticketing rail travel other means transport, accommodation reservations, settlements. result one-stop system through which users prepare travel plans that precisely match their preferences.
User
home
Creating travel plan
Telephone, Mobile phone
station, travel agency convenience store
Ticketing payment
Kiosk terminal
Travelling
Request travel plan Communication
other data Customer database
Operator
Travel information database
External sites
reservation site reservation site site
Server system that uses AP@PLAT
Travel agency Improving network security
This AP@PLAT-based system monitors network attacks viruses hackers prevents network failures. also possible specify persons contacted automatically user departments network administration departments unlikely event failure internal corporate network. Information about failures background information provided using optimal means communications, such telephone, videophone, instant messaging text, according whether recipient office, transit, working office. This solution supports efforts restore network security allowing optimal real-time communications among network administrators, managers user departments, maintenance personnel.
AP@PLAT solution concept made possible expertise from hardware software
AP@PLAT concept that made information telecommunication converged solutions possible. These solutions based Oki's wide-range powerful technologies areas such security, sound, wireless, mechatronics large-scale networking. Under AP@PLAT, these solutions integrate variety hardware software network, including terminal equipment, such telephones, softphones, ATMs ticketing machines, well servers video distribution, VoIP, CTI, services other uses, settlement services, then links them with various business applications. Multiple users able share variety information services whichever forms they require while carrying business operations real time. This possible thanks three functions. real-time collaboration function combines voice, data video information allow communications with rich sense presence reality. communication exchange function automatically selects means communication according whether user present absent from desk, conference talking telephone. application communication convergence function integrates workflows business applications with real-time communications using voice, video other information.
Coordination with business applications
corporate production management, there many operations which involve coordination among multiple departments, such quantity changes inventory allocations. such situations, becomes necessary move away from production management applications rely negotiations among human beings. incorporating AP@PLAT's real-time collaboration function into business application processes, becomes possible link product information order information with internal key-person information along with their presence information, support real-time communications with telephony, video conferencing screen sharing individual PCs. ability collaborate using voice video systems allows significant improvements efficiency that would possible simply through integration business applications.
Features
Developing Unique LSIs
Personal mobile markets
Mobile telephones Digital appliances Telecommunications network equipment Information appliances In-vehicle equipment
Customer value
PLAT
hardware/software integration platform system development
Leading industry, 1998 developed µPLAT hardware software integration platform based central processing unit (CPU) from Ltd. Since then helped manufacturers reduce system development times supplying industry's most advanced development platforms. µPLAT used system development wide range equipment, including automotive engine controllers, mobile telephones, peripherals, network equipment. Compact/high-voltage resistant, power consumption, high performance software services, high sound quality, short turn around times, large capacity/high-speed capacity, high quality
LSIs with extremely power consumption
world massproduction fully depleted silicon-oninsulator (SOI) LSIs with extremely power consumption. technology used radio signal receiver watches µPLAT products. 2002 established partnership with Peregrine Semiconductor Corp. United States, leader advanced silicon-on-sapphire (SOS) technology. This technology brings even greater reductions power consumption system LSIs used radio frequency (RF) switches, global positioning system (GPS) receivers, tuners other products.
VoIP LSIs drivers
base band LSIs Sound generator LSIs
Unique products
Wireless LSIs
P2ROMTMs
PLAT
advanced technologies
W-CSP
W-CSP
world's most compact packaging technology
Wafer-level chip size package (W-CSP) technology used package semiconductors wafer form. world's most compact packaging technology devices used mobile telephones, personal digital assistants (PDAs) other compact, highperformance mobile products. also developing packaging foundry service.
High-density packaging technology
Power consumption reduction technology
Core technologies
Process technology system technology
Partner fabricators
adopted "fab-free" approach business. line with this concept, signed comprehensive partnership agreement with United Microelectronics Corporation (UMC) Taiwan 2002. relationship includes contracting advanced fabrication processes 0.15µm level below. China, supplies technology Shanghai's Grace Semiconductor Manufacturing Corporation Ltd. (GSMC) actively building partnership meet demand expanding Chinese market.
Miyagi
Miyazaki Thailand house fabrication
GSMC Partners' facilities
Aiming niche leader personal mobile markets
Oki's strategy business become niche leader personal mobile markets focusing development unique products such system LSIs, logic LSIs system memories. LSIs used personal mobile equipment ranging from mobile telephones information appliances automobiles require specific characteristics, including ultra-small packaging, power consumption, high speeds, high voltage processes. also necessary maintain short lead times design, development supply original LSIs that match customers product development strategies. core expertise areas that include process technology, high-density packaging technology, reduction power consumption, intellectual property (IP), system technology. used that expertise develop many unique products that other manufacturers cannot match. company also strengthened customer support increasing number field application engineers throughout world, opening custom design centers. enhancing value customers providing total development design solutions encompassing both software hardware.
Unique products System LSIs
Wireless LSIs
Targeting demand growth personal area network market growing importance wireless communications symbolized spread tags wireless local area networks (LANs), emergence wireless standards, such Bluetoothand ZigBeeTM. using characteristics devices develop compact, high-speed, high-frequency wireless LSIs with minimal power consumption, focusing particular personal area network (PAN) market.
VoIP LSIs
Combining experience pioneer true expertise leading manufacturer VoIP gateway equipment, also applying expertise development VoIP LSIs. Evidence leadership this field includes almost share domestic market VoIP LSIs used asymmetric digital subscriber line (ADSL) modems.
base band LSIs
Leveraging best record Japan build presence China Oki's involvement development base band LSIs dates from introduction services Japan. leadership voice/data markets apparent from achievements that include development world's first capable data transmission 128k bits second (bps). used advanced telecommunication technology gain largest share Japanese market data cards. Since 2003 also been building total support network, covering software well hardware, rapidly expanding Chinese market.
"Fab-free" structure allows rapid flexible adaptation market changes
focusing development unique LSIs, improvement production efficiency overall earning power semiconductor business. this purpose, design development functions production functions have been split between in-house companies, "fab-free" structure been established partnering with world's leading fabricators. Under this structure, able choose between in-house fabrications partner fabricators, according specific requirements. Silicon Solutions Company (SiSC), which specializes design development LSIs, able draw upon limited Group's production facilities process technology develop highly original LSIs. SiSC chooses most suitable fabrications, depending delivery time, volume, process technologies expertise required. This approach SiSC's ability combine high product quality with short delivery lead times. Silicon Manufacturing Company (SiMC) maximizes production efficiency specializing fabrication products that match expertise, which includes technology ultra-small packaged, power-efficient LSIs with high voltage processes. addition providing production technology customers outside Group, SiMC developing foundry based business.
Logic LSIs
Sound generator LSIs
Securing largest share market LSIs used mobile phones through superior sound quality sound generator LSIs mobile phones increasing many regions, including Europe, North America, China South Korea. leadership market sound generator LSIs reflects development devices with superior sound quality other advantages. Innovations include digital pulse code modulation (PCM) technology create chips capable producing polyphonies tones, W-CSP technology, support standard MIDI files, which industry standard electronic musical instruments.
driver LSIs
leading vendor world's panel manufacturer market large thin-film transistor (TFT) panels used LCDs grown rapidly. vendor panel manufacturer with largest share world market. also aims target market driver LSIs large televisions.
System memories
P2ROMTMs
Creating customer value through extremely short turn around times Oki's production programmed ROMs (P2ROMTMs) produced with turn around times short from receipt data. These devices used extensively products which electronic dictionary that uses P2ROM development speed critical MultiMediaCard market competitiveness, including games, electronic dictionaries, PDAs other personal mobile equipment. already developing generation P2ROMs with increased data capacity.
Features
Expanding Share Color Printer Market
Asia Japan
270%
Europe
U.S.A
2001 2002 2003
Years ended March
2004
2005
Number color printers sold
Oki's original technology received acclaim over world
Color printers Compact, high-speed, high-resolution printers
need improve office efficiency reduce sales promotion costs distribution outlets growth demand color printers energizing market. 1998 developed world's fastest A4-size color printer. Since then continued create unique color printers characterized compact designs, high printing speeds superb resolution. These products sold over countries. Color printers developed Single Pass Color system. heart system four compact printing units with printer heads containing light-emitting diodes. This technology provides higher speeds resolutions than possible with inkjet laser technology. Additional advantages include compact designs reduced resource consumption thanks simplicity mechanism. Ever since developed first-generation head 1983, maintained unrivalled position leadership development innovative heads. Today supplies range products designed take full advantage technology. particular products based Oki's exclusive digital technology make possible combine power consumption with high printing speed high resolution.
Promoting global development, production sales strategies through aggressive investment
moving ahead with development, production sales strategies rooted global perspectives with making color printers core source income future. Oki's color printers embody unique expertise fields that include semiconductor technology, mechatronics, miniaturization power efficiency. already major share world market SIDM printers. Income from these products will invested development color printers create even more powerful product lineup. Further cost reductions will achieved through efficiency improvements production plants Shenzhen, China Ayutthaya, Thailand. rapidly increased markets share third place Europe fourth North America* through sales strategy based transactions with mass-sales retailers agencies. also working promote sales Japan China aims build world market share 2006.
*Based statistics 2003
Serial impact matrix (SIDM) printer
SIDM printers arrays dots transfer images paper. Because they produce carbon copies, they widely used government agencies, local governments, medical institutions, transport operators other organizations many countries print accounting documents receipts. Though market whole shrinking, there competitors niche market printers capable handling tasks that possible with non-impact printers. controls around North American market about world market, thanks strategy based development products that precisely match customer needs.
Single Pass Color (tandem) system
This color printing technology employs compact printing units containing vertical arrays LEDs representing four basic printing colors. difficult achieve high-speed printing with four-cycle color printing systems, which often used laser systems, they require separate rotation each four basic color units. Single Pass Color system, however, prints four colors simultaneously straight lines, resulting rapid, high-resolution printing. Moreover, because there limit length paper, possible produce extra-long materials variety purposes, such in-store point-of-purchase (POP) advertising.
Oki's color printer series
C5000 series
smallest lightest high-speed color page printer class affordable price (color printing speed: pages minute (ppm))
C7000 series
high-speed color page printer various environments (color printing speed: ppm)
C9000 series
Single Pass Color system
color page printer high-speed, high-resolution printing (color printing speed: ppm)
Four cycle color printing system
Overview Operations
Information Systems
Solutions Maximize User Convenience Business Efficiency
financial systems solutions area, government agencies financial institutions tended limit their investment information technology. However, recorded strong sales solutions support business efficiency service improvement financial institutions, including ATMs bank branch terminals. field information solutions, aggressively targeting overseas markets, with products based unique technical expertise. These include video surveillance, biometric, next-generation aeronautical communications.
Providing wide-ranging financial solutions
Banking branch system solutions include GS21, next-generation branch terminal which already been supplied numerous financial institutions. brought major improvements operating efficiency using application server handle GS21 administrative tasks that were previously processed hand. example, handwritten documents digitized using image processing technology. also developed CM21 unified CM21 cash management system, which linked host computers branch terminals. This system also being used many financial institutions. backyard solutions area, industry development integrated back office concentration center solution. This system allows multiple financial institutions improve their administrative efficiency sharing central operational concentration system. continues play active role provision information telecommunication converged solutions financial institutions. example, supplied large-scale call center system based server, CTstage .NET, large life insurance company.
Payment Service" which easily introduced e-commerce operators wishing transfer payments using their financial institutions' Internet banking services. month from start this service, being used more than e-commerce operators. December 2003, also started provide "e-Cre Payment Service," Internet credit payment service that supports latest identity verification services.
High-resolution live video distribution system with minimal delay
demand video distribution systems rapidly increasing along with spread broadband networks. developed VisualCast -SS, video surveillance system based Moving Picture Experts Group (MPEG-4) protocol that provide live video feeds from over locations. Market reaction been very positive, reflecting system's ability provide high-quality images from multiple locations with minimal delays. established sales partnership with China Electronic VisualCast®-SS Systems Engineering Corp. preparation expansion into Chinese market.
Advanced security systems with biometrics technology
active developer supplier security systems, product area that expected become increasingly important. year ended March 2004, commenced overseas sales iris recognition system. This system already been deployed part biometric verification program undertaken German Federal Ministry Interior currently e-check system used immigration control Frankfurt Airport. also participating, together with Nippon Airways Co., Ltd. DATA Corporation, field trial e-check system. trial currently progress Narita Airport part e-Airport concept promoted Ministry Land, Infrastructure Transport. combines ticketing technology with facial recognition technology also protects privacy passengers.
Using technology meet market needs
Abusiness, working steadily modify replace ATMs that they will able accommodate Japanese banknotes scheduled introduced fall 2004. also expanding sales ATMs convenience stores. supplier ATMs Japan, applied technical expertise development ATM21S rapidly expanding Chinese market. Despite slim profile, ATM21S industry leader terms bank note capacity. also features bank note recycling method which uses deposited notes cash withdrawals.
Expanded range high-security net-based payment solutions
field e-finance, expanded range highly secure net-based payment solutions. July 2003, introduced "e-Furi
Developing VoIP broadband
year March 2004, commenced sales Series adapters public telephony services session initiation protocol (SIP) compliant VoIP gateway, BV1270SIP. launched wide array other products readiness broadband era. These include Sound Phone," multipurpose telephone that enables rich communications with CONVERGENCE true immediacy providing dramatically Server SS9100 enhanced sound quality made possible voice frequency range more than double that conventional telephones. Another product broadband environment CenterStage server, application platform that links VoIP applications using SIP. also commenced sales CONVERGENCE Server SS9100, which contributes improved corporate management efficiency integrating large-scale IP-PBX mission-critical business applications Microsoft .NET environment.
application service provider-type contact centers. also commenced sales China, where rapid economic growth been paralleled growth demand CTI-based contact centers.
Sales video distribution equipment software
emergence broadband networks generated increased demand video distribution systems. MediaServer MediaServer uses MPEG-4 Advanced Simple Profile (ASP), compression technology optimized video distribution broadband environment. supports IPv6 developed response anticipated growth demand mixed IPv4/IPv6 networks. also launched StreamingPlayer, broadband-capable set-top box, which allows high-quality MPEG-4 video content played television. Oki's LiveOnAir software package supports live distribution highquality video. used universities other educational institutions simplified remote teaching lecturing tool.
Expanded education certification program support introduction telephony
Telephony Promotion Center (IPTPC which provides corporate users carriers with one-stop access services relating introduction telephony, expanded current range services with addition security full-time voice monitoring services. Building cooperative relationship with Corporation, also enhanced telephony education certification program expanded scope training.
Fastest gigabit Ethernet system launched
Fiber-to-the-home (FTTH) networks optical fiber provide reliable, high-speed, large-capacity communications. spread this technology crucial continuing expansion broadband services. focusing development optical access systems, which deployment FTTH networks. commenced sales MileStar BM1400 series telecommunications carriers. This gigabit Ethernet passive optical network (PON) system boasts Gbps capacity, making fastest industry.
MileStar BM1410
system launched China after delivery over 4,000 sets Japan
First launched 1996, CTstage system pioneering product introduced anticipation convergence information telecommunications. Over 4,000 sets have been delivered, product continues dominate Japanese contact center market. latest model, CTstage .NET, provides significantly expanded range contact center functions meet variety user needs, including connection with telephony service networks development
MileStar BM1430
CTstage® .NET
Telecommunications Systems
Solid Position VoIP Market
began supply products based VoIP technology year ended March 1997, significantly earlier than competitors. This pioneering role allowed establish solid position VoIP market with products that include Series VoIP gateways, IP-PBX systems, such IPstage EX100 DISCOVERY01 software switches, such CenterStage leads world volume software switches produced telecommunications carriers.
Overview Operations
Electronic Devices
Targeting Personal Mobile Markets
Oki's semiconductor business focused system LSIs, logic LSIs system memories personal mobile markets. dividing operations between in-house companies, specializing design development other production, created structure capable accelerating pace business supplying highadded-value products. year ended March 2004, major earthquakes struck Tohoku region Japan, where Oki's main semiconductor plant located, causing production suspended. Another adverse factor appreciation second half year. However, able overcome these negative conditions achieve substantial year-on-year growth both sales operating income.
Business performance boosted sales products Chinese market driver LSIs
product category this area sound generator LSIs mobile phones, sales which increased more than three-fold over previous year's level. This growth driven mainly driver sales Chinese market. Increased sales Chinese market also resulted almost three-fold yearon-year growth sales base band LSIs. driver LSIs were strong demand monitors. Sales driver LSIs large televisions also began contribute following their launch second half year, with result that sales almost doubled compared with previous year's level.
time code receiver radiocontrolled clocks. using complementary metal oxide semiconductor (CMOS) technology, able combine high sensitivity with power consumption. Sales these Long-wave time code products expected expand receiver year ending March 2005.
Start contract production GSMC
2002 established comprehensive partnership with Taiwanese company United Microelectronics Corporation (UMC), which already engaged contract production. Shanghai's Grace Semiconductor Manufacturing GSMC starts contract production Corporation Ltd. (GSMC), which supplies process technology, also commenced contract production. There also successful production start-up system LSIs based µPLAT core which from British company Ltd.
Enhancing potential sound generator LSIs, driver LSIs televisions other products
developed sound generator mobile phones that produce polyphonies. China, which Sound generator currently biggest market mobile phones, there increasing demand replacement telephones with enhanced features. Japan South Korea, increasing sophistication ringtone melodies generating demand products capable supporting more polyphonies. market large televisions also expected expand dramatically. commercialized high-performance driver large televisions commenced shipments major panel manufacturers. also used technology develop long-wave
Meeting demand large-capacity telecommunications metropolitan markets
market optical products stagnated after collapse telecommunications bubble. However, demand large-capacity telecommunications metropolitan markets increasing prevalence broadband technology. responded this trend toward larger capacities developing high-speed LSIs fiber modules optical communications. Particular emphasis placed commercialization laser modules positive-intrinsicnegative (PIN) photo diode modules Gbps Ethernet networks. also commercialized lithium niobate (LN) modulator driver designed meet need increased miniaturization reduced power consumption, well electro absorption (EA) modulator driver with world smallest package, measuring square.
Research Development
Promoting Strategic Research Development from Medium Long Term Perspective
Oki's research development activities guided Technology Strategy. This defines Group's medium-term longterm approach development technologies needed support creation "e-society" which people able enjoy enriched secure lives. selected specific priorities research development such sound technologies, wireless technologies, human interface technologies, broadband technologies. development sound technologies vital improvement sound quality telecommunications equipment, which field which important advantage. Wireless technologies essential types personal mobile equipment. Human interface technologies help create devices that will easier use. Broadband technologies provide basis convergence information telecommunications. also involved development network service technologies based integration application technologies these areas. Basic research responsibility Corporate Research Development Center, while product development commercialization handled development departments in-house companies each area. This division responsibilities basis highly efficient product development structure that ensures prompt response changing market needs.
Wideband voice transmission technology Sound Phone
Using wideband voice transmission technology, developed Sound Phone, which easily surpasses conventional fixed telephones terms sound quality. This dramatic improvement call sound quality allows information conveyed Sound Phone more accurately provides sense presence reality. Sound Phone attracted intense interest within industry product that extends potential telephone communications.
Future development efforts will focus variety security applications, including previously impossible task preventing information leaks from printed documents.
Realizing world's longest transmission with optical encoder/decoder fiber optic networks
developed newly designed optical encoder/decoder Optical Code Division Multiplexing (OCDM) transmission system. OCDM transmission systems transmit large volumes data, while guaranteeing bandwidth, allocating single wavelength signal multiple communication channels. Using this encoder/decoder, succeeded becoming first world transmit data rate Gbps over distance using OCDM over singlemode-fiber dispersion compensating fiber. plans introduce both this optical encoder/decoder optical transceiver/receiver equipped with this optical encoder/decoder.
Vehicle-to-vehicle video transmission
Oki, collaboration with National Institute Advanced Industrial Science Technology (AIST), Meijo University Kyoto University, developed world's first vehicle-to-vehicle video transmission system traffic information through intelligent transport system (ITS). system based dedicated short-range communications (DSRC) technology, which used communications between roadside wireless devices vehicles. High-resolution 310,000-pixel video images, which have significantly higher resolution than those used videophones, encoded using MPEG-4 standard transmitted Mbps provide smooth, consecutive transmission. plans miniaturize system improve user interface preparation commercial launch year ending March 2006.
Developing information telecommunication converged solutions
Systems, Inc. have jointly developed world's first software module based WebLogic Platformoperating system. This module supports convergence business processes communications providing simple adding communications functions, such telephony, video telephony instant messaging, Web-based business applications. plans combine core technologies, such VoIP, CTI, security networking, with WebLogic Platformto create integrated business solutions supply users industries ranging from banking securities telecommunications manufacturing.
Secure print technology printed documents
Oki's exclusive secure print technology imprints digital information into printed documents form special tint block. This system allows falsification documents identified detected with more than accuracy. also commenced sales software product that applies Secure print technology same technology automate data entry based handwritten questionnaire responses.
Corporate Social Responsibilities
Expanding Initiatives Across Group
transformation society economy globalization information technology been accompanied continuing diversification expectations concerns stakeholders, including consumers, shareholders, investors, suppliers, local communities employees. achieve sustainable growth, companies need fulfill their corporate social responsibilities (CSR) focusing only economic perspectives, such sales profits, also environmental social considerations, including product safety, environmental burdens, compliance, human rights employment. regards high management priority working even more actively than past implement variety group-level initiatives. example this stance universal design principles ensure that products services supplied used with safety confidence. Environmental protection consideration product development production. also expanded compliance activities employee training relation legal requirements, corporate ethics social norms, strengthened risk management compliance systems. Another priority creation maintenance good workplace environments. addition, there strong corporate support Group employees participate voluntarily community-based social contribution activities. approach also includes increased commitment public investor relations activities, ensure that respond good faith expectations concerns, that stakeholders fully informed about Oki's activities. will strive perfect internal systems order further accelerate promotion activities throughout entire Group. Furthermore, Group will continue work good faith corporate citizen enhance corporate value maintaining relationships based trust through active disclosure dialog with stakeholders.
Strengthening compliance systems
sees compliance comprehensive concept encompassing only legal compliance also observance corporate ethics social norms, good behavior employees, assure members society that good corporate citizen. 2002, adopted "Oki Code Conduct" which designed ensure that these perceptions would shared associated with Oki, both inside outside Group provide confidence assurance stakeholders. will place compliance foundation stone activities from year ending March 2005 onwards entire Group will make "Oki Code Conduct" core element employee training provide specialist training legal requirements other aspects relating specific areas. will also strengthen systems used monitor implementation these policies. Toward these ends, Chief Compliance Officer (CCO) will appointed oversee this plan. also formed Compliance Committee, which will deliberate Oki's group-wide basic policies relating compliance, well Compliance Business Ethics Division plan facilitate related measures.
Implementation Plan
Oki's efforts supply environment-friendly products begin development design stage with assessments environmental impact from development through disposal. This fundamental policy guides Oki's efforts ensure that business activities harmony with global environment. year ended March 2004, made steady progress under basic policy actively implementing various Environmental report activities geared towards environmental conservation, addition existing initiatives this area. environmental action plan, Plan (Sky-High 2003), provided framework these efforts. specific example this commitment Oki's decision make products manufactured Japan lead-free part efforts reduce chemical substances that impact environment. Leadfree solder plating higher melting temperature than normal solder plating. Furukawa Electric Co., Ltd. jointly developed heating method allow lead-free solder plating automatic soldering electronic components, which vulnerable heat. This method been applied Oki's electronics manufacturing services (EMS) business. further strengthened environment-friendly manufacturing technology introducing system lead-free soldering qualifications framework training skilled technical specialists. Resource recycling also priority. developed highly efficient waste treatment system based bacteria. This system dramatically reduced amount organic wastewater emitted during production processes. commercialization system been completed, plans promote safe, environment-friendly bio-recycling method. Reflow furnace lead-free soldering
International Social Contribution
America participates Family Giving Tree, that fulfills holiday wishes children would otherwise without gifts.
Active employment severely disabled workers
actively supported teleworking workers with severe disabilities since 1988. Networkers, team talented teleworking technicians, total members March 2004. They their excellent skills vast experience perform tasks ranging from design program development poster creation. They also participate consulting businesses such accessibility universal design, involved wide range activities. April 2004, established WorkWel Co., Ltd., special subsidiary whose mission promote increased employment opportunities people with disabilities. Networkers have been transferred WorkWel, company plans employ more disabled workers, including people with mental visual disabilities.
International Social Contribution
Social contribution
working with employees build better relationships with local communities through variety social contribution activities. philosophy this area seen slogan "Let's start doing what can." year ended March 2004, helped seventh class series courses absolute beginners. Members Networkers team acted teachers. With support staff volunteers, they helped participants become familiar with computing teaching them make Year cards. addition courses, team also advisory clinic which participants were able seek advice various aspects knowledge. Since year ended March 2002, supported National School Biotope* Competition. February 2004, Customer Adtech Co., Ltd. (OCA), which over offices throughout Japan, used offices provide live video coverage presentations using system video delivery over Internet. Children supporters were unable travel conference venue were able view presentations from their home locations. Many staff voluntarily assisted with live video coverage.
*School Biotope Programs: School activities centered around creating places local organisms wildlife live school grounds
Employees Data Americas were awarded volunteer activities performed United Way.
National School Biotope Competition
courses
Management
President Chief Executive Officer
Executive Vice President
Executive Vice President
Katsumasa Shinozuka
Katsuhiko Sano
Kazuo Tanaka
Senior Executive Officer Hideichi Kawasaki President, Network Systems Company Executive Officers Keiichi Fukumura General Manager, Accounting Control Division Kazushige Matsui President, System Solutions Company Chairman, Public Systems Company Hironori Kitabayashi President, Silicon Manufacturing Company Masayoshi Matsushita EVP**, System Solutions Company General Manager, Network Application Division Tatsuro Muraoka General Manager, Strategic Marketing Division Masataka Sase Takenaka General Manager, Human Resources Division Yutaka Asai President, Solutions Company Shigeru Yamamoto EVP**, Financial Solutions Company General Manager, Financial Solutions Division-2 Kiyoharu Miyatake General Manager, Corporate Planning Office Akira Kamo President, Silicon Solutions Company Masao Miyashita EVP**, Network Systems Company General Manager, Incumbent Carriers Business Division Standing Auditors Takahisa Inagawa Yoshiyuki Honjo Hiroyuki Katagiri Auditor Ieji Yoshioka
*Also acts Senior Executive Officer **EVP: Executive Vice President
Board Directors President Chief Executive Officer Katsumasa Shinozuka Executive Vice President Katsuhiko Sano Chairman, Silicon Solutions Company Chairman, Silicon Manufacturing Company Chairman, Optical Components Company Kazuo Tanaka* Chief Compliance Officer Senior Vice Presidents Yutaka Maeda* Chairman, Financial Solutions Company Chairman, Network Systems Company Chairman, Enterprise System Solutions Company General Manager, China Business Support Division Tadao Murase* Nobuhide Hara* Chief Information Officer Chairman, System Solutions Company Chairman, Solutions Company Takashi Hattori* President, Financial Solutions Company Chairman, NetBusiness Solutions Company Chairman, Broadband Media Company Naoki Sato* Harushige Sugimoto* Chief Technology Officer General Manager, Corporate Research Development Center Chairman President, Manufacturing Service Compamy Chairman, Multimedia Messaging Company Director Minoru Morio Advisor Sony Corporation
June 2004)
Financial Section
Contents
Six-Year Summary Financial Review Consolidated Balance Sheets Consolidated Statements Operations Consolidated Statements Shareholders' Equity Consolidated Statements Cash Flows Notes Consolidated Financial Statements Report Independent Auditors
Financial Section Six-Year Summary
Electric Industry Co., Ltd. consolidated subsidiaries Years ended March Thousands U.S. dollars
Millions
2004
year: sales Cost sales Gross profit Operating income (loss) Other (expenses) income, Income (loss) before income taxes, minority interests equity earnings (losses) affiliates income (loss) year-end: Total current assets Total investments long-term receivables Property, plant equipment, Other assets Total assets Total current liabilities Total long-term liabilities Total shareholders' equity Common stock 654,214 484,455 169,759 21,606 (19,410)
2003
2002
2001
2000
1999
2004
6,230,617 4,613,858 1,616,759 205,773 (184,864)
585,473 604,572 740,250 669,776 673,170 445,709 490,257 563,368 513,402 551,619 139,763 114,314 176,882 156,374 121,551 1,368 (27,247) 28,314 13,804 (38,297) (4,602) (29,643) (10,008) (7,288) (30,238)
2,195 1,328
(3,233) (6,560)
(56,890) (34,077)
18,306 8,944
6,515 1,146
(68,535) (47,421)
20,909 12,651
379,795 58,615 119,662 51,487 609,560 311,676 181,645 110,499 67,862
382,942 42,796 136,355 60,797 622,891 307,548 208,410 101,323 67,862
369,383 49,254 163,844 69,099 651,581 305,877 231,322 109,066 67,862
433,240 75,961 176,731 46,548 732,483 351,578 226,678 148,844 67,862
481,450 28,210 170,408 58,202 748,432 326,465 273,258 142,563 67,862
528,346 29,895 179,548 53,839 799,894 344,514 308,175 141,279 67,849
3,164,953 488,461 997,186 429,062 5,079,672 2,597,305 1,513,711 920,827 566,519
U.S. dollars
share amounts: income (loss) share Cash dividends share Number shareholders Number employees Ratios (%): Return equity Return assets Shareholders' equity
2.17 100,778 20,960
(10.72) (55.66) 14.61 5.00 115,215 107,165 97,726 22,520 23,597 25,626
1.87 100,723 25,444
(77.46) 104,414 23,425
0.02
1.3% 18.1
(6.2)% (1.0) 16.3
(26.4)% (4.9) 16.7
6.1% 20.3
0.8% 19.0
(28.0)% (5.8) 17.7
Note: U.S. dollar amounts this annual report translated from yen, convenience only, rate approximate exchange rate prevailing March 2004.
Financial Section
Financial Review
Electric Industry Co., Ltd. consolidated subsidiaries
Overview Year Ended March 2004
year ended March 2004 brought increased investment Asia, especially China. Within Japan, factors such recovery capital investment driven growth exports helped sustain gradual recovery trend market. particular, second half year, recovery stock market, increase business sector capital investment, strong demand digital home appliances lead rise expectations economic recovery. While there were some negative factors such rapidly rising falling dollar, failure number financial institutions, economy remained basically recovery track. faced some challenges business area, including investment cutbacks government sector among financial institutions. However, there were also encouraging signs. example, there increased demand Amodifications replacements ahead introduction banknotes fall 2004. Other positive factors included expansion market office color printers recovery semiconductor market. Operating Results this market environment, consolidated sales increased 11.7% billion. Consolidated operating income amounted billion, increase billion from previous year's result billion. There extraordinary income item billion resulting from return substitutional portions pension funds government, this offset earthquake-related disaster losses amounting billion, business restructuring losses billion resulting from business structural reforms. This left consolidated income billion, improvement billion from previous year's loss billion.
Segment Information
Information Systems Public investment Japan been restrained escalating competition deflationary environment continued keep selling prices low. However, there increased demand ATMs capable handling Japan's banknotes, demand color printers strong European North American markets. result, consolidated sales third parties increased 9.1% billion. Operating income improved from billion previous year billion. Contributing factors included substantial sales growth reduced procurement costs. Telecommunications Systems addition upward trend investment telecommunications equipment telephony broadband services telecommunications carriers, there were also signs partial recovery business sector investment telecommunications. Consequently, consolidated sales third parties increased 22.0% billion. Operating income improved billion, compared with previous year's operating loss billion, part because major fixed cost reduction resulting from business restructuring. Electronic Devices semiconductor market whole followed recovery trend. personal mobile markets, which areas strength Oki, there were robust trends sales various products, including sound generator LSIs mobile telephones, base band LSIs, driver LSIs large displays, LSIs vehicle-mounted equipment. Such performance partially offset, however, temporary shutdowns production lines Miyagi Electric Co., Ltd. separate earthquakes dramatic rise value against dollar. result, consolidated
Sales (Billions yen)
Operating Income (Loss) Operating Income Sales (Billions yen) 21.6 3.3%
Income (Loss) Return Equity (ROE) (Billions yen) 1.3% (6.2)% (6.6)
604.6 40.3 113.7 103.2
585.5 50.2 119.2
654.2 57.1 132.2 104.6 0.2%
85.7
(26.4)% 347.4 330.4 360.3 (4.5)% (27.2) 2002 2003 Operating Income (Loss) Operating Income Sales (34.1) 2004 2002 2003 2004
2002
2003
2004
Information Systems Telecommunications Systems Electronic Devices Other Operations
Income (Loss)
Financial Section
Financial Review
sales third parties only increased 10.8% billion. Despite improvement performance business, stagnating market optical components impacted operating income, which reached only billion, compared with billion operating loss previous year.
Financial Position
Assets, Liabilities Shareholders' Equity Total assets period under review were billion below previous year's level. Total shareholders' equity increased billion factors that included income results increase gains from revaluation securities. result, shareholders' equity ratio improved points 18.1%. main changes current assets were billion increase cash cash equivalents, declines billion notes accounts receivable billion inventories. Changes fixed assets included declines billion plant, property equipment billion long-term deferred assets, billion increase investment securities. Liabilities declined billion. This resulted primarily from billion reduction interest-bearing debt through redemption bonds other factors. Cash Flows From billion previous year, cash provided operating activities increased billion billion. Reasons increase include improvement before-tax income reduction working capital. cash used investing activities amounted billion, billion increase from figure previous year, when investing activities provided cash billion. figure
reflects reduced sales plant, property equipment. Free cash flows, which consist cash flows from operating investment activities, improved billion, from billion previous year billion. cash used financing activities amounted billion. This total includes billion used bond redemptions. These changes brought cash cash equivalents year billion. This represents billion increase over previous year's year-end balance billion. Acquisitions Property, Plant Equipment, Depreciation, Research Development Expenses Acquisitions property, plant equipment amounted billion, increase billion over previous year's total. These funds were applied development products, including information telecommunication converged products, printers LSIs. Depreciation reduced billion billion. This reflects shift leasing. Research development (R&D) expenses increased 5.9% billion, ratio expenses sales fell from 2.6% 2.5%. This change reflects improvements efficiency activities, increased emphasis product development through alliances.
Income (Loss) Share (Yen) 2.17
Total Assets, Total Shareholders' Equity Shareholders' Equity Ratio (Billions yen)
Interest-Bearing Debt (Billions yen)
651.6 (10.72)
622.9
609.6
355.8
355.4 291.4
16.7%
16.3%
18.1%
109.1 (55.66) 2002
101.3 2003
110.5
2003
2004
2002
2004
2002
2003
2004
Total Assets Total Shareholders' Equity Shareholders' Equity Ratio
Outlook Year Ending March 2005
While there concern about impact rising exports, signs that domestic economy bottomed reflected increasing expectations economic recovery Japan. anticipates challenges some business areas. Demand modification replacement ATMs capable handling Japan's banknotes will wind down first half year, while markets information systems telecommunications systems will affected escalating price competition. However, sales growth anticipated, especially areas printers semiconductors, because rapid shift color office printer market, expansion telephony market, continuing buoyancy semiconductor market. Income also expected increase combined effects sales growth benefits third phase business structural reforms implemented year ended March 2003. Taking above into account, forecasts performance year ending March 2005 follows. Performance Forecasts Year Ending March 2005 (Billions yen) Sales Consolidated Nonconsolidated 680.0 430.0 Operating Income 29.0 10.0 Income 10.0 outside auditors have also been appointed. These moves designed achieve further improvement management transparency corporate governance. also working maximize management efficiency through measures that include introduction executive officer system separate management executive functions. also strengthened compliance systems move prevent inappropriate acts. Specifically, Company adopted "Oki Code Conduct" part efforts raise awareness compliance among employees ensure strict adherence laws company rules. Disclosure also priority Oki. Management information promptly disclosed shareholders investors through management briefings meetings present annual accounts, also through sites other media. Policy Implementation Board Directors meets monthly basic policies, make important decisions, supervise executive actions management. Management Committee, which normally meets weekly basis, makes decisions important aspects operations Group receives reports important information concerning divisional operations. ensure compliance with laws regulations areas activity, Management Committee meetings attended CEO, senior executive officers auditors. Although outside director Board executive company with which maintains business relationship, there personnel funding relationship with that company. outside auditors former employees companies Group. Management Advisory Committee Compensation Committee normally meet quarterly basis.
Corporate Governance
Fundamental Policy established Management Advisory Committee Compensation Committee complement existing structure directors auditors. addition, outside director
Cash Flows (Billions yen) 92.3
Acquisitions Property, Plant Equipment, Depreciation (Billions yen)
Expenses Expenses Sales (Billions yen)
37.6 16.9 27.7 25.3 30.0 26.8
22.6
15.2 24.4
16.1
(25.8)
(20.1)
(19.2) 3.7% (43.6) 2.6% 2.5%
2002
2003
2004
2002
2003
2004
2002
2003
2004
Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities
Acquisitions Property Plant Equipment Depreciation
Expenses Expenses Sales
Financial Section
Consolidated Balance Sheets
Electric Industry Co., Ltd. consolidated subsidiaries March 2004 2003 Thousands U.S. dollars (Note
Millions
ASSETS
Current assets: Cash cash equivalents Time deposits Marketable securities (Note Notes accounts receivable: Unconsolidated subsidiaries affiliates Other Less: Allowance doubtful receivables Inventories (Note Other current assets (Note Total current assets
2004
58,075 14,158 154,489 (1,986) 138,977 15,331 379,795
2003
29,294 21,259 162,305 (2,289) 157,427 14,943 382,942
2004
553,101 6,956 134,841 1,471,325 (18,919) 1,323,595 146,010 3,617,100
Investments long-term receivables: Investments advances unconsolidated subsidiaries affiliates (Note Other investments securities (Note Other long-term receivables Less: Allowance doubtful receivables Total investments long-term receivables Property, plant equipment (Notes 10): Land Buildings Machinery equipment Construction progress Less: Accumulated depreciation Property, plant equipment, Other assets (Note Total assets
10,753 45,755 7,266 (5,159) 58,615
9,969 33,196 5,398 (5,767) 42,796
102,409 435,769 69,204 (49,142) 558,241
18,289 120,059 481,296 619,921 (500,259) 119,662 51,487 609,560
19,747 129,808 528,388 678,080 (541,724) 136,355 60,797 622,891
174,186 1,143,428 4,583,778 2,622 5,904,016 (4,764,374) 1,139,641 490,356 5,805,340
Millions
Thousands U.S. dollars (Note
LIABILITIES SHAREHOLDERS' EQUITY
Current liabilities: Short-term borrowings (Note Current portion long-term debt (Note Notes accounts payable: Unconsolidated subsidiaries affiliates Other Accrued income taxes Other accrued expenses Other current liabilities (Note Total current liabilities Long-term liabilities: Long-term debt (Note Retirement benefits (Note Other long-term liabilities Total long-term liabilities Minority interests consolidated subsidiaries Shareholders' equity (Note Common stock: Authorized-2,400,000,000 shares Issued-612,221,797 shares Additional paid-in capital Accumulated deficit unrealized holding gain other securities (Note 1(e)) Translation adjustments Less: Treasury common stock, cost-574,324 shares 2004 474,775 shares 2003 Total shareholders' equity Contingent liabilities (Note Total liabilities shareholders' equity
accompanying notes integral part these statements.
2004
86,658 58,103 6,742 98,015 1,820 42,375 17,960 311,676
2003
58,591 7,864 77,344 2,156 35,304 18,980 307,548
2004
825,317 553,364 64,183 933,511 17,339 403,578 171,054 2,968,349
146,655 33,402 1,586 181,645 5,739
169,561 31,409 7,439 208,410 5,608
1,396,720 318,121 15,114 1,729,956 54,660
67,862 71,150 (29,685) 10,932 (9,619) (141) 110,499 609,560
67,862 71,150 (31,004) 1,513 (8,098) (100) 101,323
646,308 677,627 (282,719) 104,123 (91,615) (1,350) 1,052,374 5,805,340
Financial Section
Consolidated Statements Operations
Electric Industry Co., Ltd. consolidated subsidiaries Years ended March 2004, 2003 2002 Thousands U.S. dollars (Note
Millions
2004
sales Cost sales Gross profit Selling, general administrative expenses Operating income (loss) Other income (expenses): Interest expense Interest dividend income Foreign exchange (loss) gain, Write-downs investments subsidiaries other investments securities (Loss) gain sale disposition property, plant equipment Gain return substitutional portion Welfare Pension Fund Plan (Note Loss earthquakes (Note Restructuring charges (Note Other, Income (loss) before income taxes, minority interests equity earnings (losses) affiliates Income taxes (Note Current Deferred Income (loss) before minority interests equity earnings (losses) affiliates Minority interests earnings consolidated subsidiaries Equity earnings (losses) affiliates income (loss) (Note
accompanying notes integral part these statements.
2003
445,709 139,763 138,395 1,368 (7,513) (1,886) (7,218) 18,610 (6,120) (1,447) (4,602) (3,233) 2,425 2,724 (5,958) (367) (234) (6,560)
2002
490,257 114,314 141,562 (27,247) (8,102) 1,259 2,205 (18,148) (1,999) (7,625) 2,767 (29,643) (56,890) 1,965 (25,179) (23,214) (33,676) (218) (182) (34,077)
2004
6,230,617 4,613,858 1,616,759 1,410,985 205,773 (71,090) 10,233 (19,423) (14,656) (44,099) 78,878 (31,848) (73,419) (19,438) (184,864) 20,909 24,338 (16,382) 7,956 12,952 (1,340) 1,038 12,651
654,214 484,455 169,759 148,153 21,606 (7,464) 1,074 (2,039) (1,538) (4,630) 8,282 (3,344) (7,709) (2,041) (19,410) 2,195 2,555 (1,720) 1,360 (140) 1,328
Financial Section
Consolidated Statements Shareholders' Equity
Electric Industry Co., Ltd. consolidated subsidiaries Years ended March 2004, 2003 2002 Thousands U.S. dollars (Note
Millions
2004
Common stock: Balance beginning year Balance year Additional paid-in capital: Balance beginning year Balance year (Accumulated deficit) retained earnings: Balance beginning year income (loss) Decrease beginning year initially consolidated subsidiaries Increase affiliate initially accounted equity method Cash dividends paid Balance year
accompanying notes integral part these statements.
2003
67,862 67,862 71,150 71,150 (25,180) (6,560) (31,004)
2002
67,862 67,862 71,150 71,150 12,231 (34,077) (274) (3,061) (25,180)
2004
646,308 646,308 677,627 677,627 (295,285) 12,651 (85) (282,719)
67,862 67,862 71,150 71,150 (31,004) 1,328 (29,685)
Financial Section
Consolidated Statements Cash Flows
Electric Industry Co., Ltd. consolidated subsidiaries Years ended March 2004, 2003 2002 Thousands U.S. dollars (Note
Millions
2004
Cash flows from operating activities: income (loss) Adjustments reconcile income (loss) cash provided operating activities: Depreciation amortization Provision retirement benefits, payments Write-downs investments subsidiaries other investments securities Write-downs inventories Gain sale disposition marketable securities, investments subsidiaries other investments securities Loss (gain) sale disposition property, plant equipment Deferred income taxes Other Changes operating assets liabilities: Notes accounts receivable Inventories Notes accounts payable Accrued income taxes Other accrued expenses Other assets liabilities cash provided operating activities Cash flows from investing activities: (Increase) decrease time deposits marketable securities (Increase) decrease investments other long-term receivables Purchases property, plant equipment Proceeds from sale property, plant equipment cash (used provided investing activities Cash flows from financing activities: (Decrease) increase short-term borrowings Issuance long-term debt Repayment long-term debt Other cash (used provided financing activities Effect exchange rate changes cash Increase (decrease) cash cash equivalents Cash cash equivalents beginning year Cash initially consolidated subsidiaries beginning year Cash cash equivalents year Supplemental disclosures cash flow information: Cash paid during year for: Interest Income taxes
accompanying notes integral part these statements.
2003
(6,560)
2002
2004
12,651
1,328
33,577 1,990 1,676 (1,597) 4,630 (1,720) 4,685 10,098 17,087 12,912 (303) 7,183 92,269
39,927 6,685 7,221 (1,489) (17,273) 7,657 (24,606) (10,431) 1,146 1,333 (4,157)
48,053 18,173 8,372 (12,078) 1,995 (25,179) (2,630) 44,811 8,696 (28,609) (1,440) (7,589) (1,775) 16,927
319,784 18,959 15,962 (15,218) 44,099 (16,382) 44,627 96,179 162,737 122,975 (2,886) 68,409 6,862 878,761
(19) (6,273) (24,026) 11,117 (19,202)
(7,676) (23,553) 35,497 4,317
2,710 3,712 (32,583) (25,848)
(190) (59,749) (228,824) 105,882 (182,881)
(12,355) 31,544 (58,552) (4,200) (43,564) (759) 28,743 29,294 58,075
31,719 (52,632) (130) (20,077) (717) (16,250) 45,445 29,294
(10,436) 53,864 (44,998) 1,890 (8,010) 52,885 45,445
(117,673) 300,421 (557,640) (40,007) (414,899) (7,230) 273,749 278,993 553,101
7,509 2,858
7,669 1,092
8,254 3,406
71,515 27,225
Financial Section
Notes Consolidated Financial Statements
Electric Industry Co., Ltd. consolidated subsidiaries
Significant accounting policies
Basis preparation
Electric Industry Co., Ltd. (the "Company") domestic consolidated subsidiaries (collectively including foreign subsidiaries, "Group") maintain their books accounts accordance with accounting standards Japan, foreign subsidiaries maintain their books accounts conformity with those their countries domicile. accompanying consolidated financial statements have been prepared accordance with accounting principles generally accepted Japan, which different certain respects application disclosure requirements International Financial Reporting Standards, have been compiled from consolidated financial statements prepared Company required Securities Exchange Japan. permitted, amounts less than million have been omitted. result, totals shown accompanying consolidated financial statements (both U.S. dollars) necessarily agree with individual amounts. Certain amounts from prior years have been reclassified conform current year's presentation. accompanying consolidated statements cash flows which have been prepared under same format that specified Japanese standard cash flows, presented format similar that required under accounting standards generally accepted United States, concept format almost same those required under Japanese standard. Current noncurrent monetary assets liabilities denominated foreign currencies Company domestic consolidated subsidiaries translated into exchange rates effect balance sheet date, except those hedged forward foreign exchange contracts which translated contracted rates. revenues expenses translated average rate month prior transaction. Gains losses arising from exchange differences credited charged income year which they made incurred, except those arising from forward foreign exchange contracts pertaining long-term debt, which deferred amortized over periods respective contracts.
Cash equivalents
highly liquid investments, generally with maturity three months less when purchased, which readily convertible into known amounts cash near maturity that they represent only insignificant risk change value attributable changes interest rates, considered cash equivalents.
Securities
Held-to-maturity securities either amortized accumulated face value. Other securities with quoted market prices carried market value. difference between acquisition costs carrying value other securities, including unrealized gain loss, applicable income taxes, recognized component shareholders' equity reflected "net unrealized holding gain other securities." cost other securities sold computed moving average method. Other securities without quoted market prices stated cost based moving average method.
Principles consolidation accounting investments unconsolidated subsidiaries affiliates
accompanying consolidated financial statements include accounts Company significant subsidiaries over which substantial control exerted through either majority ownership voting stock and/or other means. significant intercompany balances transactions have been eliminated consolidation. After allocation respective assets based fair value such assets their dates acquisition, difference between cost underlying equity assets acquired from subsidiaries affiliates (companies over which Group ability exercise significant influence) accounted equity basis amortized straight-line method over certain period, within years such difference material. Investments certain unconsolidated subsidiaries significant affiliates accounted equity method. Other investments unconsolidated subsidiaries affiliates stated cost less. Where there been permanent decline value such investments, Company written them down reflect impairment.
Inventories
Inventories principally stated cost determined following methods: Finished goods-Moving average method Work process-Specific identification method materials supplies-Last purchase price method
Property, plant equipment, depreciation
Property, plant equipment recorded cost, except that, permitted Corporation Japan, cost certain land machinery equipment been reduced offset capital gain disposal certain assets. Depreciation property, plant equipment principally computed declining balance method over estimated useful lives respective assets. However, buildings (excluding leasehold improvements) acquired after April 1998 Company domestic consolidated subsidiaries depreciated straight-line method over their estimated useful lives. Significant renewals betterments capitalized cost. Maintenance repairs charged income.
Translation foreign currencies
Company translates revenue expense accounts foreign consolidated subsidiaries average rates exchange effect during year. balance sheet accounts, except components shareholders' equity, translated into rates exchange effect balance sheet date. components shareholders' equity translated their historical exchange rates. differences arising from translation where exchange rates have been used presented under translation adjustments component shareholders' equity accompanying consolidated financial statements.
Intangible assets amortization
Intangible assets, including capitalized computer software costs, amortized straight-line method over their estimated useful lives.
Leases
Noncancelable leases primarily accounted operating leases (regardless whether such leases classified operating finance leases) except that leases which stipulate transfer ownership leased property lessee accounted finance leases.
Welfare Pension Fund Plan.
Income taxes
Deferred income taxes recognized asset liability approach, under which deferred assets liabilities determined based difference between financial reporting bases assets liabilities, measured using enacted rates laws that will effect when differences expected reverse.
Retirement benefits
Group severance benefit plans covering substantially employees. employee terminates employment with Company receives approximately such benefits form lump-sum payment pension annuity payments from pension plans, with remainder lump-sum payment from unfunded severance benefit plan. Severance benefits based compensation time termination, years service certain other factors. allowance retirement benefits been provided employees' retirement benefits, based estimate projected retirement benefit obligation pension fund assets. Actuarial gains losses prior service cost amortized straight-line method over period 13-14 years years respectively, which within estimated average remaining years service Group's participants plan. amortization such gains losses recognized effective year subsequent year which they arise. Group also provides allowance retirement benefits directors amount which would required paid directors retired balance sheet date, based Group's internal regulations. Note description method accounting separation substitutional portion from benefit obligation under
Hedge accounting
Forward foreign exchange contracts accounted deferral hedge accounting, which requires that unrealized gains losses deferred assets liabilities. Forward foreign exchange contracts which meet certain criteria accounted allocation method, which utilized hedge against risks arising from fluctuations foreign exchange rates. Interest-rate swaps which meet required criteria accounted special method stipulated accounting standard) interest rates applied interest-rate swaps originally applied underlying borrowings. Swap contracts utilized hedge market risks which arise future with respect short-term loans, long-term loans bonds variable interest rates. Group developed hedging policies control various aspects derivative transactions, including authorization levels transaction volumes. Based these policies, Group hedges risks arising from fluctuations foreign currency exchange rates interest rates. During period from opening hedge position assessment effectiveness, Group reviews effectiveness hedging policies order monitor control cumulative cash flows respond changes market.
U.S. dollar amounts
translation amounts into U.S. dollar amounts included solely convenience been made, matter arithmetic computation only, approximate exchange rate prevailing March 2004. This translation should construed representation that have been, could have been, could future converted into U.S. dollars that other rate.
Securities
Securities with quoted market prices March 2004 2003 summarized follows:
Held-to-maturity securities with quoted market prices
Millions Thousands U.S. dollars
2004
Amount recorded balance sheet Quoted market price Difference Amount recorded balance sheet
2003
Quoted market price Difference Amount recorded balance sheet
2004
Quoted market price Difference
Held-to-maturity securities whose market value exceeds amounts recorded balance sheet: Debt securities Held-to-maturity securities whose market value does exceed amounts recorded balance sheet: Debt securities Total
4,761 4,793
1,130
1,133
1,130 1,130
1,101 1,101
(28) (28)
6,000 5,998 10,761 10,791
Other securities with quoted market prices
Millions Thousands U.S. dollars
2004
Amount Acquisition recorded costs balance sheet Difference
2003
Amount Acquisition recorded costs balance sheet Difference
2004
Amount Acquisition recorded costs balance sheet Difference
Other securities whose market value recorded balance sheet exceeds their acquisition costs: Equity securities Debt securities Other Debt securities Other securities whose market value recorded balance sheet does exceed their acquisition costs: Equity securities Debt securities Other Subtotal Total
12,349 31,246 18,896 12,746 31,673 18,926
3,491 7,995 3,949 8,462
4,504 4,512
117,613 297,584 179,970 3,782 4,063 121,396 301,647 180,251
2,434 1,913 (521) 2,637 2,111 (525) 15,383 33,784 18,400
12,439 10,475 12,540 10,567 16,489 19,029
(1,964) (1,972) 2,539
23,185 18,219 (4,965) (14) (24) 25,115 20,111 (5,004) 146,511 321,758 175,247
Other securities without quoted market prices March 2004 2003 summarized follows:
Millions Thousands U.S. dollars
Amount recorded balance sheet
2004
Other investments securities: Medium-term government bond fund Money management fund Unlisted equity securities 2,600 10,661
2003
1,300 11,902
2004
24,770 101,542
Inventories
Inventories March 2004 2003 were follows:
Millions Thousands U.S. dollars
2004
Finished goods Work process materials supplies 40,295 61,215 37,466 138,977
2003
42,615 72,297 42,515 157,427
2004
383,763 583,007 356,822 1,323,595
Investments advances unconsolidated subsidiaries affiliates
Investments advances unconsolidated subsidiaries affiliates March 2004 2003 were follows:
Millions Thousands U.S. dollars
2004
Investments stated: equity method cost less Advances 4,407 3,648 2,697 10,753
2003
4,510 3,282 2,175 9,969
2004
41,972 34,745 25,691 102,409
Short-term borrowings long-term debt
Short-term borrowings March 2004 2003 consisted following:
Millions Thousands U.S. dollars
2004
Loans, principally from banks, weighted-average interest rates 1.3% 1.2% March 2004 2003, respectively Secured Unsecured Commercial paper weighted-average interest rate 0.7% March 2004
2003
2004
86,658
103,207
825,317
86,658
4,100 107,307
825,317
Long-term debt March 2004 2003 summarized follows:
Millions Thousands U.S. dollars
2004
Loans from banks, insurance companies government agencies, through 2022 rates 6.0%: Secured Unsecured Unsecured convertible bonds: 2.2% bonds 2004 Unsecured bonds yen: 3.05% bonds 2003 3.15% bonds 2006 2.65% bonds 2007 Floating rate* bonds 2004 3.00% bonds 2005 2.82% bonds 2004 Less: Current portion
2003
2004
1,790 148,468 150,258
1,800 131,976 133,776 32,188
17,047 1,413,990 1,431,037
20,000 9,500 5,000 10,000 10,000 204,758 (58,103) 146,655
7,689 20,000 9,500 5,000 10,000 10,000 228,153 (58,591) 169,561
190,476 90,476 47,619 95,238 95,238 1,950,085 (553,364) 1,396,720
*Represents rate linked interest-rate swap years (1.858% date issuance these bonds). March 2004, long-term debt million ($17,047 thousand) aggregate collateralized property, plant equipment which amounted million ($24,391 thousand). customary Japan, both short-term long-term bank loans made under general agreements which provide that collateral guarantees additional collateral guarantees, appropriate) with respect present future indebtedness will given request lending bank, that bank shall have right, obligations become event default, offset cash deposited against such obligations. aggregate annual maturities long-term debt subsequent March 2004 summarized follows:
Year ending March 2005 2006 2007 2008 2009 thereafter
Millions
Thousands U.S. dollars
58,103 62,003 53,401 23,736 7,514 204,758
553,364 590,510 508,585 226,058 71,566 1,950,085
Group access substantial sources funds numerous banks worldwide. total unused credit available Group March 2004 million ($1,145,039 thousand).
Retirement benefits
Group noncontributory defined benefit pension plans, contributory defined benefit pension plans pursuant Welfare Pension Insurance Japan, lump-sum retirement payment plans which cover substantially employees terminate their employment with Group. Electric Industry's Welfare Pension Fund established Company became multi-employers' fund (the "Fund") which consolidated subsidiaries have joined. Certain foreign consolidated subsidiaries have defined benefits defined contribution pension plans. addition, eligible employees, upon termination their employment with Group, receive certain additional payments under plans. following summary plans. Retirement benefit obligation March 2004 2003:
Millions Thousands U.S. dollars
2004
Projected benefit obligation Fair value plan assets Funded status Transition differences arising from initial adoption accounting standard retirement benefits Unrecognized actuarial loss Unrecognized prior service cost Obligation recognized consolidated balance sheets Allowance retirement benefits (176,776) 66,636 (110,140) 47,844 29,715 (32,580) (32,580)
2003
(316,323) 122,506 (193,816) 76,279 95,052 (8,073) (30,557) (30,557)
2004
(1,683,587) 634,632 (1,048,954) 455,666 283,001 (310,286) (310,286)
accordance with enforcement Corporate Defined Benefit Pension Insurance Japan, Company certain domestic consolidated subsidiaries received approval from Minister Health, Labor Welfare ("MHLW") February 2004 application exemption from obligation benefits related future employee services under substitutional portion Fund. Company domestic consolidated subsidiaries accounted separation substitutional portion benefit obligation under Fund date approval their exemption, assuming that transfer Japanese government substitutional portion benefit obligation related pension plan assets been completed same date. Effective year ended March 2002, accordance with revision Pension Insurance March 2000, mandatory employees eligible receive annuity pension benefits from certain portion Fund (which been entrusted government Company administer) been extended. result, related unrecognized prior service cost decreased March 2003. However, related benefit obligation accounted "separation from fund" stated above. Certain consolidated subsidiaries have adopted simplified method, permitted, calculate their projected benefit obligation. Components periodic pension cost years ended March 2004, 2003 2002:
Millions Thousands U.S. dollars
2004
Service cost during year Interest cost projected benefit obligation Expected return plan assets Amortization obligation transition Amortization actuarial difference Amortization prior service cost periodic pension cost Gain return substitutional portion Welfare Pension Fund Plan 7,881 8,069 (4,422) 5,968 6,771 (560) 23,707 8,282
2003
8,877 8,682 (5,615) 6,425 5,440 (672) 23,138
2002
9,021 9,829 (5,700) 6,395 1,991 (676) 20,860
2004
75,059 76,853 (42,118) 56,838 64,493 (5,339) 225,787 78,878
Retirement payments million ($32,090 thousand) million aggregate were paid addition periodic pension cost presented above table years ended March 2004 2003, respectively. Employees' contributions Fund have been excluded from periodic pension cost above table. allowance retirement benefits determined simplified method certain consolidated subsidiaries their periodic pension cost been included service cost benefits earned during year. Gain return substitutional portion Welfare Pension Fund Plan, refer Note above table explained about retirement benefit obligation March 2004 2003. Assumptions used actuarial calculation: Year ended March
2004
Actuarial cost method: Discount rate: Expected rate return: Amortization period prior service cost:
Projected unit credit method
2003
2.8% 2.8% 4.0% 4.0% years (amortized straight-line method over period which falls within average remaining years service participants plans, commencing year subsequent period which cost incurred)
Amortization period actuarial difference:
13-14 years (amortized straight-line method over period which falls within average remaining years service participants plans, effective year subsequent period which such difference incurred) years, except certain consolidated subsidiaries which charge credit income when incurred
Amortization period transition obligations arising from initial adoption accounting method:
Income taxes
Deferred assets (liabilities) March 2004 2003 consisted following:
Millions Thousands U.S. dollars
2004
Deferred assets: Loss carryforwards Nondeductible accrued bonuses Nondeductible retirement benefits Nondeductible write-downs inventories Other Gross deferred assets Less: Valuation allowance Total deferred assets Deferred liabilities: purpose reserve (special reserve) unrealized holding gain other securities Other Gross deferred liabilities deferred assets 30,925 5,329 11,757 1,267 5,723 55,002 (16,004) 38,997 (21) (7,555) (44) (7,620) 31,377
2003
38,938 4,142 10,851 2,294 3,891 60,119 (16,884) 43,234 (5,968) (1,058) (22) (7,049) 36,184
2004
294,529 50,753 111,972 12,067 54,506 523,829 (152,420) 371,408 (204) (71,955) (419) (72,579) 298,829
deferred assets included consolidated balance sheets follows:
Millions Thousands U.S. dollars
2004
Other current assets Other assets Other current liabilities deferred assets 10,784 20,592 31,377
2003
9,924 26,260 36,184
2004
102,711 196,117 298,829
Income taxes applicable Company domestic consolidated subsidiaries comprised corporation tax, inhabitants' taxes enterprise tax, which, aggregate, resulted statutory rate approximately years ended March 2004, 2003 2002. Income taxes foreign consolidated subsidiaries based generally rates applicable their countries incorporation. reconciliation between statutory rate effective rates percentage income before income taxes years ended March 2004, 2003 2002 summarized follows:
2004
Statutory rate Additions (deductions from) income taxes resulting from: Increase valuation allowance deferred assets Intercompany profit excess taxable income Permanent nondeductible differences such entertainment expenses Permanent differences unrecognized purposes such dividends received operating loss carryforwards beginning year consolidated subsidiaries initial consolidated return Decrease deferred assets resulting from change enterprise rate capita portion inhabitants' taxes Other, Effective rate 42.0% (38.2) 19.5 36.3%
2003
42.0% (55.4) (9.4) (13.4) (8.7) (37.7) (0.3) (78.6)%
reconciliation between statutory effective rate year ended March 2002 provided permitted) because difference between rates less than statutory rate.
Shareholders' equity
Commercial Code Japan (the "Code") provides that amount equal least amounts disbursed distributions earnings appropriated legal reserve until reserve additional paid-in capital equals common stock account. Code also stipulates that, extent that additional paid-in capital account legal reserve exceeds common stock account, amount such excess available appropriation resolution shareholders. retained earnings account accompanying consolidated financial statements March 2004 included legal reserve million ($77,535 thousand).
Depreciation
Depreciation expenses property, plant equipment years ended March 2004, 2003 2002 were follows:
Millions Thousands U.S. dollars
2004
24,441
2003
29,958
2002
37,593
2004
232,780
Research development expenses
Research development expenses years ended March 2004, 2003 2002 were follows:
Millions Thousands U.S. dollars
2004
16,117
2003
15,217
2002
22,571
2004
153,497
Restructuring charges
Restructuring charges were incurred when certain consolidated subsidiaries North America Europe restructured their operations. following summary restructuring charges year ended March 2004:
Millions Thousands U.S. dollars
Loss devaluation inventories Special retirement payments
4,339 3,369
41,324 32,086
Loss earthquakes
earthquakes which took place epicenters Sanriku South 2003 Miyagi Prefecture North July 2003, production lines Miyagi Electric Industry Co., Ltd., subsidiary Company which manufactures semiconducters, were suspended subsidiary recognized related loss year ended March 2004.
Derivative hedging activities
Company subsidiaries primarily utilize comprehensive forward foreign exchange currency swap contracts hedge their exposure foreign exchange fluctuations arising from operating receivables payables.The Company subsidiaries also utilize interest swap contracts avoid risks interest rate fluctuations equalize financial costs each financial year regarding short-term long-term debt with variable interest rates. matter policy, Company subsidiaries speculate derivatives, which experience huge market value fluctuation. Company subsidiaries anticipate credit risk resulting from nonperformance counterparties because such counterparties financial institutions with high credit ratings. Company subsidiaries have internal rules derivative transactions, which prescribe managers' duties, management these positions reporting system. Derivatives controlled daily financial section, which internal control system supervise procedures transaction limits, confirmed financial institutions Accounting Section.
Leases
Lease payments relating finance leases accounted operating leases accompanying consolidated financial statements amounted million ($30,882 thousand), million million years ended March 2004, 2003 2002, respectively. Leased assets under finance leases accounted operating leases were follows:
Millions Thousands U.S. dollars
2004
Machinery equipment Other Less: Accumulated amortization 12,140 5,727 6,546
2003
15,083 8,701 7,290
2004
115,623 1,273 54,549 62,348
Amortization computed applying straight-line method over estimated useful lives related assets assuming that Company guarantees residual value term each leases. following schedule future minimum lease payments under finance leases accounted operating leases:
Year ending March 2005 2006 thereafter
Millions
Thousands U.S. dollars
2,245 4,301 6,546
21,383 40,965 62,348
minimum rental payments subsequent March 2004, required under operating leases with noncancelable lease terms excess year summarized follows:
Year ending March 2005 2006 thereafter
Millions
Thousands U.S. dollars
4,008 6,066 10,075
38,176 57,780 95,956
Contingent liabilities
March 2004, Company consolidated subsidiaries following contingent liabilities:
Millions Thousands U.S. dollars
endorsers trade notes discounted endorsed guarantors indebtedness Unconsolidated subsidiaries affiliates Other
2,127 10,867 29,859 42,853
1,141 3,135 4,499
Amounts share
accordance with accounting standard earnings share which became effective April 2002, basic income share computed based income available distribution shareholders common stock weighted average number shares common stock outstanding during year. Diluted income share computed based income available distribution shareholders weighted average number shares common stock outstanding during each year assuming full conversion convertible bonds. assets share based number shares common stock outstanding during each year.
U.S. dollars
2004
income (loss): Basic Diluted 2.17 2.17
2003
(10.72)
2002
(55.66)
2004
0.02 0.02
U.S. dollars
2004
assets 180.66
2003
165.63
2004
1.72
Diluted income (loss) share years ended March 2003 2002 been presented because loss recorded both years ended March 2003 2002.
Stock option plan
March 2004, Company following stock option plans approved shareholders accordance with Commercial Code:
Date approval shareholders Grantees Nature stocks with warrants granted Number stocks with warrants granted Option price warrant Exercisable period June 2000 directors executive officers Common stock 341,000 shares July 2002June 2005 June 2001 directors executive officers Common stock 334,000 shares July 2003June 2006 June 2002 directors executive officers Common stock 303,000 shares July 2004June 2007 June 2003 directors, executive officers management officials Common stock 815,000 shares July 2005June 2013
Segment information
Group classifies businesses into information systems, telecommunications systems, electronic devices other. business segment information years ended March 2004, 2003 2002 summarized follows:
Millions
Year ended March
Information systems Telecommunications systems Electronic devices
2004
Other Total Corporate eliminations Consolidated
Sales third parties Intersegment sales transfers Total sales Operating expenses Operating income Total assets Depreciation Capital expenditures
360,308 11,722 372,031 347,999 24,031 218,867 12,530 11,614
104,591 8,848 113,440 110,053 3,386 93,406 2,938 2,514
132,151 5,954 138,106 135,758 2,348 145,142 15,222 16,191
57,163 32,438 89,601 86,811 2,789 59,313
Millions
654,214 58,963 713,178 680,623 32,555 516,730 30,700 30,320
(58,963) (58,963) (48,014) (10,949) 92,830 2,876 2,997
654,214 654,214 632,608 21,606 609,560 33,577 33,318
Year ended March
Information systems Telecommunications systems Electronic devices
2003
Other Total Corporate eliminations Consolidated
Sales third parties Intersegment sales transfers Total sales Operating expenses Operating income (loss) Total assets Depreciation Capital expenditures
330,383 11,468 341,851 322,011 19,840 251,376 14,173 9,831
85,717 9,200 94,918 103,109 (8,191) 94,244 4,242 1,376
119,224 5,579 124,803 125,763 (10,339) 147,220 17,795 14,330
50,147 33,204 83,352 82,333 1,018 59,796 1,556
585,473 59,453 644,926 633,218 11,707 552,638 37,769 26,347
(59,453) (59,453) (49,113) (10,339) 70,252 2,158
585,473 585,473 584,104 1,368 622,891 39,927 26,507
Millions
Year ended March
Information systems Telecommunications systems Electronic devices
2002
Other Total Corporate eliminations Consolidated
Sales third parties Intersegment sales transfers Total sales Operating expenses Operating income (loss) Total assets Depreciation Capital expenditures
347,429 13,041 360,470 357,352 3,118 223,005 14,860 11,916
103,219 4,233 107,453 117,017 (9,564) 92,652 5,231 3,607
113,642 11,240 124,882 136,741 (11,858) 156,355 23,371 20,486
40,281 34,282 74,563 73,791 53,327 1,963
604,572 62,798 667,370 684,902 (17,531) 525,341 45,426 36,830
(62,798) (62,798) (53,082) (9,715) 126,240 2,625 2,500
604,572 604,572 631,819 (27,247) 651,581 48,052 39,330
Thousands U.S. dollars
Year ended March
Information systems Telecommunications systems Electronic devices
2004
Other Total Corporate eliminations Consolidated
Sales third parties Intersegment sales transfers Total sales Operating expenses Operating income Total assets Depreciation Capital expenditures
3,431,514 111,638 3,543,152 3,314,285 228,867 2,084,456 119,334 110,612
996,106 84,275 1,080,381 1,048,131 32,250 889,586 27,988 23,949
1,258,586 56,710 1,315,296 1,292,933 22,362 1,382,308 144,978 154,208
544,410 308,937 853,347 826,777 26,570 564,887
6,230,617 561,561 6,792,178 6,482,128 310,050 4,921,238 292,388 288,770
(561,561) (561,561) (457,285) (104,276) 884,101 27,396 28,551
6,230,617 6,230,617 6,024,843 205,773 5,805,340 319,784 317,321
Business segments divided into categories based nature products services rendered similarity sales methodology. Eliminations unallocated amounts operating expenses consist principally expenses Company's General Administrative Department research development costs within Group, which amounted million ($97,423 thousand), million million years ended March 2004, 2003 2002, respectively. Eliminations unallocated amounts total assets consist principally Company's surplus funds, funds long-term investments assets belonging General Administrative Department, which amounted million ($1,557,171 thousand), million million years ended March 2004, 2003 2002, respectively. Included depreciation capital expenditures amortization additions long-term prepaid expenses, respectively. geographical segment information Company consolidated subsidiaries years ended March 2004, 2003 2002 outlined follows:
Millions
Year ended March
Japan North America Europe
2004
Other Total Eliminations Consolidated
Sales third parties Interarea sales Total sales Operating expenses Operating income (loss) Total assets
494,786 113,315 608,102 590,124 17,977 631,260
53,025 53,496 52,243 1,252 23,685
72,564 3,953 76,518 74,233 2,285 39,863
33,837 73,065 106,902 107,214 (311) 33,753
654,214 190,805 845,020 823,815 21,204 728,563
(190,805) (190,805) (191,207) (119,002)
654,214 654,214 632,608 21,606 609,560
Millions
Year ended March
Japan North America Europe
2003
Other Total Eliminations Consolidated
Sales third parties Interarea sales Total sales Operating expenses Operating income (loss) Total assets
447,583 98,901 546,484 547,465 (980) 648,147
52,942 1,610 54,552 55,004 (451) 26,022
60,982 2,340
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