Toshiba Corp.
Annual Report 1999

Plain-text annual report

TOSHIBA ANNUAL REPORT 1999 EMBRACING THE FUTURE ANNUAL REPORT Year Ended March 31, 1999 19 99 Page 37. BASIC COMMITMENT OF THE TOSHIBA GROUP TOSHIBA ANNUAL REPORT 1999 We, the Toshiba Group companies, based on our total commitment to people and to the future, are determined to help create a higher quality of life for all people, and to do our part to help ensure that progress continues within the world community. COMMITMENT TO PEOPLE We endeavor to serve the needs of all people, especially our customers, shareholders, and employees, by implementing forward-looking corporate strategies while carrying out responsible and responsive business activities. As good corporate citizens, we actively contribute to further the goals of society. COMMITMENT TO THE FUTURE By continually developing innovative technologies centering on the fields of Electronics and Energy, we strive to create products and services that enhance human life, and which lead to a thriving, healthy society. We constantly seek new approaches that help realize the goals of the world community, including ways to improve the global environment. Committed to People, Committed to the Future. CONTENTS TO OUR SHAREHOLDERS A NEW LOOK. A NEW TOSHIBA. IN-HOUSE COMPANY SYSTEM INFORMATION AND INDUSTRIAL SYSTEMS & SERVICES COMPANY DIGITAL MEDIA EQUIPMENT & SERVICES COMPANY POWER SYSTEMS & SERVICES COMPANY SEMICONDUCTOR COMPANY DISPLAY DEVICES & COMPONENTS COMPANY MEDICAL SYSTEMS COMPANY HOME APPLIANCES COMPANY ELEVATOR AND BUILDING SYSTEMS COMPANY FINANCIAL HIGHLIGHTS REVIEW OF OPERATIONS INFORMATION & COMMUNICATION SYSTEMS ELECTRONIC DEVICES & MATERIALS POWER & INDUSTRIAL SYSTEMS CONSUMER PRODUCTS SERVICES & OTHER RESEARCH & DEVELOPMENT ENVIRONMENTAL INITIATIVES BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE AUDITORS MANAGEMENT’S DISCUSSION & ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS GLOBAL NETWORK CONSOLIDATED SUBSIDIARIES INVESTOR REFERENCE 1 7 8 10 12 14 16 18 20 22 24 26 27 27 28 29 30 31 32 34 36 37 46 66 68 69 FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements concerning Toshiba’s future plans, strategies and performance. These forward-looking statements are not historical facts, rather they represent assumptions and beliefs based on economic, financial and competitive data currently available. Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, the Year 2000 issue, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. All dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥121=US$1. Page 38. TO OUR SHAREHOLDERS TOSHIBA ANNUAL REPORT 1999 Taizo Nishimuro, President and CEO Mega-competition worldwide is a sign of the times. As the dawn of the new millennium approaches, Toshiba is meeting its challenges by bolstering its competitiveness through investments targeting promising fields and pushing ahead with management reforms. Why? To build a solid, highly profitable operating base and to continue to develop as one of the electronics industry’s leading companies. In fiscal 1998, we implemented a host of programs as part of this drive. The discussion that follows explains them and management’s vision for Toshiba. Page 1. TOSHIBA ANNUAL REPORT 1999 THE FISCAL YEAR IN REVIEW Fiscal 1998, the year ended March 31, 1999, was a tough one for Japan and for Toshiba. Japan’s economic situation remained severe. Despite the government’s economic stimulus packages and increased public spending, unemployment edged up and real income levels fell; consumer spending slowed and the property market remained subdued. Capital expenditure in the private sector also fell sharply. The cumulative result was negative GDP growth for the second year running. Overseas, the U.S. economy recorded another year of expansion. Europe was less buoyant and growth slipped down a gear. Asia continued to battle back from its finan- cial crisis and the latter half of the year brought positive news in some key sectors, though the big picture remained one of soft demand and sagging export growth. In this difficult operating climate, our priority on preserving profitability was undermined on many sides. Anemic private-sector demand in Japan had a major impact, as did a precipitous price decline in semiconductor memories, sluggish demand for semiconductors for consumer products, price erosion in PC peripherals due to the increasing popularity of low-priced PCs, and soft sales of power plant and equipment. The result was a 3 percent year-on-year decline in consolidated sales and a ¥13.9 billion (US$115 million) net loss. REINVENTING TOSHIBA IN A FAST–CHANGING MARKETPLACE We operate in highly demanding, fast-changing businesses across the global elec- tronics industry. The Internet and network technologies are changing the ways in which information is gathered and processed and how products and information are merchandized. Corporate consolidations and reorganizations are driving change in the power generation and industrial systems businesses; transnational and trans- regional M&As are reforming communications, broadcasting and services. The speed, dynamism and extent of these shifts are breathtaking. Page 2. TOSHIBA ANNUAL REPORT 1999 We have responded vigorously and lost no time in embarking on a program of far-reaching management reforms. Our current policies, designed to assure we remain one of the world’s leading companies in the 21st century, are bringing fundamental transformations to our management systems, our business portfolio and our corporate culture. TOSHIBA’S THREE-PRONGED REFORM PROGRAM Management systems—We are reinforcing an agile decision-making system that supports swift responses to changes in our business environment. In June 1998, we introduced the post of executive officer and reduced the number of directors from 33 to 12. By doing so, we clearly demarcated the boundary between the duties of direc- tors, who determine corporate and overall Toshiba Group strategy and manage- ment, and the executive officers, who are responsible for formulating and implementing strategies in the businesses they manage. The Board of Directors, unshackled from day-to-day management tasks, is now more closely focused on corporate strategy, while the executive officers can promote the business structures and practices suited to the markets they work in. Our management reform continued with the April 1999 reorganization of our 15 business groups into 8 in-house companies and 1 joint venture. Each is a self- contained, specialist organization that is expected to operate at the forefront of its clearly defined market. Benchmarking against leading competitors will provide a clear, objective measure of individual performance. To emerge as winners, each in- house company has the enhanced autonomy required to execute timely strategies— including M&As. This freedom will be directed to fulfilling the medium-term goals each company has agreed to, and our corporate-level vision for Toshiba as a whole. The corporate headquarters’ staff also has a redefined role: to advance company- wide and group strategies and projects. Corporate Staff concentrates its energies on corporate planning, auditing and advice to top management. Corporate Project Page 3. TOSHIBA ANNUAL REPORT 1999 handles company-wide matters and promotes inter-company projects. Corporate Support Services provides the in-house companies with specialist services in fields as diverse as research and development, legal affairs, intellectual property, logistics and environmental issues. Change of business portfolio—We continue to shift resources to fields with high growth and earnings potential. In addition, we have added a resolute thrust toward a renewed business portfolio. The 21st century will see unabated progress in net- working and an information society. Toshiba aims to support this evolution as a leading enterprise with core strengths in digital, mobile and networking technologies and services. We will promote development of key components, including semicon- ductors, LCDs, HDDs and optical disc drives. We will strengthen our capabilities in systems and services businesses. In matured businesses, we will enhance competi- tiveness and improve profitability through the strategic allocation of resources. In preparation for this move, we introduced a system of eight in-house compa- nies on April 1, 1999. We defined clear business areas and articulated clear objec- tives for each, assuring we are even better positioned to channel resources to highly promising businesses. As we reinforce the organization and businesses that will support Toshiba’s continued development, we will continue to take decisive measures to deal with unprofitable and underperforming business units, through such measures as downsizing, realignments, mergers and divestitures. Initiatives announced last fiscal year included a joint venture with U.S.-based Carrier Corporation, a unit of United Technologies Corporation, which will give global strength to our air con- ditioning business. We also transferred the small motor business of our subsid- iary Shibaura Engineering Works Co., Ltd. to a joint venture with Nidec Corporation, and transferred our domestic ATM business to Oki Electric Industry Co., Ltd. Over 10 other recent moves include alliances with major companies out- side the Toshiba Group, both in Japan and overseas, joint ventures and business Page 4. TOSHIBA ANNUAL REPORT 1999 transfers. The common thread running through all these actions is an aggressive leveraging of external resources to make each business a winner. Toshiba need no longer handle everything itself. Shaping a new corporate culture—As we change the way we manage our busi- nesses and redefine our business portfolio, it is essential that we also change our corporate culture. With enhancement of customer satisfaction as a unifying goal, we have started a management-driven, company-wide initiative to bring innovation to management quality and productivity. This initiative integrates the gains of many years from past productivity programs with the statistical approaches of Six Sigma methodologies to create a new thrust to drive innovation. This program, dubbed Management Innovation (MI) 2001, debuted in selected businesses in the second half of fiscal 1998. Shorter delivery times for semiconductors and better manufac- turing processes for generators have already confirmed its potential, and in April 1999, MI 2001 was extended throughout the company. We have high hopes for its continued success. AN OVERVIEW OF SOME MAJOR BUSINESSES Each of our major businesses is guided by a basic strategy. We will continue to hold the top share in the world portable PC market with a steady stream of appealing, competitive products and through stepped-up customer support. In electronic devices, we will improve earnings and cash flows by reducing our exposure to the memory market and shifting resources to logic devices and system LSIs. An excel- lent example of this strategy in action is co-development of advanced microproces- sors with Sony Computer Entertainment Inc. for its next-generation game consoles and the establishment of a manufacturing joint venture to promote the project. We will also rely more on alliances with other companies for R&D and manufacturing. In displays, we will establish superiority and realize the immense long-term poten- tial of the LCD market by putting a primary emphasis on low-temperature polysilicon TFT LCDs. Page 5. TOSHIBA ANNUAL REPORT 1999 In visual products, digitization is allowing us to add value to our products. In home appliances, we are reducing over-dependence on Japan with a new strategy that looks to the world and to markets with greater growth potential, particularly in Asia. Our complementary alliances with Carrier Corporation and AB Electrolux of Sweden are key elements of this plan, through which we are determined to reinforce our household appliance businesses. The outlook of the Japanese market for power plants and equipment remains difficult. Utility companies have excess capacity and are responding to increasing pressure to cut costs by curbing capital expenditure. Teaming up with leading domestic and overseas companies will allow us to pare costs, boost productivity and enhance R&D as we look to expand in Asia and other regions outside Japan. Rein- forcement of ties in thermal and nuclear power generation with General Electric Company of the United States is the locus of this drive. As the new century approaches, we are convinced our reforms and business focus are allowing us to reinvent Toshiba. We ask our shareholders and business partners for their continued support and understanding as we advance this major undertaking. July 1999 TAIZO NISHIMURO President and Chief Executive Officer Page 6. TOSHIBA ANNUAL REPORT 1999 TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. April 1, 1999 marked the start of a new in-house company system at Toshiba Corporation. The following pages intro- duce the new companies and profile their basic strategies. Page Page 7. 7. 1998 APRIL 1999 HEADQUARTERS STAFF CORPORATE PROJECT BUSINESS GROUPS IN-HOUSE COMPANIES TOSHIBA ANNUAL REPORT 1999 ORGANIZATIONAL REFORM In-House Company System On April 1, 1999, Toshiba Cor- poration introduced a new system, under which its 15 business groups were reorga- nized into 8 in-house compa- nies. Each is responsible for creating its own approach to its businesses and for assur- ing its enhanced ability to meet customer needs. The companies have a clear mis- sion: to identify their primary competitors, formulate plans for achieving a competitive edge and achieve clearly Information & Communications and Control Systems Group 1. Info/Communication Platform & Products Group 1, 2. Medical Systems Division 6. International Operation - Information & Communication Systems and Industrial Plant 1. Information Equipment Group Storage Media Business Group 2. 2. defined goals. The objective is Video & Electronics Media Group 2. nothing less than establishing a leading position in every f i e l d o f b u s i n e s s w h e r e Toshiba is active. Air Conditioners & Appliances Group Environmental Management Business Group Energy Systems Group 7, *. 1. 3. Industrial Equipment Group 1, 8. Electron Tube, Device & Material Group Semiconductor Group Liquid Crystal Display Division Electronic Devices Sales & Marketing Group 5. 4. 5. 4. Page Page 8. 8. 1. Information and Industrial Systems & Services Company 2. Digital Media Equipment & Services Company 3. Power Systems & Services Company 4. Semiconductor Company 5. Display Devices & Components Company 6. Medical Systems Company 7. Home Appliances Company 8. Elevator and Building Systems Company *Air-conditioning business was assumed by Toshiba Carrier Corporation in April 1999. TOSHIBA ANNUAL REPORT 1999 CORPORATE STAFF CORPORATE SUPPORT SERVICES BASIC COMMITMENT Blending Toshiba’s expertise in computer, communications and control systems, the company delivers optimized solutions and services to a broad range of customers. Markets served range from government agencies to the manufacturing, financial and distribution sectors, to broadcasting, transportation infrastructure and aviation and aerospace. TADASHI OKAMURA President and CEO The company is taking advantage of the immense business opportunities created by the convergence of information technology (IT) that encompasses PCs, mobile equip- ment, and computer networks and audio and visual technologies, and provides so- phisticated hardware, software and services that propose new and exciting forms of entertainment and lifestyle. TETSUYA MIZOGUCHI President and CEO The ability to supply turnkey nuclear, thermal and hydroelectric power plants and substations enables the Power Systems & Services Company to support energy infra- structures around the world. Through strategic alliances with leading manufacturers in Japan and overseas, the company is bolstering cost competitiveness, even as it continues development of next-generation technologies that will cement its position as a world leader in power systems. TOSHIKI MIYAMOTO President and CEO Semiconductors are the vital building block for the coming digital society. The Semiconductor Company will advance active business expansion in system LSIs and other growth areas. In doing so, the company will utilize its advanced process tech- nology, highly sophisticated product development capabilities, and experience of selling a broad line of devices to customers around the world. YASUO MORIMOTO President and CEO Driven by the spirit of innovation, the Display Devices & Components Company is leveraging established product strengths to develop the three pillars to its business: LCDs, CRTs and batteries. With product cycles becoming ever shorter, the company is focused on delivering technologies and products that promote the breakthrough in performance and functions of sets and systems required by customers. TADASHI MATSUMOTO President and CEO Toshiba is one of the world’s leading suppliers of medical equipment, particularly diagnostic imaging modalities such as X-ray diagnostic equipment, CT scanners, and diagnostic ultrasound systems. In addition to the latest equipment for medical facilities worldwide, the company is delivering total solutions for the information age, including comprehensive Hospital Information Systems (HIS) and Picture Archiving and Communications Systems (PACS). MASAHIKO HASEGAWA President and CEO The Home Appliances Company contributes to raising the quality of life as a major supplier of innovative refrigerators, washing machines and small household appli- ances. Development and commercialization of products and services that provide real solutions to consumer needs is allowing the company to reinforce its operations in Japan and to pursue globalization through international alliances. MAKOTO NAKAGAWA President and CEO A steady stream of high-value products promote the company’s strategy of close cooperation with its affiliated companies to provide total solutions for buildings and other facilities, including upgrades and maintenance for installed equipment. From this base, the company is proactively promoting expanded overseas business. TERUYUKI SUGIZAKI President and CEO Page Page 9. 9. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Toshiba’s traffic and facility control system speeds vehicles across the Akashi Straits Expressway Bridge, the world’s longest sus- pension bridge. (Above: The Akashi Straits Expressway Bridge. Both photographs courtesy of the Honshu-Shikoku Bridge Authority) Information and Industrial Sy Blending Toshiba’s expertise in computer, communications and control systems, the company delivers optimized solutions and services to a broad range of customers. Markets served range from government agencies to the manufacturing, financial and distribution sectors, to broadcasting, transportation infrastructure and aviation and aerospace. T o s h i b a ’ s e l e c t r i c e q u i p m e n t i s employed in the rolling stock for JR Central’s Nozomi Shinkansen trains. Toshiba draws on a fount of skills in in- formation and communications, and on time-tested capabilities in system archi- tecture, to create a comprehensive range of sophisticated, groundbreaking sys- tems, among them Intelligent Transpor- tation Systems that will improve traffic flows and safety; electronic commerce systems that will change the way busi- ness is transacted; and digital systems that will bring radical changes to broad- Page 10. Comprehensive production con- trol system supplied to a major Japanese beer maker. TOSHIBA ANNUAL REPORT 1999 Artist’s depiction of the Japanese Experiment Mod- ule (JEM) for the I n t e r n a t i o n a l Space Station. Toshiba is a par- ticipant in the JEM program. Courtesy of NASDA stems & Services Company casting. The company will support cus- As an experienced provider of Network tomers in achieving business reforms Protection Equipment, a key element of through the adoption of supply chain optical ring networks, the company is management, and with its cumulative positioned to expand its business and expertise gained through the supply of record more successes in the years ahead. diverse plant systems, and sales, logistics, As Toshiba continues its participation inventory control and other front-end in projects for Japan’s National Space systems. Leveraging its highly diverse Development Agency (NASDA), it is ex- experience enables the company to panding business to the commercial sec- deliver high value-added services across tor. The company is aggressively working the range of operations. for orders for satellites for the SkyBridge In all it does, whether providing com- Project. Initiated by Alcatel Alsthom, prehensive consultation on solutions or France’s leading communications equip- integrating systems to support sales, ment manufacturer, SkyBridge aims to maintenance or management, the com- build a high-speed multimedia communi- pany is single-minded in its pursuit of to- cations network using low-earth orbiting tal customer satisfaction. satellites by 2001. Increasing demand for global data com- As a new business field, we are devel- munications is spurring projects to lay in- oping infrastructure systems and termi- ternational fiber-optic submarines cables. nal equipment for a multi-channel, Page 11. multimedia broadcasting format using the 2.6 gigahertz, S-band frequency. This will deliver high-speed, high-quality transmissions to mobile users, whether in vehicles equipped with an antenna or on foot with a portable terminal. Mobile Broadcasting Corporation, a Toshiba-led entity that plans to offer services through- out Japan had already attracted equity participation from 33 leading companies as of April 1999, including Toyota Motor Corporation, Fujitsu Limited, Nippon Television Network Corporation and Matsushita Electric Industrial Co., Ltd. Yet another area of focus is environ- ment-related businesses. Activities here include recycling chloride-based plastics to extract fuel oil, home appliances recy- cling and advanced waste treatment by thermal decomposition and gasification. As the Information and Industrial Systems & Services Company faces the realities of today’s global markets and mega-competition, it is undertaking an extensive review of its business struc- ture—and taking actions to assure its vitality. In April 99, it transferred its domestic ATM business to Oki Electric Industry Co., Ltd. It has also established a joint venture with the Japanese arm of France’s Schneider Electric S.A. to fortify the development, manufacture, sales and maintenance of low-voltage power distri- bution and control equipment. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Toshiba’s 65-inch rear-projec- tion large-screen display has been a major hit in the U.S. Toshiba was selected as a main supplier of IC cards to Barclays Bank, a leading British commer- cial bank. Digital Media Equipme In portable PCs, Toshiba is firmly posi- tioned as the world’s leading supplier. The achievement reflects a truly world- class competitive lineup, including the company’s ultra-slim A-4 and B-5 sized models. Today, 18% of portable PC us- ers worldwide use a Toshiba—almost one in five. Underpinning this market leadership is the company’s high-density packaging technology and the sophisticated expertise Page 12. TOSHIBA ANNUAL REPORT 1999 and components Toshiba puts into its work equipment and other products, they In the Japanese cellular market, the storage devices and other PC peripherals. allow Toshiba to deliver optimal systems company offers Personal Digital Cellular In 2.5-inch HDD and CD-ROM drives, solutions that match customer needs. (PDC) terminals and cdmaOne terminals Toshiba is a world leader. And in high- capacity DVD-ROM drives, where rapidly expanding demand is forecast to overtake the CD-ROM drive market in 2000, Toshiba is outpacing the rest of the world in product development. The high-end features and functional- ity of Toshiba’s MAGNIA series of PC servers achieve the highest level of reli- ability—a prerequisite for success in this demanding product segment. Combined with its expertise in notebook PCs, net- This portable cdmaOne cellular phone offers superb sound quality. nt & Services Company that excel in sound quality. The company has also been selected to supply next- generation devices to NTT Mobile Com- munications Network, Inc. and has already started to develop terminals. In the U.S., Toshiba enjoys a solid position through an OEM relationship with Audiovox Corpo- ration, as a supplier of both analog and digital devices. In the area of network communications, the company has devel- oped the PVX1000 cable modem for the North American market that supports high-speed Internet access utilizing CATV networks. Launches in Japan and other markets are planned. Another core business of the Digital Media Equipment & Services Company is The company is taking advantage of the immense business opportunities visual equipment, such as color TVs, DVD created by the convergence of information technology (IT) that encompasses PCs, mobile equipment, and computer networks and audio and visual technologies, and provides sophisticated hardware, software and services that propose new and exciting forms of entertainment and lifestyle. players, digital cameras and LCD data projectors. In the market for large-screen TVs, generally defined as models of 29 inches and over, flat picture tube models accounted for over 70% of the Japanese market in 1998. Toshiba enjoys strong sales in the segment, thanks to a broad lineup of models from 28 to 36 inches. What do CD-ROM drives, DVD-ROM drives and 2.5-inch HDDs have in common? They are all product fields where Toshiba is the top-selling name. Toshiba’s MAGNIA series of PC servers has earned a trusted reputation. Page 13. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Power Systems & Servi The ability to supply turnkey nuclear, thermal and hydroelectric power plants and substations enables the Power Systems & Services Company to support energy infrastructures around the world. Through strategic alliances with lead- ing manufacturers in Japan and overseas, the company is bolstering cost com- petitiveness, even as it continues development of next-generation technologies that will cement its position as a world leader in power systems. The combined-cycle Unit No. 7 at Chubu Electric Power’s Shin- Nagoya Thermal Power Plant started full-scale operations in December 1998. (Upper and lower photographs) Proton exchange membrane (PEM) fuel cells like these are expected to find applications in cars and homes of the future. Page 14. Continuous curbs on capital expenditures by Japan’s electric utilities are likely to limit domestic demand for power systems, but two encouraging trends point to the future. In the emerging economies, includ- ing China, Southeast Asia and Latin America, the company expects long-term TOSHIBA ANNUAL REPORT 1999 Toshiba produced the world’s first 550kV single-point switch- gear for a power transmission facility. ces Company In a world first, Toshiba replaced the reactor shroud at Unit No. 3 of Tokyo Electric Power’s Fukushima No. 1 Nuclear Power Station. Together, both partners are promoting development of global operations. Toshiba has a proud track record of achievement in hydroelectric power gen- eration, outdistancing other Japanese companies in winning market share in Asia. The company aims to sustain this leadership. High hopes are held for fuel cells as an environmentally benign source of elec- tricity. Toshiba excels in the development and commercialization of phosphoric acid fuel cells. Toshiba is also developing pro- ton exchange membrane fuel cells that are gaining wide attention as a future power source for vehicles and small facilities. In the power transmission business, Toshiba has won high marks worldwide for advanced technologies used in its demand for power infrastructures, from in thermal power generation. The alliance transformers and switchgear. We will seek generation to transmission and distribu- reinforces Toshiba’s competitiveness and further expansion in this business. tion. And amid efforts to forestall global sets the stage for the company to aggres- warming, nations are taking a second look sively seize global business opportunities. at the advantages of nuclear power genera- Two joint venture companies with GE, tion. This is an area where the company can in Japan and Mexico, began to manufac- point to a long list of achievements that will ture turbine airfoils for thermal power provide an invaluable introduction as steam generators in April and June 1999, Toshiba pushes into Asian markets. respectively. Toshiba is also allied with GE Bolstering technological development in the development, manufacture and capabilities and paring costs are crucial sale of next-generation combined-cycle preparatory measures for expanding systems. This technology combines gas global operations. To make progress in and steam turbines to raise operational both areas, Toshiba is expanding its strategic alliance with General Electric Company efficiency and operates at temperatures of up to 1,500(cid:176) C. Combined-cycle gener- (GE) of the U.S., a long-standing partner ation is also environmentally friendly. Page 15. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. The Advanced Microelectronics Center in Yokohama is the focal point for joint research with Fujitsu into 0.13-micron process technology, the basis for post next-generation semiconductors. Semiconductor Company Semiconductors are the vital building block for the coming digital society. The Semiconductor Company will advance active business expansion in system LSIs and other growth areas. In doing so, the company will utilize its advanced process technology, highly sophisticated product development capabilities, and experi- ence of selling a broad line of devices to customers around the world. The world semiconductor market posted negative growth in 1998, due to factors such as price erosion, particularly in memories, and sluggish demand for semi- conductors for consumer products. Look- ing ahead, growth is expected, particularly in logic devices and system LSIs for game consoles, network equipment, PDAs and communications equipment. Toshiba is shifting resources to these growth fields and backing them up by forming key stra- tegic alliances. Through these measures, the company will improve its ability to Toshiba is leading the industry in 128/144Mbit RambusTM DRAMs. Page 16. Hopes are high for SmartMedia, a de facto standard for digital still picture storage, to also find ap- plications in the recording of mu- sic and other types of content. TOSHIBA ANNUAL REPORT 1999 least 50% of the value of total semicon- ductor sales. As part of this drive, a joint- venture company was formed in June 1999 with Sony Computer Entertainment Inc., which holds the overwhelming share of the world’s home game console market. This new company will develop, manufac- ture and supply the high-speed CPU for Sony’s next-generation game console. Beyond this, Toshiba intends to position its TX System RISC, based on the archi- tecture of MIPS Technologies, Inc., as the main processor for such applications as networking and digital home appliances. Toshiba also intends to reinforce its position in the discrete semiconductor business. This business generates stable T o s h i b a t e a m e d up with Sony Com- puter Entertainment to develop the 128- bit high-speed CPU for that company’s n e x t - g e n e r a t i o n home game console. generate stable revenues and bolster cost SRAMs and flash memories, particularly earnings and is an area where Toshiba competitiveness. SmartMedia, the high-capacity data storage holds the number one share worldwide. In the price-competitive memory mar- medium based on NAND flash memory In R&D, Toshiba aims to share devel- ket, Toshiba is redirecting its attention to pioneered by Toshiba. It is already the de opment costs with other companies and building a strong presence in products facto standard storage device for digital shorten the time taken to bring new prod- offering higher profitability. While still cameras, and will get a further boost ucts to market. In this vein, Toshiba Toshiba leads in high-speed synchronous in summer 1999, when the company started joint development with Fujitsu DRAM and RambusTM DRAM, it is also commercializes a 64 megabyte SmartMedia Limited in December 1998 of 0.13-micron expanding into non-PC markets, such as card that will double the current capacity. process technology for 1-gigabit DRAM those for mobile communications and net- SmartMedia is highly versatile and is class devices. Toshiba is also restructuring working. Joint development of Fast Cycle expected to find expanded applications in its worldwide network of production bases RAM (FCRAM) with Fujitsu Limited is such areas as recording music. from a global perspective in an effort to part of this endeavor. In terms of overall business structure, improve efficiency. In addition to these moves, Toshiba will the Semiconductor Company is shifting to promote development of a business model logic devices and system LSIs, where that is largely shielded from market growth is higher than in the overall semi- cycles, raising the share of memory prod- conductor market. By fiscal 2001, Toshiba ucts other than DRAM in order to boost aims for these products to account for at profitability. The prime drivers here are Page 17. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Toshiba’s new production line at the Fukaya Operations started manufacturing low-temperature polysilicon TFT LCDs in April 1999. Display Devices & Components Driven by the spirit of innovation, the Display Devices & Components Company is leveraging established product strengths to develop the three pillars to its business: LCDs, CRTs and batteries. With product cycles becoming ever shorter, the company is focused on delivering technologies and products that promote the breakthrough in performance and functions of sets and systems required by customers. The liquid crystal display (LCD) has steadily extended the scope of its market and applications as an alternative to the CRT, the result of technical advances and a high level of manufacturing efficiency and performance. Toshiba regards LCDs as a strategic market where it can utilize its Rapid growth in mobile equipment is boosting demand for lithium-ion and other recharge- able batteries. Page 18. Burgeoning digital broadcasts are likely to lead to more demand for large-format flat panel displays as well as CRTs. Toshiba is ready to meet this, thanks to a June 1999 agreement with Canon Inc. on joint devel- opment of Surface Conduction Electron Emitter Displays (SED). In terms of brightness, contrast, cost and power con- sumption, SED enjoys distinct advantages over the plasma display panels (PDP) some companies are now promoting. In batteries, Toshiba is concentrating on rechargeable batteries and reinforcing its production capacities for NiMH and lithium-ion batteries. The company cur- rently ranks third in rechargeable batteries, and is consolidating its R&D, product development and materials teams to advance the market trend to thinner, higher capacity batteries. TOSHIBA ANNUAL REPORT 1999 The Toshiba-developed Super Brightron flat picture tube produces dis- tortion-free images with crystal-clear realism. Company superior technology and maintain its In Japan, satellite broadcasts are bring- overall competitive edge through differ- ing viewers more channels and spurring entiation, and will continue to direct ma- demand for large-screen TVs. Toshiba has jor resources to this business. a broad lineup, from 28-inch to 36-inch Toshiba is a leader in developing and models, all taking full advantage of the bringing to market low-temperature company’s Super Brightron flat picture polysilicon TFT LCDs, superior displays in tube. Toshiba has demonstrated that it is terms of resolution, power consumption one of only a few manufacturers capable and high levels of integration. Toshiba of supplying flat picture tubes on a global already has a product line-up ranging from scale, and is taking full advantage of this 2.7 to 11.3 inches, and start-up of a new position to supply flat CRTs to many lead- production line at the Fukaya Operations ing home appliance manufacturers. in April 1999 is helping the company to maintain its industry leadership. Page 19. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Picture Archiving and Communications Systems (PACS) comprehensively manage digital imaging information from CTs, MRIs and other equipment. Medical System Toshiba is one of the world’s leading suppliers of medical equipment, particularly diagnostic imaging modalities such as X-ray diagnostic equipment, CT scanners, and diagnostic ultra- sound systems. In addition to the latest equipment for medical facilities worldwide, the company is delivering total solutions for the information age, including comprehensive Hospital Informa- tion Systems (HIS) and Picture Archiving and Communications Systems (PACS). Toshiba excels in CT scanners, which take cross-sectional views of the human body. A 50 percent share of the domestic mar- ket, the number one position, is comple- mented by a 25 percent share of the world market. With Aquilion, the world’s fastest CT scanner, the company has dramatically shortened scanning time and further con- tributed to improved image diagnostics. Aquilion is also designed to accommodate OPART, Toshiba’s open, super- conducting, cryogenless MRI Page 20. TOSHIBA ANNUAL REPORT 1999 PowerVision 6000 ultrasound di- agnostic equipment In flat panel X-ray detectors—equipment that converts X-rays into digital images— Toshiba led the way in developing a detec- tor capable of generating both still and moving images much more precisely than those taken by other X-ray films or image intensifiers. This breakthrough technol- ogy will reach the market in 2000. Shorter X-ray examination times are just one ben- efit. Others include the ability to send and receive images through networks and the elimination of labor-intensive, space- consuming X-ray film storage, freeing hospitals to concentrate on more impor- tant tasks. The result: greater efficiencies. Looking ahead, it is clear that improved diagnostic efficiency, the need for rational- s Company the new multislice technology Toshiba Toshiba’s diagnostic ultrasound scanners ization and the greater use of information has developed and which can scan 12 offer a variety of transducers and software systems will all impact on hospital man- cross-sectional images in a second—by far supporting use in a wide range of diagnos- agement. Toshiba aims to evolve from a the fastest scanning speed ever achieved. tic applications—not only cardiac and ab- leader in diagnostic imaging equipment to Chest examinations that now take 30 sec- dominal imaging, but also endo-cavity become an information-driven total solu- onds will soon be done in just four. observation in obstetrics, gynecology and tions provider. The Medical Systems Aquilion, which is already in use in the urology. Company will achieve this by delivering University of Iowa in the U.S. and other In the U.S., which has the highest mor- comprehensive Hospital Information facilities, is being lauded for significantly tality rate from heart disease in the world, Systems (HIS), Radiology Information shortening examination times and open- the Methodist Heart Center is reaping Systems (RIS) and Picture Archiving and ing the way to new clinical applications. benefits in improved diagnostic efficiency Communications Systems (PACS) that In diagnostic ultrasound systems, from Toshiba’s digital X-ray diagnostic draw on state-of-the-art digital imaging Toshiba continues to introduce a steady systems. It has also improved archiving technologies. Ultimately, Toshiba will stream of competitive products that pre- and storage efficiency through use of elec- offer much more than just sales and main- serve its position atop the world ranking. tronic image information processing. The tenance services. PowerVision 6000 and MiniVision (Just Methodist Heart Center reported cost Vision in overseas markets) are recent savings of US$230,000 in the first year after products that have won high marks. introducing Toshiba’s CAS-8000V/cx. Page 21. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. Home Appliances Company The “Miharibanko” refrigerator employs a “twin cooler format” to keep food fresh for twice as long while cutting power con- sumption. By using sophisticated inverter tech- nology, the ER-GS8 microwave oven cuts the time needed to prepare food. Page 22. The binding concept is to develop products that will provide solutions to people’s needs by capitalizing on advanced inverter control and motor technologies. Refrig- erators, a company mainstay, are posting strong sales on the back of strong demand for “Miharibanko.” Rave reviews welcomed its temperature stability, high operating efficiency, and “twin cooler format”—two specialized refrigeration units, one for freezing and the other for chilling—that operate alternately and keep food fresh for twice as long. TOSHIBA ANNUAL REPORT 1999 The “DD Inverter Washing Machine” raising efficiency through a new system of In readying for global advancement, was a huge hit in 1998. The secret of its supply chain management. The company is Toshiba is fully aware of the importance success was a proprietary DD inverter also preparing for aggressive development of marketing strategies that reflect re- motor that cut noise to a whisper and won of the growing markets of ASEAN, China, gional and national differences in culture the custom of singles, working couples India and other promising regions. and lifestyle. In Africa and the Middle and and other consumers who wanted to do laundry even late at night. The Japanese market for home appli- ances is matured, but that does not mean Toshiba is standing still. As it develops in- novative products, the company is also ex- tending the scope of its business to new areas, such as component supply, and is This stick-type vacuum cleaner uses an air-cycle system to efficiently clean surfaces. The Home Appliances Company contributes to raising the quality of life as a major supplier of innovative refrigerators, washing machines and small household appliances. Development and commercialization of products and services that provide real solutions to consumer needs is allowing the company to reinforce its operations in Japan and to pursue globalization through international alliances. Near East, Toshiba formed a production and sales alliance for washing machines and refrigerators with Egypt’s El Araby Co. In May 1999, Toshiba entered an alliance with the Scandinavia-based AB Electrolux, the world’s largest household appliance manu- facturer. The agreement covers technology exchanges, joint product development, product sourcing and purchasing, envi- ronmental issues and other forms of cooperation. Through these measures, the company aims to reinforce domestic operations and advance global strategies. Featuring the Toshiba- developed DD inverter motor, this washing machine is the indus- try’s quietest. Page 23. TOSHIBA ANNUAL REPORT 1999 A NEW LOOK. A NEW TOSHIBA. A steady stream of high-value products promote the company’s strategy of close cooperation with its affili- ated companies to provide total solutions for buildings and other facilities, including upgrades and maintenance for installed equipment. From this base, the company is proactively promoting expanded overseas business. Elevator and Building Sy T h e s e o b s e r v a t i o n elevators are a popular attraction at MIELPARQUE NAGANO in the city that hosted the 1998 Winter Olympics. The business environment surrounding the Elevator and Building Systems Com- pany is challenging: construction demand in Japan is stagnant and economic condi- tions are sluggish in Southeast Asia, the Shanghai’s SENMAO International Build- ing uses Toshiba’s double-deck eleva- tors. Page 24. TOSHIBA ANNUAL REPORT 1999 Toshiba’s elevators and escalators serve the Saga Airport, which opened in July 1998, on Japan’s western island of Kyushu. stems Company The Taipei Financial Center, which has opted to use Toshiba elevators and esca- lators, is poised to be one of Asia’s sym- bols in the 21st century. (Artist’s depiction) Continuing demand for infrastructure development in China and Southeast Asia holds out promise. In China, forecasts promise rapid growth, and Toshiba is making steady gains in the elevator and escalator markets through local produc- tion and sales subsidiaries in Shanghai and Shenyang. In Southeast Asia, alliances with leading distributors are at the core of Toshiba’s drive to achieve significant gains in sales. Toshiba has racked up a number of accomplishments. Sets of double-deck elevators serve the Shanghai SENMAO International Building, a high-rise that has added a new landmark to the Shanghai skyline. In April 1999, the company won an exclusive order for a total of 97 eleva- tors and escalators for the Taipei Financial Center, including the world’s fastest result of unease surrounding financial Orders have already topped 1,000 units elevators that run at a maximum speed of systems. Nevertheless, Toshiba is work- since marketing started in Japan in August 1,000 meters per minute. On completion ing to expand its markets not just in Japan 1998, a result that can be attributed to a in 2002, the building will vie for the title but overseas. Electronic control, systems concentration on energy savings and of the world’s tallest building. Toshiba technologies and other fields in which the greater design freedom. These are benefits was lauded for its high value-added prod- company is adept are a central part of this the company will use to promote a contin- ucts and technologies, which make maxi- strategy and will allow the company to ued expansion of the business. Toshiba mum use of its knowledge of electronic deliver value-added products. will offer optimum systems to meet a control technologies. Toshiba launched the SPACELTM new- growing requirement for wheelchair lifts generation space-saving elevators in Japan. and escalators in station buildings and This elevator, a result of collaboration public facilities in line with Japan’s gray- with Kone Corp. of Finland, requires no ing population and consideration for the machine room and was an instant success. physically challenged. Page 25. TOSHIBA ANNUAL REPORT 1999 FINANCIAL HIGHLIGHTS Toshiba Corporation and its subsidiaries Years ended March 31, 1999 and 1998 Millions of yen 1999 1998 Net sales – Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,184,764 2,116,138 ¥3,418,807 2,039,691 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interest . . . . . . . . . . Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development expenditures . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300,902 30,483 11,218 (13,896) 316,703 6,023,557 1,050,336 5,458,498 82,294 18,748 7,337 322,928 6,062,141 1,201,615 Thousands of U.S. dollars 1999 $26,320,363 17,488,744 43,809,107 251,926 92,711 (114,843) 2,617,380 49,781,463 8,680,463 Yen U.S. dollars Per share of common stock: Net (loss) income – basic and diluted . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(4.32) 6.00 Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,000 ¥ 2.28 10.00 186,000 $(0.036) 0.050 Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥121=US$1. 2. Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share assumes the dilution that would occur if dilutive convertible debentures were converted into common stock. 3. The company has not adopted Statement of Financial Accounting Standards (SFAS) No. 115 “Accounting for Certain Investments in Debt and Equity Securities” which became effective for the fiscal year beginning April 1, 1994. The effects on the consolidated financial statements of not adopting SFAS No. 115 and the disclosures required by SFAS No. 115 are summarized in a note to the consolidated financial statements. Net Sales (¥ billion) Net Income (¥ billion) Shareholders’ Equity (¥ billion) 6,000 5,000 4,000 3,000 2,000 1,000 80 60 40 20 0 1,500 1,200 900 600 300 Mar. 97 98 99 Mar. 97 98 99 Mar. 97 98 99 Page 26. REVIEW OF OPERATIONS TOSHIBA ANNUAL REPORT 1999 INFORMATION & COMMUNICATION SYSTEMS Sales in this segment increased 3 percent to ¥2,247.3 billion (US$18,573 million) and rose 2 percent to 38 percent of total sales. Portable PCs performed well, mainly outside Japan, retaining Toshiba’s number-one market share worldwide for the fifth consecutive year. Results were aided by reduction Net Sales (¥ billion) 2,500 2,000 1,500 1,000 500 (%) 100 80 60 40 20 Mar. 97 98 99 Sales Annual Increase (%) Share of Net Sales Mar. ’97 35.1 ’98 35.8 % ’99 37.8 Note:Segment sales include intersegment transactions. of excess inventory in the United States and a favorable expansion of demand in Europe. In July 1998, Toshiba introduced DynaBookSS PORTEGE 3000, a new, slim notebook PC that delivers advances in perfor- mance and simple operation in an easily portable format. The B5-sized PORTEGE is the world’s slimmest at 19.8mm—and the lightest at about 1.19kg. The new series has earned many accolades, including MVP Product of the Year at COMDEX/Fall ’98, the world’s largest computer exhibition. In the field of storage devices for computer peripherals, demand is rap- idly shifting from CD-ROMs, where Toshiba is the world’s largest supplier of drives, to DVD-ROM drives, where Toshiba aims to secure a market share of about 30 percent. The company is concentrating on developing the leading-edge, high-quality products needed to offer the reliability users expect. In the HDD market, Toshiba is at the forefront of progress in boost- ing recording density. One recent model, a mere 12.5mm thick, uses GMR heads to boost capacity to 10GB on 2.5-inch HDDs. In mobile communications equipment, Toshiba is benefiting from a surge in demand in Japan to purchase upgraded handsets that accommodate e-mail and other new services. In North America, the rapid shift from analog to digital technology is presenting more opportunities. These trends enabled Toshiba to achieve good results with its CDMA handsets. The plain paper copier sector was transferred to TEC Corporation on January 1, 1999. This move was made to unify the image processing and telecommunica- tions technologies used in copiers, facsimiles and printers in a single company. Toshiba is now better able to plan and develop models at the speed necessary to stay ahead of changes in the market. Concurrent with this transfer, Toshiba raised its ownership of TEC Corporation over 50 percent and renamed the company Toshiba TEC Corporation. In medical systems, Toshiba made headlines by becoming the first in the world to deliver the basic technology for multislice helical CT scanning. Cumulative sales of Toshiba’s CT scanners reached the 10,000th unit in September 1998. Page 27. TOSHIBA ANNUAL REPORT 1999 ELECTRONIC DEVICES & MATERIALS Segment sales decreased 7 percent to ¥1,250.8 billion (US$10,337 million) and declined 1 percent to 21 percent of total sales. In semiconductors, the market for DRAMs, particularly 64M DRAMs, was plagued by rapidly falling prices, sluggish demand for consumer products due to weakness in the Asian economies and a prolonged adjustment in production of mobile communications products. Logic ICs, discrete devices and other products also remained sluggish. The overall result was a substantial drop in the total semiconductor market compared with the previous year. At Toshiba, semiconductor sales were down for the third year in a row, (%) 18 12 6 0 falling 13 percent to ¥760.0 billion. Toshiba increased emphasis on logic devices and initiated full-scale production of DRAM-embedded logic devices using 0.25-micron processes. Additionally, steps were taken to raise sales of system LSIs for graphics and other demanding applications. Exemplifying this drive was the completion of development of a new microprocessor with Sony Computer Entertainment Inc. for its next-generation game console. The world’s first 128-bit micropro- cessor, this device is capable of processing immense volumes of multimedia data at very high speeds. A production joint venture company located at Toshiba’s Oita Operations was formed by the two partners in June 1999. In memory devices, projections continue to indicate more growth in -6 demand despite the recent sharp drop in sales. Expansion will be propelled by Net Sales (¥ billion) 1,500 1,200 900 600 300 Mar. 97 98 99 Sales Annual Increase (%) Share of Net Sales Mar. ’97 21.0 ’98 22.0 % ’99 21.0 Note:Segment sales include intersegment transactions. progress in multimedia applications that fuse data, communications and im- aging functions. At its Yokkaichi Operations, Toshiba is currently producing 128M DRAMs on a commercial scale. Toshiba has strengthened its partner- ship with Winbond Electronics Corp. to cover technology transfer of 256M DRAMs, in addition to the relations in 16M and 64M DRAMs. Applications for Toshiba’s NAND EEPROM flash memories are grow- ing. Currently used mainly to store images in digital still cameras, these devices are expected to gain acceptance as a music storage medium, too. Anticipating higher demand, Toshiba commercialized a 256M flash memory during the fiscal year. Global demand for color picture tubes is expanding at an annual rate of 3 to 4 percent with growth most pronounced in the larger size models. In Japan, the market for TVs with flat picture tubes, especially 29 inches and larger, is growing rapidly. To position itself in the mainstream of this market, Toshiba has added 29-inch and 36-inch models to its line of 28-inch and 32-inch flat-surface CRTs. Page 28. TOSHIBA ANNUAL REPORT 1999 In liquid crystal displays (LCDs), Toshiba focused on improving resolution and bril- liance while enhancing reliability by using fewer parts. The company demonstrated its technological leadership by commercializing the world’s first low-temperature polysilicon TFT LCDs. Both power consumption and thickness are lower than in conven- tional amorphous LCDs. This revolutionary color display, already launched and adopted by set customers, ranges in size from a 4-inch type for PDAs to 8.4 inches for mobile terminals and 10.4 inches for notebook PCs. Mass production started in March 1999 and the sharp images and vivid colors of the displays have already won excellent reviews. POWER & INDUSTRIAL SYSTEMS Sales in this segment were down 12 percent to ¥990.0 billion (US$8,182 million). Both power plants and equipment and industrial equipment were hurt by low capital spending in Japan and the lingering effects of Asia’s economic downturn. Total orders received for power generation equipment and systems substantially declined against the previous year. Large orders awarded include inspection and upgrad- ing work at Fukushima No. 1 Nuclear Power Station, operated by Tokyo Electric Power (%) 20 10 0 -10 Co., Inc.; generating equipment for the Hekinan Thermal Power Station op- erated by Chubu Electric Power Co., Inc.; and construction of the Callide Thermal Power Station in Australia. Toshiba plans to seek business opportu- nities throughout Asia in an effort to raise the volume of orders. One high- light of the year was the October 1998 completion of replacement of a reactor shroud at Unit No. 3 of Fukushima No. 1, the first project of its kind in the world. In power transmission, Toshiba demonstrated its technical edge by deliv- ering a new type of GIS equipped with the world’s first 550kV single-point circuit breaker (GCB) to the Nishishimane Substation of Chugoku Electric Power Co., Inc. and other facilities. Following up on a major backlog of orders for hydroelectric power contracts in Vietnam and the Philippines, Toshiba captured a large order from the Power Authority of Indonesia. Net Sales (¥ billion) 1,200 900 600 300 Mar. 97 98 99 Toshiba thus retained its position as Japan’s largest supplier of hydroelectric Sales Annual Increase (%) power systems. Share of Net Sales Mar. ’97 18.9 ’98 18.3 % ’99 16.6 Note:Segment sales include intersegment transactions. To preserve superiority in thermal power generation, Toshiba has formed an alliance with General Electric Company in the field of next-generation, combined-cycle generation systems that employ 1,500(cid:176) C-class gas turbines. The two companies are cooperating in the development of the component Page 29. TOSHIBA ANNUAL REPORT 1999 systems as well as their manufacture, sale and maintenance worldwide. This gives Toshiba an enormous advantage in promoting this technology to prospective users in Asia and other parts of the world. In the industrial systems sector, one major achievement of the year was the delivery of main power conversion systems and other key components for The 700 Series Shinkansen trains for the Central Japan Railway Company. In the elevators and escalators business, Toshiba made vigorous marketing activities through the launch of differentiated products, including reinforcement of its lineup with SPACELTM, a new type of elevator that requires no separate room to house machinery. CONSUMER PRODUCTS Sales of consumer products were about the same as in the previous fiscal year at ¥1,040.4 billion (US$8,599 million). Although overall domestic sales declined due to lackluster consumer spending and slow housing construction, Toshiba was able to record increased sales of washing machines by introducing highly competitive products. Overseas, large- screen TVs were popular. In refrigerators, Toshiba launched the “Miharibanko” in November 1998 with much success. This model features a “twin cooler format”—two specialized refrigeration units, one for freezing and the other for chilling, that raise efficiency. Another feature is the ability to keep food fresh for twice as long as conventional Net Sales (¥ billion) 1,200 900 600 300 (%) 20 10 0 -10 Mar. 97 98 99 Sales Annual Increase (%) Share of Net Sales Mar. ’97 18.9 ’98 17.0 % ’99 17.5 Note:Segment sales include intersegment transactions. refrigerators. In washing machines, the “DD Inverter Washing Machine,” which holds noise to extremely low levels and uses a proprietary DD inverter motor, was a huge hit in 1998. Single people and families where both partners are work- ing, among other consumers, appreciate the fact that they can do their laun- dry late at night without disturbing their neighbors. Underpinned by such products that address people’s needs, Toshiba was able to achieve significant market share gains in almost all white goods. In TVs and other video products, Toshiba recorded strong sales of large- screen TVs in North America, thus maintaining total sales at approximately the same level as in the previous fiscal year. Consumer demand in Japan is increasing for larger, flatter and higher resolution TVs. By targeting these trends, Toshiba was able to post a positive performance amid persistently soft demand in Japan with its FACE series of TVs that feature Toshiba’s own flat picture tube. Page 30. TOSHIBA ANNUAL REPORT 1999 In air conditioners, Toshiba unveiled the “Daiseikai,” the first-ever model in its class to have a full-fledged air cleaner, and the new R410A coolant that does not damage the ozone layer. Enthusiastic consumer evaluation of the product helped lift Toshiba’s market share. In order to create a robust and more stable foundation for air-conditioner operations, Toshiba entered into a joint venture agreement with Carrier Corp. of the U.S., the world’s largest manufacturer of air conditioning equipment, in August 1999. The two companies established a joint venture company, Toshiba Carrier Corporation, which started operations in April 1999. The new company will seek to improve competitiveness in the global market, combining the technology, manufacturing and marketing and sales resources of the two partners. Despite the current difficulties, all indications point to a solid and prolonged recovery in demand for visual and other consumer products in Asia. Based on this outlook, Toshiba established Toshiba Digital Consumer Technology Centre in Singapore to develop next-generation digital products for the region. Research in hardware and soft- ware performed at the center will be transformed into digital TVs, digital broadcasting tuners, DVD products and many other innovative products. Major businesses in this segment are leasing and other financial services, real estate leasing and sales, and logistics. Segment sales increased 1 percent compared with the previous year, to ¥423.8 billion (US$3,503 million). SERVICES & OTHER Net Sales (¥ billion) 500 400 300 200 100 (%) 100 80 60 40 20 Mar. 97 98 99 Sales Annual Increase (%) Share of Net Sales Mar. ’97 6.1 ’98 6.9 % ’99 7.1 Note:Segment sales include intersegment transactions. Page 31. RESEARCH & DEVELOPMENT TOSHIBA ANNUAL REPORT 1999 Amid today’s increasing pace of technology innovation, creating and sustain- GLOBALIZATION OF R&D ing corporate value in the 21st century demands R&D capabilities that can Globalization and mega-competition in first of all generate products and services firmly grounded in market needs, and then assure that they are commercialized and brought to the market in a timely fashion. key industries are making themselves felt in R&D, too. Recognizing this, Toshiba set up two new information and communica- tions laboratories outside Japan in fiscal R&D Expenditures (¥ billion) 400 300 200 100 Mar. 97 98 99 Proportion of Net Sales Mar. ’97 6.0 ’98 5.9 % ’99 6.0 In line with the April 1st com- 1998, forming a tripolar structure. pany-wide reorganization to Toshiba America Research, Inc. was the in-house company sys- established in New Jersey in December tem, Toshiba changed its 1998. With Telcordia Technologies, for- R&D structure to shorten merly Bellcore, a leading US infrastruc- lead times from research to ture developer, the lab is researching commercialization. A major next-generation Internet and networking change was to shift more re- technologies. In Europe, the Telecommu- searchers to the individual nications Research Laboratory was estab- labs supporting the in-house lished in Bristol, England, in July 1998 to companies. This crystallized a research communication protocols and commitment to speeding up wireless access technologies for next- time to market for new prod- generation mobile communications. ucts and to meeting the mar- ket needs properly. THE WORLD’S THINNEST IC The corporate R&D Center PACKAGE is charged with responsibility for develop- With its Paper-Thin Packages, Toshiba ment of common technology platforms has developed the world’s thinnest, light- supporting different business segments, est semiconductor packages. Thinner than market-oriented basic research, and the a business card at a mere 0.13mm, they are development of core technologies that will about one-tenth the thickness and weight contribute to the entire Toshiba Group. April also saw the establishment of the Corporate Development Center within the head office, which is charged with pro- viding strong promotion of new projects and business development involving more than one in-house company under corpo- rate initiatives. Page 32. TOSHIBA ANNUAL REPORT 1999 of standard TSOP packages and offer CO 2-ABSORBING CERAMIC CAN CUT MOBILE MOTION™—MPEG-4 VIDEO much-improved mountability. The pack- EMISSIONS STREAMING SYSTEM age meets needs for higher density ICs offering larger capacities, and are a perfect Reducing emissions of carbon dioxide Toshiba has developed Mobile Motion™, (CO2) is a cornerstone of efforts for envi- the world’s first MPEG-4 video streaming response to burgeoning demand for ronmental protection. In April 1998, system. MPEG-4 is a next-generation smaller portable products with higher Toshiba developed a ceramic material video signal compression standard that performance. able to absorb 400 times its own cubic was approved in February 1999 by the In- volume of CO2—more than ten times ternational Organization for Standardiza- REAL-TIME 3D IMAGE RECOGNITION AND PROCESSING Real-time recognition and display of 3D images on PCs became a reality in July 1998. The company’s new technology can accurately distinguish moving objects from their background, including the human body or a pair of hands. It opens the way to gesture-based interfacing with tion (ISO). MPEG-4 is highly resistant to errors and incorporates media object- based coding. Mobile Motion™ was cre- ated specifically to prevent signal degradation when sending video trans- missions over the Internet and other low- bit-rate networks. A pre-filter eliminates the noise that is a byproduct of all MPEG compression and a post-filter raises the PCs, an approach enjoying advantages of that of any previous material. And as it compression rate. Furthermore, a propri- greater simplicity and higher speeds than the voice or other methods. Ease-of-use does so at temperatures between 450- 700(cid:176) C, the ceramic is ideal for the high etary rate control mechanism ensures uni- form intervals between frames to and flexibility promise a high-potential temperature environments of thermal maintain smooth motion during playback. alternative to the keyboard or mouse for power plants and automobiles, the main input to PCs. Toshiba is investigating this source of CO2 emissions. Subsequent with a prototype motion processor. development of a second ceramic material with similar characteristics confirms that Toshiba is on the way to a promising solution to a pressing problem. Page 33. ENVIRONMENTAL INITIATIVES TOSHIBA ANNUAL REPORT 1999 Involvement in a diverse range of businesses, including consumer products philosophy is applied across a broad range and power generation systems, prompts Toshiba to place environmental initiatives among the most important management issues, and to promote group-wide environmental protection activities that enter all aspects of business operations. Toshiba makes efficient use of valuable resources by promoting development of environmentally-friendly, energy-saving prod- ucts, and is extending green procurement and recycling programs. of products, from consumer products to communications equipment and power systems. READY FOR RECYCLING In April 2001, a new law will come into RESPECT FOR THE ENVIRONMENT force and make home appliance companies A key policy in product development is responsible for recycling the TVs, refrig- the creation of environmentally-friendly erators, washing machines and air condi- products that impose the smallest possible tioners they manufacture. Toshiba is environmental loads throughout their proactively involved in a company-wide lifecycle—from material procurement initiative to establish an efficient recycling through manufacturing, distribution and system to reduce environmental impact. consumption to end-of-life and disposal. As early as December 1998, the com- An exhaustive environmental-impact pany established Nishinihon Consumer assessment at the development stage Electronics Recycle Co., Ltd. to investigate minimizes the resources used in a product, means to effectively dismantle disposed while power consumption, ease of recy- products, differentiate reusable materials cling and maximized reuse of materials af- from waste, and to produce reusable mate- ter disassembly and recycling are all given rials and collect and process CFCs and careful consideration. This development other harmful substances. The system will be put to the test when trial operations start in March 2000, followed by full-scale operations in April 2001. In the longer term, Toshiba plans to extend the scope of recycling to include PCs and other office equipment, and will continue to promote optimized design for recycling and improvement of dismantling tools. Toshiba Group’s symbol for environmental activities Page 34. TOSHIBA ANNUAL REPORT 1999 FIGHTING GLOBAL WARMING REDUCING USE OF CHEMICALS DECOLORABLE INK The fight against global warming has be- At a time of rising concern about hazard- Toshiba has developed a decolorable ink, come a worldwide common cause. Toshiba ous chemical substances entering the en- which allows decoloring of printed materi- is addressing this issue through develop- vironment, particularly dioxins, Toshiba als exposed to heat or a special solvent. It ment of energy-efficient products and is reinforcing management of environ- uses a different decoloring principle from energy-saving initiatives in its facilities mentally relevant materials and reduc- that developed by other companies, which and offices. Toshiba’s target goal is to cut tion of harmful chemical substances. require individual sheets to be erased one energy consumption measured against net Since 1989, Toshiba has operated its own by one, and supports bulk decoloring. A sales by 15 percent by fiscal 2000, with chemical material management system. commercialized version of the system is fiscal 1990 as the base year, and to reduce The current focus of management efforts expected to simplify paper recycling and carbon dioxide emissions measured is elimination of environmental pollut- to reduce its cost, and will promote a against net sales by 25% in fiscal 2010, ants, and efficient data collection and re- higher recycling rate for reused paper. with fiscal 1990 as the base year. porting in compliance with the Pollutant Release and Transfer Register (PRTR) system. With its emphasis on controlling chemical movements and emissions, adoption of PRTR marks an essential, Group-wide shift away from managing the quantity of chemical substances used to a quantitative understanding of the volume of emissions. A super-cogeneration system at the company’s Fuchu Operations fuses a gas-turbine cogenera- tion system with an ice heat storage system that uses inexpensive nighttime power. The principles of decoloration and development Page 35. BOARD OF DIRECTORS TOSHIBA ANNUAL REPORT 1999 TAIZO NISHIMURO* President and Chief Executive Officer and Director MASAICHI KOGA* Director TETSUYA YAMAMOTO* Director MASANOBU OHYAMA* Director TETSUO MACHII* Director TOMOHIKO SASAKI Director AKINOBU KASAMI Director KIYOAKI SHIMAGAMI* Director TADASHI OKAMURA Director KOZO WADA Director YASUO MORIMOTO Director KOSAKU INABA Director EXECUTIVE OFFICERS President and Chief Executive Officer Senior Executive Vice Presidents Executive Vice Presidents Senior Vice Presidents CORPORATE AUDITORS TAIZO N ISHIMUR O Vice Presidents MASAICHI KOGA TETSUYA YAMAMOTO MASANOBU OHYAMA TETSUO MACHII TOMOHIKO SASAKI AKINOBU KASAMI KIYOAKI SHIMAGAMI TOSHIKI MIYAMOTO TADASHI OKAMURA KOZO WADA MAMORU KITAMURA HARUO KAWAHARA TETSUYA MIZOGUCHI YASUO MORIMOTO TAKESHI IIDA YUJI KIYOKAWA ATSUMI UCHIYAMA MASAYOSHI MOTOKI KENJIRO HAYASHI KAZUO CHIBA OSAMU MIMURA Page 36. *Representative Director MAKOTO NAKAGAWA MOCHIHIRO NAKAZAWA TOSHIYUKI OSHIMA HIROO OKUHARA HARUO NAKATSUKA SUSUMU KOHYAMA ATSUTOSHI NISHIDA TADASHI MATSUMOTO HIROSHI NISHIOKA TAKESHI NAKAGAWA KAORU KUBO MASAKI MATSUHASHI MASAHIKO HASEGAWA (As of June 25, 1999) MANAGEMENT’S DISCUSSION & ANALYSIS TOSHIBA ANNUAL REPORT 1999 FIVE-YEAR SUMMARY Toshiba Corporation and its subsidiaries Years ended March 31 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interest . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . Net (loss) income . . . . . . . . . . . . . . . . . . . . Per share of common stock: Net (loss) income— Millions of yen, except per share amounts 1999 1998 1997 1996 1995 ¥5,300,902 3,890,622 ¥5,458,498 3,960,158 ¥5,521,887 3,932,585 ¥5,192,244 3,647,624 ¥4,864,015 3,435,146 1,379,797 30,483 1,416,046 82,294 1,391,471 197,831 1,282,053 262,567 1,260,053 168,816 11,218 25,494 (13,896) 18,748 24,475 7,337 ¥ 2.28 2.28 10.00 125,456 71,593 67,077 177,749 102,965 90,388 120,674 67,607 44,693 ¥20.84 20.06 10.00 ¥28.08 26.85 10.00 ¥13.89 13.54 10.00 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . ¥(4.32) (4.32) 6.00 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . ¥6,023,557 1,050,336 ¥6,062,141 1,201,615 ¥5,809,285 1,264,775 ¥5,560,484 1,202,265 ¥5,463,290 1,118,808 Capital expenditures (property, plant and equipment) . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . R&D Expenditures . . . . . . . . . . . . . . . . . . . Number of employees . . . . . . . . . . . . . . . . 375,464 309,836 316,703 198,000 339,584 291,418 322,928 186,000 341,020 252,732 332,555 186,000 308,653 261,985 314,774 186,000 293,823 283,575 302,171 190,000 Notes: 1. Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share assumes the dilution that would occur if dilutive convertible debentures were converted into common stock. 2. The company has not adopted Statement of Financial Accounting Standards (SFAS) No. 115 “Accounting for Certain Investments in Debt and Equity Securities” which became effective for the fiscal year beginning April 1, 1994. The effects on the consolidated financial statements of not adopting SFAS No. 115 and the disclosures required by SFAS No. 115 are summarized in a note to the consolidated financial statements. RESULTS OF OPERATIONS Net Sales Consolidated net sales in fiscal 1998, the year ended March 31, 1999, decreased 3 percent compared to the previous year, to ¥5,300.9 billion (US$43,809 million). This decline was primarily attributable to three factors. First was a sudden drop in sales prices for semiconductor memories and sluggish demand for logic ICs and semiconductors used in consumer products. Second was a decline in demand for systems from corporate customers due to reduced private-sector capital expenditures in Japan. Third was soft sales of power and industrial systems. The average U.S. dollar exchange rate for sales rose from ¥122 in fiscal 1997 to ¥130 in fiscal 1998. Overall, foreign exchange movements had the net effect of increasing net sales by ¥60.0 billion. Consolidated data include the results of 219 subsidiaries in Japan and 102 overseas subsidiaries. By region, sales in Japan decreased 7 percent to ¥3,184.8 billion (US$26,320 million). In contrast, overseas sales increased 4 percent to ¥2,116.1 billion (US$17,489 million) and accounted for 40 percent of total sales, up from 37 percent in the prior fiscal year. Overseas production increased from ¥940.0 billion in fiscal 1997 to ¥1,040.0 billion (US$8,595 million) in fiscal 1998. This accounted for 49 percent of overseas sales. Page 37. TOSHIBA ANNUAL REPORT 1999 INFORMATION & COMMUNICATION SYSTEMS—Sales increased 3 percent from the previous year to ¥2,247.3 billion (US$18,573 million). Overseas sales climbed 12 percent to ¥1,057.1 billion (US$8,736 million), while domestic sales decreased 4 percent to ¥1,190.2 billion (US$9,837 million). PC sales rose 7 percent to ¥740.0 billion (US$6,116 million) on the back of strong demand overseas. Sales of systems for broadcasting, communications and financial services were strong. However, sales of computer systems for the government and public sector and corporate clients fell. In medical systems, there was a slight increase in sales due to strong demand overseas. ELECTRONIC DEVICES & MATERIALS—Sales decreased 7 percent compared with the previous year, to ¥1,250.8 billion (US$10,337 million). Overseas sales dropped 7 percent to ¥610.2 billion (US$5,043 million) and domestic sales fell 6 percent to ¥640.6 billion (US$5,294 million). Sales of semiconductors and liquid crystal displays (LCDs) decreased 13 percent and 4 per- cent, respectively, to ¥760.0 billion (US$6,281 million) and ¥110.0 billion (US$909 million). Lower sales prices for semiconduc- tor memories, sluggish sales of logic ICs and semiconductors for consumer products, and lower LCD sales prices from early in the fiscal year to midyear were the main factors behind decreased sales. POWER & INDUSTRIAL SYSTEMS—Sales fell 12 percent compared with the previous year, to ¥990.0 billion (US$8,182 million). Overseas sales decreased 7 percent to ¥123.5 billion (US$1,021 million) and domestic sales dropped 12 percent to ¥866.5 billion (US$7,161 million). Sales of power plant and equipment and industrial equipment were down substantially due to curbs on domestic capital expenditures and weakness in Asian markets. CONSUMER PRODUCTS—Sales were almost the same as in the previous year at ¥1,040.4 billion (US$8,599 million). Over- seas sales increased 7 percent to ¥321.3 billion (US$2,656 million) and domestic sales decreased 3 percent to ¥719.1 billion (US$5,943 million). Weak consumer spending and housing investment was offset by sales growth in Japan for washing machines featuring innovative features and strong demand overseas for televisions. SERVICES & OTHER—Sales increased 1 percent compared with the previous year, to ¥423.8 billion (US$3,503 million). The marginal gain was attributable to increased procurement of raw materials from overseas and other factors. Net Sales by Region Years ended March 31 Millions of yen 1999 1998 1997 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,184,764 842,999 585,086 559,824 128,229 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,300,902 ¥3,418,807 794,241 627,328 496,309 121,813 ¥5,458,498 ¥3,523,636 852,214 595,209 439,346 111,482 ¥5,521,887 Note: Net sales by region are determined based upon the locations of the customers. Therefore, this information is different from the net sales for geographic segments in segment information on page 41, which are determined based upon where the sales originated. JAPAN—Sales in Japan decreased 7 percent from the prior fiscal year. Sales were down in all segments as the operating environ- ment, characterized by declining private-sector capital expenditures and sluggish personal consumption, continued to pose challenges. NORTH AMERICA—Sales rose 6 percent from the prior fiscal year on the back of higher PC sales, as Toshiba unveiled new products, and strong television sales were fueled by robust consumer spending. ASIA—Sales decreased 7 percent in this region from the prior fiscal year. In addition to soft demand caused by depression in Asian economies, sales prices of semiconductors for consumer products fell suddenly. EUROPE—Sales in Europe climbed 13 percent from the prior fiscal year. Although the pace of economic expansion continues to decelerate in this region, good sales of PCs and medical systems contributed to the improved result. Net Income Cost of sales decreased 2 percent to ¥3,890.6 billion (US$32,154 million). Selling, general and administrative expenses decreased 3 percent to ¥1,379.8 billion (US$11,403 million). Operating income was down 63 percent compared with the previous year, to ¥30.5 billion (US$252 million). Declines in prices of such important products as semiconductors outweighed progress made in raising manufacturing efficiencies and cost cutting, and reductions in expenses such as personnel and R&D. Information & communication systems posted a 120 percent increase in operating income compared with the previous year, Page 38. TOSHIBA ANNUAL REPORT 1999 to ¥94.7 billion (US$783 million). This was mainly attributable to significantly improved profitability in PCs. Electronic devices & materials had an operating loss of ¥68.7 billion (US$568 million), a sharp deterioration in profitability from the operating income of ¥40.5 billion recorded a year earlier. Lower sales prices for semiconductors, particularly for memories, hurt this segment. Power & industrial systems operating income was down 43 percent compared with the previous year, to ¥10.7 billion (US$88 million) in line with decreased sales. Consumer products recorded an operating loss of ¥31.2 billion (US$258 million), which was an improvement from the ¥45.3 billion operating loss of the previous year. This resulted from good overseas sales of TVs and improved profitability of washing machines and air conditioners in Japan. Services & other reported a 5 percent decrease in operating income to ¥23.4 billion (US$194 million). Toshiba estimates that the net effect of foreign exchange movements during the fiscal year was a ¥41.0 billion increase in operating income. This is due to the following factors. Foreign exchange movements raised net sales by ¥60.0 billion and raised procurement expenses by ¥19.0 billion. Net foreign exchange losses in non-operating expenses were ¥22.6 billion lower than in the previous year. Reduced foreign exchange losses of Toshiba Corporation and a reduction in revaluation losses of dollar- denominated borrowings in line with increasing stability in many Asian currencies produced this result. Net financial expenses decreased from ¥32.5 billion in the previous year, to ¥31.4 billion (US$259 million). Other income includes gains on the sale of securities, mainly shares of Time Warner Inc., and gains on sales of fixed assets, mainly land. Other expenses includes the cost of restructuring the air conditioner business, strengthening the home appliances business operated by sales subsidiaries in Japan and improvement of the semiconductor business structure. Income before income taxes and minority interest decreased 40 percent compared with the previous year, to ¥11.2 billion (US$93 million). Income taxes increased to ¥25.5 billion (US$211 million). Income taxes includes a ¥16.8 billion (US$139 million) charge due to the revaluation of deferred assets resulting from the reduction in Japan’s corporate income tax rate. The result was a net loss of ¥13.9 billion (US$115 million) compared with net income of ¥7.3 billion in the previous year. This was Toshiba’s first net loss in 23 years. However, net income for the fiscal year was ¥2.9 billion (US$24 million), if the effect of the tax rate reduction is excluded. SEGMENT INFORMATION The following segment information is based on Japanese accounting standards. As Japanese accounting standards do not require retroactive application of newly adopted standards, certain columns in the following tables are left blank for periods which precede the adoption of new disclosure requirements. Industry Segments Years ended March 31 Net sales: Millions of yen 1999 1998 1997 Thousands of U.S. dollars 1999 Information & Communication Systems Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,166,430 80,851 ¥2,101,808 82,270 ¥2,069,269 78,226 $17,904,380 668,190 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,247,281 2,184,078 2,147,495 18,572,570 Electronic Devices & Materials Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052,740 198,070 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,810 Power & Industrial Systems Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947,301 42,679 989,980 Consumer Products Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,013,507 26,932 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,040,439 1,157,267 184,527 1,341,794 1,061,107 58,542 1,119,649 1,015,494 24,889 1,040,383 1,104,147 179,824 1,283,971 1,108,761 52,559 1,161,320 1,136,995 18,646 1,155,641 8,700,331 1,636,942 10,337,273 7,828,934 352,719 8,181,653 8,376,090 222,579 8,598,669 Page 39. TOSHIBA ANNUAL REPORT 1999 Years ended March 31 Services & Other Millions of yen 1999 1998 1997 Thousands of U.S. dollars 1999 Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,924 302,885 423,809 122,822 297,208 420,030 102,715 269,268 371,983 999,372 2,503,182 3,502,554 Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (651,417) (647,436) (598,523) (5,383,612) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,300,902 ¥5,458,498 ¥5,521,887 $43,809,107 Operating income (loss): Information & Communication Systems . . . . . . . . . . . . . ¥ 94,717 ¥ 43,058 ¥ 140,124 $ 782,785 Electronic Devices & Materials . . . . . . . . . . . . . . . . . . . . . Power & Industrial Systems . . . . . . . . . . . . . . . . . . . . . . . Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68,722) 10,652 (31,239) 23,433 1,642 40,453 18,671 (45,251) 24,762 601 18,708 35,660 (15,921) 18,542 718 (567,950) 88,033 (258,174) 193,661 13,570 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 30,483 ¥ 82,294 ¥ 197,831 $ 251,925 Identifiable assets: Information & Communication Systems . . . . . . . . . . . . . ¥1,592,963 ¥1,445,964 ¥1,512,588 $13,164,983 Electronic Devices & Materials . . . . . . . . . . . . . . . . . . . . . 1,624,416 Power & Industrial Systems . . . . . . . . . . . . . . . . . . . . . . . 1,103,725 Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and Eliminations . . . . . . . . . . . . . . . . . . . . . . . 685,297 898,220 118,936 1,565,124 1,136,984 701,434 927,496 285,139 1,483,063 1,121,714 751,636 667,084 273,200 13,424,926 9,121,694 5,663,612 7,423,306 982,942 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥6,023,557 ¥6,062,141 ¥5,809,285 $49,781,463 Depreciation and amortization: Information & Communication Systems . . . . . . . . . . . . . ¥ 47,396 ¥ 43,297 ¥ 39,239 $ 391,703 Electronic Devices & Materials . . . . . . . . . . . . . . . . . . . . . 176,162 162,833 147,769 1,455,884 Power & Industrial Systems . . . . . . . . . . . . . . . . . . . . . . . Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,152 31,551 29,694 – 29,669 30,586 27,427 – 27,197 30,911 10,306 – 232,661 260,752 245,405 – Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 312,955 ¥ 293,812 ¥ 255,422 $ 2,586,405 Capital expenditures: Information & Communication Systems . . . . . . . . . . . . . ¥ 57,247 ¥ 57,183 ¥ 54,045 $ 473,116 Electronic Devices & Materials . . . . . . . . . . . . . . . . . . . . . 233,779 181,982 198,613 1,932,058 Power & Industrial Systems . . . . . . . . . . . . . . . . . . . . . . . Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,910 29,467 33,854 – 38,360 39,457 29,433 – 38,774 45,034 8,033 – 214,132 243,529 279,785 – Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 380,257 ¥ 346,415 ¥ 344,499 $ 3,142,620 Page 40. TOSHIBA ANNUAL REPORT 1999 Geographic Segments Years ended March 31 Net sales: Japan Millions of yen 1999 1998 1997 Thousands of U.S. dollars 1999 Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,547,089 953,186 ¥ 3,847,070 961,017 ¥ 3,943,808 956,550 $ 29,314,785 7,877,570 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500,275 4,808,087 4,900,358 37,192,355 Overseas Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 788,687 75,575 864,262 379,562 223,686 603,248 541,246 10,919 552,165 44,318 7,218 51,536 – – – 1,578,079 158,198 1,736,277 741,524 63,108 804,632 353,913 226,919 580,832 475,367 14,711 490,078 40,624 9,872 50,496 – – – 6,518,074 624,587 7,142,661 3,136,876 1,848,645 4,985,521 4,473,107 90,240 4,563,347 366,265 59,652 425,917 Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,270,584) (1,275,627) (1,114,748) (10,500,694) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,300,902 ¥ 5,458,498 ¥ 5,521,887 $ 43,809,107 Operating income (loss): Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 21,169 ¥ 75,441 ¥ 188,468 $ 174,950 Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 10,409 North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,712) Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,128 4,529 1,588 5,781 (22,538) 16,606 5,581 1,742 5,462 (1,046) – (96,793) 75,438 37,430 13,123 47,777 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 30,483 ¥ 82,294 ¥ 197,831 $ 251,925 Page 41. TOSHIBA ANNUAL REPORT 1999 Years ended March 31 Identifiable assets: Millions of yen 1999 1998 1997 Thousands of U.S. dollars 1999 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,157,299 ¥ 4,934,728 ¥ 4,604,366 $ 42,622,306 Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and Eliminations . . . . . . . . . . . . . . . . . . . . . . . – 302,076 280,037 207,020 27,493 49,632 – 940,133 344,515 288,972 238,803 29,821 225,302 264,786 – 2,496,496 2,314,355 1,710,909 227,215 410,182 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,023,557 ¥ 6,062,141 ¥ 5,809,285 $ 49,781,463 Note: Geographic segment information for the fiscal years ended March 31, 1998 has been reclassified to conform with the current classification. RESEARCH AND DEVELOPMENT Consolidated R&D expenditures decreased 2 percent to ¥316.7 billion (US$2,617 million). This was 6.0 percent of net sales, compared with 5.9 percent one year earlier. A significant amount of R&D expenditures was applied to multimedia-related activities, including next-generation networking technology, portable PCs, digital broadcasting equipment and DVD, achieving finer design rules in semiconductor production, developing LSIs, polysilicon-type LCDs, nuclear power plants, new cellular telephones, digital copying machines and environmental systems. Furthermore, Toshiba established Power and Industrial Systems Research and Development Center staffed by 950 researchers during the fiscal year. Moreover, the company fortified its global R&D network with the establishment of information and communications laboratories in Europe and the U.S. Toshiba estimates that fiscal 1999 R&D expenditures will be ¥335.0 billion (US$2,769 million). CAPITAL EXPENDITURES Capital expenditures, which include investments in property, plant and equipment of ¥375.5 billion (US$3,103 million), were ¥380.3 billion (US$3,143 million), an increase of 9.8 percent from the prior year. Capital expenditures for electronic devices & materials were ¥233.8 billion (US$1,932 million), representing 61 percent of the total. Significant elements of these expendi- tures were memory production facilities at the Yokkaichi Operations and investments to begin operations at subsidiary Yokkaichi Toshiba Electronics Corporation. Capital expenditures in information & communication systems totaled ¥57.2 billion (US$473 million). In power & industrial systems, capital expenditures totaled ¥25.9 billion (US$214.1 million). In consumer products, capital expenditures were ¥29.5 billion (US$244 million). FINANCIAL POSITION As of March 31, 1999, total assets were ¥6,023.6 billion (US$49,781 million), a decrease of ¥38.6 billion from the prior year. Current assets declined by ¥133.4 billion. Cash and cash equivalents decreased by ¥118.2 billion as deposits were affected by adoption of committed lines of credit agreements. Notes and accounts receivable, trade declined due to asset-backed securitization programs by some U.S. subsidiaries. Investments in affiliated companies dropped mainly because Toshiba TEC Corporation became a consolidated subsidiary during the year due to a change in the ownership rate. Other assets increased ¥96.5 billion due to an increase in the deferred tax asset in line with an increase in the minimum pension liability and other factors. Total debt fell by ¥79.1 billion compared to the previous year, to ¥2,181.7 billion (US$18,030 million), as a result of Toshiba’s continuous efforts to reduce its debt with funds from the asset-backed securitization programs and the more effective management of finances on a group-wide basis. Accrued pension and severance costs increased by ¥146.9 billion because of an increase in projected benefit obligations due to a decline in the applicable discount rate. The net loss and recognition of a minimum pension liability adjustment caused shareholders’ equity to decrease by ¥151.3 billion compared with the previous year, to ¥1,050.3 billion (US$8,680 million). Page 42. TOSHIBA ANNUAL REPORT 1999 CASH FLOWS Net cash provided by operating activities was ¥264.9 billion (US$2,190 million), compared with ¥272.8 billion in the prior year. Net cash was mainly provided by depreciation and amortization of ¥313.0 billion (US$2,586 million), and a decrease in notes and accounts receivable, trade of ¥89.9 billion (US$743 million) and was used in a net loss of ¥13.9 billion (US$115 million), an increase in other current assets of ¥61.0 billion (US$504 million), and a decrease in other current liabilities of ¥65.6 billion (US$542 million). Net cash used in investing activities fell to ¥280.1 billion (US$2,315 million). Proceeds from the sale of securities, particularly shares of Time Warner Inc., and the sale of property were ¥133.0 billion (US$1,099 million). Acquisition of property and equipment increased as the company made investments in semiconductors and other strategic products. Net cash used in financing activities was ¥94.3 billion (US$780 million) as the company reduced debt. The result of the above activities was a net decrease of ¥118.2 billion (US$977 million) in cash and cash equivalents to ¥497.8 billion (US$4,114 million). TOSHIBA AND YEAR 2000 (Y2K) COMPLIANCE 1. Basic Stance and Action (1) Policy Toshiba is fully aware of the impact on business of Y2K, an issue associated with computer systems, including hardware and application programs, and equipment incorporating microprocessors. Recognizing the importance of this issue, the Toshiba Group, including subsidiaries and affiliates worldwide, is tackling the problem with the utmost vigor. (2) Organizational structure Toshiba began concerted efforts to deal with the Y2K issue in April 1995. October 1998 saw establishment of the Year 2000 Solution Division, a corporate-level organization that reports directly to the president, and the initiation of a corporate Y2K Project, under the leadership of a senior executive vice president and the deputy leadership of an executive vice president. The Y2K Project embraces activities in all of Toshiba’s operations, including the corporate staff divisions, in-house companies, including factories, and branch offices. Subsidiaries and affiliates in Japan and overseas also have Y2K projects, which receive guidance from their supervisory organization in Toshiba. Employee awareness of Y2K-related issues is enhanced by means of in-house publicity and events and the company web site. Progress in Y2K readiness is reported periodically to the Board of Directors. (3) Current situation All Toshiba products have been checked for Y2K compliance. Where necessary, Toshiba is notifying customers of potential Y2K issues and implementing measures following discussions with customers. Furthermore, Toshiba is providing information on the Y2K compliance of mass-produced products on its web site and answering questions from customers. Where products require action but it is not possible for Toshiba to identify all the customers, the company provides information by means of newspaper advertisements. Toshiba has inspected all of its facilities and systems to ensure that it will continue to be able to provide products and services, and has drawn up countermeasures where problems exist. At present, the company is replacing or remedying Y2K-affected facilities and systems. Remediation work for high-priority facilities is scheduled for completion in June 1999, and simulation tests and implementation of Y2K measures for other facilities and systems are scheduled for completion by September 1999. Toshiba has requested its suppliers to achieve Y2K compliance by September 1999. The company has surveyed compliance at its main suppliers and plans confirmatory visits. Connections between Toshiba’s systems and those of outside parties with which Toshiba has EDI links are being checked and tested. Page 43. TOSHIBA ANNUAL REPORT 1999 2. Expenditures on Y2K measures Information systems at Toshiba are being reconstructed using ERP packages, and Y2K measures are included in the reconstruc- tion. Expenditures exclusively on Y2K measures are expected to amount to ¥16.3 billion, ¥7.8 billion of which was expended by March 31, 1999. Expenditures on existing plans that include Y2K measures, such as reconstruction of information systems, are expected to amount to ¥27.9 billion, of which ¥19.7 billion had been expended by March 31, 1999. These expenditures are both necessary and sufficient for Y2K measures. The cost impact of the company’s Y2K measures is slight within the context of Toshiba’s overall operations, and funding is provided from cash flows from operating activities. 3. Risk Toshiba’s products and facilities and systems are extremely varied in nature. Furthermore, there are many cases where the company’s products are used together with other products, including those made by other companies. As such, Toshiba cannot provide an assurance that Y2K-related problems will not arise. There may also be instances where Toshiba and suppliers fall behind their respective Y2K-compliance schedules and/or are not prepared for certain unfore- seen problems. Moreover, Toshiba cannot provide an assurance that its operations will not be affected by Y2K-related problems concerning transportation, communications, financial, public services and other systems and services of companies and government organizations. There is a possibility that should these risks materialize that they will have an impact on Toshiba’s business results and financial condition. 4. Contingency plans Toshiba has formulated a contingency plan to prepare for unforeseen Y2K-related problems. Customer support for products will be offered by emergency communication channels Toshiba will establish. In order to assure a swift response, these will also operate during holidays, particularly at 1999 year-end and the new year in 2000. Systems and procedures for customer support will include a 24-hour-service inquiry hot line. Toshiba will do its utmost to ensure the Y2K compliance of its facilities and systems by means of simulation tests before 2000, data back-up at 1999 year-end, start-up prior to the start of operations in 2000, and other measures. Systems and procedures for recovery of facilities and systems will be established in readiness for unexpected eventualities resulting from oversights or errors in countermeasures. At the same time, alternative operations will be devised based on evalu- ation of risks to facilities and systems, including risks to suppliers and parties with which Toshiba has EDI connections. A contingency plan system, including communication and decision-making in the event of emergency, will be established. 5. Other Toshiba is promoting Y2K solutions in terms of both products and facilities and systems in an effort to ensure that customers are not affected and that there is no serious impact on business activities. However, Y2K problems are multi- faceted and a problem may arise that cannot be solved by Toshiba alone. Consequently, it is not possible for Toshiba to be certain that its thorough preparation and implementation of measures will preclude any impact on business or claims by third parties. Toshiba is establishing systems and procedures to enable the accurate assessment of situations and swift actions to minimize risks. Page 44. TOSHIBA ANNUAL REPORT 1999 PRINCIPAL SUBSIDIARIES AND AFFILIATED COMPANIES As of March 31, 1999 Percentage held by Toshiba Corporation CONSOLIDATED SUBSIDIARIES: Japan Iwate Toshiba Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . 100 . . . . . . . . . . . . . . . . . . . . . . . . 79 Kitashiba Electric Co., Ltd. Kitsuki Toshiba Electronics Corporation . . . . . . . . . . . . . 100 Kyodo Building Corporation . . . . . . . . . . . . . . . . . . . . . . . 100 Shibaura NIDEC Corporation . . . . . . . . . . . . . . . . . . . . . . 60 Tokyo Electronic Industry Co., Ltd. . . . . . . . . . . . . . . . . . 75 . . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Battery Co., Ltd. Toshiba Building & Lease Co., Ltd. . . . . . . . . . . . . . . . . . 100 Toshiba Carrier Air Conditioning Systems Corporation . . 100 Toshiba Chemical Corporataion . . . . . . . . . . . . . . . . . . . . 57 Toshiba Credit Corporation . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Device Corporation . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Elevator Corporation . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Engineering Corporation . . . . . . . . . . . . . . . . . . . 100 Toshiba Home Technology Corporation . . . . . . . . . . . . . 100 Toshiba Information Systems (Japan) Corporation . . . . . 88 Toshiba Insurance Service Corporation . . . . . . . . . . . . . . 100 Toshiba Lighting & Technology Corporation . . . . . . . . . 100 Toshiba Logistics Corporation . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Microelectronics Corporation . . . . . . . . . . . . . . . 100 Toshiba Plant Kensetsu Co., Ltd. . . . . . . . . . . . . . . . . . . . 56 Toshiba Shataku Corporation . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba System Creator Co., Ltd. . . . . . . . . . . . . . . . . . . . 100 Toshiba TEC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 50 Toshiba TLC Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Video Products Japan Co., Ltd. . . . . . . . . . . . . . . 100 Yokkaichi Toshiba Electronics Corporation . . . . . . . . . . . 100 Canada Toshiba of Canada, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 U.S.A. . . . . . . . . . . . 100 Toshiba America Consumer Products, Inc. Toshiba America Electronic Components, Inc. . . . . . . . . 100 Toshiba America Information Systems, Inc. . . . . . . . . . . 100 Toshiba America MRI Inc. . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba America, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba International Corporation . . . . . . . . . . . . . . . . . . 100 Toshiba Display Devices Inc. . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Satellite Broadband, Inc. . . . . . . . . . . . . . . . . . . . 100 U.K. Toshiba Information Systems (UK) Ltd. . . . . . . . . . . . . . 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba (UK) Ltd. The Netherlands Toshiba Medical Systems Europe B.V. . . . . . . . . . . . . . . . 100 Germany Toshiba Electronics Europe GmbH . . . . . . . . . . . . . . . . . . 100 Toshiba Europe GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 France Toshiba Systèmes (France) S.A. . . . . . . . . . . . . . . . . . . . . 100 The People’s Republic of China Guangdong Toshiba Macro Compressor Ltd. . . . . . . . . . 60 Guangdong Toshiba Macro Motor Ltd. . . . . . . . . . . . . . . 60 Toshiba Electronics Asia, Ltd. . . . . . . . . . . . . . . . . . . . . . . 100 Taiwan Toshiba Electronics Taiwan Corporation . . . . . . . . . . . . . 90 Philippines Toshiba Information Equipment (Philippines), Inc. . . . . 100 Thailand Toshiba Display Devices (Thailand) Co., Ltd. . . . . . . . . . 93 Toshiba Semiconductor (Thailand) Co., Ltd. . . . . . . . . . . 95 Malaysia TIM Electronics Sdn. Bhd. . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Electronics Malaysia Sdn. Bhd. . . . . . . . . . . . . . . 100 Singapore TEC Singapore Electronics Pte. Ltd. . . . . . . . . . . . . . . . . . 100 Toshiba Electronics Asia (Singapore) Pte., Ltd. . . . . . . . . 100 Toshiba Singapore Pte., Ltd. . . . . . . . . . . . . . . . . . . . . . . . 100 Australia Toshiba (Australia) Pty., Ltd. . . . . . . . . . . . . . . . . . . . . . 100 AFFILIATED COMPANY: Japan Toshiba Ceramics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . 48 Page 45. TOSHIBA ANNUAL REPORT 1999 CONSOLIDATED BALANCE SHEETS Toshiba Corporation and its subsidiaries As of March 31, 1999 and 1998 Millions of yen 1999 1998 Thousands of U.S. dollars (Note 3) 1999 ¥ 497,752 124,017 ¥ 615,935 120,748 $ 4,113,653 1,024,934 ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . Notes and accounts receivable, trade (Note 8)— Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful notes and accounts . . . . . . . . . . . . Finance receivables, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets (Note 13) . . . . . . 199,416 972,459 (34,267) 259,665 997,886 281,540 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,298,468 Long-term receivables and investments: Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term finance receivables, net (Note 5) . . . . . . . . . . . . . Investments in and advances to affiliated companies (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . 43,008 335,137 151,368 128,020 657,533 224,130 1,033,368 (38,603) 250,535 1,001,801 224,044 3,431,958 45,916 318,368 203,590 136,992 704,866 1,648,066 8,036,851 (283,199) 2,145,992 8,246,992 2,326,777 27,260,066 355,438 2,769,727 1,250,975 1,058,017 5,434,157 Property, plant and equipment (Note 8): Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,973 1,076,050 3,076,298 72,684 154,514 1,034,029 2,934,697 106,995 1,363,413 8,892,975 25,423,951 600,694 Less – Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 4,390,005 (2,840,057) 4,230,235 (2,726,039) 36,281,033 (23,471,545) 1,549,948 1,504,196 12,809,488 Other assets (Notes 9 and 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . 517,608 421,121 4,277,752 ¥ 6,023,557 ¥ 6,062,141 $ 49,781,463 The accompanying notes are an integral part of these statements. Page 46. TOSHIBA ANNUAL REPORT 1999 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Millions of yen 1999 1998 Short-term borrowings (Note 8) . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term debt (Note 8) . . . . . . . . . . . . . . Notes payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes and accounts payable for construction . . . . . . . . . . . . . . Accrued income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . Advance payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees’ savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other current liabilities . . . . . . . . . . . . . ¥ 767,417 235,846 190,451 823,689 50,106 50,212 298,272 9,048 555,074 ¥ 880,855 367,552 215,144 766,318 83,237 48,658 253,541 102,051 523,173 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,980,115 3,240,529 Thousands of U.S. dollars (Note 3) 1999 $ 6,342,289 1,949,140 1,573,975 6,807,347 414,099 414,975 2,465,058 74,777 4,587,389 24,629,049 Long-term liabilities: Long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension and severance costs (Note 9) . . . . . . . . . . . . . 1,178,411 692,150 1,870,561 1,012,350 545,293 1,557,643 9,738,934 5,720,248 15,459,182 Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . . 122,545 62,354 1,012,769 Shareholders’ equity: Common stock, ¥50 par value – Authorized – 10,000,000,000 shares Issued and outstanding: 1999 – 3,218,999,545 shares . . . . . . . . . . . . . . . . . . . . . . . 1998 – 3,218,999,545 shares . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings (Notes 8 and 14) . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) (Note 14) . . 274,916 – 285,727 673,622 (183,929) – 274,916 285,727 713,269 (72,297) 1,050,336 1,201,615 2,272,033 – 2,361,380 5,567,124 (1,520,074) 8,680,463 Commitments and contingent liabilities (Note 17) ¥6,023,557 ¥6,062,141 $49,781,463 Page 47. TOSHIBA ANNUAL REPORT 1999 CONSOLIDATED STATEMENTS OF INCOME Toshiba Corporation and its subsidiaries For the years ended March 31, 1999 and 1998 Sales and other income: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,300,902 126,078 ¥5,458,498 80,406 Millions of yen 1999 1998 Costs and expenses: Cost of sales (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative (Notes 10 and 11) . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,426,980 5,538,904 3,890,622 1,379,797 52,148 93,195 5,415,762 3,960,158 1,416,046 54,022 89,930 5,520,156 Thousands of U.S. dollars (Note 3) 1999 $43,809,107 1,041,967 44,851,074 32,153,901 11,403,281 430,975 770,206 44,758,363 Income before income taxes and minority interest . . . . . . . . . . . 11,218 18,748 92,711 Income taxes (Note 13): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,949 (17,455) 25,494 27,315 (2,840) 24,475 354,950 (144,256) 210,694 Loss before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,276) (5,727) (117,983) Minority interest in income (loss) of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from consolidated companies . . . . . . . . . . . . . . . . . . . . . . . . Equity in income of affiliated companies . . . . . . . . . . . . . . . . . . . 1,380 (15,656) 1,760 (1,387) (4,340) 11,677 11,405 (129,388) 14,545 Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (13,896) ¥ 7,337 $ (114,843) Per share of common stock (Note 15): Net (loss) income – basic and diluted . . . . . . . . . . . . . . . . . . . ¥(4.32) ¥ 2.28 $(0.036) Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6.00 ¥10.00 $ 0.050 Exact yen U.S. dollars (Note 3) The accompanying notes are an integral part of these statements. Page 48. TOSHIBA ANNUAL REPORT 1999 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Toshiba Corporation and its subsidiaries For the years ended March 31, 1999 and 1998 Millions of yen Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total ¥274,916 ¥285,727 ¥738,120 ¥ (33,988) ¥1,264,775 7,337 7,337 Balance at March 31, 1997 . . . . . . . . . . Comprehensive income (loss): Net income . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 14)– Foreign currency translation adjustments . . . . . . . . . . . . . . . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . Comprehensive income (loss) . . . . . . Balance at March 31, 1998 . . . . . . . . . . Comprehensive income (loss): Net loss . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 14)– Foreign currency translation adjustments . . . . . . . . . . . . . . . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . Comprehensive income (loss) . . . . . . Balance at March 31, 1998 . . . . . . . . . . Comprehensive income (loss): Net loss . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 14)– Foreign currency translation adjustments . . . . . . . . . . . . . . . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . Comprehensive income (loss) . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . (32,188) 274,916 285,727 713,269 (72,297) 1,201,615 (13,896) (13,896) Cash dividends . . . . . . . . . . . . . . . . . . . . (25,751) Balance at March 31, 1999 . . . . . . . . . . ¥274,916 ¥285,727 ¥673,622 ¥(183,929) ¥1,050,336 Thousands of U.S. dollars (Note 3) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total $2,272,033 $2,361,380 $5,894,785 $ (597,496) $ 9,930,702 (114,843) (114,843) (7,500) (7,500) (30,809) (30,809) (30,972) (32,188) (18,714) (18,714) (92,918) (92,918) (125,528) (25,751) (154,661) (154,661) (767,917) (767,917) (1,037,421) (212,818) Cash dividends . . . . . . . . . . . . . . . . . . . . (212,818) Balance at March 31, 1999 . . . . . . . . . . $2,272,033 $2,361,380 $5,567,124 $(1,520,074) $ 8,680,463 The accompanying notes are an integral part of these statements. Page 49. TOSHIBA ANNUAL REPORT 1999 CONSOLIDATED STATEMENTS OF CASH FLOWS Toshiba Corporation and its subsidiaries For the years ended March 31, 1999 and 1998 Millions of yen 1999 1998 Thousands of U.S. dollars (Note 3) 1999 Cash flows from operating activities: Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (13,896) Adjustments to reconcile net (loss) income to net cash ¥ 7,337 $ (114,843) provided by operating activities – Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Reversal of) accrual for pension and severance costs, less payments . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in income of affiliated companies . . . . . . . . . . . . . . . . . . . . . Gain on sale and disposal of property and securities, net . . . . . . . . . . Minority interest in income (loss) of consolidated subsidiaries . . . . . Decrease in notes and accounts receivable, trade . . . . . . . . . . . . . . . (Increase) decrease in finance receivables, net . . . . . . . . . . . . . . . . . Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in long-term receivables . . . . . . . . . . . . . . . . . . Increase in long-term finance receivables, net . . . . . . . . . . . . . . . . . Increase (decrease) in notes and accounts payable, trade . . . . . . . . . Increase (decrease) in accrued income and other taxes . . . . . . . . . . Increase (decrease) in advance payments received . . . . . . . . . . . . . . (Decrease) increase in other current liabilities . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . Cash flows from investing activities: Proceeds from sale of property and securities . . . . . . . . . . . . . . . . . . . Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of subsidiaries newly consolidated due to change in ownership rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in investments in affiliated companies . . . . . . . . . . . . . . . . . (Increase) decrease in other investments . . . . . . . . . . . . . . . . . . . . . . . Increase in other assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash (used in) provided by financing activities . . . . . . . Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . 312,955 (17,907) (17,455) (1,760) (31,155) 1,380 89,891 (9,180) 21,341 (60,990) 2,885 (16,769) 17,782 8,033 45,350 (65,558) 264,947 132,957 (409,695) (11,130) 52,276 3,622 (28,648) (19,451) (280,069) 447,771 (416,954) (25,656) (99,483) (94,322) (8,739) (118,183) 293,812 3,445 (2,840) (11,677) (18,100) (1,387) 59,367 30,597 64,736 (6,112) (13,817) (20,163) (67,499) (12,622) (53,179) 20,872 272,770 79,424 (365,757) (15,378) – 4,309 16,615 (19,419) (300,206) 530,023 (265,564) (32,188) (166,692) 65,579 (2,628) 35,515 2,586,405 (147,992) (144,256) (14,545) (257,479) 11,405 742,901 (75,868) 176,372 (504,050) 23,843 (138,587) 146,959 66,389 374,793 (541,802) 2,189,645 1,098,818 (3,385,909) (91,984) 432,033 29,934 (236,760) (160,752) (2,314,620) 3,700,587 (3,445,901) (212,033) (822,174) (779,521) (72,223) (976,719) Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . 615,935 ¥ 497,752 580,420 ¥ 615,935 5,090,372 $ 4,113,653 Supplemental disclosure of cash flow information: Cash paid during the year for – Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 65,719 ¥ 71,285 $ 543,132 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 45,810 ¥ 65,230 $ 378,595 The accompanying notes are an integral part of these statements. Page 50. TOSHIBA ANNUAL REPORT 1999 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Toshiba Corporation and its subsidiaries 1. COMPANY OPERATIONS: Toshiba Corporation and its subsidiaries are engaged in the research and development, manufacturing and sales of high- technology electronic and energy products, which span (1) information & communication systems, (2) electronic devices & materials, (3) power & industrial systems, (4) consumer products, and (5) services & other. For the years ended March 31, 1999 and 1998, sales in information & communication systems represented the most significant portion at over one- third of the company’s total sales, while sales in electronic devices & materials, power & industrial systems, and con- sumer products were approximately equal in amount. Sales in services & other were relatively small compared to those derived from other business activities. The products are manufactured and marketed throughout the world with approxi- mately 60 percent of sales in Japan and the remainder in North America, Asia, Europe and elsewhere. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PREPARATION OF FINANCIAL STATEMENTS – The company and its domestic subsidiaries maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile. Certain adjustments and reclassifications, including those relating to the tax effects of temporary differences and the accrual of certain expenses, have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America. These adjustments were not recorded in the statutory books. BASIS OF CONSOLIDATION AND INVESTMENTS IN AFFILIATED COMPANIES – The consolidated financial statements include the accounts of the company and those of its subsidiaries. All significant inter- company transactions and accounts are eliminated in consolidation. Investments in affiliated companies (20 to 50 percent-owned companies) in which the ability to exercise significant influence exists are stated at cost plus equity in undistributed earnings (losses). Net consolidated income includes the company’s equity in the current net earnings (losses) of such companies, after elimination of unrealized intercompany profits. Goodwill recognized at the time of investments in subsidiaries and affiliated companies is amortized on a straight-line basis over the estimated period of benefit. USE OF ESTIMATES – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATED STATEMENT OF CASH FLOWS – For purposes of the statement of cash flows, the company considers all highly liquid investments purchased with original matu- rities of three months or less to be cash equivalents. FOREIGN CURRENCY TRANSLATION – The assets and liabilities of foreign subsidiaries that operate in a local currency environment are translated into Japanese yen at applicable current exchange rates at year end. Income and expense items are translated at average exchange rates prevailing during the year. The effects of these translation adjustments are included in the other comprehensive income (loss) and reported as a component of shareholders’ equity. Exchange gains and losses resulting from foreign currency transactions and translation of assets and liabilities denominated in foreign currencies are included in the consolidated statements of operations. REVENUE RECOGNITION – Sales of finished products, other than under long-term contracts, are recorded in the accounts as shipments are made, except for sales of certain products which are recorded in the accounts upon customer acceptance. Sales under long-term contracts are generally recorded in the accounts based upon progress toward completion of the contracts as measured by achievement of contract milestones. MARKETABLE SECURITIES AND OTHER INVESTMENTS – Marketable equity securities included in marketable securities (current) and other investments (non-current) are stated at the lower of cost or market in the aggregate. Other marketable securities included in marketable securities (current) are stated at the lower of cost or market in the aggregate and investments other than marketable equity securities in other investments (non- current) are stated at cost less any significant decline in fair value assessed to be other than temporary. Page 51. TOSHIBA ANNUAL REPORT 1999 Realized gains and losses on the sale of securities are based on the average cost of all the units of a particular security held at the time of sale. INVENTORIES – Raw materials and finished products are stated at the lower of cost or market, cost being determined principally by the average and first-in, first-out methods, respectively. Work in process is stated at the lower of cost or estimated realizable value, cost being determined by accumulated production costs for contract items and at production costs determined by the first-in, first-out method for regular production items. In accordance with general industry practice, items with long manufacturing periods are included among inventories even when not realizable within one year. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION – Property, plant and equipment, including significant renewals and additions, are carried at cost. When retired or otherwise disposed of, the cost and related depreciation are cleared from the respective accounts and the net difference, less any amount realized on disposal, is included in earnings. Maintenance and repairs, including minor renewals and betterments, are charged to income as incurred. Depreciation is computed generally by a declining-balance method at rates based on the estimated useful lives of the related assets, according to general class, type of construction and use. INCOME TAXES – Deferred income taxes are recorded to reflect the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and are measured by applying currently enacted tax laws. ACCRUED PENSION AND SEVERANCE COSTS – The company and its subsidiaries have various retirement benefit plans covering substantially all employees. Current service costs of the retirement benefit plans are accrued in the period. Prior service costs resulting from amendments to the plans are amortized over the average remaining service period of employees expected to receive benefits (See Note 9). NET INCOME PER SHARE – Basic earnings per share (“EPS”) is computed based on the weighted-average number of shares of common stock outstanding during each period. Diluted EPS assumes the dilution that could occur if dilutive convertible debentures were converted into common stock. FINANCIAL INSTRUMENTS – The company uses a variety of derivative financial instruments, which include forward exchange contracts, interest rate swap agreements and currency swap agreements, for the purpose of currency exchange rate and interest rate risk management. Refer to Note 16 for descriptions of these financial instruments, including the methods used to account for them. COMPREHENSIVE INCOME – The company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” for the fiscal year beginning April 1, 1998. In this standard, comprehensive income is defined as total changes in shareholders’ equity except capital transactions. As discussed in Note 4, the company has not adopted SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and consequently, the effects on shareholders’ equity as required under the provi- sions of SFAS No. 115 are not included in comprehensive income. The company’s comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss) representing changes in foreign currency translation adjustments and minimum pension liability adjustment. Comprehensive income (loss) and its components are disclosed in the consolidated state- ments of shareholders’ equity and in Note 14. NEW ACCOUNTING STANDARDS – In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedg- ing activities. SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet and be measured at fair value. The fair value adjustments are recorded in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In the case of the company, this statement is effective for the fiscal year beginning April 1, 2000. At this stage, the impact from adoption of this statement on the company’s financial position or results of operations is not estimable. Page 52. TOSHIBA ANNUAL REPORT 1999 In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” This SOP provides guidance on accounting for the costs of computer software developed or obtained solely to meet the company’s internal needs and, in the case of the company, is effective for the fiscal year beginning April 1, 1999. Currently, the company is in the process of evaluating the impact from adoption of this SOP on its results of operations or financial conditions. RECLASSIFICATIONS – Certain reclassifications of previously reported amounts have been made to conform with current classifications. 3. U.S. DOLLAR AMOUNTS: U.S. dollar amounts are included solely for convenience. These translations should not be construed as representations that the yen amounts actually represent, or have been or could be converted into, U.S. dollars. The amounts shown in U.S. dollars are not intended to be computed in accordance with generally accepted accounting principles for the translation of foreign currency amounts. The rate of ¥121=US$1, the approximate current rate of exchange at March 31, 1999, has been used throughout for the purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial statements. 4. MARKETABLE SECURITIES AND OTHER INVESTMENTS: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” addressing the accounting and reporting for certain investments in debt and equity securities classified as held-to-maturity, trading, or available-for-sale securities. Under SFAS No. 115, the debt and equity securities owned by the company should be classified as available-for-sale securities and should be reported at fair value with unrealized gains and losses, net of related taxes, excluded from earnings and reported in other comprehensive income (loss) until realized. However, the company has not adopted this standard which became effective for the fiscal year beginning April 1, 1994. The effects on balance sheet items of the company’s departure from the provisions of SFAS No. 115 as of March 31, 1999 and 1998 are summarized as follows: March 31 Millions of yen 1999 1998 Thousands of U.S. dollars 1999 Shareholders’ equity as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,050,336 ¥1,201,615 $8,680,463 Net increase in the carrying amount of: Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,156 27,808 Net decrease in deferred tax assets: Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net decrease in minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase in investments in affiliated companies . . . . . . . . . . . . . . Net unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . Shareholders’ equity in accordance with accounting principles (44,345) (11,629) 45 2,382 78,417 129,250 64,202 (61,710) (30,614) 149 3,054 104,331 860,793 229,818 (366,488) (96,107) 372 19,686 648,074 generally accepted in the United States of America . . . . . . . . . . . . . . . ¥1,128,753 ¥1,305,946 $9,328,537 The net unrealized gain on available-for-sale securities decreased by ¥25,914 million ($214,165 thousand) and ¥19,721 million during the years ended March 31, 1999 and 1998, respectively. If the provisions of SFAS No. 115 had been adopted, comprehen- sive loss for the years ended March 31, 1999 and 1998 would have been ¥151,442 million ($1,251,587 thousand) and ¥50,693 million, respectively. Page 53. TOSHIBA ANNUAL REPORT 1999 The aggregate carrying amount, gross unrealized holding gains and losses, and aggregate fair value for marketable equity securities and debt securities classified as available-for-sale securities by security type at March 31, 1999 and 1998 are as follows: March 31, 1999: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 31, 1998: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Millions of yen) Gross unrealized holding gains Gross unrealized holding losses ¥142,352 269 ¥142,621 ¥205,561 1,073 ¥206,634 ¥10,642 15 ¥10,657 ¥13,110 72 ¥13,182 Fair value ¥264,922 17,687 ¥282,609 ¥364,548 16,327 ¥380,875 Carrying amount ¥133,212 17,433 ¥150,645 ¥172,097 15,326 ¥187,423 Carrying amount Gross unrealized holding gains Gross unrealized holding losses Fair value (Thousands of U.S. dollars) March 31, 1999: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,926 144,074 $1,176,463 2,223 $1,245,000 $1,178,686 $87,950 124 $88,074 $2,189,439 146,173 $2,335,612 At March 31, 1999, debt securities mainly consist of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale were as follows at March 31, 1999: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars Carrying amount ¥ 8,418 9,015 ¥17,433 Fair value ¥ 8,637 9,050 ¥17,687 Carrying amount $ 69,570 74,504 $144,074 Fair value $ 71,380 74,793 $146,173 The proceeds from sales of available-for-sale securities for the years ended March 31, 1999 and 1998 were ¥122,368 million ($1,011,306 thousand) and ¥71,139 million, respectively. The gross realized gains on those sales for the years ended March 31, 1999 and 1998 were ¥64,843 million ($535,893 thousand) and ¥28,099 million, respectively. The gross realized losses on those sales for the years ended March 31, 1999 and 1998 were ¥6,041 million ($49,926 thousand) and ¥351 million, respectively. Page 54. TOSHIBA ANNUAL REPORT 1999 5. FINANCE RECEIVABLES: Finance receivables comprise the following: March 31 Investment in financing leases: Total minimum lease payments receivable . . . . . . . . . . . . . . . . . . . . . . Estimated executory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated residual values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less – Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . Less – Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less – Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . Less – Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 1999 1998 ¥ 377,182 (16,796) (19,510) 7,113 347,989 (1,887) 346,102 (120,626) ¥ 356,070 (15,609) (20,287) 7,064 327,238 (1,758) 325,480 (114,632) Thousands of U.S. dollars 1999 $ 3,117,207 (138,810) (161,240) 58,785 2,875,942 (15,595) 2,860,347 (996,909) ¥ 225,476 ¥ 210,848 $ 1,863,438 ¥ 262,727 (14,027) 248,700 (139,039) ¥ 109,661 ¥ 263,760 (20,337) 243,423 (135,903) ¥ 107,520 $ 2,171,298 (115,926) 2,055,372 (1,149,083) $ 906,289 Investment in financing leases consists of sales-type and direct financing leases mainly of information systems, medical equipment, agricultural and industrial equipment and others. Other finance receivables represent transactions in a variety of forms, including commercial loans, and installment sales of consumer products manufactured by the company. At March 31, 1999, the contractual maturities of minimum lease payments of the investment in financing leases and the other finance receivables are as follows: Year ending March 31 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in financing leases Other finance receivables Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars ¥124,901 98,136 73,842 48,790 24,395 7,118 ¥377,182 $1,032,240 811,042 610,264 403,223 201,612 58,826 $3,117,207 ¥141,793 40,744 25,764 14,474 16,330 23,622 ¥262,727 $1,171,843 336,727 212,926 119,620 134,959 195,223 $2,171,298 Allowance for doubtful accounts is provided upon past loss experience and the estimation of mortgaged asset values. 6. INVENTORIES: Inventories comprise the following: March 31 Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process: Long-term contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 1999 1998 Thousands of U.S. dollars 1999 ¥356,538 ¥ 368,652 $2,946,595 288,830 231,283 121,235 294,275 215,185 123,689 2,387,025 1,911,430 1,001,942 ¥997,886 ¥1,001,801 $8,246,992 Page 55. TOSHIBA ANNUAL REPORT 1999 7. INVESTMENTS IN AFFILIATED COMPANIES: Of the affiliated companies which are accounted for by the equity method, the investment in common stock of the listed com- panies is carried at ¥79,273 million ($655,149 thousand) and ¥131,302 million at March 31, 1999 (six companies) and 1998 (eight companies), respectively. The company’s investments in these companies had a market value of ¥74,463 million ($615,397 thousand) and ¥156,879 million at March 31, 1999 and 1998, respectively, based on quoted market prices at those dates. Summarized financial information of the affiliated companies accounted for by the equity method is shown below: March 31 Millions of yen 1999 1998 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets including property, plant and equipment . . . . . . . . . . . . . . . . ¥482,736 449,816 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥932,552 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥320,119 247,384 365,049 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . ¥932,552 ¥ 680,088 570,330 ¥1,250,418 ¥ 492,169 273,881 484,368 ¥1,250,418 Years ended March 31 Millions of yen 1999 1998 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥866,233 ¥1,059,466 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,957 ¥ 23,831 Thousands of U.S. dollars 1999 $3,989,554 3,717,487 $7,707,041 $2,645,611 2,044,496 3,016,934 $7,707,041 Thousands of U.S. dollars 1999 $7,158,950 $ 24,438 A summary of transactions and balances with the affiliated companies accounted for by the equity method is presented below: Years ended March 31 1999 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 10,456 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥172,694 1998 ¥ 19,287 ¥205,428 Millions of yen March 31 1999 Notes and accounts receivable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,765 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 672 Notes and accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,922 1998 ¥ 4,455 ¥ 1,809 ¥58,606 Millions of yen 8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT: Short-term borrowings at March 31, 1999 and 1998 comprise the following: March 31 Loans, principally from banks, including bank overdrafts, with weighted-average interest rate of 1.37 percent at March 31, 1999 and 1.72 percent at March 31, 1998: Millions of yen 1999 1998 Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,770 637,541 Commercial paper with weighted-average interest rate of 1.99 percent at March 31, 1999 and 4.65 percent at March 31, 1998 . . . . . . . . . . . . . . 120,106 ¥767,417 ¥ 5,125 656,215 219,515 ¥880,855 Thousands of U.S. dollars 1999 $ 86,413 $1,427,223 Thousands of U.S. dollars 1999 $ 14,587 $ 5,554 $222,496 Thousands of U.S. dollars 1999 $ 80,744 5,268,934 992,611 $6,342,289 Page 56. TOSHIBA ANNUAL REPORT 1999 Substantially all of the short-term borrowings are with banks which have written basic agreements with the company to the effect that, with respect to all present or future loans with such banks, the company shall provide collateral (including sums on deposit with such banks) or guarantors immediately upon the bank’s request and that any collateral furnished pursuant to such agreements or otherwise will be applicable to all indebtedness to such banks. At March 31, 1999, the company and subsidiaries had unused committed lines of credit from short-term financing arrange- ments aggregating ¥211,792 million ($1,750,347 thousand), of which ¥63,892 million ($528,033 thousand) was in support of the company’s commercial papers. These lines of credit have commitment fee requirements. Long-term debt at March 31, 1999 and 1998 comprise the following: March 31 Loans, principally from banks and insurance companies, due 1999 to 2032 with interest ranging from 0.42 percent to 7.86 percent at March 31, 1999 and due 1998 to 2028 with interest ranging from 0.57 percent to 15.37 percent at March 31, 1998: Millions of yen 1999 1998 Thousands of U.S. dollars 1999 Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 62,337 620,747 ¥ 62,372 643,640 $ 515,182 5,130,140 Unsecured yen bonds, due 2000 to 2008 with interest ranging from 1.1 percent to 3.025 percent at March 31, 1999 and due 1999 to 2008 with interest ranging from 1.25 percent to 3.025 percent at March 31, 1998 . . . . . . . . . . . . . . . . . . . Euro yen medium-term notes, due 2001 to 2009 with interest ranging from zero percent to 2.34 percent at March 31, 1999 and due 2001 to 2008 with interest ranging from zero percent to 2.00 percent at March 31, 1998 (swapped for floating rate (LIBOR, etc.) or fixed rate yen obligations) . . 6.75 percent Euro U.S. dollar medium-term notes due 2008 510,000 390,000 4,214,876 63,500 30,500 524,793 (swapped for fixed rate yen obligations) . . . . . . . . . . . . . . . . . . . . . . . . . 630 630 5,207 Unsecured convertible debentures: 1.4 percent yen debentures due 1999 convertible currently at ¥1,307 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 percent yen debentures due 2002 convertible currently at ¥724 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured yen bonds of subsidiaries, due 2000 to 2004 with interest ranging from 2.37 percent to 3.1 percent at March 31, 1999 and due 2000 with interest ranging from 2.8 percent to 3.1 percent at March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . Yen or U.S. dollar medium-term notes of subsidiaries, due 1999 to 2009 with interest ranging from zero percent to 5.72 percent at March 31, 1999 and due 1998 to 2007 with interest ranging from 0.20 percent to 15.00 percent at March 31, 1998 (swapped for floating rate (LIBOR, etc.) U.S. dollar obligations) . . . . . . 2.2 percent secured yen convertible debentures of a subsidiary – 149,004 – 17,747 17,747 146,669 20,000 10,000 165,289 111,179 76,009 918,835 due 2002 convertible currently at ¥1,095.8 per share . . . . . . . . . . . . . . . 8,117 Less – Portion due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,414,257 (235,846) – 1,379,902 (367,552) 67,083 11,688,074 (1,949,140) ¥1,178,411 ¥1,012,350 $ 9,738,934 Page 57. TOSHIBA ANNUAL REPORT 1999 Certain of the secured loan agreements contain provisions which permit the lenders to require additional collateral. Substan- tially all of the unsecured loan agreements permit the lenders to require collateral or guarantors for such loans. Certain of the secured and unsecured loan agreements require prior approval by the banks and trustees before any distributions (including cash dividends) may be made from current or retained earnings. Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 1999 are property, plant and equipment with a book value of ¥45,527 million ($376,256 thousand) and accounts receivable, trade of ¥1,554 million ($12,843 thousand). The agreements of the convertible yen debentures (1) establish certain restrictions on the payment of dividends and (2) permit early redemption of the debentures at the option of the company and a subsidiary, in whole or in part, at defined prices. At March 31, 1999, 24,512 thousand shares of common stock would be issued upon conversion of all convertible debentures of the company. The aggregate annual maturities of long-term debt are as follows: Year ending March 31 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥ 235,846 232,751 235,027 190,407 193,874 326,352 ¥1,414,257 Thousands of U.S. dollars $ 1,949,140 1,923,562 1,942,372 1,573,612 1,602,264 2,697,124 $11,688,074 9. ACCRUED PENSION AND SEVERANCE COSTS: All employees whose services with the company and its subsidiaries are terminated are usually entitled to lump-sum severance indemnities determined by reference to their current basic rate of pay, length of service and conditions under which the termi- nation occurs. The obligation for the severance indemnity benefits is provided for through accruals and funding of tax-qualified pension plans and contributory trusteed employee pension funds. Certain subsidiaries have tax-qualified pension plans which cover all or a part of the indemnities payable to qualified employ- ees at the time of termination. The funding policy for the plans is to contribute amounts required to maintain sufficient plan assets to provide for accrued benefits, subject to the limitation on deductibility imposed by Japanese income tax laws. The company and several subsidiaries also have contributory trusteed employee pension funds. The contributory employee pension funds are comprised of a portion covering part of the severance indemnities benefits and another portion covering social security benefits, to which the company, subsidiaries and employees make contributions. The transition obligation resulting from the adoption of SFAS No. 87, “Employers’ Accounting for Pensions,” and prior service cost are being amortized over the remaining service years of the employees, and the “projected unit credit” actuarial method is being used to determine the net periodic pension cost and the projected benefit obligation. Net periodic pension and severance cost for 1999 and 1998 included the following components: Millions of yen Years ended March 31 Service cost – benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized net obligation at transition . . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 ¥ 46,966 57,306 (28,382) 12,025 4,353 8,721 Net periodic pension and severance cost . . . . . . . . . . . . . . . . . . . . . ¥100,989 1998 ¥ 40,781 56,552 (29,306) 12,025 4,355 163 ¥ 84,570 Thousands of U.S. dollars 1999 $ 388,149 473,603 (234,562) 99,380 35,975 72,075 $ 834,620 Page 58. TOSHIBA ANNUAL REPORT 1999 A weighted-average discount rate of 3.5 percent and 4.0 percent, an expected long-term rate of return on plan assets of 4.0 percent, and an assumed rate of increase in salary levels of 2.5 percent and 3.0 percent were used in measuring the pension obligations at March 31, 1999 and 1998, respectively. The changes in the benefit obligations and plan assets and reconciliations of net amount recognized to funded status and accrued pension and severance costs for 1999 and 1998 were as follows: March 31 Change in benefit obligations: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of subsidiaries newly consolidated due to change in ownership rate and other . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 1999 1998 ¥1,448,320 46,966 57,306 8,789 166,414 ¥1,263,801 40,781 56,552 8,650 140,639 Thousands of U.S. dollars 1999 $11,969,587 388,149 473,603 72,636 1,375,322 63,536 (97,271) (914) 9,585 (72,335) 647 525,091 (803,892) (7,554) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,693,146 1,448,320 13,992,942 Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of subsidiaries newly consolidated due to change in ownership rate and other . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net obligation at transition . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677,571 34,978 60,017 8,789 29,745 (35,143) (930) 775,027 918,119 (445,358) (85,239) (43,231) 637,607 18,183 31,151 8,650 6,768 (25,331) 543 677,571 770,749 (284,364) (97,264) (49,346) 5,599,761 289,075 496,008 72,636 245,826 (290,438) (7,686) 6,405,182 7,587,760 (3,680,645) (704,454) (357,281) Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 344,291 ¥ 339,775 $ 2,845,380 Amounts recognized in the consolidated balance sheets consist of: Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss), gross of tax . . . . . . ¥ 692,150 (128,470) (219,389) ¥ 545,293 (146,610) (58,908) $ 5,720,248 (1,061,736) (1,813,132) Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 344,291 ¥ 339,775 $ 2,845,380 Accumulated benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . ¥1,467,177 ¥1,222,864 $12,125,430 Page 59. TOSHIBA ANNUAL REPORT 1999 10. RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense as incurred and amounted to ¥316,703 million ($2,617,380 thousand) and ¥322,928 million for the years ended March 31, 1999 and 1998, respectively. 11. ADVERTISING: Advertising costs are expensed as incurred. Advertising expenses amounted to ¥73,909 million ($610,818 thousand) and ¥79,693 million for the years ended March 31, 1999 and 1998, respectively. 12. FOREIGN EXCHANGE GAINS AND LOSSES: For the years ended March 31, 1999 and 1998, the net foreign exchange loss was ¥10,596 million ($87,570 thousand) and ¥33,229 million, respectively. 13. INCOME TAXES: The company is subject to a number of different taxes based on income which, in the aggregate, indicate a normal statutory tax rate in Japan of approximately 47.7 percent and 51.4 percent for the years ended March 31, 1999 and 1998, respectively. Due to changes in Japanese income tax regulations, the normal statutory tax rate in Japan was reduced to approximately 47.7 percent effective April 1, 1998 and further, was reduced to approximately 42.1 percent effective April 1, 1999. Those revised tax rates enacted respectively during the fiscal years ended March 31, 1999 and 1998 were used in the measurement of deferred tax assets and liabilities at March 31, 1999 and 1998, respectively. A reconciliation between the reported income tax expense and the amount computed by multiplying the income before income taxes and minority interest by the applicable normal statutory tax rate is as follows: Years ended March 31 Computed expected income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (reduction) in taxes resulting from: Non-deductible expenses for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . Net valuation allowance for losses of subsidiaries . . . . . . . . . . . . . . . . . . Loss on parent company’s investment in subsidiaries . . . . . . . . . . . . . . . Effect of changes in the statutory tax rates . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 1999 ¥ 5,351 4,738 8,928 (13,944) 16,848 3,573 1998 ¥ 9,636 5,441 3,550 – 8,668 (2,820) Thousands of U.S. dollars 1999 $ 44,223 39,157 73,785 (115,240) 139,240 29,529 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 25,494 ¥24,475 $ 210,694 Page 60. TOSHIBA ANNUAL REPORT 1999 The significant components of deferred tax assets and deferred tax liabilities recorded on the consolidated balance sheets as of March 31, 1999 and 1998 are as follows: March 31 Gross deferred tax assets: Millions of yen 1999 1998 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . ¥ 23,048 88,373 47,839 92,363 107,236 358,859 (42,184) Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,675 Gross deferred tax liabilities: Retained earnings appropriated for tax allowable reserves . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,778) (20,871) (40,649) ¥ 33,433 96,833 36,104 28,099 86,413 280,882 (38,271) 242,611 (23,425) (30,302) (53,727) Thousands of U.S. dollars 1999 $ 190,479 730,355 395,364 763,331 886,248 2,965,777 (348,628) 2,617,149 (163,454) (172,488) (335,942) Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥276,026 ¥188,884 $2,281,207 Net current and non-current deferred tax assets at March 31, 1999 and 1998 are reflected in the consolidated balance sheets under the captions of prepaid expenses and other current assets, ¥53,173 million ($439,446 thousand) and ¥56,692 million, and other assets, ¥222,853 million ($1,841,760 thousand) and ¥132,192 million, respectively. The net changes in the total valuation allowance for the years ended March 31, 1999 and 1998 were an increase of ¥3,913 million ($32,339 thousand) and a decrease of ¥376 million, respectively. Available corporate tax loss carryforwards of certain subsidiaries at March 31, 1999 amounted to approximately ¥116,458 million ($962,463 thousand), the majority of which will expire during the period from 2000 through 2004. Realization is dependent on such subsidiaries generating sufficient taxable income prior to expiration of the tax loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets, less valuation allowance, will be realized. The amount of such net deferred tax assets considered realizable, however, could be reduced in the near term if esti- mates of future taxable income during the carryforward period are reduced. Deferred income tax liabilities have not been provided on undistributed earnings of foreign subsidiaries and affiliated com- panies deemed indefinitely reinvested in foreign operations. It is not practicable to estimate the amount of the deferred income tax liabilities on such earnings. 14. SHAREHOLDERS’ EQUITY: RETAINED EARNINGS– Retained earnings at March 31, 1999 and 1998 include the legal reserve of ¥78,388 million ($647,835 thousand) and ¥76,419 million, respectively. The Japanese Commercial Code provides that an amount equal to at least 10 percent of cash dividends and other distributions from retained earnings paid by the parent company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the legal reserve of each legal entity equals 25 percent of its stated capital. The legal reserve is not available for dividends but may be used to reduce a deficit or may be transferred to stated capital. The amount of retained earnings available for dividends is based on the parent company’s retained earnings determined in accordance with generally accepted accounting principles and the Commercial Code in Japan. Retained earnings at March 31, 1999 include year-end dividends of ¥9,656 million ($79,802 thousand) for the year ended March 31, 1999 which are expected to be formally approved at the general shareholders’ meeting held in June 1999, and will be payable subsequently. Page 61. TOSHIBA ANNUAL REPORT 1999 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)– An analysis of the changes in accumulated other comprehensive income (loss) for the years ended March 31, 1999 and 1998 is shown below: March 31 Foreign currency translation adjustments: Millions of yen 1999 1998 Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (41,488) (18,714) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (60,202) Minimum pension liability adjustment: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (30,809) (92,918) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(123,727) Total accumulated other comprehensive income (loss): Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (72,297) (111,632) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(183,929) ¥(33,988) (7,500) ¥(41,488) ¥ – (30,809) ¥(30,809) ¥(33,988) (38,309) ¥(72,297) Thousands of U.S. dollars 1999 $ (342,876) (154,661) $ (497,537) $ (254,620) (767,917) $(1,022,537) $ (597,496) (922,578) $(1,520,074) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 1999 and 1998 are shown below: Before-tax amount Millions of yen Tax benefit For the year ended March 31, 1999: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (19,274) (160,481) Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(179,755) For the year ended March 31, 1998: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (7,500) (58,908) Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (66,408) ¥ 560 67,563 ¥68,123 ¥ – 28,099 ¥28,099 For the year ended March 31, 1999: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . $ (159,289) (1,326,289) Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,485,578) Before-tax amount Thousands of U.S. dollars Tax benefit $ 4,628 558,372 $563,000 Net-of-tax amount ¥ (18,714) (92,918) ¥(111,632) ¥ (7,500) (30,809) ¥ (38,309) Net-of-tax amount $(154,661) (767,917) $(922,578) Page 62. TOSHIBA ANNUAL REPORT 1999 15. NET INCOME PER SHARE: For the years ended March 31, 1999 and 1998, the convertible debentures were not included in the computation of diluted EPS because their inclusion would have resulted in an anti-dilutive effect and, consequently, basic EPS is equal to diluted EPS for those two years. Weighted-average number of shares outstanding for both basic and diluted EPS for the years ended March 31, 1999 and 1998 were 3,218,983 thousand and 3,218,992 thousand, respectively. 16. FINANCIAL INSTRUMENTS: The company operates internationally, giving rise to exposure to market risks from fluctuations in foreign currency exchange and interest rates. In the normal course of its risk management efforts, the company employs a variety of derivative financial instruments, which are comprised principally of foreign currency forward exchange contracts, interest rate swap agreements and currency swap agreements, to reduce its exposures. The company does not hold or issue financial instruments for trading purposes. The company does not anticipate any credit loss from nonperformance by the counterparties to foreign exchange contracts, interest rate swap agreements and currency swap agreements. The company and several subsidiaries have entered into forward exchange contracts with banks as hedges against assets and liabilities denominated in foreign currencies. The forward exchange contracts related to accounts receivable and payable, and commitments on future trade transactions denominated in foreign currencies mature primarily within a few months subsequent to the balance sheet date. Gains and losses explicitly deferred, arising from contracts related to future trade transactions, are insignificant. Forward exchange contracts related to indebtedness denominated in foreign currencies mature within a few months, which correspond with the maturities of such indebtedness. As these foreign exchange forward contracts are utilized solely for hedging purposes, the resulting gains or losses are offset against foreign exchange gains or losses on the underlying hedged assets and liabilities. Gains and losses related to qualifying hedges of firm commitments denominated in foreign currencies are deferred and are recognized in income when the hedged transaction occurs. Interest rate swap agreements and currency swap agreements are used to limit the company’s exposure to losses in relation to underlying debt instruments and a certain foreign currency denominated accounts receivable resulting from adverse fluctua- tions in foreign currency exchange and interest rates. These agreements mature during the period 1999 to 2009. The related differentials to be paid or received under the interest rate swaps are recognized in interest expense over the terms of the agree- ments. Currency swaps are accounted for in a manner similar to the accounting for forward exchange contracts. The company’s forward exchange contract amounts, the aggregate notional principal amounts of interest rate swap agree- ments and the principal amounts of currency swap agreements outstanding at March 31, 1999 and 1998 are summarized below: March 31 Forward exchange contracts: Millions of yen 1999 1998 To sell foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To buy foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥237,340 46,051 426,965 103,867 ¥241,779 12,296 454,349 137,866 Thousands of U.S. dollars 1999 $1,961,488 380,587 3,528,636 858,405 Page 63. TOSHIBA ANNUAL REPORT 1999 The estimated fair values of the company’s financial instruments at March 31, 1999 and 1998 are summarized as follows: Millions of yen Thousands of U.S. dollars 1999 1998 1999 Carrying amount Estimated fair value Carrying amount Estimated fair value Carrying amount Estimated fair value March 31 Nonderivatives: Assets– Marketable securities . . . . . . . . . ¥ 124,017 Other investments . . . . . . . . . . . 128,020 Long-term finance ¥ 228,173 155,828 ¥ 120,748 136,992 ¥ 249,998 201,194 $ 1,024,934 1,058,017 $ 1,885,727 1,287,835 receivables, net . . . . . . . . . . . . . 109,661 110,717 107,520 110,655 906,289 915,017 Liabilities– Long-term debt, including current portion . . . . (1,414,257) (1,449,072) (1,379,902) (1,402,365) (11,688,074) (11,975,802) Derivative financial instruments: Forward exchange contracts . . . Interest rate swap agreements . . Currency swap agreements . . . . 3,232 – (3,122) 5,419 (5,777) (1,859) (1,037) – (2,508) (1,999) (5,146) (2,218) 26,711 – (25,802) 44,785 (47,744) (15,364) The above table excludes the financial instruments for which fair values approximate their carrying values and those related to leasing activities. In assessing the fair value of these financial instruments, the company has used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. For certain instruments, including cash and cash equivalents, notes and accounts receivable, trade, finance receivables, net, short-term borrowings, notes payable, trade, accounts payable, trade, notes and accounts payable for construction and employees’ savings deposits, it was assumed that the carrying amount approximated fair value for the majority of these instruments because of their short maturities. Quoted market prices were used for marketable securities and a part of other investments. Other techniques, such as estimated discounted value of future cash flows, and replacement cost, have been used to determine fair value for the remaining financial instruments. These estimated fair values are not necessarily indicative of the amounts that could be realized in a current market exchange. Other investments includes investment securities which represent holdings in a number of non-public companies. The aggre- gate carrying amount of these investments in non-public companies was ¥73,549 million ($607,843 thousand) and ¥48,591 million at March 31, 1999 and 1998, respectively. However, the corresponding fair value of these investments at those dates was not computed as such estimation was not practicable. 17. COMMITMENTS AND CONTINGENT LIABILITIES: Commitments outstanding at March 31, 1999 for the purchase of property, plant and equipment approximated ¥36,648 million ($302,876 thousand). Rental expense for the years ended March 31, 1999 and 1998 aggregated ¥100,365 million ($829,463 thousand) and ¥99,979 million, respectively. Substantially all such rental expenses are related to cancellable leases for office space, warehouses, and employees’ residential facilities. Such leases are customarily renewed. At March 31, 1999, contingent liabilities, principally for loans guaranteed, approximated ¥472,325 million ($3,903,512 thousand). Management of the company believes that there are no legal actions pending against the company and its subsidiaries which could result in damages against the company which would have a material effect on the company’s consolidated finan- cial statements. Page 64. REPORT OF INDEPENDENT ACCOUNTANTS TOSHIBA ANNUAL REPORT 1999 Yebisu Garden Place Tower 20-3, Ebisu 4-chome Shibuya-ku, Tokyo 150-6013 May 25, 1999 To the Board of Directors of Toshiba Corporation We have audited the consolidated balance sheets of Toshiba Corporation and its subsidiaries as of March 31, 1999 and 1998, and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended, stated in yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Company has not adopted Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The effects on the consolidated financial statements of not adopting SFAS No. 115 and the disclosures required by SFAS No. 115 are summarized in note 4 of notes to the consolidated financial statements. The Company has not presented segment information for the years ended March 31, 1999 and 1998. The presentation of information concerning the Company’s operating segments, its products and services, and its geographic areas is required by accounting principles generally accepted in the United States of America for a complete presentation of consolidated financial statements. In our opinion, except for the effects of the departure from SFAS No. 115 and the omission of segment information discussed in the third and fourth paragraphs of this report, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of Toshiba Corporation and its subsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Page 65. GLOBAL NETWORK OVERSEAS OFFICES Latin America Santa Fe de Bogotá Rio de Janeiro Buenos Aires TOSHIBA ANNUAL REPORT 1999 Europe Vienna Moscow Africa Cairo Johannesburg Middle East Teheran Baghdad Abu Dhabi Jeddah Asia Beijing Shanghai Guangzhou Hong Kong Manila Bangkok Jakarta New Delhi OVERSEAS SUBSIDIARIES AND AFFILIATES North America Toshiba of Canada, Ltd. Toronto, Ontario, Canada Toshiba America, Inc. New York, New York, U.S.A. Toshiba America Capital Corporation New York, New York, U.S.A. Toshiba America Medical Systems, Inc. Tustin, California, U.S.A. Toshiba America MRI Inc. South San Francisco, California, U.S.A. Applied SuperConetics, Inc. San Diego, California, U.S.A. Toshiba America Information Systems, Inc. Irvine, California, U.S.A. Toshiba America Consumer Products, Inc. Wayne, New Jersey, U.S.A. Toshiba Hawaii, Inc. Honolulu, Hawaii, U.S.A. Toshiba International Corporation Houston, Texas, U.S.A. Toshiba America Electronic Components, Inc. Irvine, California, U.S.A. Toshiba Display Devices Inc. Horseheads, New York, U.S.A. Dominion Semiconductor, L.L.C. Manassas, Virginia, U.S.A. Toshiba America Venture Capital, Inc. Lyndhurst, New Jersey, U.S.A. Toshiba Satellite Broadband, Inc. New Castle, Delaware, U.S.A. Enceratec, Inc. Columbus, Indiana, U.S.A. Toshiba America Research, Inc. Morristown, New Jersey, U.S.A. Latin America Toshiba de Mexico, S.A. de C.V. Mexico City, Mexico Toshiba Electromex, S.A. de C.V. Ciudad Juárez, Mexico Toshiba de Venezuela C.A. Caracas, Venezuela Toshiba Medical do Brasil Ltda. São Paulo, Brazil Semp Toshiba Amazonas S.A. Manaus, Brazil T and S Servicos Industrias s/c Ltda. São Paulo, Brazil Toshiba do Brasil, S.A. São Paulo, Brazil Europe Toshiba of Europe Ltd. London, U.K. Toshiba International Finance (UK) Plc. London, U.K. Toshiba Research Europe Ltd. Cambridge, U.K. Toshiba Medical Systems Ltd. Crawley, U.K. Toshiba Information Systems (UK) Ltd. Weybridge, U.K. Toshiba (UK) Ltd. Camberley, U.K. Toshiba International (Europe) Ltd. Uxbridge, U.K. Toshiba Electronics (UK) Ltd. Camberley, U.K. Toshiba Electronics Scandinavia AB Bromma, Sweden Toshiba International Finance (Netherlands) B.V. Haarlem, The Netherlands Toshiba Medical Systems Europe B.V. Zoetermeer, The Netherlands Toshiba Medical Systems NV/SA Antwerpen, Belgium Toshiba Medical Systems GmbH Neuss, Germany Toshiba Europe GmbH Neuss, Germany Toshiba Semiconductor GmbH Braunschweig, Germany Toshiba Electronics Europe GmbH Düsseldorf, Germany Toshiba Medical France S.A. Boulogne, France Toshiba Systèmes (France) S.A. Puteaux, France Toshiba Electronics France S.A.R.L. Rosny-Sous-Bois, France Toshiba Medical Systems Gesellschaft m.b.H. Wiener Neudorf, Austria Page 66. TOSHIBA ANNUAL REPORT 1999 Toshiba Medical Systems AG Oetwil am See, Switzerland Toshiba Medical Systems S.R.L. Rome, Italy Toshiba Electronics Italiana S.R.L. Milan, Italy Toshiba Medical Systems S.A. Madrid, Spain Toshiba Electronics España S.A. Madrid, Spain Middle East Toshiba Gulf FZE Dubai, UAE Asia Toshiba (China) Co., Ltd. Beijing, The People’s Republic of China Technology Development (Shanghai) Co., Ltd. Shanghai, The People’s Republic of China Toshiba Dalian Co., Ltd. Dalian, The People’s Republic of China Hangzhi Machinery & Electronics Co., Ltd. Hangzhou, The People’s Republic of China Shenyang NETS System Integration Co., Ltd. Shenyang, The People’s Republic of China Dalian Toshiba Television Co., Ltd. Dalian, The People’s Republic of China Shanghai Jinzhi Electronics Co., Ltd. Shanghai, The People’s Republic of China Changzhou Toshiba Transformer Co., Ltd. Changzhou, The People’s Republic of China Shenyang Toshiba Elevator Co., Ltd. Shenyang, The People’s Republic of China Shanghai GFC Toshiba Elevator Co., Ltd. Shanghai, The People’s Republic of China Wuxi Huazhi Semiconductor Co., Ltd. Wuxi, The People’s Republic of China Tsurong Xiamen Xiangyu Trading Co., Ltd. Xiamen, The People’s Republic of China Jiangsu Honshiba Tontru Network System Equipment Co., Ltd. Nanjing, The People’s Republic of China Jiangxi Toshiba Electronic Materials Co., Ltd. Ganzhou, The People’s Republic of China Toshiba Hong Kong Ltd. Kowloon, Hong Kong Toshiba Electronics Asia, Ltd. Kowloon, Hong Kong Korea Electronic Material Co., Ltd. Inchon, The Republic of Korea Hanji Electronic Engineering Co., Ltd. Seoul, The Republic of Korea Toshiba Electronics Korea Corporation Seoul, The Republic of Korea Taiwan Toshiba International Semiconductor Designing Corporation Taipei, Taiwan Toshiba Electronics Taiwan Corporation Taipei, Taiwan Toshiba Memory Semiconductor Taiwan Corp. Taipei, Taiwan Toshiba Information Equipment (Philippines), Inc. Manila, Philippines Toshiba Electronics Philippines, Inc. Manila, Philippines Toshiba Thailand Co., Ltd. Bangkok, Thailand Thai Toshiba Electric Industries Co., Ltd. Bangkok, Thailand Toshiba Consumer Products (Thailand) Co., Ltd. Pathumthani, Thailand Toshiba Display Devices (Thailand) Co., Ltd. Pathumthani, Thailand Toshiba Semiconductor (Thailand) Co., Ltd. Pathumthani, Thailand Toshiba Sales and Services Sdn. Bhd. Selangor, Malaysia Toshiba Electronics Malaysia Sdn. Bhd. Selangor, Malaysia Toshiba Electronics Trading (Malaysia) Sdn. Bhd. Selangor, Malaysia Wah Seong Engineering Sdn. Bhd. Penang, Malaysia WS Elevators Sdn. Bhd. Penang, Malaysia Toshiba Capital (Asia) Ltd. Singapore Toshiba Asia Pacific Pte., Ltd. Singapore Toshiba Medical Systems Asia Pte., Ltd. Singapore Toshiba Data Dynamics Pte., Ltd. Singapore Toshiba Video Products Pte., Ltd. Singapore International Video Products Pte., Ltd. Singapore Toshiba Singapore Pte., Ltd. Singapore GE Toshiba Appliances Company Pte., Ltd. Singapore Toshiba Electronics Asia (Singapore) Pte., Ltd. Singapore P.T. Toshiba Consumer Products (Indonesia) Jawa Barat, Indonesia P.T. Toshiba Display Devices Indonesia Jawa Barat, Indonesia P.T. Schneider Manufacturing Batam Batam, Indonesia Oceania Toshiba (Australia) Pty., Ltd. Sydney, Australia Toshiba International Corporation Pty., Ltd. Sydney, Australia (As of March 31, 1999) Page 67. TOSHIBA ANNUAL REPORT 1999 CONSOLIDATED SUBSIDIARIES CONSOLIDATED DOMESTIC SUBSIDIARIES A&T Battery Corporation Fukuoka Toshiba Electronics Corporation Iwate Toshiba Electronics Co., Ltd. Kaga Toshiba Electronics Corporation Kitashiba Electric Co., Ltd. Kitsuki Toshiba Electronics Corporation Kyodo Building Corporation Shibaura Mechatronics Corporation Shibaura NIDEC Corporation Toshiba Air Conditioning Co., Ltd. Toshiba Battery Co., Ltd. Toshiba Building & Lease Co., Ltd. Toshiba Capital Corporation Toshiba Carrier Air Conditioning Systems Corporation Toshiba Carrier Corporation Toshiba Chemical Corporation Toshiba Credit Corporation Toshiba Device Corporation Toshiba Electric Appliances Co., Ltd. Toshiba Elevator Corporation Toshiba Elevator Products Co., Ltd. Toshiba Engineering Corporation Toshiba Finance Corporation Toshiba Hokuto Electronics Corporation Toshiba Home Technology Corporation Toshiba Information Equipments Co., Ltd. Toshiba Information Systems (Japan) Corporation Toshiba Kansai Lifestyle-Electronics Corporation Toshiba Lighting & Technology Corporation Toshiba Logistics Corporation Toshiba Medical Finance Co., Ltd. Toshiba Medical Systems Co., Ltd. Toshiba Microelectronics Corporation Toshiba Multi Media Device Co., Ltd. Toshiba Plant Kensetsu Co., Ltd. Toshiba Shutoken Lifestyle-Electronics Corporation Toshiba TEC Corporation Toshiba Video Products Japan Co., Ltd. Yokkaichi Toshiba Electronics Corporation Plus 180 other domestic subsidiaries CONSOLIDATED OVERSEAS SUBSIDIARIES Changzhou Toshiba Transformer Co., Ltd. Dalian Toshiba Television Co., Ltd. Guangdong Toshiba Macro Compressor Ltd. Guangdong Toshiba Macro Motor Ltd. Hangzhi Machinery & Electronics Co., Ltd. P.T. Toshiba Consumer Products (Indonesia) P.T. Toshiba Display Devices Indonesia Pacific Fuel Cell Capital (U.S.A.), Inc. Semiconductor America Inc. Shenyang Toshiba Elevator Co., Ltd. TEC (UK) Ltd. TEC America, Inc. TEC France International S.A. TEC Singapore Electronics Pte. Ltd. TIM Electronics Sdn. Bhd. Toshiba (Australia) Pty., Ltd. Toshiba (China) Co., Ltd. Toshiba (UK) Ltd. Toshiba America Capital Corporation Toshiba America Consumer Products, Inc. Toshiba America Electronic Components, Inc. Toshiba America Information Systems, Inc. Toshiba America Medical Systems, Inc. Toshiba America MRI Inc. Toshiba America Venture Capital, Inc. Toshiba America, Inc. Toshiba Capital (Asia) Ltd. Toshiba Chemical Singapore Pte., Ltd. Toshiba Compressor (Taiwan) Corporation Toshiba Consumer Products (Thailand) Co., Ltd. Toshiba Dalian Co., Ltd. Toshiba Display Devices (Thailand) Co., Ltd. Toshiba Display Devices Inc. Toshiba do Brasil, S.A. Toshiba Electronics (UK) Ltd. Toshiba Electronics Asia, Ltd. Toshiba Electronics Europe GmbH Toshiba Electronics Malaysia Sdn. Bhd. Toshiba Electronics Taiwan Corporation Toshiba Europe GmbH Toshiba Information Equipment (Philippines), Inc. Toshiba Information Systems (UK) Ltd. Toshiba International Corporation Toshiba International Finance (Netherlands) B.V. Toshiba International Finance (UK) Plc. Toshiba Medical Systems Asia Pte., Ltd. Toshiba Medical Systems Europe B.V. Toshiba Satellite Broadband, Inc. Toshiba Semiconductor (Thailand) Co., Ltd. Toshiba Semiconductor GmbH Toshiba Systèmes (France) S.A. Toshiba Venture Capital, Inc. Toshiba Video Products Pte., Ltd. Wuxi Huazhi Semiconductor Co., Ltd. Wuxi Tochemi Electro Chemical Co., Ltd. Plus 47 other overseas subsidiaries (As of March 31, 1999) Page 68. TOSHIBA ANNUAL REPORT 1999 TOSHIBA ANNUAL REPORT 1999 Principal Shareholders: 3.78% The Dai-ichi Mutual Life Insurance Company 3.72% The Sakura Bank, Ltd. Nippon Life Insurance Company 3.36% The Sumitomo Trust and Banking Co., Ltd. (for trust) 2.88% 2.22% Mitsui Mutual Life Insurance Company 2.11% Employees Stock Ownership Plan 1.84% The Nippon Fire & Marine Insurance Co., Ltd. 1.83% The Long-Term Credit Bank of Japan, Ltd. 1.81% The Tokai Bank, Ltd. 1.68% State Street Bank and Trust Company (As of March 31, 1999) INVESTOR REFERENCE Founded July 1875 Capital ¥274,916 million (US$2,272 million) Employees 198,000 Common Stock Authorized: 10,000,000,000 shares Issued: 3,218,999,545 shares No. of shareholders: 404,283 Average holding: 7,962 shares Transfer Agent The Mitsui Trust and Banking Co., Ltd. Headquarters 1-1, Shibaura 1-chome, Minato-ku Tokyo 105-8001, Japan For further information, please contact: Corporate Communications Office TOSHIBA CORPORATION 1-1, Shibaura 1-chome, Minato-ku Tokyo 105-8001, Japan Phone: (03) 3457-2096 Facsimile: (03) 5444-9202 or via the Internet at: http://www.toshiba.co.jp Product names may be trademarks of their respective companies. Printed on recycled paper Page Page 69. 69. TOSHIBA ANNUAL REPORT 1999 Page 70. Printed in Japan 

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