Toshiba Corp.
Annual Report 2000

Plain-text annual report

A new Toshiba takes shape >> ANNUAL REPORT >> Year ended March 31, 2000 A N N U A L R E P O R T 2 0 0 0 Printed in Japan BASIC COMMITMENT OF THE TOSHIBA GROUP 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 FINANCIAL HIGHLIGHTS TO OUR SHAREHOLDERS IT—A DRIVER OF GROWTH Inter-Company Value Chain Electronic Components Media Cards Portable PCs Cellular Phones System Solution Services Digital Broadcasting Equipment B2B Internet Services B2C Internet Services REVIEW OF OPERATIONS Information & Communications and Industrial Systems Digital Media Power Systems Electronic Devices & Components Home Appliances Others RESEARCH AND DEVELOPMENT TOSHIBA AND THE ENVIRONMENT BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE AUDITORS MANAGEMENT’S DISCUSSION & ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS GLOBAL NETWORK CONSOLIDATED SUBSIDIARIES INVESTOR REFERENCE 1 2 8 10 11 12 13 14 15 16 17 18 21 24 26 29 30 31 34 36 37 44 64 66 67 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. Fur- thermore, 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, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. INVESTOR REFERENCE Founded July 1875 Capital ¥274,919 million (US$2,594 million) Employees 190,870 Common Stock Authorized: 10,000,000,000 shares Issued: 3,219,006,450 shares No. of shareholders: 380,744 Average holding: 8,455 shares Transfer Agent The Chuo Mitsui Trust and Banking Co., Ltd. Headquarters 1-1, Shibaura 1-chome, Minato-ku Tokyo 105-8001, Japan Principal Shareholders: 3.94% The Dai-ichi Mutual Life Insurance Company 3.88% The Sakura Bank, Ltd. 3.85% The Chase Manhattan Bank NA London 3.36% Nippon Life Insurance Company 2.63% State Street Bank and Trust Company Mitsui Mutual Life Insurance Company 2.22% The Sumitomo Trust and Banking Co., Ltd. (Trust Account) 2.01% 1.86% Employees Stock Ownership Plan 1.84% The Nippon Fire & Marine Insurance Co., Ltd. 1.52% The Long-Term Credit Bank of Japan, Ltd. (As of March 31, 2000) 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/about /ir/index.htm Product names may be trademarks of their respective companies. Printed on recycled paper 67 FINANCIAL HIGHLIGHTS Toshiba Corporation and its subsidiaries Years ended March 31, 2000 and 1999 Millions of yen 2000 1999 Net sales – Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,514,068 2,235,304 ¥3,184,764 2,116,138 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income taxes and minority interest . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,749,372 100,969 (44,844) (28,000) 334,398 5,702,189 982,128 5,300,902 30,483 11,218 (13,896) 316,703 6,023,557 1,050,336 Thousands of U.S. dollars 2000 $33,151,585 21,087,773 54,239,358 952,538 (423,057) (264,151) 3,154,698 53,794,236 9,265,358 Yen U.S. dollars Per share of common stock: Net loss – basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(8.70) 3.00 ¥(4.32) 6.00 $(0.082) 0.028 Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,870 198,000 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 ¥106=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) 5,000 4,000 3,000 2,000 1,000 0 -10 -20 1,200 900 600 300 Mar. 1998 1999 2000 Mar. 1998 1999 2000 Mar. 1998 1999 2000 1 TO OUR SHAREHOLDERS Since taking on the presidency of Toshiba in 1996, Taizo Nishimuro has promoted extensive restructuring. Now, in the year of Toshiba’s 125 anniversary, with a new mid-term plan drawn up and ready for implementation, Mr. Nishimuro decided that the time was ripe to name his replacement. Appointing his successor as CEO now would assure Toshiba continuity of leadership throughout the three-year term of the plan and beyond. It would also allow promotion of an even longer term perspective that would support the company’s development and progress through the early years of the coming century. The board meeting, which was held after the regular general meeting of the shareholders took the next step when it elected Tadashi Okamura to the post of president and chief executive officer. He took the helm of the company on June 28, 2000. The meeting also elected Mr. Nishimuro to the then-vacant post of chairman of the board. In this position he heads the board, which is responsible for supervisory functions and decisions making on substantial matters. Mr. Okamura takes the initiative in corporate strategy and securing results, working with the executive officers who oversee business planning and activities in the in-house companies. The result is enhanced corporate governance and agile decision making. In this message to the shareholders, Mr. Nishimuro and Mr. Okamura review the last year of operations at Toshiba and present their views on Toshiba’s future performance. Summary of Fiscal 1999 Operating Results A review of fiscal 1999, to March 31, 2000, reveals a year of transition for Toshiba. Throughout the period, we continued reforms that will position the company to achieve sustained growth in coming years. And although exceptional circumstances kept us from profit, we are confident that the progress we made in fiscal 1999 readies Toshiba for a return to profitability in the current fiscal term, and strong onward growth. Japan saw another year of sluggish personal consumption, reflecting widespread concern about employment conditions and falls in real income. In the second half, this was compounded by the declining effectiveness of government pump priming in public investment and housing starts. However, not all the news was negative. Capital investment improved in the private sector, particularly in information technology, share prices rallied and corporate earnings recovered. We look for more progress in the present term. Overseas, the main story was the continuing robustness of the personal consumption that is driving the U.S. economy. Other welcome trends were the pace of recovery in Asia and the continuing upward trend in Europe. In our operations, we achieved an 8% increase in consolidated net sales to ¥5,749 billion (US$54,239 million) in fiscal 1999, and our operating income increased by ¥70.5 billion (US$665 million) to ¥101 billion (US$953 million). However, we reported a loss before income taxes and minority interests of ¥44.8 billion (US$423 million), and a net loss of ¥28 billion (US$264 million), largely due to the settlement of a class-action lawsuit in the United States. Despite this loss, we are sure that fiscal 2000 will see Toshiba return to profitability, thanks to significant advances in restructuring during the previous year. This was particularly true in our semiconductor business, which put into force extensive restructuring programs that tightened its focus on core businesses and realigned global manufacturing facilities. These moves, and benefits gained from greater stability in DRAM prices, produced a dramatic rebound from a first half loss. Our home appliances business also made a substantial return to profitability. And in its first full year, our new in-house company system secured impressive gains in cash flows. Settlement Reached in U.S. Class-Action Litigation In October 1999, Toshiba reached a settlement in a class-action lawsuit in the U.S. brought by two owners of Toshiba notebook personal computers concerning the floppy-disk controller (FDC) incorporated in the PCs. They alleged that the floppy-disk controller may, under certain circumstances, cause data to be lost or corrupted when it is written to a floppy disk. The class settlement was approved by the court in January 2000, and became final in March 2000. 2 right: TAIZO NISHIMURO Chairman of the Board left: TADASHI OKAMURA President and Chief Executive Officer With the full support of one of the best U.S. law firms, Toshiba vigorously defended itself in the lawsuit by arguing that – while there was the potential for the FDC condition to cause data loss under certain rare circumstances – Toshiba was not aware of that the FDC had ever actually caused data loss or data corruption in the approximately 15 million Toshiba portable PCs used by its customers worldwide. After carefully considering the expected risks attendant on continuing the case and the opinions of its lawyers and experts, Toshiba decided to settle the case to avoid the risks involved in protracted complex litigation and a jury trial, including a potential worst-case scenario where the company’s business itself would be threatened, and to continue to ensure its custom- ers that the Toshiba brand name merits their trust. In making such a decision, Toshiba took the following risks, among others, into account: The plaintiffs could have argued that, under certain US law warranty theories, they were entitled to recover damages up to a full refund of the purchase price without having to prove actual data loss or data corruption in any particular PC. Based on the plaintiff’s arguments in this lawsuit, the damages awarded could have been as much as 1 trillion yen (approximately US$10 billion). (cid:1) Based on legal precedents in the U.S., including cases decided in the same jurisdiction as this lawsuit, there was a serious risk that a huge amount of compensation could have been awarded through a jury verdict in the class-action lawsuit. If Toshiba had not agreed to settle the case, the court could very likely have issued an injunction order prohibiting Toshiba from selling any PCs in the U.S. without first placing a warning label on the PC that said the PC could destroy important data. We settled the case without any admission or finding of liability, and without any admission or finding that its PCs have any defects. Toshiba has reflected a 106.3 billion yen (approximately US$1 billion) loss in its financial results for fiscal 1999, in con- nection with the settlement payment and other performance obligations under the settlement agreement. We express our sincere regrets for any concern that this may have caused to our shareholders. We are making every effort to minimize any impact the settlement may have on our business, and also fully reviewing our business systems toward preventing any recurrence of such an incident. Looking Back on a Year of Accelerating Change In fiscal 1999, Toshiba took on the challenge of fundamentally redefining its management structure, business portfolio and corporate culture. Our underlying aim was nothing less than to ensure survival and thriving growth in today’s borderless economy and fierce global competition. 3 (cid:1) (cid:1) Words Into Action ... Optimizing the Benefits of the In-House Company System A central strand of our management restructuring was the April 1999 introduction of the in-house company system at Toshiba Corporation. This gives each company operating autonomy and all necessary business resources, and requires them to develop an appropriate business approach, effective strategies and fast decision making. They also have to meet stringent targets for ROI and Cash Flow ROI and maximize cash flows. Improvement under the new system has been dramatic, as fiscal 1999 witnessed a net increase of ¥143 billion in cash flows from operating and investing activities. In short, the first year of operations under the new system offers positive grounds for future expectations. Alliances Pave the Way to Profitability In parallel with restructuring, we entered into a number of alliances in fiscal 1999, all with the intent of winning in the global marketplace and improving profitability. In matured businesses, we set up joint ventures with Mitsubishi Electric Corporation in the industrial motor business, with General Electric Company and Hitachi, Ltd. in international nuclear fuel operations, and with Carrier Corporation in air condition- ers. All three have made significant progress, especially that with Carrier. In its first year, it brought our air-conditioning business back to profit, after a series of losses. We are intent on making our matured businesses globally competitive and profitable. For those ends, we will continue to seek alliances with powerful partners, restructure existing operations, and consider other means to optimizing our business portfolio. We also promote strategic partnerships in growth businesses, especially electronic components. Noteworthy collaborations include a June 1999 joint venture with Sony Computer Entertainment Inc. to produce the CPU for its PlayStation2 game console, and a new US-based joint venture with SanDisk Corporation, formed in May 2000 to develop and manufacture next-generation flash memories. Moves like these allow us to maximize the results we can achieve with finite resources, and to direct them to activities offering the greatest potential for attractive returns. We will continue to use partnerships as a tool to promote Toshiba’s competitiveness. Change in Corporate Culture Of course, reorganization can only succeed if it is backed up by a whole-hearted commitment to success in the market. The key to that is Management Innovation 2001 (MI2001). Launched in October 1998, this company-wide initiative is applying Six-Sigma methodology to building a corporate culture that encourages continuous innovation and seeks total customer satisfaction. We began extending MI2001 throughout Toshiba Group in October 1999, disseminating a uniform methodology throughout the group via an information network that also supports the flow of results and achievements among companies. In fiscal 1999, some 4,000 MI2001 projects generated savings of approximately ¥34 billion. 4 The Next Step—The Mid-Term Business Plan As we have noted, our performance has improved steadily since the second half of fiscal 1999, especially in our semi- conductor business. We are convinced that this represents the first benefits of our restructuring program, and we are sure it is no short-term trend. Consequently, the mid-term business plan announced in March 2000 represents a clear roadmap for future expansion. It sets forth fundamental management policies and strategies for the three years to March 2003, and is designed to bring us to the point where we can sustain high growth and profitability throughout Toshiba Group. We are achieving this through the benefits gained from fully utilizing the latest advances in information systems and expanding IT-related businesses. Our strategic business sectors will prioritize IT business, particularly in the central areas of networks and mobile devices. We will accelerate growth by fusing our advanced capabilities in network security, image compression and other crucial mobile technologies with our leading-edge semiconductor, LCDs and digital components technologies. Business-to-business (B2B) operations center on the e-Net Business Division, formed by the Information & Industrial Systems and Services Company in April, 2000 as a platform for expanding system solutions. The main approach here will be to utilize to the full our front-end processing skills as an application service provider (ASP). In this connection, we are enlarging and upgrading our data center, the core of our services support. We will enter the emerging area of digital data- broadcasting by working with our affiliate, MediaServe Corporation, to build an e-commerce organization offering retailing, billing and payment services via digital TV broadcasts. As part of our drive into Internet-based services we established our ninth in-house company, the iValue Creation Company, in April 2000. A wide range of on-line operations will include business-to-consumer (B2C) services that use Toshiba’s present portals and the FreshEye search engine, to conduct “Web-top” services over broadband, mobile networks. Content-related services will be rapidly developed through ties with such prominent partners as Time Warner, Nippon Television Network, Kadokawa Shoten Publishing and EMI. Establishing an Inter-Company Value Chain We introduced the in-house company system as a means for individual companies to develop strategies for success in an age of global mega-competition. In order to achieve the goals of our mid-term business plan, it is essential that we are able to integrate the strengths of the different companies with one another, to expand the range of business opportunities and enhance total value. The vehicle for this is our inter-company value chain, which can promote in-house alliances in key areas, 5 particularly among companies working in IT-related businesses. The value chain is now promoting six projects in media cards, mobile devices, network home appliances, digital broadcasting services, Internet services and Intelligent Traffic Systems and automotive electronics. A Sound Base for Consistently High Returns Raising Returns on Assets and Assuring Financial Soundness We are taking numerous steps to use our assets more productively. The advanced customer relationship management (CRM) and supply chain management (SCM) systems we are introducing give us the flexibility we need to handle demand fluctuations and to improve inventory management and cut stock levels. Financial initiatives include enhanced utilization of asset-backed securities and commitment line. New investments will be tightly focused and tracked to make sure they create value exceed- ing the cost of capital, toward which we are promoting management systems that reflect a corporate ROE target and ROI and free cash flow targets for each in-house company. IT Investments to Upgrade Internal Systems New IT systems have the potential to revolutionize management, and we have devoted considerable resources to their development and adoption. Model CRM and SCM systems for our PC and semiconductor businesses are already being deployed, and will be extended to cover worldwide operations. We expect them to get products to market faster and to achieve major reductions in inventories and distribution costs. In fiscal 1999, we completed the adoption of enterprise resource planning (ERP) software that is expected to raise productivity and returns. We are also adopting procurement EDI that will achieve significant cost cuts by bringing all procurement activities onto the Internet by the end of fiscal 2001. A New Style of Management The current fiscal term will see the continued evolution of the in-house company system. Each company will have the freedom, and responsibility, to choose the platform best suited to its markets: the current in-house status, a spin-off, alliances, or any other approach deemed appropriate. At the same time, the corporate headquarters will seek to reinforce consolidated performance by promoting strategic tie-ups among Toshiba Group, embracing the in-house companies and related subsidiaries and affiliates. Such cooperation will include exchanges of human and other resources to facilitate the productive use of assets. Another area where we are promoting change is remuneration, part of a focus on developing individual capabilities. Performance will be given much greater weight in determining pay and promotions, and individuals will be motivated to perform at full potential, in an environment that allows them to develop their creativity and capabilities. The in-house compa- 6 Words Into Action ... nies will establish personnel systems suited to their operations, and new business ventures will be much more flexible, able to offer stock options, annual-salary packages and other forms of remuneration and incentives. Environmental protection is a central plank of management, and Toshiba seeks to work for a society that maximizes recycling of resources. Environmental accounting was introduced in fiscal 1999, and we will step up disclosure through environmental reports. Our goal here is to make all of Toshiba’s operations fully transparent in terms of environmental activities. The Ultimate Goal - Increasing Toshiba’s Value We want to close this review by restating a point we made at the beginning: fiscal 1999 was a year of transition that saw Toshiba position itself for sustained growth and profitability in the future. This year, and in years to come, we will be decisive in pursuing the goals of our mid-term plan. We will listen to the market, recognizing it as the source of information we need, the force that shapes our strategy and the focus of our activities. We will foster closer links with our customers, to better understand their needs and wants. And, most importantly, we will achieve results that meet the expectations of our stakeholders– particularly our shareholders, customers and employees – and that earn Toshiba recognition as a respected and valued company. Through our products and services and our enhanced customer support, we will assure a level of performance in this and coming years that places Toshiba in the front ranks of the world's most admired companies. June 2000 Taizo Nishimuro Director Chairman of the Board Tadashi Okamura Director President and Chief Executive Officer 7 IT — A DRIVER OF GROWTH Inter-Company Value Chain >> Molding an Inter-Company Value Chain Determined to maximize value, Toshiba views its in-house companies as more than stand-alone businesses. Many opportu- nities exist to foster mutually beneficial ties among them. Molding an inter-company value chain will boost the value of the entire Toshiba Group. The products and services generated by this chain will form the nucleus of a New Toshiba. IT is catalyzing this process. Toshiba is positioning itself in the mainstream of shifts in business practices and lifestyles as the information age gathers momentum in the 21 st century. The Six Pillars of the Value Chain Toshiba’s inter-company value chain targets six markets: media cards; mobile devices; network home appliances; digital broadcasting services; Internet services; and Intelligent Transportation Systems (ITS) and other automo- Media cards Mobile devices Network home appliances Digital broadcasting services tive devices. These markets will guide investments in existing as well as new businesses. Internet Services Power and industrial systems, consumer products and other traditional businesses will all benefit. The convergence of Toshiba’s resources on these six markets will rapidly build a ITS/Automotive devices powerful value chain. All in-house companies will have a common platform for sharing their resources. Each company will expand faster as a result, and so will Toshiba as a whole. 8 Toshiba is intently focused on a single field: information technology (IT). Toshiba is offering products ranging from information appliances like portable PCs, mobile phones, and portable audio-visual devices, all of which can function as portals, to cutting-edge electronic components like semiconduc- tors and LCDs. And it is coupling them with services that provide solutions for specific customer requirements. Channeling resources to two IT domains— mobile applications and networking—will place Toshiba on a faster growth track, one driven by value-added products and services. Information and Industrial Systems & Services Company iValue Creation Company Content distribution Digital Media Network Company Memory cards/ application products Semiconductor Company Display Devices & Components Company Power Systems & Services Company Home Appliances Company Flash memories Wireless devices Satellite Content distribution PC Cellular phone Telecom LSIs LCDs/Batteries Content distribution Network AV Digital TV System LSIs LCDs/Batteries Digital white goods Mobile data broadcasting BtoC Content distribution BtoB ASP BtoC Content distribution Infrastructure/ application systems PCs for cars System LSIs CPUs LCDs/Batteries Fuel cells Toshiba Corporation comprises nine in-house companies as of April 1, 2000: the seven companies listed in the table, Medical Systems Company and Elevator and Building Systems Company. 9 For Toshiba, electronic components are the means to drive technological progress and a major source of growth and earnings. The company is targeting markets related to mobile devices and networks to acceler- ate the growth in system LSI sales. In discrete components, Toshiba is preeminent in the global market, and bolstering its product line and profitability with new products for mobile applications. Flash memories are being cultivated as the nucleus for the business, and Toshiba seeks the lion’s share of the market for NAND flash, a technology invented by Toshiba. In DRAMs, we will seek efficiency in R&D and production including enhanced collaboration with global partners. In this way, the company retains strengths in the three key product areas of the semiconductor business. In other areas, low-temperature polysilicon TFT LCDs and advanced lithium-ion rechargeable batteries have both defined new capabilities in their markets. They are moving into the mainstream and toward rapid growth. Electronic Components >> Inter-company Value Chain >> < The world’s first single chip MPEG-4 system LSI with embedded DRAM achieves the breakthrough integration in necessary for realizing videophones. < Low-temperature polysilicon LCDs boast low power con- sumption and outstanding sharpness, performance that earned them the Display of the Year Award from Society for Information Display. 10 > SmartMedia, developed by Toshiba, is perfect for storing digital still photographs and has great potential in mobile products handling images, music and other data. > The small, light SD Memory Card combines high level copy protection with high volume storage capacity. Toshiba has started mass production, and launched a mobile audio player incorporating the card. Media Cards >> The age is portable, demand taking off for personal products like digital cameras and mobile audio players. Toshiba adds to the potential with its NAND-flash-memory based SmartMedia™ and the SD media cards. Record data on one device, view it on another; enjoy total flexibility. The market is ready to soar, and Toshiba is ready to drive it, working closely with develop- ers of products, services and content, making sure media card power delivers attractive innovations 11 <> Toshiba has preserved its position as the world’s number-one supplier of portable PCs for the past six years, using the increasing popularity of the Internet and mobile computing to achieve consistent growth. Inter-company Value Chain >> Portable PCs >> No other company has done it. For six years, Toshiba has led the global portable PC market in products shipped. It’s an achievement that pays powerful testi- mony to an unrivaled record for quality, performance and trail-blazing product development. In a phrase, great PCs. Toshiba is now backing up its products with advanced IT systems: sophisticated customer relation- ship management and supply chain management systems to manage demand and meet market trends. And cost-competitiveness is being enhanced by increasing overseas production. But the key innovations will come in the PCs themselves. Look for enhanced networking capabilities, including Bluetooth-compatible models, and for great audio-visual features. And look for Toshiba to retain its lead in the global portable market. 12 New technologies are offering new opportu- nities, and Toshiba is seizing them. Already a key player—number two in the US market for CDMA handsets through OEM supply to Audiovox—Toshiba is looking to W-CDMA and other next-generation standards as a way to increased market share. The Wideband CDMA Business Development Division started business in January 2000 to speed development of products for Japan’s spring 2001 launch of W-CDMA service. It’s a promising opportunity, one where industry-defining skills—Toshiba created the world’s first single-chip MPEG4 LSI—will assure a position far ahead of the global competition. Cellular Phones >> < Mobile phones using the CDMA-One standard utilize packet switching to offer e- mail services and Web surfing. Toshiba’s phones feature high reception sensitivity that maximizes the standard’s excellent sound quality and resistance to signal interruptions. < A value chain linking the Semiconductor Company and Digital Media Network Company realizes a next generation MPEG-4 videophone that will support such advanced services as moving picture distribution (this picture shows a prototype). 13 Toshiba is building a highly sophisticated system integration framework. It identifies crucial points in business practices and ways to improve operations, and then applies consult- ing and IT skills to create optimized solutions. These can be applied to all essential areas of business: procurement, manufacturing, logis- tics, sales and other activities. Total energy solutions is another face of the services the company offers: consultation on energy con- servation; an energy-conserving physical plant management service and an operating and maintenance management system. Toshiba is also involved in total solutions for medical systems, including hospital management, and in remote maintenance services. In these and other ways. Toshiba is working on supplying services that address the unique requirements of each of its client industries. System Solution Services >> Inter-company Value Chain >> < The water control system in Izumi, Osaka Prefecture, supports compre- hensive planning and management of all water resources and also supports contingency management during times of emergency. < The ATRAS trading system devel- oped for Daiwa Securities SB Capital Markets Co., Ltd. brings speed and accuracy to everything from order placing to highly sophisticated trading functions. Dealers can also rely on it for real-time access to information. 14 < From broadcasting equipment to TVs and tuners in the home, demand for digital- ready products will take off in Japan this December, when BS digital broadcasts begin. Terrestrial digital broadcasting will follow in 2003. < Signal quality is optimized by the high- performance, low-distortion converter of Toshiba Techno Network’s BS parabola antenna. Digital Broadcasting Equipment >> Digital broadcast satellite (BS) broad- casts are poised to start in Japan... thanks to Toshiba! Six of the country’s eight digital broadcasters have opted for Toshiba equipment, and more orders are expected for the terrestrial digital stations due to start broadcast- ing in 2003. Toshiba will also offer services, BS digital data broadcasts of interactive e-commerce, through a new affiliate, MediaServe Corporation. With demand for hardware set to grow, Toshiba is ready and waiting with a broad range of digital broad- casting equipment, including program production systems and video data management systems. 15 > A ¥20 billion investment in its data center positions Toshiba for growth as an application service provider. > In the B2B sector, Toshiba excels in system solutions that take advantage of its expertise in front-end processing. B2B Internet Services >> Inter-company Value Chain >> The e-Net Business Division stands in the vanguard of Toshiba’s B2B strategy. Diverse expertise gained in providing system solutions for industry, and in supplying a full line of elec- tric and electronic products, is focused through the lens of the division to define business models for Internet-based services targeting corporate clients. At present, the division is concentrating its services in five areas: materials procurement; support for broadcasting-based e-commerce ventures; outsourcing and appli- cation service provider (ASP) services for medium-sized companies; knowledge integra- tion; and positioning data. ASP services are particularly attractive: Targeting rapid growth in outsourcing services, Toshiba is channeling ¥20 billion into a major enlargement of its Data Center. 16 Toshiba is fusing B2C with the mobile future to define and develop mobile Internet services and content. Spearheading the drive is iValue Creation Company, the newest of the in-house companies. In its first steps, it is using Toshiba’s popular portal, the “Eki-mae Tanken Club,” and its “FreshEye” search engine to speed the growth of Internet services for mobile terminals. A rich storehouse of content will be delivered by tightening links to form closer ties with powerful strategic part- ners, among them Time Warner, Nippon Television Network, Kadokawa Shoten Publishing and EMI . B2C Internet Services >> < FreshEye search engine uses Toshiba’s high level technologies to deliver fresh information. It forms the nucleus of a growing Internet business target- ing mobile devices. (http://www.fresheye.com) > The Ekimae Tanken Club Internet service provides train schedules and connections for trips, and a guide to entertainment around major stations. Since July 1999, Ekimae Tanken Club has provided road maps, too. (http://ekitan.com) 17 REVIEW OF OPERATIONS Information & Communications and Industrial Systems The year saw considerable advances for broad- casting equipment. As Japan prepared for digital broadcasts via broadcasting satellites in late This key segment ranges wide, 2000, Toshiba captured crucial equipment embracing products as diverse as orders from five of six program broadcasters and broadcasting systems, medical from six of eight data broadcasters, including equipment and elevators. Segment MediaServe Corporation, a Toshiba affiliate. The sales increased 3% to ¥1,858.3 company’s strength-in-depth in digital broad- billion, accounting for 28% of con- casting was underlined by the Telecommuni- solidated net sales, one point down cations Advancement Organization of Japan’s from the previous year. selection of Toshiba to provide key equipment Net Sales (¥ billion) 1,500 1,000 500 for six of the ten digital terrestrial experimental broadcasting facilities it will fund under a supplementary budget granted to the Ministry of Posts and Telecommunications. Progress was made in IT-based services and communications, key areas for future growth. Initiatives included the December 1999 establish- ment of T&I Solution Co. Ltd., a Toshiba and IBM Mar. 1998 1999 2000 Japan, Ltd. joint venture that supports banks with data processing and communications systems. Share of Net Sales Mar. 1998 29.8 1999 29.3 % 2000 28.3 Note:Segment sales include intersegment transactions. Toshiba road traffic systems have contrib- uted to driver and passenger safety and smoother traffic flows on western Japan’s Kitakyushu Expressway since April 1999. V Series Total Con- trollers bring next-generation capa- bilities to factory automation, including machining and assembly, and to process automation—two potentially immense markets. 18 B2B Internet services is a key area where Fiscal 1999 saw Toshiba continuing to Toshiba is developing new system-related busi- respond to the prolonged slump in Japan and nesses. In Japan, the company is enabling a to fierce international competition with measures shift to “e-government” with G-EC Solution, the to bolster its industrial systems sector. Key world’s first dedicated system for government moves included: and administration. It brings the power of IT to (cid:1) The sale of the domestic ATM business to Oki processing applications, document storage and Electric Industry Co., Ltd., in April 1999. many other tasks. As it simplifies procedures (cid:1) The May 1999 start-up of full-scale operations and enhances public access, G-EC Solution also at Toshiba Schneider Electric Ltd. This joint- yields major gains in efficiency and reliability. venture with France’s Schneider Electric S.A. Marketing activities began in June 1999. is increasing sales of low-voltage power In telecommunications, Toshiba cemented its distribution and control devices, such as leadership in network protection and manage- contactors and circuit breakers. ment equipment for submarine cable commu- (cid:1) The integration of Toshiba and Mitsubishi nications by delivering systems for the new Electric Corporation’s motor businesses in backbone cable linking China and the U.S. The TMA Electric Corporation. The company started company also developed a high-speed Broad- developing and manufacturing of high-capacity band Wireless Access System that is expected to industrial electric motors in October 1999, generate strong global demand. Early customers and has the scale, technology and cost include Sony Corporation. advantages essential for competing globally with large overseas competitors. The features for tracking buying patterns and supporting fast inventory adjustment that Toshiba TEC Corporation builds into its POS systems have earned the company market leadership in Japan. As Japan prepares for the start of digital terrestrial broadcasts in 2003, the govern- ment selected Toshiba to develop and supply equip- ment for six of the ten experimental systems that have been set up nationwide. 19 (cid:1) The March 2000 agreement with General which integrates the world’s fastest CT scanner Electric Company of the U.S. on a joint venture with the world’s widest multi-slice detector. in industrial control systems. Once it starts Aquilion covers larger areas at higher speed and operation in October 2000, the combined in more detail than other CT scanners, signifi- resources of its parents will allow the new cantly cutting burdens on patients in terms of company to better meet the demands of scanning time, exposure to x-ray radiation and current clients and to enter new markets. the use of contrast agent. Efficiency gains in sales, engineering and maintenance are expected to shape an Toshiba’s reputation in the elevator and esca- extremely competitive operation. lator business was burnished by winning a con- (cid:1) The December 1999 decision to spin off tract to construct the world’s fastest elevators for Toshiba Corporation’s industrial systems busi- Taipei Financial Center, Taiwan. In other ness into two subsidiaries, one dedicated to business, the superiority of the company’s manufacturing the other sales, in order to machine-room-less SPACEL elevator generated enhance cost competitiveness and respon- strong sales that are expected to continue in siveness to market shifts. The new companies 2000 and beyond, as the majority of elevators began operations in April 2000. make the switch to this technology. Another The medical systems business experienced a agreement with Kone Corporation of Finland. highlight was expansion of a technology sharing year of slowing demand and moves to curb medical costs that caused sales to decline. The company responded with competitive products, including the Aquilion multi-slice CT system, The panorama elevator at Saga Prefectural Aerospace Science Hall is an attraction in itself. It holds up to 43 people and travels at a speed of 35 meters per minute. The latest addition to the Acquilion™ series sets the standard for multi-slice CT systems. It offers an unrivaled half-second full- rotation scanning, the fastest in the world, and the ability to produce images of four slices simultaneously. 20 Digital Media Toshiba’s preeminence in mobile computing received powerful confirmation as the com- pany recorded an unprecedented sixth year as The digital media segment covers number one in the global portable PC market. core businesses that will drive future Overall, PC unit shipments climbed 21 per- growth, including mobile products. In cent, in support of marked sales increases in fiscal 1999, sales increased 8 percent Japan and overseas, and operating income to ¥1,517.7 billion and remained un- remained high, reinforced by successful changed at 23 percent of total sales. efforts to curb costs and inventories. With Net Sales (¥ billion) 1,500 1,200 900 600 300 demand rising, the company expanded opera- tions with the April 2000 start-up of Toshiba Computer Systems (Shanghai) Co. Ltd., a new subsidiary in Shanghai, China that will manu- facture and sell portable PCs. Higher sales were also recorded in network- related equipment. Year-on-year sales of PC servers soared about 2.7 times through expan- Mar. 1998 1999 2000 sion into Europe and China, reinforced market- Share of Net Sales % demand for entry-model units in the Japanese Mar. 1998 20.3 1999 22.9 2000 23.2 market. Domestic sales of UNIX servers also ing operations in the United States, and high Note:Segment sales include intersegment transactions. The comprehensive lineup of the Satellite series of three-spindle, A4-sized portable PCs combines performance with value in a compact design. Toshiba’s CDMA cellular phone for Audiovox Corporation is a tri- mode handset compatible with CDMA 800MHz, CDMA 1900MHz and analog standards, and sup- ports service coverage in almost all regions of the U.S. 21 grew, alongside strong demand for Internet The growing demand for computers provided business servers. In the U.S., Toshiba developed a welcome stimulus in data storage equipment. the first cable modem to be certified by Cable New 2.5-inch hard disk drives for the notebook Labs, a move that won major orders from U.S. PC market, featuring GMR heads and the CATV operators. industry’s highest data recording density, With cellular phone penetration of the Japa- enjoyed steady sales growth. Expansion was nese market at an all-time high, the year saw a more dramatic in optical disk drives, where the slowdown in the pace of new subscriptions. accelerating shift from CD-ROM drives to DVD- Demand for upgraded handsets more than ROM spurred a surge in demand. Toshiba’s slim made up for this, particularly for phones sup- models proved particularly popular and took the porting Internet capabilities. Demand for cellular lead in market share. phones also climbed in North America, as Video products enjoyed solid domestic busi- CDMA and other digital formats attracted new ness as consumers readied for the start of BS subscribers. In this positive environment, digital broadcasts in 2000. Flat-screen color TVs Toshiba generated significant increases in increased market share, with interest focused on orders, sales and earnings. models offering the higher picture quality of progressive scan technology, D3/D4 digital con- nection terminals and other features needed for Toshiba’s latest break- through in data storage is an ultra-slim 1.8-inch HDD. Only 5mm thick and small enough to build into a PC Card, the drive offers an unmatched capacity of 2GB. The Magnia series of global net- work servers offer all the reliability and durability essential for the core element of corporate networks. 22 digital reception. However, rapid yen apprecia- In March 2000, Toshiba offered the world a tion over the year hurt the overseas market. The glimpse of the digital mobile future when it growing use of PCs as a presentation tool trans- unveiled a series of revolutionary products, lated into higher sales of LCD projectors in including the first ever mobile audio player with Japan and overseas. A move away from the SD memory card; an MPEG4-based digital traditional boxy design to round projectors camera with 3.37-million pixel CCD; and a proved successful, particularly a Toshiba model portable DVD-ROM/Video player with a high of unprecedented lightness and compactness. resolution low-temperature polysilicon TFT LCD. DVD video players made a dramatic move Through such innovations Toshiba will realize into the mainstream, with major rises in sales in the full potential of the networked era. all key markets, especially North America. Digital still cameras continued to enjoy growing popularity, and Toshiba saw a major upswing in sales with the worldwide success of the “Allegretto” series. The star model was the Allegretto M70, which combines outstanding picture quality with a 3.37-million-pixel CCD and wide-aperture 3X zoom lens. Toshiba makes the connection between the PC and CATV net- works with the first cable modem certified by Cable Labs, bringing high-speed, interactive networking into the home. BS digital tuners and BS digital high-definition TVs developed for the December 2000 start of BS digital broad- casts in Japan. 23 Power Systems Although results were flat in Japan, where electric utilities continue to squeeze capital expenditure, growth in exports to China and the The segment covers the power Middle East underpinned a strategy of globaliza- generation and transmission tion of operations. systems essential for all aspects Nuclear power saw major contributions to of modern life. Sales in the period sales from construction work at Unit No. 3 of increased 10 percent to ¥570.7 Onagawa Nuclear Power Station, operated by billion, and rose from 8 percent to Tohoku Electric Power Co., Inc., and replace- 9 percent of total sales. ment of the reactor shroud at Unit No. 2 of Net Sales (¥ billion) 500 400 300 200 100 Tokyo Electric Power Co., Inc.’s Fukushima No. 1 Nuclear Power Station. A number of large orders were received during the year. (cid:1) With Marubeni Corporation, Toshiba was selected by the Abu Dhabi Electricity & Water Authority to supply a complete network of substations. Work began in September 1999 Mar. 1998 1999 2000 and will be completed by April 2001. This was the third consecutive order in Abu Dhabi. Share of Net Sales Mar. 1998 9.2 1999 8.5 % 2000 8.7 A Toshiba boiling water reactor (BWR) is at the heart of Onagawa Nuclear Power Station Unit No. 3, which Tohoku Electric Power Co., Inc. will bring on-line in January 2002. Tokyo Electric Power commis- sioned a second advanced com- bined-cycle generator, for Unit No. 2- 2 of Chiba Thermal Power Station, following successful operation of the system installed at its Yokohama Power Station Stage 7. 24 (cid:1) A consortium of Toshiba, Mitsui & Co., Ltd. In December 1999, two joint ventures were and Ishikawajima-Harima Heavy Industries founded with IHI and Toshiba Plant Kensetsu Co., Ltd. (IHI) will construct a thermal plant in Co., Ltd. Toshiba Power Systems Radiation Australia. Construction began in January 2000 Techno-Service Co., Ltd. provides consulting and the plant will be commissioned in March and services for handling radioactive materi- 2003. The consortium has already constructed als. Toshiba Power Systems Inspection power plants in Australia with a combined Service Co., Ltd. undertakes quality control output of over nine million kilowatts. management and inspections of nuclear (cid:1) EDF of France, the world’s largest electric power sites. utility, selected Toshiba, with Nissho Iwai (cid:1) Global Nuclear Fuel, established with General Corporation, to supply a generator for a ther- Electric Company and Hitachi, Ltd. in January mal power plant in Egypt—the first generator 2000, develops, designs, manufactures and ever supplied to EDF by a Japanese company. sells nuclear fuel. The year also witnessed many new joint ven- (cid:1) A December 1999 joint venture with Schneider tures and alliances. Electric S.A. of France develops and produces high-voltage power transmission and distribu- tion equipment. The agreement also covers cooperation in joint procurement. Two joint ventures with GE, producing turbine blades in Japan and Mexico, began operations during 1999, as planned. Toshiba partnered with Mitsui & Co., Ltd. and other companies to operate Changzhou Toshiba Transformer Co., Ltd. in China. The company manufactures and sells substation transformers and has already built up a robust business. At the Plant Refresh Test Facility, Toshiba technicians use a model of a nuclear reactor to develop new ways to inspect the interiors of reactor vessels and to conduct preventive maintenance. The facility is also used for training. 25 (cid:1) Electronic Devices & Components A number of factors came together to increase semiconductor sales: demand flourished for NAND flash memories; DRAM sales benefited From semiconductors to LCDs, this from price stability and increased volumes of segment provides the enabling 128M DRAMs and other capacities; cellular technologies for today’s advanced phones stimulated demand for LSIs and discrete electronics. A 22 percent advance devices. As a result, semiconductor operations boosted sales to ¥1,477.3 billion, returned to the black in the second half of the and from 20 percent to 23 percent fiscal year. LCD sales were also strong, on large of total sales. orders from manufacturers of portable PCs and Net Sales (¥ billion) 1,200 900 600 300 other mobile products. With growing application in digital cameras, music players and other products, NAND flash memory is poised to take off. Toshiba’s full fledged strategy for the business includes a joint venture with SanDisk Corporation, Flash Vision LLC. With Toshiba’s expertise in such areas as fine-line geometry and Shallow Trench Isolation Mar. 1998 1999 2000 Technology, and SanDisk’s capabilities in multi- Share of Net Sales Mar. 1998 20.6 1999 19.8 % 2000 22.5 Note:Segment sales include intersegment transactions. Demand for high-capacity NAND flash memory is soaring with the growing popularity of digital still cameras, digital audio players and other mobile equipment. Specially developed for mobile devices, this 330,000-pixel CMOS image sensor adds an analog- digital converter to its small, light design. 26 level cell technology, Flash Vision will develop As it builds a solid base for long-term expan- high-capacity NAND flash memories and con- sion, Toshiba has restructured semiconductor trollers for SD memory cards. Its products will go operations around three core businesses: into the SD memory card Toshiba developed memories, system LSIs and discrete devices. with SanDisk and Matsushita Electric Industrial In line with this strategy, the company took a Co., Ltd., and into Smart Media and other number of steps in the course of the term. memory cards. In March 2000, Toshiba combined its know- Toshiba’s advanced capabilities in integration how in fine-geometry technology and other were the center of attention with the announce- skills with Dai Nippon Printing Co., Ltd.’s ment of “Emotion Engine”. This 128-bit CPU, knowledge of volume production techniques developed with Sony Computer Entertainment to form a semiconductor photomask produc- Inc., for its PlayStation 2 game console, takes tion joint venture. game playing to a new level. A dedicated new (cid:1) Asia Electronics Inc., a subsidiary, transferred 8-inch wafer fab at Toshiba’s Oita Operations its semiconductor tester operation to started to manufacture the CPU in fall 1999. Advantest Corporation. More ingenuity was demonstrated in April (cid:1) Toshiba decided to sell its share of logic- 2000, when Toshiba began producing the first device manufacturer Tohoku Semiconductor ever multi-chip package to combine a 64MB Corporation to the joint-venture partner, NOR flash memory with an 8MB SRAM. It’s a Motorola, Inc. breakthrough device that will help make cellular phones and other portable devices even smaller. The 64MB NOR flash memory (above) can simultaneously read and write data. Stacking it with an 8MB SRAM in a single multi-chip package (below) advances the design and development of compact, high- performance products. Leading-edge logic LSIs are produced in Oita, Japan, with advanced 0.18-micron process technology. 27 (cid:1) (cid:1) Toshiba agreed to purchase IBM’s share in their that went into full production in April 1999. joint-venture fab, Dominion Semiconductor in Current products range in size from four to the U.S. Dominion LLC will become a wholly 11.3 inches. owned subsidiary in December 2000, and the Looking to the future, Toshiba brought its Toshiba DRAM and NAND flash memory pro- expertise in CRT technology to joint development duction base for North America. Shipments of with Canon Inc. of the surface-conduction- 256M DRAMs will begin late in 2000. electron-emitter display (SED), a next-generation, Reorganization also saw the company set in large-scale display technology. motion a global project to apply IT to cutting In batteries, Toshiba brought to market the inventories, speeding deliveries and enhancing world’s thinnest, lightest lithium-ion recharge- customer satisfaction. able battery for cellular phones. The company LCDs enjoyed stable prices as orders out- expects further advances in size reduction and stripped supply. Toshiba maximized profit by storage capacity, making this advanced battery concentrating on improving yields and produc- suitable for many mobile devices. tivity and by introducing new products. Chief among these were low-temperature polysilicon TFT LCDs, a highly promising new technology At 200 pixels per inch, Toshiba’s low-temperature polysilicon LCDs offer the same high resolution as a photogravure. The technology Toshiba applied to achieving the world's slimmest, lightest high capacity lithium-ion rechargeable battery for cellular phones will be used to develop smaller, high performance batteries for mobile equipment. 28 Home Appliances A segment that provides essential products for daily life. Consolidated sales declined 7 percent in the year to ¥659.9 billion, on declines in lighting products and other areas, and fell from 12 percent to 10 percent of total sales. Net Sales (¥ billion) 600 400 200 Mar. 1998 1999 2000 Share of Net Sales Mar. 1998 12.4 1999 11.6 % 2000 10.1 Note:Segment sales include intersegment transactions. The fully automatic washer-dryer “Ginga 21” uses an inverter motor to achieve the industry’s quietest home laundry. In a year of flat demand for refrigerators, Toshiba’s innovative products grew market share by 2 percent. All five models in the “Miharibanko” series, which keep food fresh for twice as long as other Toshiba models, remained popular throughout the year. The second half saw suc- cess for three models with an electronic door that opens when touched, the “Korasenaide- Senzo-Shimasho” (“storing without freezing”) series that keeps food fresh for up to three times longer than conventional refrigerators. Food service refrigerators for hotels also contributed to sales growth. Washing machines were another area where Toshiba’s new ideas overcame shrinking demand. Although the Japanese market declined by one percent, the extremely quiet performance of all four models in the “DD Inverter Washing Machine” series earned brisk sales and a 0.7 percent rise in market share. In February 2000, Toshiba again blazed a new trail with the launch of the world’s first DD inverter washer-dryer. This fully automatic washer- dryer squelches noise and vibration in all stages of its cycle. “Korasenaide-Senzo-Shimasho” (“storing without freezing”) refrig- erators keep food fresher for longer, and the refrigerator section can be opened with just a tap on the door. 29 Delicious espresso comes to the home with this coffee maker jointly developed with Sweden’s Electrolux. This vacuum cleaner, a big hit with the public, circulates exhaust inter- nally, and so eliminates emissions. Share gains in the Japanese market groups studying the best were recorded in such small appliances ways to advance in specific fields, the partners as microwave ovens, rice cookers and vacuum launched their first jointly developed product in cleaners. Toshiba reinforced its leadership of the February 2000: a home-use espresso maker. In vacuum cleaner market with the March 2000 launch Egypt, Toshiba has a technology sharing agree- of an exhaust-free model. ment for refrigerators with El-Araby Co. Similar Enhanced efficiency also underpinned a May agreements exist with Xi’an Changling Refrigerator 1999 agreement with AB Electrolux, the major Co., Ltd., GD Midea Holding Co., Ltd. and European appliance manufacturer, to collaborate in Shangdong Xiaoya Group Co., Ltd. in China, household appliances. The two companies will positioning Toshiba to make inroads in the cooperate in such areas as technology exchanges, home-appliance markets of the Middle East, product development, product and parts sourcing Africa and China. and environmental measures. With 13 working In this segment covering other aspects of Toshiba’s business, leasing and other financial services, real estate leasing and sales and distribution services are the primary sources of sales. Over the year, net sales decreased two percent to ¥473.4 billion, declining from eight percent to seven percent of total sales. Net Sales (¥ billion) 400 300 200 100 Mar. 1998 1999 2000 Share of Net Sales Mar. 1998 7.7 1999 7.9 % 2000 7.2 Note:Segment sales include intersegment transactions. Others 30 RESEARCH AND DEVELOPMENT The corporate R&D Center conducts research programs that seek to anticipate and meet the emerging needs of end users and that help to define the future direction of Toshiba. The adoption of the in-house company system has helped to clarify this role. Each of the nine companies works in defined markets, against recognized competitors, a focus that makes it easier to refine core technologies and accelerate the pace of research. Under the mid-term business plan, and in support of the product areas being nurtured by the inter-company value chain, we are concentrating our energies on the critical fields of mobile communications and networks. The following para- graphs introduce some of our recent advances in technologies that will shape the next generation of products. MPEG-4 System LSI for Next- Generation Mobile Phones This DRAM-embedded system LSI for MPEG-4 video/audio encoding will enable realization of cellular video phones incorporating next-genera- tion IMT-2000 technology. The LSI integrates two essential elements: the multimedia signal processors, with 16M DRAM, that are needed to support videophones and multimedia browsers As a key device for bringing videophone and multimedia browser capabilities to mobile phones, this new LSI will allow phone users to enjoy the Internet’s rich audio and visual content with a handset offering the same compact dimen- sions as current models. A multitude of applica- tions, including video telephony, will open the way to a world of personal mobile multimedia. on cellular phones; and a video input/output “Software Defined Radio” Technology interface supporting direct connection to a Every new generation of cellular phone brings camera or display. Mounting these functions on new capabilities. But until now, anyone wanting a single chip and adding newly developed en- to enjoy them had to trade up for a new hand- ergy-saving circuitry cuts power consumption to set, an expensive proposition. Toshiba’s “Soft- only 240mW—73% lower than for multiple ware Defined Radio” makes the upgrade a chips doing the same job. This high-perfor- software solution, not a hardware one, and can mance, low-energy design is essential for practi- be applied to Japan’s PDC and PHS formats and cal MPEG-4 on cellular phones. 31 to GSM, today’s most widely used format. Soft- operations, but Toshiba’s new system employs ware Defined Radio allows a single handset to Bluetooth for seamless transmission of MPEG-4 be updated to accommodate new capabilities, video between the Internet and Bluetooth net- such as e-mail and high-speed data transmis- works. Video conferencing is one potential appli- sions, and allows format changes that give cation, telephony another: audio and video access to mobile communications systems signals could be transferred from mobile termi- around the world. nals through Bluetooth to W-CDMA or other Upgrades are delivered as a software rewrite next-generation wireless systems. over the telephone, at just the press of a button. Commercial systems can be configured that High-Capacity, Ultra-Slim Advanced support user verification, payment, connection Lithium-Ion Battery control and other capabilities. With the advanced lithium-ion battery (ALB), Toshiba has unveiled a breakthrough in battery Moving Image Broadcasting and technology for cellular phones that also has Reception System for Bluetooth much wider potential. Batteries hold the key to Toshiba has developed the world’s first reducing the size and weight of mobile devices, Bluetooth video transmission system incorporat- and to adding functionality that increases use- ing MPEG-4 signal compression. The Bluetooth fulness. The new cellular phone battery is only standard supports wireless interconnection of 3.6mm thick, weighs a mere 13 grams and has portable PCs, peripherals, mobile phones and a weight-energy density of 160Wh/kg. These other mobile devices over short distances. Data advantages also allow replacement of the cus- and voice transmissions require no intricate tomary metal canister with a laminated film The world's first single-chip MPEG- 4 videophone System LSI with embedded DRAM supports IMT- 2000, the next generation digital mobile phone system. It met a warm response at ISSCC 2000, the International Solid-State Circuits Conference. Toshiba’s prototype for Software Defined Radio is a software solution allowing upgrades of cellular phone functions and changes of the operating format. 32 case. The final result is an extremely stable makes it possible to view, on a mobile PC or battery with a high discharge rate at tempera- handset outside the home, a DVD or video tures as low as minus twenty centigrade. playing at home. Moving beyond cellular phones, the battery has Work is also progressing on wireless net- potential application in a broad range of mobile works enabling cable-free link-ups of audio- tools where users want displays as well as slim- visual devices in the home. By tapping 2.4GHz mer profiles. high-speed wireless LAN technology, Toshiba has devised a system that can connect devices New Ideas for Networks in the Home through walls. Simplifying the process is an Next generation networks are poised to come automatic initialization capability: users need into the home. Toshiba is ready to facilitate that do no more than turn on its power to place a with its “home gateway” that will manage data device on the network. With this system, wired flows between the Internet and any kind of IEEE-1394 networks and wireless networks can home networks, IEEE-1394 for example. The be connected to one another with ease, and gateway incorporates numerous technologies, the possibilities are endless. MPEG-2 digital TV including a web-server interface, real-time broadcasts, for example, could be recorded on MPEG-4 processing and a Java platform. The a home server via the wireless gateway for gateway allows remote control of home appli- viewing, through a wireless link, on a TV at a ances via the Internet or telephone, and even later time. The company has devel- oped the world’s first system for transmitting MPEG-4 video and sound over Bluetooth. The advanced lithium-ion re- chargeable battery will support slimmer, lighter mobile applications offering greater functionality, includ- ing cellular phones. 33 TOSHIBA AND THE ENVIRONMENT The Earth is an irreplaceable asset that we must hand on to generations yet to come. This funda- mental premise informs Toshiba’s approach to the environment, and underlines a concern to mini- mize the environmental impact of the company’s activities to the fullest extent possible. In practice, that translates into the establishment of a mid-term environmental plan, support for “green” pro- curement, and the initiation of environmental accounting in the past fiscal year. In our manufactur- ing we observe five core principles: effective use of resources; prevention of global warming; strict management of chemicals; development of environmentally-conscious products; and recycling of end-of-life products. Recycling Home Appliances year, a figure comfortably exceeding the 26% Japan continues to promote environmental legis- targeted. Aware of concerns about dioxin, the lation. With new regulations on recycling home company had shut down all 14 incinerators on appliances due to come into force in April 2001, Toshiba sites by the end of August 1999. Further- Toshiba is putting together a nationwide collec- more, complete elimination of dichloromethane tion and processing network. Proving tests have has led to better management of chemicals. already started at Nishinihon Consumer Elec- While lowering environmental impacts in these tronics Recycle Co., Ltd., in Kita-Kyushu, and ways, Toshiba also succeeded in conserving en- are allowing refinements in recycling processes. ergy equivalent to 29,000 kiloliters of oil per year. Toshiba is backing this up with products de- In recognition of this contribution to preventing signed for disassembly and development of new global warming, and for its disclosure of envi- techniques for processing end-of-life appliances. ronmental data, Toshiba received the Special Making Operations More Environmentally Friendly Corporate Prize of the Energy Conservation Awards for fiscal 1999. Over the years, Toshiba has promoted recycling Environmentally Responsible Products programs and steps to cut waste generation, all With manufacturing at the heart of Toshiba’s to cut total waste. In fiscal 1999, the volume was activities, particular attention is paid to the prod- brought down to 9% that in fiscal 1990, the base uct life cycle. Consideration of environmental The Toshiba Medium-Term Environmental Management Plan Items Zero emissions Reduce chemical emissions Reduce CO2 emissions/sales “Green” procurement Product information Reduce power consumption vs. product performance Use of lead-free solder FY2002 targets 2% of waste sent to landfills 10% reduction vs. FY2000 18% reduction vs. FY1990 Set green procurement ratios using FY2000 as the reference year 20% of products in each category to be environmentally compatible 10% reduction vs. FY2000 Eliminate lead-based solder from all major new products in key home appliance categories Eliminate all HCFCs* — *Hydrochlorofluorocarbons are a refrigerant used in air conditioners and many other products. 34 Voluntary plan targets (FY2005) By FY2003 30% reduction vs. FY2003 in FY2005 25% reduction vs. FY1990 in FY2010 Set green procurement ratios using FY2000 as the reference year 50% of products in each category to be environmentally compatible 30% reduction vs. FY2000 Eliminate lead-based solder from all products by 2003 Complete elimination steps by December 2004 impacts is extended to materials, manufacturing The Mid-Term Environmental Plan processes, delivery methods, use and power con- The comprehensive goals covered in the latest sumption, and the product’s ultimate recycling and voluntary plan, Toshiba’s third and most ambi- disposal. Special attention is paid to design and tious yet, setting new targets for waste reduction recycling, environmental evaluations and labeling of (with zero as the goal), creation of more environ- parts and materials. Regulations, processes and mentally friendly products, the full-scale applica- guidelines have been elaborated in all these areas. tion of “green” procurement, the reduction of In April 2000, Toshiba took its program of prod- chemical emissions and a greater emphasis on uct assessment during development a step further recycling end-of-life products. The plan also by launching a full-scale “green” procurement pro- supports environmental training and seeks to gram. Designers must now observe guidelines on cultivate a deeper awareness of environmental responsible design and support selection and pur- matters among staff. chase of “eco-materials.” The company’s stringent standards have pro- Environmental Accounting duced substantial benefits. In 1999, Toshiba air Toshiba’s new system of environmental account- conditioners captured the MITI Minister’s Award, ing combines government guidelines with its the highest honor in the annual energy conservation own methodology. In measuring costs, the com- awards given by Japan’s Energy Conservation Cen- pany uses standards defined by Japan’s Envi- ter. Toshiba’s air conditioners have received this ronment Agency. These recognize capital honor in six of the competition’s ten years, an un- investments and R&D costs in connection with surpassed achievement. reducing the environmental impact of business activities, and operating expenses incurred in A Base for Environmental Protection connection with environment. As there are no In addition to promoting environmental safety and uniform standards for measuring benefits, training, Toshiba sets concrete goals and targets in Toshiba has developed its own, integrating origi- medium-term environmental plans. The latest plan, nal techniques to do so: quantitative reductions covering fiscal 2000 to fiscal 2005, has been in environmental impacts as direct economic folded into the mid-term business plan, assuring the benefits, and estimates of benefits obtained. central place of environmental management in day- The environmental accounts for fiscal 1999 to-day business. With the introduction of environ- show Toshiba Group gained benefits of ¥19.1 Environmental Statistics Environmental Protection Expenses Group companies: Direct Benefits Estimated Benefits Total Benefits Toshiba Corporation: 259 billion 117 billion 376 billion Toshiba Group: 26 billion Toshiba Corporation: 4 billion Group companies: Toshiba Group: 30 billion Toshiba Corporation: 168 billion –7 billion Group companies: Toshiba Group: 161 billion Toshiba Corporation: 194 billion –3 billion Group companies: 191 billion Toshiba Group: mental accounting in billion on expenditures of ¥37.6 billion. The the past fiscal year, company will continue to refine its application the company also and use it to assure that expenditures produce gained a powerful tool optimized benefits. for analyzing environ- mental costs and benefits. Visit http//:www.toshiba.co.jp/env/english/ for more information. Companies surveyed: Toshiba Corporation, 45 domestic subsid- iaries and affiliates and 16 overseas subsidiaries and affiliates. Survey period: April 1, 1999 through March 31, 2000. 35 BOARD OF DIRECTORS TAIZO NISHIMURO* Director Chairman of the Board TADASHI OKAMURA* Director President and Chief Executive Officer KIYOAKI SHIMAGAMI* Director AKINOBU KASAMI* Director TOMOHIKO SASAKI Director TETSUYA MIZOGUCHI Director YASUO MORIMOTO Director TAKESHI IIDA Director TADASHI MATSUMOTO Director MASAICHI KOGA Director KOZO WADA Director KOSAKU INABA Director *Representative Director TOSHITAKE TAKAGI YASUO OZAKI SADAZUMI RYU SHINSUKE KAWAMURA TOSHIO YONEZAWA MASAO NIWANO GINZO YAMAZAKI TSUTOMU MIYAMOTO MAKOTO AZUMA EISABURO HAMANO EXECUTIVE OFFICERS President and Chief Executive Officer TADASHI OKAMURA Vice Presidents Senior Executive Vice Presidents KIYOAKI SHIMAGAMI AKINOBU KASAMI Executive Vice Presidents Senior Vice Presidents CORPORATE AUDITORS TOMOHIKO SASAKI TETSUYA MIZOGUCHI YASUO MORIMOTO TAKESHI IIDA YUJI KIYOKAWA MAKOTO NAKAGAWA TOSHIYUKI OSHIMA HIROO OKUHARA SUSUMU KOHYAMA ATSUTOSHI NISHIDA TADASHI MATSUMOTO TAKESHI NAKAGAWA KAORU KUBO MASAKI MATSUHASHI TSUYOSHI KIMURA ATSUMI UCHIYAMA KENJIRO HAYASHI HARUO NAKATSUKA OSAMU MIMURA SHUNSAKU HASHIMOTO 36 (As of June 28, 2000) MANAGEMENT’S DISCUSSION & ANALYSIS 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 (loss) 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 2000 1999 1998 1997 1996 ¥5,749,372 4,254,444 1,393,959 100,969 ¥5,300,902 3,890,622 1,379,797 30,483 ¥5,458,498 3,960,158 1,416,046 82,294 ¥5,521,887 3,932,585 1,391,471 197,831 ¥5,192,244 3,647,624 1,282,053 262,567 (44,844) (9,001) (28,000) 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 ¥20.84 20.06 10.00 ¥28.08 26.85 10.00 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(8.70) (8.70) 3.00 ¥(4.32) (4.32) 6.00 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . ¥5,702,189 982,128 ¥6,023,557 1,050,336 ¥6,062,141 1,201,615 ¥5,809,285 1,264,775 ¥5,560,484 1,202,265 Capital expenditures (property, plant and equipment) . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 298,512 329,630 334,398 375,464 309,836 316,703 339,584 291,418 322,928 341,020 252,732 332,555 308,653 261,985 314,774 Number of employees . . . . . . . . . . . . . . . . . . . . . . . 190,870 198,000 186,000 186,000 186,000 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 1999, the year ended March 31, 2000, increased 8% compared to the previous year, to ¥5,749.4 billion (US$54,239 million). This was primarily attributable to two factors. First was the strong performance of semiconductors and LCDs worldwide and PCs and mobile communications products within Japan. Secondly, Toshiba TEC Group made its first full-year contribution to consolidated net sales. The average U.S. dollar exchange rate for sales declined from ¥130 in fiscal 1998 to ¥111 in fiscal 1999. This brought net sales down by ¥265 billion. Consolidated figures include the results of 217 subsidiaries in Japan and 104 overseas. By region, sales in Japan increased 10% to ¥3,514.1 billion (US$33,151 million). Overseas sales increased 6% to ¥2,235.3 billion (US$21,088 million) and accounted for 39% of sales, down from 40% in the prior fiscal year. Overseas production decreased from ¥1,040.0 billion to ¥980.0 billion (US$9,245 million), due to the appreciation of the yen. INFORMATION & COMMUNICATIONS AND INDUSTRIAL SYSTEMS—Sales increased 3% from the previous year to ¥1,858.3 billion (US$17,531 million). Negatively affecting sales were slack demand for industrial systems due to stagnation in capital investments in Japan and the transfer of the ATM business. However, growth in communications systems and the contribution of Toshiba TEC Group, which was consolidated in January 1999, more than outweighed the negative factors. 37 DIGITAL MEDIA—Sales increased 8% compared with the previous year, to ¥1,517.7 billion (US$14,318 million). In PCs, shortages of components had a slight negative effect on overseas sales. Domestic sales were healthy though, and total PC sales increased 3% to ¥760 billion (US$7,170 million). Mobile communications products achieved sales gains in Japan and overseas. POWER SYSTEMS—Sales rose 10% over the previous year, to ¥570.7 billion (US$5,384 million). Domestic sales changed little due to slack demand from electric utilities. However sales from overseas thermal power station projects were higher. ELECTRONIC DEVICES & COMPONENTS—Sales rose by 22% to ¥1,477.3 billion (US$13,937 million). Semiconductor results were par- ticularly strong due to a number of factors. These included higher sales of NAND flash memories, increased sales volume and stabilization in the prices of 128M and other DRAMs, growth in system LSIs, and an increase in sales of discrete semiconductors, mainly for cellular phones. LCD sales grew, thanks to increased demand for use in notebook PCs and other portable devices and as computer monitors. HOME APPLIANCES—Sales declined 7% from the previous year to ¥659.9 billion (US$6,225 million) despite higher sales of refrigerators. Results were brought down by poor performance by lighting equipment and certain other areas. OTHERS—Sales decreased 2% compared to the previous year, to ¥473.4 billion (US$4,466 million). Net Sales by Region Years ended March 31 Millions of yen 2000 1999 1998 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,514,068 906,165 636,317 546,645 146,177 ¥3,184,764 842,999 585,086 559,824 128,229 ¥3,418,807 794,241 627,328 496,309 121,813 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,749,372 ¥5,300,902 ¥5,458,498 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—The operating environment in Japan continued to present difficulties throughout the year, though signs of a recovery became evident in the second half. Even so, growth in semiconductors, LCDs, PCs and mobile communications products resulted in 10% growth in net sales over the previous year to ¥3,514.1 billion (US$33,151 million). NORTH AMERICA—Dynamic consumer spending in the U.S. lifted sales volume above the previous year’s level in a wide variety of products. The strong yen erased much of these gains, but net sales still climbed 7% over the previous year, to ¥906.2 billion (US$8,549 million). ASIA—A broad recovery in Asian economies led to heightened demand. This led to a 9% rise in net sales over the previous year, to ¥636.3 billion (US$6,003 million). EUROPE—The pace of economic expansion is continuing to slow in Europe. Furthermore, there were shortages of PCs in some models. Overall, net sales decreased 2% compared to the previous year to ¥546.6 billion (US$5,157 million). Net Income Cost of sales climbed 9% to ¥4,254.4 billion (US$40,136 million). Selling, general and administrative expenses increased 1% to ¥1,394.0 billion (US$13,150 million). Since total net sales rose 8%, operating income increased by 231% over the previous year, to ¥101.0 billion (US$953 million). The reasons for the growth in operating income were varied. Strong performances in PCs and mobile communications products along with higher sales volume and stabilizing prices in semiconductors were all major contributors. Improved results in consumer products brought about by structural reforms also played a part. Information & communications and industrial systems posted a 15% decline in operating income compared to the previous year to ¥38.1 billion (US$359 million). Though the newly consolidated Toshiba TEC Group boosted results, systems for use in industry, government and medical applications struggled. Digital media continued to benefit from steady results in PCs, while DVD-ROMs and mobile communications products both performed well. Unfortunately, results in CD-ROMs and other PC peripherals were below the year before, bringing operating income in this segment down 3% to ¥48.6 billion (US$459 million). In power systems, operating income fell 33% from the previous year to ¥9.3 billion (US$88 million). Electronic devices & components benefited from a recovery in semiconductors in the second half of the year and solid results in LCDs. There was an operating loss of ¥23.6 billion (US$223 million), a ¥43.5 billion improvement over the previous year’s loss. In home appliances, structural reforms yielded significant improvements. This brought operating income up by ¥38.9 billion from the previous year’s operating loss to ¥5.4 billion (US$51 million), putting the segment back in the black for the first time in 8 years. Others posted a 29% rise, to ¥26.5 billion (US$250 million). 38 Toshiba estimates that the net effect of foreign exchange movements during the fiscal year was a ¥210 billion decrease in operating income. This consists of a ¥265 billion decline in net sales and a ¥55 billion decline in procurement expenses. A ¥106.3 billion (US$1,004 million) loss was recorded for settling the floppy disk controller litigation in the U.S. Net financial expenses declined from a net expense of ¥31.4 billion to a net expense of ¥21.5 billion, mainly because of decreasing debt and low interest rates in Japan. Other income is mainly the result of gains on sales of securities. Other costs and expenses include restructuring expenses for semi- conductor business and other. As a result, income before income taxes and minority interest fell by ¥56.1 billion from the previous year to a loss of ¥44.8 billion (US$423 million). Income taxes expense declined by ¥34.5 billion to a tax benefit of ¥9.0 billion (US$8.5 million). Income taxes for fiscal 1998 included a ¥16.8 billion charge due to the revaluation of net deferred tax assets balance resulting from a reduction of the normal statutory tax rate in Japan. Although growth in operating income far exceeded the negative effect of the yen’s appreciation on sales, the substantial impact of the floppy disk controller settlement expense caused Toshiba to report a net loss of ¥28.0 billion (US$264 million), the second consecutive annual loss. SEGMENT INFORMATION The following segment information is based on Japanese accounting standards. Following the changes of management jurisdiction due to the introduction of an in-house company system in April 1999, Toshiba has reorganized its industrial segments. The previous five segments of Information & Communication Systems, Electric Devices & Materials, Power & Industrial Systems, Consumer Prod- ucts and Service & Other have been changed into six segments—Information & Communications and Industrial Systems, Digital Me- dia, Power Systems, Electronic Devices & Components, Home Appliances and Others. Consolidated financial data for previous years have been reclassified to confirm with the current segments. Industry Segments Years ended March 31 Net sales: Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 Information & Communications and Industrial Systems Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,698,803 159,476 ¥1,651,068 145,081 ¥1,717,872 153,227 $16,026,443 1,504,491 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,858,279 1,796,149 1,871,099 17,530,934 Digital Media Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,334,678 183,014 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,517,692 1,209,575 196,904 1,406,479 1,109,454 165,266 1,274,720 12,591,302 1,726,547 14,317,849 Power Systems Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,322 17,359 570,681 503,863 16,714 520,577 563,088 14,452 577,540 5,220,019 163,764 5,383,783 Electronic Devices & Components Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247,386 229,932 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,477,318 1,038,912 176,353 1,215,265 1,129,292 165,990 1,295,282 11,767,792 2,169,170 13,936,962 Home Appliances Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636,054 23,840 659,894 279,129 194,257 473,386 695,588 12,028 707,616 201,896 282,645 484,541 723,450 51,185 774,635 215,342 268,282 483,624 6,000,509 224,906 6,225,415 2,633,293 1,832,613 4,465,906 Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (807,878) (829,725) (818,402) (7,621,491) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,749,372 ¥5,300,902 ¥5,458,498 $54,239,358 39 Years ended March 31 Operating income (loss): Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 Information & Communications and Industrial Systems . . . . . ¥ 38,102 ¥ 44,794 ¥ 42,212 $ 359,453 Digital Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,644 9,342 Electronic Devices & Components . . . . . . . . . . . . . . . . . . . . . (23,610) Home Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,354 26,497 (3,360) 50,246 13,946 (67,060) (33,538) 20,505 1,590 (13,041) 19,058 41,006 (34,403) 25,003 2,459 458,906 88,132 (222,736) 50,509 249,972 (31,698) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 100,969 ¥ 30,483 ¥ 82,294 $ 952,538 Identifiable assets: Information & Communications and Industrial Systems . . . . . ¥1,306,243 ¥1,476,895 ¥1,285,332 $12,323,047 Digital Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,086 660,210 654,813 708,585 734,400 686,018 5,821,566 6,228,396 Electronic Devices & Components . . . . . . . . . . . . . . . . . . . . . 1,490,664 1,579,856 1,452,951 14,062,868 Home Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365,802 487,715 492,113 3,450,962 Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,249,214 1,086,368 1,192,137 11,785,038 Corporate and Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . 12,970 29,325 219,190 122,359 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,702,189 ¥6,023,557 ¥6,062,141 $53,794,236 Depreciation and amortization: Information & Communications and Industrial Systems . . . . . ¥ 54,458 ¥ 36,134 ¥ 32,154 $ 513,755 Digital Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,262 16,725 25,468 17,267 27,780 17,333 238,321 157,783 Electronic Devices & Components . . . . . . . . . . . . . . . . . . . . . 192,326 174,832 159,006 1,814,396 Home Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,822 37,168 – 24,090 35,164 – 23,244 34,295 – 215,302 350,641 – Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 348,761 ¥ 312,955 ¥ 293,812 $ 3,290,198 Capital expenditures: Information & Communications and Industrial Systems . . . . . ¥ 51,362 ¥ 39,587 ¥ 41,839 $ 484,547 Digital Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,943 7,236 33,886 15,138 42,022 19,784 405,123 68,264 Electronic Devices & Components . . . . . . . . . . . . . . . . . . . . . 156,761 232,666 178,214 1,478,877 Home Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,377 44,093 – 20,030 38,950 – 26,934 37,622 – 154,500 415,972 – Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 318,772 ¥ 380,257 ¥ 346,415 $ 3,007,283 40 Geographic Segments Years ended March 31 Net sales: Japan Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,889,623 558,277 ¥ 3,547,089 953,186 ¥ 3,847,070 961,017 $36,694,556 5,266,764 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,447,900 4,500,275 4,808,087 41,961,320 North America Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Unaffiliated customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816,804 104,978 921,782 478,269 175,504 653,773 506,595 10,649 517,244 58,081 4,918 62,999 788,687 75,575 864,262 379,562 223,686 603,248 541,246 10,919 552,165 44,318 7,218 51,536 741,524 63,108 804,632 353,913 226,919 580,832 475,367 14,711 490,078 40,624 9,872 50,496 7,705,698 990,359 8,696,057 4,511,972 1,655,698 6,167,670 4,779,198 100,462 4,879,660 547,934 46,396 594,330 Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (854,326) (1,270,584) (1,275,627) (8,059,679) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,749,372 ¥ 5,300,902 ¥ 5,458,498 $54,239,358 Operating income (loss): Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 58,734 ¥ 21,169 ¥ 75,441 $ 554,094 North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,411 23,216 2,989 742 2,877 (11,712) 9,128 4,529 1,588 5,781 (22,538) 16,606 5,581 1,742 5,462 117,085 219,019 28,198 7,000 27,142 Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 100,969 ¥ 30,483 ¥ 82,294 $ 952,538 Identifiable assets: Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,950,959 ¥ 5,157,299 ¥ 4,934,728 $46,707,160 North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . 261,545 276,451 188,000 28,558 (3,324) 302,076 280,037 207,020 27,493 49,632 344,515 288,972 238,803 29,821 225,302 2,467,406 2,608,028 1,773,585 269,415 (31,358) Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,702,189 ¥ 6,023,557 ¥ 6,062,141 $53,794,236 41 RESEARCH AND DEVELOPMENT Consolidated R&D expenditures increased 6% to ¥334.4 billion (US$3,155 million). This was 5.8% of net sales, compared with 6% in the previous year. Toshiba is actively involved in all areas of R&D, from basic research to product development and production technology. Major themes are wireless networks, digital broadcasting equipment, W-CDMA terminals, fine design rules in semi- conductor production, LSIs, polysilicon LCDs, new MRI and digital copiers. Toshiba estimates that fiscal 2000 R&D expenditures will be ¥350 billion (US$3,302 million). CAPITAL INVESTMENTS Capital expenditures, which include investments in property, plant and equipment of ¥298.5 billion (US$2,816 million), were ¥318.8 billion (US$3,007 million), a decrease of 16% compared to the previous fiscal year. Capital expenditures for electronic devices & components were ¥156.8 billion (US$1,479 million), 49% of the total. Significant elements of these expenditures were fine process facili- ties at the Yokkaichi Operations, memory manufacturing facilities at subsidiary Yokkaichi Toshiba Electronics Corporation and low-tem- perature polysilicon LCD production facilities at Fukaya Operations. In other segments, capital expenditures were ¥51.4 billion (US$485 million) in information & communications and industrial systems, ¥42.9 billion (US$405 million) in digital media, ¥7.2 billion (US$68 mil- lion) in power systems, ¥16.4 billion (US$154 million) in home appliances and ¥44.1 billion (US$416 million) in others. FINANCIAL POSITION As of March 31, 2000, total assets were ¥5,702.2 billion (US$53,794 million), ¥321.4 billion less than at the end of the previous fiscal year. Inventories decreased by ¥160.7 billion due to the completion of plants in power systems and the inventory reductions made possible by the introduction of supply chain management. Current assets declined by ¥142.1 billion. Property, plant and equipment declined by ¥90.2 billion due to lower levels of capital investments. Total debt was reduced by ¥214.3 billion from the previous year to ¥1,967.3 billion (US$18,559 million) as operating cash flows increased substantially. Accrued pension and severance costs went down by ¥106.3 billion due to growth in the value of pension assets. Shareholders’ equity decreased by ¥68.2 billion compared to the previous year to ¥982.1 billion (US$9,265 million). Factors here were the year’s net loss and a negative foreign currency translation adjustment. CASH FLOWS Net cash provided by operating activities totaled ¥435.9 billion (US$4,113 million), a considerable increase over last year’s ¥264.9 billion. This is mainly attributable to the decrease in inventories and the increase in depreciation and amortization. Net cash used in investing activities came to ¥293.2 billion (US$2,766 million), which included ¥298.5 billion (US$2,816) of acqui- sition of property and equipment, the main component being manufacturing facilities for electronic devices. Capital investments were down from the previous year, but falling proceeds from the sale of marketable securities and other factors resulted in an increase in cash requirements of ¥13.1 billion. Net cash used in financing activities was ¥158.7 billion (US$1,497 million) due to continued efforts to reduce debt. In addition to the above items, the effect of exchange rate changes was a negative ¥16.6 billion (US$157 million). This resulted in a net decrease of ¥32.5 billion in cash and cash equivalents, bringing the total to ¥465.2 billion (US$4,389 million). 42 PRINCIPAL SUBSIDIARIES AND AFFILIATED COMPANIES As of March 31, 2000 Percentage held by Group CONSOLIDATED SUBSIDIARIES: U.K. Japan Kitsuki Toshiba Electronics Corporation . . . . . . . . . . . . . . . 100 Kyodo Building Corporation . . . . . . . . . . . . . . . . . . . . . . . . 100 Shibaura NIDEC Corporation . . . . . . . . . . . . . . . . . . . . . . . 60 Toshiba Building & Lease Co.,Ltd. . . . . . . . . . . . . . . . . . . 100 Toshiba Chemical Corporation . . . . . . . . . . . . . . . . . . . . . 57 Toshiba Device Corporation . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Engineering Corporation . . . . . . . . . . . . . . . . . . . . 100 Toshiba Home Technology Corporation . . . . . . . . . . . . . . . 100 Toshiba Lighting & Technology Corporation . . . . . . . . . . . . 100 Toshiba Plant Kensetsu Co.,Ltd. . . . . . . . . . . . . . . . . . . . Toshiba TEC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 56 50 U.S.A. Toshiba (UK) Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Germany Toshiba Europe GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Malaysia Toshiba Electronics Malaysia Sdn.Bhd. . . . . . . . . . . . . . . . 100 Singapore TEC Singapore Electronics Pte.Ltd. . . . . . . . . . . . . . . . . . 100 AFFILIATED COMPANIES: Japan Toshiba America Consumer Products,Inc. . . . . . . . . . . . . 100 Showa Electric Wire & Cable Co.,Ltd. . . . . . . . . . . . . . . . . Toshiba America Electronic Components,Inc. . . . . . . . . . 100 Toshiba Ceramics Co.,Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 21 45 Toshiba America Information Systems,Inc. . . . . . . . . . . . . 100 Toshiba America,Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba Display Devices Inc. . . . . . . . . . . . . . . . . . . . . . . 100 Toshiba International Corporation . . . . . . . . . . . . . . . . . . . 100 43 CONSOLIDATED BALANCE SHEETS Toshiba Corporation and its subsidiaries As of March 31, 2000 and 1999 ASSETS Current assets: Millions of yen 2000 1999 Thousands of U.S. dollars (Note 3) 2000 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes and accounts receivable, trade— Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful notes and accounts . . . . . . . . . . . . . . . . . . . . . . Finance receivables, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets (Note 14) . . . . . . . . . . . . . . . . ¥ 465,237 93,140 ¥ 497,752 124,017 $ 4,389,028 878,679 207,939 988,044 (27,551) 245,097 837,188 347,252 199,416 972,459 (34,267) 259,665 997,886 281,540 1,961,689 9,321,170 (259,915) 2,312,236 7,898,000 3,275,962 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,156,346 3,298,468 29,776,849 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,613 334,853 142,247 139,534 636,247 43,008 335,137 151,368 128,020 657,533 185,028 3,158,991 1,341,953 1,316,358 6,002,330 Property, plant and equipment (Note 8): Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,621 1,070,924 3,014,433 54,988 164,973 1,076,050 3,076,298 72,684 1,600,198 10,103,057 28,438,047 518,755 Less – Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,309,966 (2,850,221) 4,390,005 (2,840,057) 40,660,057 (26,888,877) 1,459,745 1,549,948 13,771,180 Other assets (Notes 9 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,851 517,608 4,243,877 ¥ 5,702,189 ¥ 6,023,557 $ 53,794,236 The accompanying notes are an integral part of these statements. 44 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Millions of yen 2000 1999 Short-term borrowings (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable, other and accrued expenses . . . . . . . . . . . . . . . . . . . . Accrued income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advance payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 587,252 258,177 173,417 842,211 342,105 44,972 297,974 341,265 ¥ 767,417 235,846 190,451 823,689 281,548 50,212 298,272 332,680 Thousands of U.S. dollars (Note 3) 2000 $ 5,540,113 2,435,632 1,636,009 7,945,387 3,227,406 424,264 2,811,076 3,219,481 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,887,373 2,980,115 27,239,368 Long-term liabilities: Long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension and severance costs (Note 9) . . . . . . . . . . . . . . . . . . . . . 1,121,920 585,881 1,707,801 1,178,411 692,150 1,870,561 10,584,151 5,527,179 16,111,330 Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 124,887 122,545 1,178,180 Shareholders’ equity: Common stock, ¥50 par value – Authorized – 10,000,000,000 shares Issued and outstanding: 2000 – 3,219,006,450 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 – 3,218,999,545 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings (Notes 8 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) (Note 15) . . . . . . . . . . . 274,919 – 285,729 635,966 (214,486) – 274,916 285,727 673,622 (183,929) 2,593,575 – 2,695,557 5,999,679 (2,023,453) 982,128 1,050,336 9,265,358 Commitments and contingent liabilities (Note 18) ¥5,702,189 ¥6,023,557 $53,794,236 45 CONSOLIDATED STATEMENTS OF INCOME Toshiba Corporation and its subsidiaries For the years ended March 31, 2000 and 1999 Millions of yen 2000 1999 Thousands of U.S. dollars (Note 3) 2000 Sales and other income: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,749,372 21,793 85,200 ¥5,300,902 20,788 105,290 $54,239,358 205,594 803,774 Costs and expenses: Cost of sales (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative (Notes 10 and 11) . . . . . . . . . . . . . . . . FDC litigation settlement (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,856,365 5,426,980 55,248,726 4,254,444 1,393,959 106,385 43,256 103,165 5,901,209 3,890,622 1,379,797 – 52,148 93,195 5,415,762 40,136,264 13,150,557 1,003,632 408,075 973,255 55,671,783 (Loss) income before income taxes and minority interest . . . . . . . . . . . . . . . . (44,844) 11,218 (423,057) Income taxes (Note 14): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,397 (61,398) (9,001) 42,949 (17,455) 25,494 494,311 (579,226) (84,915) Loss before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,843) (14,276) (338,142) Minority interest in (loss) income of consolidated subsidiaries . . . . . . . . . . . . Loss from consolidated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in income of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,735) (34,108) 6,108 1,380 (15,656) 1,760 (16,368) (321,774) 57,623 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (28,000) ¥ (13,896) $ (264,151) Per share of common stock (Note 16): Net loss – basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(8.70) ¥(4.32) $(0.082) Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3.00 ¥ 6.00 $ 0.028 Exact yen U.S. dollars (Note 3) The accompanying notes are an integral part of these statements. 46 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Toshiba Corporation and its subsidiaries For the years ended March 31, 2000 and 1999 Millions of yen Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Balance at March 31, 1998 . . . . . . . . . . . . . . . . ¥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 3 2 (28,000) 5 (28,000) Comprehensive income (loss): Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 15)– Foreign currency translation adjustments . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . . . . . . . . Comprehensive income (loss) . . . . . . . . . . . . . Conversion of convertible debentures . . . . . . . . . Comprehensive income (loss): Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 15)– Foreign currency translation adjustments . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . . . . . . . . Comprehensive income (loss) . . . . . . . . . . . . . (18,714) (18,714) (92,918) (92,918) (125,528) (25,751) (45,788) (45,788) 15,231 15,231 (58,557) (9,656) Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (9,656) Balance at March 31, 2000 . . . . . . . . . . . . . . . . ¥274,919 ¥285,729 ¥635,966 ¥(214,486) ¥ 982,128 Thousands of U.S. dollars (Note 3) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Balance at March 31, 1999 . . . . . . . . . . . . . . . . $2,593,547 $2,695,538 $6,354,924 $(1,735,179) $9,908,830 28 19 47 (264,151) (264,151) Conversion of convertible debentures . . . . . . . . . Comprehensive income (loss): Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax (Note 15)– Foreign currency translation adjustments . . . Minimum pension liability adjustment (Note 9) . . . . . . . . . . . . . . . . . . Comprehensive income (loss) . . . . . . . . . . . . . (431,962) (431,962) 143,688 143,688 (552,425) (91,094) Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (91,094) Balance at March 31, 2000 . . . . . . . . . . . . . . . . $2,593,575 $2,695,557 $5,999,679 $(2,023,453) $9,265,358 The accompanying notes are an integral part of these statements. 47 CONSOLIDATED STATEMENTS OF CASH FLOWS Toshiba Corporation and its subsidiaries For the years ended March 31, 2000 and 1999 Millions of yen Thousands of U.S. dollars (Note 3) 2000 1999 2000 Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (28,000) Adjustments to reconcile net loss to net cash provided by operating activities – Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrual for (reversal of) pension and severance costs, less payments . . . . . Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in income of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale and disposal of property and securities, net . . . . . . . . . . . . . . Minority interest in (loss) income of consolidated subsidiaries . . . . . . . . . . (Increase) decrease in notes and accounts receivable, trade . . . . . . . . . . . Decrease (increase) in finance receivables, net . . . . . . . . . . . . . . . . . . . . . Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in long-term finance receivables, net Increase in notes and accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . (Decrease) increase in accrued income and other taxes . . . . . . . . . . . . . . . (Decrease) increase in advance payments received . . . . . . . . . . . . . . . . . . Increase (decrease) in accounts payable, other and others . . . . . . . . . . . . 348,761 9,013 (61,398) (6,108) (27,165) (1,735) (14,852) 14,563 136,351 (16,678) 23,327 284 44,407 (17,831) (7,169) 40,176 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . 435,946 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 in other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in other assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,498 (298,512) (16,326) – 13,985 (12,935) (80,864) Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . (293,154) Cash flows from financing activities: Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,376 (289,712) (9,458) (161,882) ¥ (13,896) $ (264,151) 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) 3,290,198 85,028 (579,226) (57,623) (256,273) (16,368) (140,113) 137,387 1,286,330 (157,340) 220,066 2,679 418,934 (168,217) (67,632) 379,019 4,112,698 957,528 (2,816,151) (154,019) – 131,934 (122,028) (762,868) (2,765,604) 2,852,604 (2,733,132) (89,226) (1,527,189) Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . (158,676) (94,322) (1,496,943) Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . (16,631) (8,739) Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,515) (118,183) (156,896) (306,745) Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 497,752 615,935 4,695,773 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 465,237 ¥ 497,752 $ 4,389,028 Supplemental disclosure of cash flow information: Cash paid during the year for – Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 63,324 ¥ 65,719 $ 597,396 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 44,476 ¥ 45,810 $ 419,585 The accompanying notes are an integral part of these statements. 48 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 & communications and industrial systems, (2) digital media, (3) power systems, (4) electronic devices & components, (5) home appliances, and (6) others. For the years ended March 31, 2000 and 1999, sales in information & communications and industrial systems represented the most significant portion of the company’s total sales, approximately 30%, and both of sales in digital media and electronic devices & components represented over 20% of the company’s sales, while sales in power systems and home appliances were approximately equal in amount, each representing approximately 10% of the company’s sales. Sales in others were relatively small compared to those derived from other business activities. The products are manufactured and marketed throughout the world with approximately 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 account- ing principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to con- form 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 intercompany 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 (loss) 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 maturities 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 com- ponent 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 income. 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. 49 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 and work in process for stock sales items are stated at the lower of cost or market, cost being determined principally by the average method. Finished products and work in process for contract items are stated at the lower of cost or estimated realizable value, cost being determined by accumulated production costs. Effective April 1, 1999, the company changed its method of accounting for the costs of finished products and work in process for stock sales items from the first-in, first-out method to the average method. The company believes that the average method provides a better matching of costs and revenues, and this accounting change resulted in insignificant effects on cost of sales and inventories. 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 agree- ments and currency swap agreements, for the purpose of currency exchange rate and interest rate risk management. Refer to Note 17 for descriptions of these financial instruments, including the methods used to account for them. COMPREHENSIVE INCOME – Under Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” 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 provisions 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 statements of shareholders’ equity and in Note 15. 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 hedging 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 June 1999, FASB issued SFAS No.137, “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No.133,” which defers the effective date of SFAS No.133 for one year. Therefore, in the case of the company, SFAS No.133 is effective for the fiscal year beginning April 1, 2001. Currently, the company is in the process of assessing the impact from adoption of this statement on its results of operations or financial conditions. 50 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 ¥106=US$1, the approximate current rate of exchange at March 31, 2000, 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, 2000 and 1999 are summarized as follows: March 31 Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Shareholders’ equity as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 982,128 ¥1,050,336 $ 9,265,358 Net increase in the carrying amount of: Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,270 35,335 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 . . . . . . . . . . . . . . . . . . . (38,983) (14,854) 154 4,049 Net unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . 77,971 Shareholders’ equity in accordance with accounting principles 104,156 27,808 (44,345) (11,629) 45 2,382 78,417 870,471 333,349 (367,764) (140,132) 1,453 38,198 735,575 generally accepted in the United States of America . . . . . . . . . . . . . . . . . . . . ¥1,060,099 ¥1,128,753 $10,000,933 The net unrealized gain on available-for-sale securities decreased by ¥446 million ($4,207 thousand) and ¥25,914 million during the years ended March 31, 2000 and 1999, respectively. If the provisions of SFAS No. 115 had been adopted, comprehensive loss for the years ended March 31, 2000 and 1999 would have been ¥59,003 million ($556,632 thousand) and ¥151,442 million, respectively. 51 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, 2000 and 1999 are as follows: Carrying amount Gross unrealized holding gains Gross unrealized holding losses March 31, 2000: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥109,272 13,163 ¥139,991 76 March 31, 1999: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥133,212 17,433 ¥142,352 269 ¥122,435 ¥140,067 ¥150,645 ¥142,621 ¥12,462 0 ¥12,462 ¥10,642 15 ¥10,657 (Millions of yen) Fair value ¥236,801 13,239 ¥250,040 ¥264,922 17,687 ¥282,609 Carrying amount Gross unrealized holding gains Gross unrealized holding losses Fair value (Thousands of U.S. dollars) March 31, 2000: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,030,868 124,179 Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,320,670 717 $117,566 0 $2,233,972 124,896 $1,155,047 $1,321,387 $117,566 $2,358,868 At March 31, 2000, debt securities mainly consist of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale were as follows at March 31, 2000: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars Carrying amount ¥ 3,442 9,721 ¥13,163 Fair value ¥ 3,510 9,729 ¥13,239 Carrying amount $ 32,472 91,707 Fair value $ 33,113 91,783 $124,179 $124,896 The proceeds from sales of available-for-sale securities for the years ended March 31, 2000 and 1999 were ¥94,106 million ($887,792 thousand) and ¥122,368 million, respectively. The gross realized gains on those sales for the years ended March 31, 2000 and 1999 were ¥48,248 million ($455,170 thousand) and ¥64,843 million, respectively. The gross realized losses on those sales for the years ended March 31, 2000 and 1999 were ¥936 million ($8,830 thousand) and ¥6,041 million, respectively. 52 5. FINANCE RECEIVABLES: Finance receivables comprise the following: March 31 Investment in financing leases: Millions of yen 2000 1999 Total minimum lease payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 351,138 (14,670) Estimated executory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,126) Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,889 Estimated residual values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,231 Less – Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,021) Less – Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,318) 323,210 ¥ 377,182 (16,796) (19,510) 7,113 347,989 (1,887) 346,102 (120,626) Thousands of U.S. dollars 2000 $ 3,312,623 (138,396) (161,566) 55,556 3,068,217 (19,066) 3,049,151 (993,566) ¥ 217,892 ¥ 225,476 $ 2,055,585 Other finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 267,938 (11,198) Less – Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less – Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,779) 256,740 ¥ 262,727 (14,027) 248,700 (139,039) $ 2,527,717 (105,641) 2,422,076 (1,318,670) ¥ 116,961 ¥ 109,661 $ 1,103,406 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, 2000, 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 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in financing leases Other finance receivables Millions of yen ¥112,795 93,799 70,378 46,421 21,817 5,928 Thousands of U.S. dollars $1,064,104 884,896 663,943 437,934 205,821 55,925 Millions of yen ¥143,059 42,476 27,155 17,026 12,347 25,875 Thousands of U.S. dollars $1,349,613 400,717 256,179 160,623 116,481 244,104 ¥351,138 $3,312,623 ¥267,938 $2,527,717 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: Millions of yen 2000 1999 Thousands of U.S. dollars 2000 ¥314,778 ¥356,538 $2,969,604 Long-term contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,092 208,605 119,713 288,830 231,283 121,235 1,831,056 1,967,972 1,129,368 ¥837,188 ¥997,886 $7,898,000 53 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 companies is carried at ¥73,328 million ($691,773 thousand) and ¥79,273 million at March 31, 2000 (six companies) and 1999 (six companies), respectively. The company’s investments in these companies had a market value of ¥92,678 million ($874,321 thousand) and ¥74,463 million at March 31, 2000 and 1999, 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: Millions of yen March 31 2000 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets including property, plant and equipment . . . . . . . . . . . . . . . . . . . . ¥497,636 359,183 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥856,819 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥362,081 141,824 352,914 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . ¥856,819 1999 ¥482,736 449,816 ¥932,552 ¥320,119 247,384 365,049 ¥932,552 Years ended March 31 Millions of yen 2000 1999 Thousands of U.S. dollars 2000 $4,694,679 3,388,519 $8,083,198 $3,415,859 1,337,962 3,329,377 $8,083,198 Thousands of U.S. dollars 2000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥749,582 ¥866,233 $7,071,528 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 15,307 ¥ 2,957 $ 144,406 A summary of transactions and balances with the affiliated companies accounted for by the equity method is presented below: Years ended March 31 Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 14,733 ¥ 10,456 $ 138,991 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥133,174 ¥172,694 $1,256,358 March 31 2000 Notes and accounts receivable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,545 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,711 Notes and accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥29,877 1999 ¥ 1,765 ¥ 672 ¥26,922 Millions of yen 8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT: Short-term borrowings at March 31, 2000 and 1999 comprise the following: March 31 Loans, principally from banks, including bank overdrafts, with weighted-average interest rate of 0.82 percent at March 31, 2000 and 1.37 percent at March 31, 1999: Millions of yen 2000 1999 Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,172 573,588 Commercial paper with weighted-average interest rate of 6.20 percent at March 31, 2000 and 1.99 percent at March 31, 1999 . . . . . . . . . . . . . . . . . 8,492 ¥587,252 ¥ 9,770 637,541 120,106 ¥767,417 Thousands of U.S. dollars 2000 $ 42,877 $ 16,142 $281,858 Thousands of U.S. dollars 2000 $ 48,792 5,411,208 80,113 $5,540,113 54 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, 2000, the company and subsidiaries had unused committed lines of credit from short-term financing arrangements aggregating ¥183,538 million ($1,731,491 thousand), of which ¥26,538 million ($250,358 thousand) was in support of the company’s commercial papers. These lines of credit have commitment fee requirements. Long-term debt at March 31, 2000 and 1999 comprise the following: March 31 Loans, principally from banks and insurance companies, due 2000 to 2034 with interest ranging from zero percent to 13.50 percent at March 31, 2000 and due 1999 to 2032 with interest ranging from 0.42 percent to 7.86 percent at March 31, 1999: Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 49,913 568,485 Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 62,337 620,747 $ 470,877 5,363,066 Unsecured yen bonds, due 2001 to 2008 with interest ranging from 0.8 percent to 3.025 percent at March 31, 2000 and due 2000 to 2008 with interest ranging from 1.1 percent to 3.025 percent at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . Euro yen medium-term notes, due 2000 to 2008 with interest ranging from zero percent to 2.39 percent at March 31, 2000 and due 2000 to 2008 with interest ranging from zero percent to 2.34 percent at March 31, 1999 (swapped for floating rate (LIBOR, etc.) or fixed rate yen obligations) . . . . . . . 6.75 percent Euro U.S. dollar medium-term notes due 2008 500,000 510,000 4,716,981 62,975 63,500 594,104 (swapped for fixed rate yen obligations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 630 5,943 1.8 percent unsecured yen convertible debentures due 2002 convertible currently at ¥724 per share . . . . . . . . . . . . . . . . . . . . . 17,742 17,747 167,377 Unsecured yen bonds of subsidiaries, due 2000 to 2004 with interest ranging from 0.95 percent to 3.1 percent at March 31, 2000 and due 2000 to 2004 with interest ranging from 2.37 percent to 3.1 percent at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . Euro yen or U.S. dollar medium-term notes of subsidiaries, due 2000 to 2010 with interest ranging from 0.03 percent to 6.61 percent at March 31, 2000 and due 1999 to 2009 with interest ranging from zero percent to 5.72 percent at March 31, 1999 (swapped for floating rate (LIBOR, etc.) U.S. dollar, Yen or Euro obligations) . . 2.2 percent secured yen convertible debentures of a subsidiary 29,000 20,000 273,585 140,345 111,179 1,324,010 due 2002 convertible currently at ¥1,095.8 per share . . . . . . . . . . . . . . . . . . 8,017 8,117 Zero percent unsecured yen convertible debentures of a subsidiary due 2004 convertible currently at ¥1,003 per share . . . . . . . . . . . . . . . . . . . 2,990 – 75,632 28,208 Less – Portion due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380,097 (258,177) 1,414,257 (235,846) 13,019,783 (2,435,632) ¥1,121,920 ¥1,178,411 $10,584,151 55 Certain of the secured loan agreements contain provisions which permit the lenders to require additional collateral. Substantially 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, 2000 are property, plant and equipment with a book value of ¥45,292 million ($427,283 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, 2000, 24,506 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 Millions of yen 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 258,177 265,939 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,048 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,863 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,808 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291,262 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thousands of U.S. dollars $ 2,435,632 2,508,858 2,491,019 1,828,896 1,007,623 2,747,755 ¥1,380,097 $13,019,783 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 termination 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 employees 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. During the year ended March 31, 2000, the com- pany and several subsidiaries have amended the regulations of both the severance indemnities benefits portion and the social security benefits portion under the contributory trusteed employee pension funds. The amendment related to the social security benefits por- tion reflected the change of Japanese Welfare Pension Insurance Law. These amendments resulted in the reduction of the projected benefit obligations of the funds. 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 2000 and 1999 included the following components: Years ended March 31 Millions of yen 2000 1999 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 52,427 58,185 (32,154) 12,025 4,364 18,551 Net periodic pension and severance cost . . . . . . . . . . . . . . . . . . . . . . . . ¥113,398 ¥ 46,966 57,306 (28,382) 12,025 4,353 8,721 ¥100,989 Thousands of U.S. dollars 2000 $ 494,594 548,915 (303,340) 113,443 41,170 175,010 $1,069,792 56 A weighted-average discount rate of 3.5 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 2.3 percent and 2.5 percent were used in measuring the pension obligations at March 31, 2000 and 1999, 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 2000 and 1999 were as follows: March 31 Change in benefit obligations: Millions of yen 2000 1999 Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,693,146 52,427 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,185 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,141 Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,740) Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,976 Effect of subsidiaries newly consolidated due to change in ownership rate and other . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (100,736) (1,313) ¥1,448,320 46,966 57,306 8,789 – 166,414 63,536 (97,271) (914) Thousands of U.S. dollars 2000 $15,973,075 494,594 548,915 76,802 (657,924) 1,056,377 – (950,339) (12,387) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,752,086 1,693,146 16,529,113 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 775,027 176,910 61,173 8,141 – (32,503) (1,231) 987,517 764,569 (371,771) (73,214) 30,462 677,571 34,978 60,017 8,789 29,745 (35,143) (930) 775,027 918,119 (445,358) (85,239) (43,231) 7,311,575 1,668,962 577,104 76,802 – (306,632) (11,613) 9,316,198 7,212,915 (3,507,273) (690,698) 287,377 Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 350,046 ¥ 344,291 $ 3,302,321 Amounts recognized in the consolidated balance sheets consist of: Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 585,881 (42,752) Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (193,083) Accumulated other comprehensive income (loss), gross of tax . . . . . . . . . . . ¥ 692,150 (128,470) (219,389) $ 5,527,179 (403,321) (1,821,537) Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 350,046 ¥ 344,291 $ 3,302,321 Accumulated benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,573,398 ¥1,467,177 $14,843,377 57 10. RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense as incurred and amounted to ¥334,398 million ($3,154,698 thousand) and ¥316,703 million for the years ended March 31, 2000 and 1999, respectively. 11. ADVERTISING: Advertising costs are expensed as incurred. Advertising expenses amounted to ¥60,560 million ($571,321 thousand) and ¥73,909 million for the years ended March 31, 2000 and 1999, respectively. 12. FDC LITIGATION SETTLEMENT: In October 1999, the company reached a settlement in a class-action lawsuit in the U.S. brought by two owners of its notebook per- sonal computers (PCs) concerning the floppy-disk drive controller incorporated in PCs. They alleged that the floppy-disk controller (FDC) may, under certain circumstances, cause data to be lost or corrupted when it is written to a floppy disk. The class settlement was approved by the court in January 2000, and became final in March 2000. The company has reflected a ¥106,385 million (US$1,003,632 thousand) loss in its financial results for the year ended March 31, 2000 in connection with the settlement payment and other performance obligations under the settlement agreement. 13. FOREIGN EXCHANGE GAINS AND LOSSES: For the years ended March 31, 2000 and 1999, the net foreign exchange loss was ¥2,414 million ($22,774 thousand) and ¥10,596 million, respectively. 14. 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 42.1 percent and 47.7 percent for the years ended March 31, 2000 and 1999, respectively. Due to changes in Japanese income tax regulations, the normal statutory tax rate in Japan was reduced to approximately 42.1 percent effective April 1, 1999. This revised tax rate enacted during the fiscal year ended March 31, 1999 was used in the measurement of deferred tax assets and liabilities at March 31, 1999. A reconciliation between the reported income tax expense (benefit) and the amount computed by multiplying the income (loss) before income taxes and minority interest by the applicable normal statutory tax rate is as follows: Years ended March 31 Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Computed expected income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . ¥(18,879) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,664 4,759 – – 455 ¥ 5,351 $(178,104) 4,738 8,928 (13,944) 16,848 3,573 44,000 44,896 – – 4,293 Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (9,001) ¥ 25,494 $ (84,915) 58 The significant components of deferred tax assets and deferred tax liabilities recorded on the consolidated balance sheets as of March 31, 2000 and 1999 are as follows: March 31 Gross deferred tax assets: Millions of yen 2000 1999 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 25,037 90,548 58,397 81,288 134,965 390,235 (46,759) Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,476 Gross deferred tax liabilities: Retained earnings appropriated for tax allowable reserves . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,653) (15,512) Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,165) ¥ 23,048 88,373 47,839 92,363 107,236 358,859 (42,184) 316,675 (19,778) (20,871) (40,649) Thousands of U.S. dollars 2000 $ 236,198 854,226 550,915 766,868 1,273,255 3,681,462 (441,122) 3,240,340 (138,236) (146,340) (284,576) Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥313,311 ¥276,026 $2,955,764 Net current and non-current deferred tax assets at March 31, 2000 and 1999 are reflected in the consolidated balance sheets under the captions of prepaid expenses and other current assets, ¥116,232 million ($1,096,528 thousand) and ¥53,173 million, and other assets, ¥197,079 million ($1,859,236 thousand) and ¥222,853 million, respectively. The net increases in the total valuation allowance for the years ended March 31, 2000 and 1999 were ¥4,575 million ($43,160 thousand) and ¥3,913 million, respectively. Available corporate tax loss carryforwards of the company and certain subsidiaries at March 31, 2000 amounted to approximately ¥139,295 million ($1,314,104 thousand), the majority of which will expire during the period from 2001 through 2005. Realization is dependent on the company and 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 estimates 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 companies deemed indefinitely reinvested in foreign operations. It is not practicable to estimate the amount of the deferred income tax liabilities on such earnings. 15. SHAREHOLDERS’ EQUITY: RETAINED EARNINGS– Retained earnings at March 31, 2000 and 1999 include the legal reserve of ¥79,576 million ($750,717 thousand) and ¥78,388 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, 2000 include year-end dividends of ¥9,656 million ($91,094 thousand) for the year ended March 31, 2000 which are expected to be formally approved at the general shareholders’ meeting held in June 2000, and will be payable subsequently. 59 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)– An analysis of the changes in accumulated other comprehensive income (loss) for the years ended March 31, 2000 and 1999 is shown below: March 31 Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Foreign currency translation adjustments: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (60,202) (45,788) Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (41,488) (18,714) $ (567,944) (431,962) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(105,990) ¥ (60,202) $ (999,906) Minimum pension liability adjustment: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(123,727) 15,231 Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (30,809) (92,918) $(1,167,235) 143,688 Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(108,496) ¥(123,727) $(1,023,547) Total accumulated other comprehensive income (loss): Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(183,929) (30,557) Current-period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (72,297) (111,632) $(1,735,179) (288,274) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(214,486) ¥(183,929) $(2,023,453) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2000 and 1999 are shown below: Before-tax amount Millions of yen Tax benefit (expense) For the year ended March 31, 2000: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (46,425) 26,306 Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (20,119) 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) ¥ 637 (11,075) ¥(10,438) ¥ 560 67,563 ¥68,123 Net-of-tax amount ¥ (45,788) 15,231 ¥ (30,557) ¥ (18,714) (92,918) ¥(111,632) For the year ended March 31, 2000: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(437,972) 248,170 $ 6,010 (104,482) Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(189,802) $ (98,472) $(431,962) 143,688 $(288,274) Thousands of U.S. dollars Before-tax amount Tax benefit (expense) Net-of-tax amount 60 16. NET INCOME PER SHARE: For the years ended March 31, 2000 and 1999, 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, 2000 and 1999 were 3,218,976 thousand and 3,218,983 thousand, respectively. 17. 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 com- mitments 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 corre- spond 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 fluctuations in foreign currency exchange and interest rates. These agreements mature during the period 2000 to 2010. The related differentials to be paid or received under the interest rate swaps are recognized in interest expense over the terms of the agreements. 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 agreements and the principal amounts of currency swap agreements outstanding at March 31, 2000 and 1999 are summarized below: March 31 Forward exchange contracts: Millions of yen 2000 1999 To sell foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To buy foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Currency swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥240,949 60,569 401,136 84,588 ¥237,340 46,051 426,965 103,867 Thousands of U.S. dollars 2000 $2,273,104 571,406 3,784,302 798,000 61 The estimated fair values of the company’s financial instruments at March 31, 2000 and 1999 are summarized as follows: Millions of yen Thousands of U.S. dollars 2000 1999 2000 Carrying amount Estimated fair value Carrying amount Estimated fair value Carrying amount Estimated fair value March 31 Nonderivatives: Assets– Marketable securities . . . . . . . . . . . . ¥ 93,140 ¥ 185,410 ¥ 124,017 ¥ 228,173 $ 878,679 $ 1,749,151 1,649,708 Other investments . . . . . . . . . . . . . . 1,126,821 Long-term finance receivables, net . . 1,316,358 1,103,406 128,020 109,661 139,534 116,961 174,869 119,443 155,828 110,717 Liabilities– Long-term debt, including current portion . . . . . . . . Derivative financial instruments: (1,380,097) (1,400,086) (1,414,257) (1,449,072) (13,019,783) (13,208,358) Forward exchange contracts . . . . . . Interest rate swap agreements . . . . . Currency swap agreements . . . . . . . 1,849 – 4,550 5,308 (3,416) 5,355 3,232 – (3,122) 5,419 (5,777) (1,859) 17,443 – 42,925 50,075 (32,226) 50,519 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 and accounts payable, other and accrued expenses, 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 aggregate carrying amount of these investments in non-public companies was ¥90,690 million ($855,566 thousand) and ¥73,549 million at March 31, 2000 and 1999, respectively. However, the corresponding fair value of these investments at those dates was not computed as such estimation was not practicable. 18. COMMITMENTS AND CONTINGENT LIABILITIES: Commitments outstanding at March 31, 2000 for the purchase of property, plant and equipment approximated ¥13,279 million ($125,274 thousand). Rental expense for the years ended March 31, 2000 and 1999 aggregated ¥79,299 million ($748,104 thousand) and ¥86,695 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, 2000, contingent liabilities, principally for loans guaranteed, approximated ¥483,017 million ($4,556,764 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 financial statements. 62 REPORT OF INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers Yebisu Garden Place Tower 20-3, Ebisu 4-chome Shibuya-ku, Tokyo 150-6013 Telephone 03-5424-8100 Facsimile 03-5424-8101 April 28, 2000 To the Board of Directors of Toshiba Corporation We have audited the accompanying consolidated balance sheets of Toshiba Corporation and its subsidiaries as of March 31, 2000 and 1999, 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 auditing standards generally accepted in the United States of America. 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 dis- closures 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 Invest- ments 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 accompanying consolidated financial statements do not include segment information required to be disclosed in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” 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, respectively, 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, 2000 and 1999, 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. 63 GLOBAL NETWORK OVERSEAS OFFICES Latin America Buenos Aires Europe Moscow Africa Johannesburg Middle East Baghdad Abu Dhabi Asia Beijing Shanghai Manila Bangkok Jakarta New Delhi OVERSEAS SUBSIDIARIES AND AFFILIATES North America Toshiba of Canada, Ltd. Markham, 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 Research, Inc. Morristown, New Jersey, 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 Super Conetics, Inc. San Diego, California, U.S.A. Toshiba America Information Systems, Inc. Irvine, California, U.S.A. Toshiba America Business Solutions, 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. Semiconductor America, Inc. Irvine, California, U.S.A. Toshiba Venture Capital, Inc. Polo Alto, California, U.S.A. Toshiba America Venture Capital, Inc. Lyndhurst, New Jersey, U.S.A. Enceratec, Inc. Columbus, Indiana, 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 GE Toshiba Turbine Components de Mexico S.R.L de C.V Monterrey, 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. TTI Card Technology Europe Ltd. Northamptonshire, 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 64 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 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 ZAO Toshiba Medical Systems Moscow, Russian Federation Middle East Toshiba Gulf FZE Dubai, UAE Asia Toshiba (China) Co., Ltd. Beijing, The People’s Republic of China Toshiba 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 Jiangsu Honshiba Tontru Network System Equipment Co., Ltd. Nanjing, 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 Toshiba Computer System (Shanghai) 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 Jiangxi Toshiba Electronic Materials Co., Ltd. Ganzhou, The People’s Republic of China Tsurong Xiamen Xiangyu Trading Co., Ltd. Xiamen, 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 Memory Semiconductor Taiwan Corp. Taipei, Taiwan Toshiba Electronics Taiwan Corporation Taipei, Taiwan Toshiba Information Equipment (Philippines), Inc. Laguna, Philippines Toshiba Electronics Philippines, Inc. Manila, Philippines Toshiba Vietnam Consumer Products Co., Ltd. Ho Chi Minh City, Vietnam 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 Toshiba Singapore 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, 2000) 65 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 Term 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 Digital Frontiers Inc. Toshiba Electric Appliances Co., Ltd. Toshiba Elevator Corporation Toshiba Elevator Products Corporation Toshiba Engineering Corporation Toshiba Finance Corporation Toshiba GE Turbine Components Co., Ltd. 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 Devices Co., Ltd. Toshiba Plant Kensetsu Co., Ltd. Toshiba Shutoken Lifestyle-Electronics Corporation Toshiba TEC Corporation Toshiba Video Products Japan Co., Ltd. Toyo Carrier Engineering Co., Ltd. Yokkaichi Toshiba Electronics Corporation Plus 174 other domestic subsidiaries CONSOLIDATED OVERSEAS SUBSIDIARIES Changzhou Toshiba Transformer Co., Ltd. Dalian Toshiba Television Co., 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 Business Solutions, Inc. 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 TEC Europe Imaging Systems S.A. Toshiba Venture Capital, Inc. Toshiba Video Products Pte., Ltd. Wuxi Huazhi Semiconductor Co., Ltd. Wuxi Tochemi Electro Chemical Co., Ltd. Plus 49 other overseas subsidiaries 66 (As of March 31, 2000) BASIC COMMITMENT OF THE TOSHIBA GROUP 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 FINANCIAL HIGHLIGHTS TO OUR SHAREHOLDERS IT—A DRIVER OF GROWTH Inter-Company Value Chain Electronic Components Media Cards Portable PCs Cellular Phones System Solution Services Digital Broadcasting Equipment B2B Internet Services B2C Internet Services REVIEW OF OPERATIONS Information & Communications and Industrial Systems Digital Media Power Systems Electronic Devices & Components Home Appliances Others RESEARCH AND DEVELOPMENT TOSHIBA AND THE ENVIRONMENT BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE AUDITORS MANAGEMENT’S DISCUSSION & ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS GLOBAL NETWORK CONSOLIDATED SUBSIDIARIES INVESTOR REFERENCE 1 2 8 10 11 12 13 14 15 16 17 18 21 24 26 29 30 31 34 36 37 44 64 66 67 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. Fur- thermore, 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, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. INVESTOR REFERENCE Founded July 1875 Capital ¥274,919 million (US$2,594 million) Employees 190,870 Common Stock Authorized: 10,000,000,000 shares Issued: 3,219,006,450 shares No. of shareholders: 380,744 Average holding: 8,455 shares Transfer Agent The Chuo Mitsui Trust and Banking Co., Ltd. Headquarters 1-1, Shibaura 1-chome, Minato-ku Tokyo 105-8001, Japan Principal Shareholders: 3.94% The Dai-ichi Mutual Life Insurance Company 3.88% The Sakura Bank, Ltd. 3.85% The Chase Manhattan Bank NA London 3.36% Nippon Life Insurance Company 2.63% State Street Bank and Trust Company Mitsui Mutual Life Insurance Company 2.22% The Sumitomo Trust and Banking Co., Ltd. (Trust Account) 2.01% 1.86% Employees Stock Ownership Plan 1.84% The Nippon Fire & Marine Insurance Co., Ltd. 1.52% The Long-Term Credit Bank of Japan, Ltd. (As of March 31, 2000) 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/about /ir/index.htm Product names may be trademarks of their respective companies. Printed on recycled paper 67 A new Toshiba takes shape >> ANNUAL REPORT >> Year ended March 31, 2000 A N N U A L R E P O R T 2 0 0 0 Printed in Japan 

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