Toshiba Corp.
Annual Report 2002

Plain-text annual report

I T O S H B A A N N U A L R E P O R T 2 0 0 2 Printed in Japan TOSHIBA ANNUAL REPORT 2002 Year ended March 31, 2002 Basic Commitment of the TOSHIBA Group We, the Toshiba Group companies, based on our total commitment to people and to the future, are deter- mined 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 respon- sible 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 ser vices 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 commu- nity, including ways to improve the global environment. Financial Highlights To Our Shareholders Regeneration of TOSHIBA Wireless & Seamless office Mobile Communications An Age of New Advances Review of Operations Toward Sustainable Development Board of Directors, Executive Officers and Statutory Auditors Management’s Discussion and Analysis Consolidated Financial Statements Global Network Consolidated Subsidiaries Investor Reference 1 2 5 12 14 16 18 32 34 35 42 64 66 67 Investor Reference TOSHIBA CORPORATION FOUNDED July 1875 CAPITAL ¥274,926 million (US$2,067 million) EMPLOYEES 176,398 COMMON STOCK Authorized: 10,000,000,000 shares Issued: 3,219,027,165 shares No. of shareholders: 475,649 Average holding: 6,768 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 (%) Sumitomo Mitsui Banking Corporation. .......................................... 3.88 The Dai-ichi Mutual Life Insurance Company .................................. 3.75 Nippon Life Insurance Company .................................................... 3.36 Japan Trustee Service Bank, Ltd. .................................................. 2.94 State Street Bank and Trust Company ........................................... 2.37 The Mitsubishi Trust and Banking Corporation ................................ 1.81 UFJ Trust Bank Limited ................................................................. 1.80 The Chase Manhattan Bank NA London ......................................... 1.71 Employees Stock Ownership Plan .................................................. 1.63 NIPPONKOA Insurance Company, Limited ....................................... 1.55 As of March 31, 2002 Web site information Toshiba is vigorously carrying out Internet-based IR activities to ensure timely and fair www.toshiba.co.jp/about/ir/index.htm www including press releases and investors' guides. There is also a section that allows site disclosure to all investors. Our investor relations site features information for investors, visitors to express their opinions and ask questions, part of our efforts to improve the quality of our IR activities through interactive communications with investors. FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements concerning Toshiba’s fu- ture plans, strategies and per formance. These for ward-looking statements are not historical facts, rather they represent assumptions and beliefs based on eco- nomic, financial and competitive data currently available. Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. For further information, please contact: Toshiba Corporation Investor Relations Group Corporate Communications Office 1-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan Phone: +81-3-3457-2096 Facsimile: +81-3-5444-9202 Mail: ir@toshiba.co.jp 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 Financial Highlights Toshiba Corporation and its subsidiaries Years ended March 31, 2002 and 2001 Net sales–Japan –Overseas Net sales Operating income (loss) Income (loss) before income taxes and minority interest Net income (loss) Research and development expenditures Total assets Shareholders’ equity Per share of common stock: Net income (loss) –basic –diluted Cash dividends Number of employees Millions of yen Thousands of U.S. dollars 2002 2001 2002 ¥3,340,491 ¥3,753,052 $25,116,474 2,053,542 5,394,033 (113,575) (376,687) (254,017) 326,170 5,407,782 705,314 2,198,305 5,951,357 232,133 188,099 96,168 327,915 5,724,564 1,047,925 15,440,165 40,556,639 (853,947) (2,832,233) (1,909,902) 2,452,406 40,660,015 5,303,113 yen U.S. dollars ¥(78.91) (78.91) ---- ¥29.88 29.71 10.00 176,398 188,042 $(0.593) (0.593) ---- Notes: 1. Unless indicated other wise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for conve- nience only, at the rate of ¥133=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 conver tible debentures were conver ted into common stock. N E T S A L E S (Billions of yen) 5,749 5,951 5,394 N E T I N C O M E ( L O S S ) (Billions of yen) 96 S H A R E H O L D E R S ’ E Q U I T Y (Billions of yen) 1,060 1,048 --33 705 '00 '01 '02 '00 '01 --254 '02 '00 '01 '02 1 To Our Shareholders Summary of Fiscal 2001 Operating Results Progress of the 01 Action Plan Harsh business conditions prevailed throughout fiscal 2001, Our ef for ts for an enhanced business structure have been to March 31, 2002. In the aftermath of the U.S. Internet bubble, bolstered by the 01 Action Plan we launched in August 2001. a slump in demand for IT—in recent years a driver of world The Plan targets intensified competitiveness and streamlined economic growth—tipped high-tech industries into global re- management, suppor ted by corporate initiatives. The 01 Ac- cession. The Japanese economy faced a host of difficulties, tion Plan is proving successful in many ways, but four I con- chief among them lackluster demand and the tightening grip sider par ticularly notewor thy are: of deflation. Declines in corporate earnings and accompany- 1) The use of Toshiba Value Created (TVC) to monitor per- ing cuts in capital investment made the domestic situation formance, develop strategy and suppor t allocation of worse, as did employment and wage adjustments that damp- resources. ened consumer spending. 2) Cutting procurement costs by 20% At Toshiba, we continued the restructuring program initi- 3) Reducing the Group workforce by 10% ated several years ago and took vigorous steps to strengthen 4) Cutting assets by ¥800 billion (US$6,015 million) competitiveness and streamline management with the 01 Ac- TVC has given us a power ful tool for analyzing business tion Plan. In this connection, we decided to withdraw from the per formance and developing strategy. Application of stringent commodity DRAM business, long a source of volatility in Group TVC standards persuaded us to withdraw from the commodity profits and a severe drag on results in the current economic DRAM business, to establish a joint venture for LCDs with downturn. In our core growth businesses, we promoted mea- Matsushita Electric Industrial Co., Ltd., and to integrate our sures designed to allow us to prosper and prevail in the face power transmission and distribution business with that of of fierce global mega-competition. Mitsubishi Electric Corporation. Despite these effor ts, Toshiba could not avoid the reality In October 2001, we established the Procurement Innova- of a depressed market and we repor ted disappointing busi- tion Division. This specialist organization is charged with re- ness results for fiscal 2001. Consolidated Group net sales ducing procurement costs by applying innovations that will were ¥5,394.0 billion (US$40,557 million), a 9% decline on a achieve dramatic reform of Toshiba Group’s procurement struc- year-on-year basis. An operating loss of ¥113.6 billion (US$854 ture. More than 600 engineers from across the Group have million), ¥345.7 billion lower than the operating income re- been appointed to the division, to build a bridge between de- corded in the previous fiscal year, resulted in the Group’s first velopment and sourcing. They are promoting cost reduction ever operating loss. As a result of restructuring charges of measures based on Management Innovation (MI) methodolo- ¥208.9 billion (US$1,571 million) incurred in restructuring and gies, assuring the widest possible use of standard par ts and a one-off voluntar y early retirement program, Toshiba posted materials from the development stage, expanding electronic a loss before income taxes of ¥376.7 billion (US$2,832 mil- procurement, and extending multi-vendor procurement. In fis- lion), ¥564.8 billion below the level of income before income cal 2001, all these yielded cost savings of ¥340 billion taxes recorded in the previous fiscal year. Toshiba recorded a (US$2,556 million), approximately a 10% reduction of total net loss of ¥254.0 billion (US$1,910 million), a ¥350.2 bil- procurement costs. We aim for the same kind of achievement lion decline from the previous fiscal year. this fiscal year. Total retirement payments, which include additional The 01 Action Plan envisages a Toshiba Group workforce payments for our limited-term voluntar y early retirement pro- of 170,000 by the end of March 2004, a 10% reduction against gram, amounted to ¥174.9 billion (US$1,315 million). This the end of March 2001. Toward fulfilling this target, we initi- resulted in negative free cash flows of ¥176.4 billion (US$1,326 ated a shor t-term voluntar y early retirement program in fiscal million). 2 2001 that, along with natural attrition, allowed us to cut our headcount in Japan by some 12,000. At the end of March 2002, the Group had approxi- mately 176,400 employees, and we are on course to achieve our target reduction with a year to spare, by the end of March 2003. Although this resulted in major restruc- turing charges in fiscal 2001, it will yield savings this fis- cal year and in years to come that add to the bottom line. During fiscal 2001, we reduced total assets by ¥219.4 billion (US$1,650 million) through a wide rang- ing Asset Light program: ¥31 billion by securitization, ¥54.3 billion by liquidating 1. Rapid Growth Businesses: Digital Media, Mobile, Semi- conductors, LCDs, Solutions and Platforms Breathtaking advances in IT are making a reality of digital convergence. And putting the focus on areas where Toshiba has industr y-defining capabili- ties. The emergence of high- capacity broadband networks, especially advances in wire- less and video communica- tions, will suppor t our growth in digital, mobile and broad- casting technologies, products and systems. Toshiba can boast of cut- ting-edge experience and Taizo Nishimuro, Chairman of the Board (Left), Tadashi Okamura, President and Chief Executive Officer (Right) real estates, ¥25 billion through leasing schemes, and ¥107.6 strong competitiveness in products. Chip sets, displays, com- billion by expanding our global cash management systems. puting, imaging know-how and high-capacity storage devices are all must-haves for the broadband age. To these, Toshiba Collaboration and Joint Ventures can also add technologies in areas as diverse as image com- Across our businesses, we are open to collaboration with other pression, wireless networking and voice synthesis. Adroit inte- leading-edge companies, in order to maximize allocation of gration of these technologies opens the way for Toshiba to assets, reinforce know-how and build market presence and bring to market new value-added products and ser vices. To profitability. In fiscal 2001, we entered into joint ventures that sum up, Toshiba has the ability to meet increasingly diverse will support future growth in key business areas. We have agreed customer needs with total solutions. to develop third-generation (3G) cellular phones with Mitsubishi Our energies will not be confined to manufacturing. The Electric Corporation. In semiconductors, we are working on a collapse of the dot-com bubble was not the failure of the vir- next-generation microprocessor with IBM Corporation and Sony tual economy but of an over-optimistic business model. There Computer Enter tainment Inc., and we are investigating a com- can be no doubt that, in coming years, people will increasingly prehensive tie-up with Fujitsu Ltd., par ticularly in system-on- turn to the Internet for information, education, entertainment, chip (SoC) solutions. shopping and much more. We will suppor t this with platform businesses that create e-platforms, the vir tual infrastructure Future Business Development for B2B and B2C, and with ASP and other ser vices. We will Toshiba defines two broad business areas: Rapid growth businesses also realize the wider world of anytime, anywhere deliver y of and consistent growth businesses, and we will follow the strategies information and ser vices by suppor ting development in necessary to enhance both. mobile broadcasting and ITS. We see these as areas where 3 we must make a long-term commitment, and as an oppor tu- sult of further efforts to reduce procurement costs, the launch nity to innovate new solutions businesses for new markets. of new attractive products and strengthened marketing capa- bilities, we project a ¥243.6 billion (US$1,832 million) rise in 2. Consistent Growth Businesses: Social Infrastructure, Medi- operating income, to ¥130.0 billion (US$977 million). We an- cal Systems, Power Systems and Home Appliances ticipate income before income taxes of ¥40 billion (US$301 As we promote advances in our growth industries, we are million) and net income of ¥23 billion (US$173 million). also under taking structural reforms in businesses that pro- vide essential social infrastructure. Our goal here is to rein- The First Year of “Regeneration of Toshiba” force consistent growth by developing globally and enhancing We foresee sharp and significant changes in the business en- competitiveness by entering new areas of business. We will vironment in coming years. As the IT revolution enters its sec- take the following measures: ond phase, the divergence between companies that succeed 1) In Japan, we will fur ther promote alliances even with and those that flounder will become even more pronounced. competitors in the market for better profitability. In responding quickly and flexibly to this shifting landscape 2) Overseas, we will accelerate business development by we are executing the reforms necessar y to build a strong cor- strengthening marketing capabilities. porate group and restore profitability. Our market-driven busi- 3) We will for tify our ser vice and maintenance operations ness strategies, grounded in the “voice of customers (VOC),” in these consistent growth businesses. allow us to develop innovative products that enhance our glo- We are acting vigorously to promote these measures. For bal competitiveness. Our goal is to add to the quality of life of instance, an alliance with AB Electrolux of Sweden is adding a all our customers by ensuring that, in all of Toshiba Group's new dimension to our home appliance business, while a com- diverse businesses, we use our extensive capabilities and ad- prehensive business relationship with Finland’s Kone Corpo- vanced know-how to provide products, ser vices, and solutions ration in elevators and escalators is allowing us to strengthen that meet real needs and provide true satisfaction. We believe our presence in Asia. Our medical systems business was origi- we can enhance brand identity through these activities. nally grounded in hardware, but we have now developed an As we make 2002 the year of Toshiba’s regeneration, we extensive ser vice capability, including a comprehensive hospi- hope we may continue to enjoy the trust and suppor t of our tal information system to support hospital and clinic management. shareholders, customers and employees. Management Forecast for Fiscal 2002 July 2002 In fiscal 2001, Toshiba recorded restructuring charges of ¥208.9 billion (US$1,571 million), a significant propor tion of the loss before income taxes of ¥376.7 billion (US$2,832 million). However, these restructuring charges are expected to yield ¥182 billion (US$1,368 million) in cost reductions in the cur- rent fiscal year, suppor ting our return to the black in fiscal 2002. We will continue to implement the 01 Action Plan in fiscal 2002 and give top priority to achieving profitability in all business segments. Our aim is a V-shaped recover y in our business results. On a consolidated basis, Toshiba forecasts an 8% increase in net sales, to ¥5,850 billion (US$43,985 million). As a re- 4 Taizo Nishimuro Chairman of the Board Tadashi Okamura President and Chief Executive Officer Regeneration of TOSHIBA Leveraging tomorrow’s growth with the 01 Action Plan 5 5 Withdrawal from commodity DRAMs and strategies to promote the semiconductor business Q: What factors underpinned your December 2001 de- cision to withdraw from commodity DRAMs? A: We thought long and hard about it. Commodity DRAMs have been a significant business, one in which we led the market in the transition to megabit devices. But it is also characterized by highly volatile price fluctuations, to a point that could even un- dermine the profits of the entire Toshiba Group. Our assess- ment also showed us that it was no longer possible to achieve the profit level we used to enjoy as an industry frontrunner and the first company to release a high-density DRAM. When we added it all up, we concluded that the benefits from continuing in the business were too small to justify the large risks that came with them. So we decided to withdraw. 6 6 Q: What are your strategies for system LSIs and dis- crete devices? A: In system LSIs our focus is on system-on-chip (SoC). I know this is a highly competitive field, but we will deploy four strate- gies designed to make Toshiba a winner in this sector in the years ahead. First of all, we will strengthen design technology and pro- cess development capabilities. We will pay par ticular attention to design technology, and plan to invest an additional ¥10 bil- lion (US$75 million) a year to strengthen our capabilities. We are also strengthening our product lines. In addition to the TX series, our MIPS-based processor cores, we are working to reinforce and expand sales of embedded memory and analog SoC with power ful processor cores. These effor ts are suppor ted by quickened development of the “Cell,” a new and power ful microprocessor core we are currently developing with IBM Cor- poration and Sony Computer Entertainment Inc. And, of course, Toshiba will also continue to develop DRAM technologies neces- sar y for SoC. Q: You are now concentrating on NAND flash memo- ries. Will this sector also see severe competition? A: That is ver y possible, if we just stand pat and do not act. But we will not do that. We have advanced plans to quickly build In our third strategy, Toshiba will concentrate on four areas where significant growth can be reasonably anticipated: digital a solutions-provider business. One aspect of this will be provi- consumer products, mobile products, intelligent of fices, and sion of controller technologies that promote the optimal use of automotive devices. We will also suppor t the networks that will NAND flash memories in individual applications. Our strategy link these four, and do all we can to strengthen our relations here is to avoid a focus on just selling memories themselves, with leading customers. as that is easily affected by price competition. Finally, we will reorganize our manufacturing in two ways. At the same time, we will work for superior cost competi- We will increase outsourcing of our wafer fabrication and as- tiveness, using multi-level cell process technology to do so. That sembly processes, and expand overseas production, par ticu- will allow us to realize lower costs and lower prices that can larly in China, where we are building up our manufacturing struc- suppor t an expansion of applications for NAND. Even as we do ture and capabilities and increasing product assembly. that, we want to avoid stimulating the cutthroat competition that In discrete devices, we will take full advantage of our supe- plagued our commodity DRAM business, by securing IP, includ- riority in small and multi-pin-count packages and low-voltage ing patents, and by developing leading-edge technologies and a operation to sustain our worldwide No. 1 market share and main- steady stream of distinctive products our competitors cannot tain high profitability. easily match. I think I can safely say that we have no concerns for a repeat of the situation that occurred with commodity DRAMs. 7 The LCD business Portable PCs Q: Toshiba and Matsushita Electric Industrial Co., Ltd. have a new joint venture for LCDs that began operation in April. What outlook do you see for the future development of this business? Q: What are your strategies for your por table PC business? A: Toshiba Matsushita Display Technology Co., Ltd. (TMDT) com- bines our LCD development, manufacturing, and sales opera- A: This is one of Toshiba’s core businesses and one I want to see fur ther strengthened in all areas, from development to lo- tions with those of Matsushita’s. It’s an excellent match, be- gistics. For instance, in 2001 we established a system for di- cause it brings together our know-how in large-sized, low-tem- rect delivery to the North American market of portable PCs manu- perature polysilicon (LTPS) TFT LCDs and Matsushita’s high-speed, factured at our Philippine facility. However, we know that suc- high-resolution LCD technologies for TVs. That combination gives cess depends on offering great products that win in the market us the potential to be a leader in the world market. Our leader- place. To support us in this we established two technology cen- ship in LTPS TFT LCDs also gives us an edge in development of ters at our main PC facility, Ome Operations in Tokyo, the Core full color organic light emitting displays (OLEDs), next-genera- Technology Center and the Digital Media Development Center. tion displays that offer higher resolution and a slimmer display. These integrate our development and engineering capabilities We are making progress in OLED development and mass pro- in computing, visual imaging, communications and storage de- duction is now slated to start in 2003. In the interim, TMDT will vices and will help assure that Toshiba continues the timely launch open a new production facility in Singapore in August 2002 that of distinctive products that integrate innovative technologies. will produce large-sized LTPS TFT LCDs for por table PCs, moni- These measures are already bearing fruit. In the Januar y-March tors, and TVs. All-in-all, we are well positioned, with the right quar ter of 2002, Toshiba regained the worldwide No. 1 share of products and the right road map to the future. the por table PC market for the first time in nine months*. We are also working to enhance the profitability of the por- table PC business by sharpening our cost competitiveness. Toshiba Information Equipment (Hangzhou) Co., Ltd. in Hangzhou, Zhejian, China, will contribute to this. We established this com- pany in June 2002, and it will star t mass production in April 2003. Toshiba will sharpen its cost competitiveness in global markets and reduce product development lead times while in- dependently developing leading-edge technologies, including fuel cells and Voice over IP technologies, a step ahead of competi- tors. We will also emphasize the integration of these technolo- gies into new products to strengthen product competitiveness as we fur ther expand our por table PC business. *(Source: IDC Sur vey) 8 TVC Q: What exactly is Toshiba Value Created and how do you use in restructuring your business? A: TVC is management tool that we developed to gauge the value creation of our businesses. Basically, it measures results against the cost of capital invested in each business. Any busi- ness that shows worsening TVC for two consecutive fiscal halves is designated as requiring monitoring and is encouraged to imple- ment improvement measures. If TVC continues to worsen for a fur ther two consecutive fiscal halves, the business becomes a “selected business” that is subject to measures that include merger in a joint venture with another company, sale, or with- drawal from the business. •Withdrawal from business Withdrawal from commodity DRAM business •Established JV to assure survival Aerospace business JV with NEC Corporation Power transmission and distribution JV with Mitsubishi Electric Corporation •Established JV to strengthen competitiveness LCD business JV with Matsushita Electric Industrial Co., Ltd. 99 Improvement of the financial structure Q: There is some concern about a weakening of Toshiba’s financial structure. What measures is Toshiba tak- ing in this area? A: Toshiba is focused on reducing debt and improving the debt- to-equity ratio. Unfortunately, our per formance in the harsh busi- ness conditions of fiscal 2001, plus heavy restructuring charges, resulted in a sharp drop in shareholders’ equity. Although we minimized the rise in debt, thanks to moves to improve asset efficiency and advance our Asset Light asset-reduction program through our 01 Action Plan, the debt-to-equity ratio rose to 258%, due to the decline in shareholders’ equity. If we exclude debt held by Toshiba Group financial companies, that ratio was still 191%. In these circumstances, Toshiba has to bolster its finan- cial structure by generating cash flows. That means moves to strengthen profitability and to fur ther reduce assets. We expect that the measures we are taking under the 01 Action Plan will allow Toshiba to reduce debt from fiscal 2002 on, to improve the debt-to-equity ratio, and also raise our credibility in global capital markets. 10 10 Toshiba’s vision of the digital, mobile, networked society The emergence of Korean, Taiwanese, and Chinese companies Q: The spread of broadband and wireless communica- tions is spurring digital convergence. What prod- Q: Recently there has been a conspicuous emergence of Korean, Taiwanese, and Chinese companies, par- ucts and services will this allow Toshiba to offer? ticularly in semiconductors and LCDs. What strate- gies will Toshiba implement to compete with these companies? A: Toshiba remains committed to leading the industry in creat- ing new-concept products and in innovative products that inte- A: Our Asian competitors enjoy competitive advantages—out- standing technologies for mass production and the suppor t of grate digital and mobile communications technologies. I have low-cost, capable labor forces—that pose severe challenges to already mentioned the new development centers at Ome. They Toshiba. That said, we are moving ahead with strategies focused bring together about 3,000 development and design engineers on utilizing the technology and production technologies of ver y from our Digital Media Network Company and Mobile Communi- aggressive Asian companies to preser ve our international com- cations Company who used to be located at five locations, with petitiveness. We also recognize the growing impor tance of little contact with one another. At Ome, they will be able to work benchmarking the outstanding aspects of these companies. together, allowing people from different fields to share know- However, I believe that we maintain superiority over these com- how and ideas. I expect this to enhance technology develop- petitors in product creation, including applications and software. ment, par ticularly in software. It will cer tainly suppor t us in de- Take our Semiconductor Company. It has a wide range of know- veloping products that integrate diverse technologies and in how, from world-leading discrete products to SoC, and it can developing technologies that anticipate market needs. We ex- enhance this by working with our in-house set makers, our PC pect significant results in this area. and TV businesses, for example. This gives us a chance to pro- vide a knowledge edge in suppor ting other customers. In addi- tion, we will strengthen our close, long-term ties with leading domestic and overseas companies. I am confident that we have the technological capabilities needed to respond to the demands of our customers in a timely manner. 11 Business Offices Hotels Conference Halls Convention Centers Shopping Centers Restaurants Hub/Router xDigital Subscriber Line, Cable, Modem Lease Line, xDigital Subscriber Line Cable Backhaul Public Station Terminals Airport Terminals Scheduled Flights Educational Institutions Home Apartments and Condominium Complexes Housing The Internet Enterprise Information Sharing Environment “MAGNIA Z300” IA Server 12 12 Wireless & Seamless Office 1) THE “WIRELESS & SEAMLESS” OFFICE Toshiba’s “Wireless & Seamless” office technology gives users simple anywhere, anytime network connectivity. It’s an innova- tive solution that allows us to make a major contribution to enhancing the flexibility of business life. BluetoothTM and wireless LAN technology suppor t wireless connections between por table PCs and cellular phones, PDAs, printers, projectors and access points. And the office and its tools are with you wherever you go, as wireless capabilities allow direct links from hotels, airpor ts—ever ywhere. Once setup is done, operation is completely routinized. For example, e-mail can be automatically received at a portable PC via a cellular phone in your pocket. A por table PC and PDA can synchronize and update one another—even while they are in a briefcase. Toshiba is the vanguard of directing advanced technologies to the development of networked devices that enhance the workplace and productivity. Our diverse product line-up include wireless ser vers that free work groups from the spatial limita- tions of cables, and a multi-platform electronic conferencing system that provides a forum for open discussion. When Toshiba introduced the world’s first por table PCs, it brought undreamed of mobility and flexibility to the workplace. With the wireless & seamless office, Toshiba takes this to the next level, bringing all the advantages of power ful networking capabilities to the office environment without the compromises to freedom that come with the ties of cables. The wireless & seamless system is the office of tomorrow, and a Toshiba solution today. Toshiba suppor ts the wireless & seamless office with industr y-leading technologies for por table PCs, including 1.8-inch HDDs, ultra-thin magnesium cases, LTPS TFT LCDs and advanced cooling and power-management technologies. 13 13 Information Service (Worldwide Web, i-mode) The Internet Home and Office Cellular Phones, PDAs Outdoors Cellular Phones PDAs 14 14 Mobile Communications 2) MOBILE COMMUNICATIONS The Mobile Communications Concept The essence of broadband is always-on connectivity, and Toshiba is making that possible through products and technologies that allow anywhere, anytime connection to the Internet. Toshiba’s extensive know-how in mobile communications ranges from essential ICs to advanced products, systems, and market-defining ser vices. Toshiba draws on the diverse capabilities of its in-house companies, subsidiaries and affiliates to create high value-added products and ser vices. Wireless enter tainment net- works enter the home with the “TransCube 10”. It brings TV and video to por table PCs, suppor ts video and data re- cording to an HDD, and pro- vides access to multiple high- speed Internet connections. “FEMINITY” home appliances are linked to the Internet via BluetoothTM. The industr y’s first wireless network for the home, “FEMINITY” can even download suggested dinner menus from its dedicated web site to the network’s home terminal. This new 64-bit RISC micropro- cessor, designed with 0.13µm process technology, brings the power of 300MHz operation to digital consumer applications. Mobile Network Devices Toshiba’s por table PCs have long been the world’s favorite. These PCs, and our PC ser vers and related devices, are suppor ted by cutting-edge technological capabilities and a dedication to excellence. The ad- vent of broadband communications makes it possible to access and download high-resolution motion pic- tures and high-quality sound recordings anywhere and at any time. Toshiba responds to these needs with advanced technologies, including MPEG4 imaging and high-resolution TFT LCDs. Ubiquitous Headset Our BluetoothTM headset provides hands-free operation of PCs, PDAs and home appliances. It is the first device of its kind to combine wireless communications and voice recognition technologies. TransCube With the May 2002 release of the “TransCube 10” wireless home media station, Toshiba brought a new level of capability to networked home entertainment. “TransCube 10” integrates a TV tuner, a 72-hour HDD video recorder and suppor t for multiple high-speed Internet connections. Its wireless LAN connectivity al- lows transmission of TV or video images to a portable PC anywhere in the home wireless network. “TransCube 10” is just the first of a series of wireless home media stations Toshiba will introduce. Internet Home Appliances The April 2002 release of the “FEMINITY” series of networked home products is the first step toward a complete wireless home management system. Remote control via a PC, PDA or cellular phone of the BluetoothTM- enabled refrigerator, washing machine and microwave oven now available will soon be extended to air- conditioning, lighting and more. Increasingly advanced ser vices will be suppor ted by the “FEMINITY” web site, as par t of a continuing evolution that will make “FEMINITY” the centerpiece of the electronic household. Electronic Components and Core Technologies SEMICONDUCTORS Mobile networking equipment must be versatile enough to access the Web and allow downloads of image and music files, yet it also has to be small, slim, light and, most of all, truly mobile. Toshiba semiconductors deliver all these capabilities, along with high-speed operation and low power consumption. Toshiba products span three key areas: NAND flash memories, LSIs for image compression and high-speed communications, and discrete devices mounted in ultra-small, multi-pin-count packages. DISPLAYS AND BATTERIES Toshiba’s lithium-ion secondar y batteries bring smaller sizes, weight reductions and longer batter y times to mobile information equipment. Pioneering capabilities in LTPS TFT LCDs and position Toshiba for early leadership in OLEDs, scheduled for commercialization in 2003. WIRELESS TECHNOLOGIES Toshiba is in the forefront in promoting wireless communications technologies, such as BluetoothTM and wireless LAN, and their integration in home networks and home appliances. BLUETOOTHTM As the only Japanese founder member of the BluetoothTM Special Interest Group (SIG), the trade association that defines and promotes the specification, Toshiba is working to advance the worldwide penetration of BluetoothTM and sees it as a prime solution for wireless links between all kind of products, from PCs to cellular phones, peripheral equipment and home appliances. 15 15 An Age of New Advances April 1999 saw Toshiba lay the cornerstone of its continuing structural reforms: adoption of the in-House Company System. Ten in-house companies operate today. Each one covers a clearly defined segment of Toshiba’s wide ranging business interests in Information & Communications Systems, Social Infrastructure Systems, Power Systems, Digital Media, Home Appliances, and Electronic Components. Each has the operat- ing autonomy required to develop the business strategies and operating style that best suits the realities of its market. To facilitate business development and market success, Toshiba has defined two overarching businesses categories, Rapid Growth and Consistent Growth, and assigned the in-house companies to their appropriate categor y. Rapid Growth: Digital Media Network, Mobile Communications, iValue Creation, Semiconductor, Display Devices & Components, and e-Solutions IT offers seemingly endless oppor tunities for innovation. Most recently that has translated into the deployment of broad- band communications, including striking progress in wireless communications. Toshiba contributes to advances in IT through its vast experience and competitiveness in computing, image processing, communications, and data storage. To this, Toshiba adds a wide range of elemental technologies in areas as di- verse as image compression and wireless networks. The re- Information and Communications Systems 16% Social Infrastructure Systems 16% Newly Defined sult of their integration is value-added products that define new capabilities and markets and that suppor t drives into ar- eas with high growth potential that strengthen Toshiba’s over- all business. Toshiba defines two broad business domains that it sees as drivers for rapid growth and future business: the Individual domain, embracing such products as por table PCs and per- sonal mobile equipment; and the Components domain, includ- ing semiconductors and displays. The in-house companies di- rect their advanced know-how in these two domains toward the early development of products and total solutions that meet diversifying customer needs. Consistent Growth: Social Infrastructure Systems, Medical Sys- tems, Power Systems, and Home Appliances The Industrial and Social domains are stable fields where Toshiba is devising mechanisms to guarantee consistent prof- its. Toshiba is promoting three strategies to enhance competi- tiveness in Japan and on the global scale: * Japan: Continue to promote alliances that contribute to enhanced profitability, including alliances with competitors. * Overseas: Promote business development by strengthen- ing marketing capabilities. * For tify ser vice and maintenance operations, par ticularly through the application of IT know-how. 9% Power Systems Digital Media 24% Home Appliances 11% Electronic Devices & Components 17% Others 7% 16 16 (%: Share of Sales in Fiscal 2001) Consistent Growth Businesses Growth Businesses e-SOLUTIONS COMPANY SOCIAL INFRASTRUCTURE SYSTEMS COMPANY MEDICAL SYSTEMS COMPANY POWER SYSTEMS & SERVICES COMPANY Strategic Business Domains DIGITAL MEDIA NETWORK COMPANY MOBILE COMMUNICATIONS COMPANY iVALUE CREATION COMPANY HOME APPLIANCES COMPANY SEMICONDUCTOR COMPANY DISPLAY, DEVICES & COMPONETS C0MPANY 17 17 Review of Operations e-SOLUTIONS COMPANY President SHINSUKE KAWAMURA （右）e-ソリューウーション社　社長　奥原　弘夫 Information & Communications Systems e-SOLUTIONS COMPANY The e-Solutions Company supports the public and private sectors with a wide range of services. The diversity of our capabilities can be seen in corpo- rate SI and solutions services, e-government sys- tems for both national and regional governments, “digital media solutions” for the digitization of broadcasting, newspapers and other mass media, and in ASP outsourcing and network integration services. At the heart of our business is “collabo- rative innovation,” close relations with our cus- tomers and business partners in which we draw on our experience as an IT user and develop and support an extensive range of technologies. We are ready for the second phase of the IT revolu- tion and its dynamic integration of information, tele- communications, broadcasting and imaging. The Information & Communications Systems is a new segment established in April 2001. It brings together the IT-related businesses of the former Information, Communications & Social Systems segment. Consolidated sales in the Information & Com- munications Systems segment were 2% lower year- on-year, at ¥956.7 billion (US$7,193 million). This is largely attributable to continued sluggishness in private sector demand for equipment and sys- tems, the result of the prolonged economic turn- down, and fur ther cur tailment of capital expendi- ture. As intensified competition drove prices down, segment operating income declined 59% against the year-earlier period, to ¥9.7 billion (US$73 million). N E T S A L E S (Billions of yen) O P E R A T I N G I N C O M E (Billions of yen) 986 972 957 24 24 10 '00 '01 '02 '00 '01 '02 18 The e-Solutions Company is at the heart of the segment. It operates system integration (SI) and solutions businesses that provide services related to the overall life cycle of computer systems, and platform businesses that supply components that suppor t SI and solutions businesses and related integration services. The company emphasizes four core business areas: * Solutions that use Toshiba’s own systems as ref- erences, including Enterprise Resource Planning (ERP) and Supply Chain Management (SCM), and solutions developed through our exper tise as a manufacturer. * “e-Japan,” which develops e-government systems for both local and national government. * Digital media solutions for establishing new busi- ness models through tie-ups with broadcasting, newspapers and other media. * ITS, which aims to develop SI businesses based on our core technologies for voice and image processing. We are making effor ts to enhance our ser- vices and solutions capabilities across diverse busi- ness as an Application Service Provider (ASP) and a provider of other outsourcing services, network in- tegration services and security. In this connection, we promote alliances that strengthen our capabilities. In June 2001, we es- tablished Enterprise Business System Solutions Corporation, a joint venture with Accenture and Oracle Corporation Japan that provides solutions ser- vices to clients wishing to take advantage of ERP. Ser vices provided range from consultation to sys- tem design, development and extension. We also established Toshiba T.D. Education Co., Ltd., a joint venture with TAKARA Co., Ltd. and Dai Nippon Print- ing Co., Ltd. that has developed and distributes an innovative educational platform and related materials. Toshiba has taken an aggressive approach to upgrading Group business systems in the face of a fast-changing information and communications systems market. In October 2001, to bolster our competence in IT-related engineering and market- ing capabilities, Toshiba spun off the Tokyo System Center, an engineering section of the e-Solutions Company, integrating it with three other companies in Toshiba IT-Solutions Corporation. More recently, Toshiba Communication Systems Co., Ltd. was es- tablished in July 2002. This move enhanced our total engineering capabilities in communications systems by bringing together two group companies and part of Hino Operations in Tokyo. In digital media solutions, the move to digi- tal broadcasting is driving demand for equipment for broadcasting satellite (BS) and communications satellite (CS) and terrestrial broadcasting. At the same time, demand for systems solutions for present media platforms is being stimulated by digi- tization of broadcast content. Toshiba is a major shareholder in Mobile Broadcasting Corporation, a digital satellite broad- casting company that will broadcast programming, music and information to vehicles, car navigation systems and newly developed portable information terminals when it starts service in early 2004. The company has attracted considerable investor inter- est, and SK Telecom, a South Korean cellular phone ser vice provider and NTT Data Corporation are re- cent members of the consortium. ep Broadcasting Corporation and ep Corpo- ration, joint ventures between Toshiba, Matsushita Electric Industrial Co., Ltd. and other major Japa- nese companies, have started the world's first stor- age-type interactive services. These services allow viewers and listeners to record their favorite BS and CS programs to an HDD and provide interactive func- tions allowing users to enjoy TV shopping and infor- mation services via the Internet. Our commitment to developing new capabili- ties and services can be seen in the paperless tick- eting ser vice. “Fresh Ticket,” an e-ticket/coupon system will be adopted by major Japanese broad- casting companies, including BS Nippon, TBS and TVK. Toshiba will continue to develop an effective IT-solutions business by concentrating resources on profitable areas and by promoting alliances and structural reforms in our businesses. We will de- liver advanced technologies that provide essential infrastructure for manufacturing, distribution, finan- cial institutions, mass media and government and add value to these with total SI and solutions services. With the “ArrayFor t Series” of disk arrays, companies can configure highly reliable s t o r a g e a r e a n e t w o r k s (SANs). Toshiba’s production moni- toring and control system for a brewing company realizes an open, streamlined sys- tem. Close integration with the host system realizes real- time process management. High-speed, huge-volume, secure stock transactions are assured by the trading system Toshiba developed to support front-end operations at a leading Japanese secu- rities company. The system suppor ts customization of information by users. 19 SOCIAL INFRASTRUCTURE SYSTEMS COMPANY Our mission is simple but essential: to build the infrastructure that society depends on. To do that, we provide comprehensive support, from systems development through to servicing and operations, for a wide range of es- sential infrastructure: community infrastructure such as water supply and sewerage systems; build- ing management; public facilities; environmen- tal protection; transportation infrastructure for roads, railroads and airports; and industrial in- frastructure that supports plant and equipment for manufacturing industries. Today’s infrastructure demands higher levels of safety, usability and convenience, as well as consideration of the global environment and im- proved system efficiency. We achieve these tar- gets with advanced technology, reliable systems and components, and top-quality services. Working together with our customers, we create value that provides a bridge to a more prosperous tomorrow. SOCIAL INFRASTRUCTURE SYSTEMS COMPANY President TSUYOSHI KIMURA Social Infrastructure Systems The Social Infrastructure Systems is a new segment established in April 2001. It brings together the Social Infrastructure Systems Company, the Medical Systems Company and Toshiba Elevator Corporation. Cuts in domestic public spending combined with weak public sector demand and reduced capital expenditure in the private sector, par ticularly by manufacturing companies, reduced revenues in our social and industrial systems businesses. Trans- por tation businesses also saw large revenue de- creases due to the cur tailed facility investments by the Japan Railway Group and other railroad companies. The medical systems business overcame se- vere conditions in its domestic and overseas mar- kets to generate profits. In Japan, reforms to the medical ser vice system made health-care provid- ers more concerned for cost effectiveness. That, combined with inroads made by overseas manu- facturers, intensified price competition. The medi- cal information systems business grew, reflecting the national government’s initiatives to promote the use of IT and networking at medical institu- tions. The elevator and escalator business saw lower sales, largely because of declines in sales prices. Overseas, business was hit by deteriorat- ing market conditions that accompanied the eco- nomic slowdown in the United States and Asia, as well as by sharp drop in facility investment in the United States. Toshiba supplies the carbody and all electrical and electronic systems for Japan Freight Rail- way Company’s “EH500” type electric locomotive. 20 Consolidated sales in the Social Infrastructure Systems segment reached ¥955.3 billion (US$7,183 million), a 2% decrease against the previous fiscal year. However, operating income in- creased 46% from the previous fiscal year, to ¥13.6 billion (US$102 million), on the strength of new products in the medical systems and elevator and escalator businesses and far-reaching initiatives to cut costs. Looking to the long term, the Social Infrastruc- ture Systems Company is bolstering profitability in key areas of infrastructure provision. Demand is growing for efficient infrastructure that fully meets demands for safety, comfort and convenience while showing ever y consideration for environmental impacts. Toshiba has developed comprehensive businesses that deliver the latest technologies, reliable system components, diverse ser vices and operations in the following areas: * Public systems: Our goal here is to promote new service businesses supporting public systems such as water supply and sewerage systems, in areas including Operation & Maintenance (O&M) and Pri- vate Finance Initiatives (PFIs). * Buildings and public facilities: Building and Energy Management System (BEMS), our new energy con- servation services for buildings, started to offer an IT-based total solution in improving the efficiency of air-conditioners, light and other facilities. * Railroad infrastructure: Japan’s first integrated Micro-Electronics (ME) system, deploys a single processor to conduct digital processing across the range of functions—protection, connection, super- vision, measurement and collection of data for archiving—required to operate the substations used by railroad companies. We are also developing new types of ser vices, including distribution of infor- mation to station facilities. * Manufacturing infrastructure: Our new applica- tion software package allows remote control of instrumentation in production plants using i-mode cellular phones as a par t of the remote sur veil- lance and control systems. We are aggressively marketing the package. MEDICAL SYSTEMS COMPANY The Medical Systems Company provides medi- cal institutions around the world with medical imaging diagnosis instruments, including X-ray equipment, X-ray CT scanning devices, ultrasonic equipment, MRI machines and nuclear medical equipment, as well as advanced medical solutions systems, such as medical image storage and man- agement systems and hospital information systems. With the advantage of having a broad array of customers as Japan’s leading solutions pro- vider, we provide not only imaging diagnosis machines but also medical-related “enterprise solutions” that help medical organizations stream- line their management. Always aware of just how precious life is, we strive to create new value in medical care, health and welfare so that people can enjoy healthy lives. MEDICAL SYSTEMS COMPANY President MASAMICHI KATSURADA “The Aquilion Multislice” pro- vides detailed diagnostic im- age data on vessels as fine as the capillaries and supports urgent treatment for emer- gency patient. From the aspect of hospital management, the system shor tens patient ex- amination times, contributing to increased ef ficiency and cost reductions. In our medical system business, fiscal 2001 saw a severe market environment in Japan, though ultrasound diagnostic equipment and MRI systems achieved good sales. Exports of CT, ultrasound di- agnostic equipment and MRI systems generated stable profits, helped in par t by the depreciation of the yen. Toshiba is the Japanese market leader in X- ray CT scanning system. We strengthened that position with the launch of “Aquilion Multislice System,” the world's first multiple-slice CT scan- ner capable of simultaneous imaging of 16 slices, with a minimum width of 0.5mm per slice and a speed of 0.5sec per rotation. Among our ultrasound diagnostic systems, full-color “Nemio” enjoyed ro- bust sales. Our many years of experience in Japan and overseas allows Toshiba to promote research and development projects with medical institutions N E T S A L E S (Billions of yen) O P E R A T I N G I N C O M E (Billions of yen) 968 975 955 16 14 9 '00 '01 '02 '00 '01 '02 of world renown. We will also use our global sales network to further develop our position in the world market for image diagnostic imaging equipment. The Technical Assistance Center was estab- lished in December 2001, integrating the functions of the medical service and engineering divisions to provide high value-added “preventive maintenance” of medical equipment using remote maintenance systems. Toshiba Elevator Corporation concluded a capi- tal tie-up with Kone Corporation of Finland in De- cember 2001, with which Toshiba has had a tech- nical alliance with since 1998. The capital tie-up reinforces this and is a step toward closer coop- erative relations in the overall elevator and esca- lator business. The world elevator and escalator market, including maintenance, is estimated to be wor th ¥3,000 billion (US$22,556 million) a year. Kone’s mechanical engineering capabilities, and firm roots in the European and U.S. markets, complements Toshiba Elevator Corporation’s high- speed and inver tor technologies and its presence in Asia. The par tnership will enhance our compe- tencies while reducing costs and improving ser- vice capabilities, enabling us to take our business to the global scale. 21 POWER SYSTEMS & SERVICES COMPANY With the worldwide trend toward deregulation, the market for electric power is becoming increas- ingly borderless. The Power Systems & Services Company is stepping up global operations in all aspects of its activities, including manufactur- ing, sales, R&D and services. In doing so, we call on the depth of experience the company has built up over the course of its long history and on the world-class technical capabilities we en- joy today. We are aggressively seeking new busi- ness opportunities for our services and energy solutions, so that we can continue our evolution from a leading Japanese company to a leading global company. Power Systems POWER SYSTEMS & SERVICES COMPANY President TOSHIYUKI OSHIMA The Power Systems segment recorded sales of ¥579.6 billion (US$4,358 million) in fiscal 2001, only 1% lower than for the year-earlier period. Although the squeeze on capital spending by Japanese power utilities continued to make itself felt, overseas busi- ness expanded significantly, especially in Nor th America. Operating income increased 54% from the previous year, to ¥26.8 billion (US$202 million), thanks to successful cost reduction measures and the yen depreciation. Among major projects completed in the domes- tic market were the installation of power generating equipment at Tokyo Electric Power Co. Inc.’s Shinagawa No. 1 Thermal Power Station and Tohoku Electric Power Co., Inc.’s Unit No. 1 of Higashidori Nuclear Power Station. We also constructed nuclear reactor facilities at Unit No. 3 of Tohoku Electric Power Co., Inc.’s Onagawa Nuclear Power Station and Unit No. 5 of Chubu Electric Power Co., Inc.’s Hamaoka Nuclear Power Station. Major overseas projects in- cluded thermal power generation facilities in plants in Nor th America and substation facilities in Abu Dhabi. In Japan, deregulation and a slump in elec- tricity demand continue to buffet the electric power Chubu Electric Power Co., Ltd.’s No. 5 Unit at Hamaoka Power Station, currently under con- struction, integrates Toshiba’s most advanced ABWR. (Picture: Installation of nuclear reactor vessel) Toshiba’s No.3 position in the 2001 global market for steam turbines has recently been strengthened by supply of equip- ment to many thermal power plants in Nor th America. N E T S A L E S (Billions of yen) O P E R A T I N G I N C O M E (Billions of yen) 27 571 583 580 17 9 22 '00 '01 '02 '00 '01 '02 industry market. Toshiba responded with measures to bolster global competitiveness. We strengthened our business systems and reorganized our over- seas bases for sales, manufacturing and ser vice provision. We also developed new technologies that assure we can respond quickly and appropriately to customer demands. One result of this is a posi- tive upward trend in overseas orders for power generating equipment that we will use as a basis for future expansion of overseas business. We consider China an impor tant growth mar- ket and continue to cultivate our presence there. We star ted fiscal 2001 with four manufacturing operations in China and entered fiscal year 2002 with six. A joint venture for the manufacture, sales and maintenance of gas-insulated switchgears for electric power facilities started full-scale operation in March 2002. A month later, a joint venture with the Electric Power Research Institute of China be- gan production of surge arresters. The addition of these new facilities positions us to supply most of the systems and equipment required for China’s transmission and distribution grid. In another move to reinforce global competi- tiveness, we entered into a March 2002 agree- ment with Mitsubishi Electric Corporation, under which we will integrate our distribution and trans- mission businesses in an equally-owned joint ven- ture that will start operation in October 2002. The new company will be the world’s third largest manu- facturer of distribution and transmission facilities, and will have the product development, manufac- turing, sales and marketing resources required to reinforce a leading presence in the world market. DIGITAL MEDIA NETWORK COMPANY President ATSUTOSHI NISHIDA Digital Media DIGITAL MEDIA NETWORK COMPANY The Digital Media Network Company product line- up embraces portable PCs, computer network equipment, storage devices, such as HDDs and ODDs, and visual instruments and mobile devices. At the concept and design stage, we fully ana- lyze the “voice of customers (VOC)” and use it to provide highly practical and original products and services. Based on differentiated innovative tech- nologies unique to Toshiba, we effectively lever- age our experience with portable PCs to create inspirational products, to propose new home lifestyles and new ways of working in office and mobile environments, and offer wireless system solutions that enrich the daily life of our customers. “DynaBook G series” por- table PCs offer the most ad- vanced CPU available, a 15- inch SuperView LCD and su- perb stereo sound: a rich feast of high quality audio and vivid visual images. N E T S A L E S (Billions of yen) O P E R A T I N G I N C O M E (Billions of yen) 1,435 1,486 1,469 46 18 '00 '01 '02 '00 '01 -15 '02 Although consolidated sales in the Digital Media seg- ment were only 1% lower than in the previous year, at ¥1,468.6 billion (US$ 11,042 million), there was an operating loss of ¥14.9 billion (US$ 112 million). Sales of HDDs, CD-R/RWs, DVD-ROM drives and other PC peripherals all recorded advances, as did sales of visual products, including DVD video play- ers. However, reduced spending on IT combined with intensive price competition to impact on sales of por- table PCs and overall segment results. The Digital Media Network Company is posi- tioned at the heart of digital convergence. Its mis- sion is as simple as it is essential: to develop inno- vative products that bring advances in wireless, im- aging, storage and other technologies to por table PCs, computer network equipment, PC peripherals and visual products and mobile equipment. A key part of its work is the creation of new products, yet unnamed products, that will change the way we do work and add to the way we enjoy life. Toward achiev- ing this, development of advanced digital products has been concentrated at Ome Operations in subur- ban Tokyo. In November 2001, Ome celebrated the opening of a new “Core Technology Center” and a “Digital Media Development Center.” They bring to- gether more than 3,000 researchers and engineers in an environment designed to encourage cross-fer- tilization of ideas. Fiscal 2001 saw the por table PC business weather a severe slump. Domestic shipments fell away by 10% from the previous fiscal year, to 0.9 million units, while overseas shipments tumbled 13%, to 2.35 million units. A sharp downturn in IT spend- 23 The “Digital Face Plasma 35P2700” is an all-in-one model with a 35-inch screen that fits into the same space as a conventional 21-inch TV. Combination HDD and DVD digital video recorders are g r o w i n g i n p o p u l a r i t y. Toshiba’s latest, the “RD-X2,” can store up to 35 hours of programming on an 80GB HDD and save selected pro- grams to a DVD-R. ing in the United States spurred intensive price com- petition as demand weakened, a reality that soon spread to Europe and beyond. Toshiba’s position in these severe conditions was not helped by delays in product launches. We took decisive measures to meet these challenges, and independent figures confirm that we regained the leading share in the world portable PC market in the first calendar quarter of 2002. We will seek to retain this by continuing to introduce differ- entiated products to the market ahead of our com- petitors, and by proactively pursuing regional strate- gies rooted in local wants and preferences. Our goals are a larger market share, accompanied by higher sales and profit. Broadband technologies and wireless solu- tions are finally ready for the main stage and we are ready to deploy them. Our strategy for the office is centered on wireless LAN technology; a completely seamless office environment equipped with portable PCs, tablet PCs, PDAs, mobile IPs and security tech- nologies. In the home, we have already launched “TransCube,” which stands at the heart of a versa- tile wireless environment supporting por table PCs and other equipment. Toshiba is an established technology and market leader in storage devices, and this was re- flected in significant sales growth in our newest prod- uct, the 1.8-inch HDD that is increasingly popular in smaller portable PCs, mobile MP3 players and PCI- card HDDs. Combination DVD-ROM and CD-R/RW drives, another product that we pioneered in the market, also recorded notable sales growth, particu- larly in slim models for incorporation in portable PCs. Our key magnetic drive over the last few years has been the 2.5-inch HDD. Constant innovation pushed data storage capacity to 60 gigabytes in fis- cal 2001, and earned the 2.5-inch drive new applica- tions in car navigation systems and digital home appliances. This latter area is particularly promising as digital convergence makes itself felt in the home. In the visual products business, Toshiba de- livers a complete range of products for the home: flat-screen TVs for analog and BS digital broadcasts, projection TVs, LCD data projectors and DVD players and recorders. Lower hardware prices and an ever-increas- ing selection of software products fueled rapid growth in demand for DVD players. However, price competi- tion has grown with demand and was par ticularly fierce in the North American market, which accounts for half of worldwide demand. This brought about a sharp decline in profit margins. The same combina- tion of lower prices and more software triggered a remarkable expansion in the Japanese market, which soared 200 percent from the previous year. VHS video and DVD players combined in a single unit attracted many customers. Demand for DVD recorders has also shown rapid growth, and the single-unit HDD/DVD-RAM, which we introduced ahead of our rivals, has been very popular. MOBILE COMMUNICATIONS COMPANY The Mobile Communications Company offers a wide range of products that allows everyone to access the network environment at the heart of today's broadband age. In the next generation cellular phone market we will support both major platforms, W-CDMA and cdma2000 1x. As we do so, we will promote our advantage in multimedia features such as moving pictures and GPS func- tions. In addition to the Japanese and the North American markets, we will penetrate the Euro- pean and Chinese markets. In the mobile products market, we have already launched the “GENIO e” PDA as well as wireless PDAs. We will further enhance our product lineup in this field in order to position Toshiba as an innovator and industry leader. 24 MOBILE COMMUNICATIONS COMPANY President TETSUYA MIZOGUCHI The future of cellular phones: The J-T07 (l.) and TT21 (r.) both have a CCD camera, the A3013T (c.) suppor ts GPS. All three employ a high-resolution low temperature polysilicon TFT LCD. Established in April 2001, the Mobile Com- munications Company has recorded solid results in sales of cellular phones for the domestic mar- ket. That was, however, undercut by the slowdown in the North American market. In the final result, shipments in fiscal 2001 declined 29% against the previous fiscal year, to 6.35 million units, while sales fell to ¥192.0 billion ($US 1,444 million), down 6%. Our eye is firmly fixed on the future and the unfolding promise of cellular communications. With this in mind, we entered into a technical partner- ship agreement with Mitsubishi Electric Corpora- tion in March 2002, under which we will develop third-generation (3G) cellular phones. Joint devel- opment work started in April 2002. Our immediate goal is to launch a series of cutting-edge products on the Japanese market that will maintain our high-profit structure. In addition, we will cultivate new markets by releasing i-mode terminals in Europe and CDMA terminals in China. In the North American market, we will bolster our product lineup and launch aggressive operations in our alliance with Audiovox Communications Cor- poration, to further increase CDMA market share and profits. iVALUE CREATION COMPANY Through provision of information services based on mobile and Internet communications, the iValue Creation Company is making progress in the three areas of web services for portal sites, content production and distribution, and ASP services. Drawing on all we have learned in the last two years, we will enhance existing services and expand our service competitiveness, and extend our business to reach clearly defined business sectors. Focusing on strategies relating to the mobile broadband Internet, an area promising rapid growth, we will strive to establish a network busi- ness that satisfies customer requirements in terms of quality, price and performance. iVALUE CREATION COMPANY President TSUTOMU KAWADA The iValue Creation Company is responsible for developing new information and content services, primarily for delivery via the Internet. Its most popu- lar portal, with over 500,000 cellular phone users subscribing for the pay service, is “Ekimae Tanken Club”, which provides information on entertainment and shopping around Japan’s railroad stations. The company’s other ventures include offering naviga- tion ser vices for owners of cellular phones equipped with a global positioning system (GPS) and operation of “Nippon Daihyo.com,” the offi- cial Web site of the Japan Football Association. iValue Creation also supports the business mar- ket as an Application Ser vice Provider (ASP), in- cluding information provision services and software licensing ser vices for overseas network service providers, especially in Asia. In October 2001, Business Travel Japan Inc., a wholly-owned Toshiba subsidiar y, star ted full-scale operation, offering system solutions for small- and medium-sized travel agents in the business travel market. 25 HOME APPLIANCES COMPANY The Home Appliances Company aims at being a “high-profit company with sustainable growth,” a core business that uses the Toshiba brand to appeal to consumers. Our main product areas cover refrigerators, washing machines, microwave ovens, and other household appliances. Based on pioneering technical capabilities—which sup- ported us in developing chlorofluorocarbon (CFC)-free refrigerators and DD inverter motors—we will cre- ate products that satisfy customers and so main- tain our position as a leader in market share in our domestic market. Overseas, we will seek to extend our business operations, particularly into China, other parts of Asia, and the Middle East. To ensure long-term profitability, we will continue efforts to introduce innovative products ahead of our competitors in the promising area of net- worked home appliances, dishwashers, induction heating (IH) cookers and 200-volt home appliances. Home Appliances HOME APPLIANCES COMPANY President TAKESHI NAGASAKA ronment, Japan’s aging population and declining birth- rate, and continue to develop products that can sup- port new lifestyles. We also expect this approach to help us to revamp our businesses and ensure stable profits. Although demand for refrigerators fell 18% year-on-year, sales of the “Hikari Plasma Senzo” se- ries were favorable. Launched in September 2001, one sales point of these refrigerators is a hundred- fold increase in the ability to decompose ethylene, which damages fresh vegetables. Sales were also healthy for the “Non-Freon Hikari Plasma Senzo” se- ries, the first environmentally friendly refrigerators offered by any Japanese manufacturer. Among washing machines, our “Kaisoku Ginga 21,” a fully automatic drum-type washing machine and dryer, enjoyed market success, thanks in part to a high rotational speed during spin-drying that gets clothes dr y faster. Another hit was “Aqua Bihaku,” which is equipped with an aquatic controller that in- Domestic demand for home appliances suffered a sharp drop, one anticipated in the aftermath of a sales spike in fiscal 2000, prior to the April 2001 enforcement of the Home Appliance Recycling Law. Consequently, consolidated sales in the Home Appli- ances segment decreased 4% against the previous fiscal year, to ¥680.7 billion (US$5,118 million), while operating income was down 38% to ¥11.4 billion (US$85 million). However, even in this tough environment there were positive signs. Efforts to differentiate Toshiba products from conventional home appliances proved successful, as our series of “Lifestyle Creation” prod- ucts won increased market shares in washing ma- chines, vacuum cleaners and microwave ovens. In this year and beyond, we will continue to address such social issues as energy conservation, the envi- N E T S A L E S (Billions of yen) O P E R A T I N G I N C O M E (Billions of yen) 660 708 681 18 11 5 '00 '01 '02 '00 '01 '02 With 200V of power, the fully automatic “Kaisoku Ginga 21” assures faster washing and dr ying cycles. DD inver ter mo- tors damp down noise and vi- bration. “Non-Fr eon Hikari Plasma Senzoko” refrigerators are the industry’s first to be free of CFC substitutes that are now seen as imposing burdens on the environment. 26 creases washing power while keeping the drum clean. As a result, we were able to register stronger overall sales of our washing machines. Among the innovative products we introduced in response to user needs are a garbage processor with greatly reduced odor that can be stored indoors, a speedy dishwasher and dryer, and an IH cooking heater with an LED display showing heat intensity. In Februar y 2002, we launched the “FEMINITY se- ries,” the first BluetoothTM-based wireless network for home appliances. Controlled by a portable PC, it really brings the advantages of the IT revolution in the home and points the way to the lifestyle of to- morrow. Products in the series, including a refrigera- tor and a microwave oven, have been on the market since April. Since June 2001, we have developed a stra- tegic alliance with Sweden’s AB Electrolux. One as- pect of this has been our selection, sales and ser- vice of products that we think suit the Japanese lifestyle. Marketed under the brand name “Electrolux by TOSHIBA,” these products are enjoying increas- ing popularity. We see potential for positive growth overseas, especially in Asia. With that in mind, we established Toshiba Vietnam Home Appliances Co., Ltd. and forged technical alliances with major home- appliance manufacturers in China. These initiatives represent reinforcement of an Asian strategy that we are sure will produce growth in coming years. SEMICONDUCTOR COMPANY The Semiconductor Company offers a broad array of products such as discrete devices, bi- polar ICs and memories, including NAND flash memories, with a particular emphasis on sys- tem-on-chip (SoC) solutions in which total sys- tems are realized on a single silicon chip. With these products, we are accelerating a rapid shift to our new Integrated Device Manufacturer (IDM) model, where different groups of products are linked to create an operating synergy that ad- vances our overall business. We make maximum use of the most advanced semiconductor tech- nologies and offer total system solutions, includ- ing software support, to promote technical in- novation and the development of all kinds of electronic equipment for the broadband age. SEMICONDUCTOR COMPANY President TAKESHI NAKAGAWA Electronic Devices & Components N E T S A L E S (Billions of yen) 1,551 1,373 O P E R A T I N G I N C O M E (Billions of yen) 116 1,075 –24 '00 '01 '02 '00 '01 –176 '02 The collapse of the IT market in the second half of fiscal 2000 continued to echo throughout the fiscal 2001, with no sign of the recovery widely ex- pected to emerge in the third calendar quar ter of 2001. As demand for semiconductors remained ane- mic, suffering an unprecedented year-on-year decline of 32%, Toshiba saw dramatic declines in demand for discrete devices, memories and system LSIs. Sales of LCDs failed to reach forecasts, despite a slight recovery in demand for displays for portable PCs, monitors and cellular phones in the fiscal sec- ond half. Consolidated sales for the segment 27 decreased 31% from the previous fiscal year, to ¥1,074.8 billion (US$8,082 million), and Toshiba posted an operating loss of ¥176.3 billion (US$1,325 million). Sales of the Semiconductor Company de- creased 34% from the previous fiscal year, to ¥725 billion (US$5,451 million), with an operating loss of ¥122 billion (US$917 million) that reflected the de- clines in sales volumes and fall in prices of commod- ity DRAMs. As the shape of the year became clearer, the Semiconductor Company responded with vigorous and wide-ranging reforms implemented as a part of the Toshiba Group’s 01 Action Plan. Steps taken by the company included withdrawal from the commod- ity DRAM business, the unification and shuttering of domestic production lines and accelerated person- nel reductions. As a result, the semiconductor busi- ness is now capable of generating a profit even if sales remain at the ¥700 billion level recorded in fiscal 2001. Even with the withdrawal and other measures taken under the 01 Action Plan, the Semiconductor Company expects to retain a position within the industr y’s top three, and to do so confident of its positioning as an Integrated Device Manufacturer (IDM). Put more specifically, Toshiba will now con- centrate on three product areas: discrete devices, where we are the world No. 1; memories, particu- larly NAND flash memories, which we invented and where we lead the world; and SoC that will pave the way for our advance into the digital consumer and mobile and broadband network markets. A substantial slide in sales of discrete Discretes: devices was inevitable in fiscal 2001, given overall market conditions. Even so, gallium nitride-based LEDs, four-element LEDs, red visible laser diodes (VLDs) and other optical devices sold well. We will fully leverage our advantages in small packages and a broad product lineup for small signal and power devices to encourage their application in cellular phones, PC peripherals, PDAs, and a range of other products. We will also aggressively promote VLDs for DVD pickups, high luminosity LEDs for cellular phones, and other optical devices. Through these efforts, we are confident of remaining the world's leading manufacturer and supplier of discrete devices. Memories: Toshiba has long been recognized for its technological and manufacturing prowess in com- modity DRAMs. However, while a strong source of sales during times of rising demand, the commodity DRAM business is extremely volatile and feast is more often than not followed by famine—and damage to the bottom line. The Semiconductor Company looked long and hard at the business in light of TVC and decided on a complete exit, including the sale of its U.S. memor y manufacturing base, Dominion Semi- conductor, L.L.C., to Micron Technology, Inc. Need- less to say, we will maintain the leading-edge DRAM technologies needed for DRAM-embedded SoC. Demand for high-density NAND flash memo- ries for digital audio equipment did not produce the growth we expected. However, demand for applica- tion in digital still cameras did begin to rise in early 2002. We will continue to concentrate our energies on NAND flash memories, as we expect demand for application in cellular phones and as a replacement for HDDs to produce a surge in sales in the near future. We are confident of success in the NAND area. Toshiba invented the product and owns key IP that will prevent commoditization. We will also use the potential of flash memories to the full by promoting sales of multi-chip packages (MCPs) for cellular phones. These devices mount NAND and NOR flash memories with SRAMs. Highlight: • December 2001: Agreement to transfer low-power consumption SRAM process technology to China's Semiconductor Manufacturing International Corp. System LSIs: Difficult market condition also under- mined our forecasts for sales of system LSIs. We did see favorable moves in the fiscal second half in CPUs for digital consumer products, LCD drivers and bipolar ICs for audio and visual products, and power supply ICs for automotive systems and TX Reduced Instruc- tion Set Computer (RISC) processors both proved to be hit products. Our focus from now on will be on embedded memory/analog SoC products. Some spe- cific examples include SoC for digital consumer equip- ment, wiress systems, intelligent office and automo- tive systems—all of which are expected to see very positive demand growth in the near future. In the course of the year, Toshiba took initia- tives to promote technology advances that will help the Semiconductor Company stand out among sys- tem solutions providers and further bolster competi- tiveness in system LSIs. Highlights: • May 2001: Agreement on joint development with Sony Corporation of leading-edge 0.1µm and 0.07µm process and design technologies for system LSIs. The two companies shared a recognition of the need to reduce power consumption and to achieve high per- formance process and device technologies. • October 2001: Agreement on joint development with Canon Inc. of Silicon-on-Insulator (SOI) wafers required for high-performance system LSIs. • Februar y 2002: Agreement on joint development with MIPS Technologies, Inc. on the next- generation high performance RISC processor core, the TX99 series. Toshiba participates in core devel- Toshiba’s industr y-defining par tnership in NAND flash memories with SanDisk Corpo- ration saw joint introduction of the world’s first commercial 1- Gbit NAND flash memor y chip. The highly advanced Media- embedded Processor (MeP) suppor ts a high degree of customization across diverse applications. Toshiba’s new mass production technology using copper wiring achieves fur ther miniaturiza- tion and faster operation of SoC. 28 opment and seeks the early launch of the highest- performance microprocessors in the industry, with operating frequencies of above 1GHz. • February 2002: Successful design of LSI circuits using “X Architecture,” the world’s first design tech- nique that allows LSIs to be wired diagonally as well as horizontally and vertically. Jointly developed with Simplex Solutions, Inc. of the U.S., this new design method achieves LSIs capable of operating 20% faster than their conventionally wired counterparts, while having a 10% smaller layout area. DISPLAY DEVICES & COMPONENTS COMPANY The Display Devices & Components (DDC) Com- pany produces a lineup of products that bring cutting-edge technologies to meet customer needs. To maintain our position at the forefront of technological innovation, we integrated our LCD business with that of Matsushita Electric Indus- trial Co., Ltd. in Toshiba Matsushita Display Tech- nologies Co., Ltd. in April 2002. This new com- pany will optimize the resources obtained from both parents to develop into a leading global com- pany. The DDC Company will continue to market appealing products as a company providing key technologies that support the digital and mobile age. Products under development and poised to make a difference include fuel cells for mobile terminals and surface-conduction electron-emit- ter displays (SEDs), which we are currently de- veloping with Canon Inc. We see SED technology as a major force in the next-generation large- screen displays. DISPLAY DEVICES & COMPONENTS COMPANY President EISABURO HAMANO The 17-inch organic light emit- ting display (OLED) developed by Toshiba Matsushita Display Technology is scheduled for mass production in calendar 2003. OLED will first find a mar- ket in small- and medium-sized displays. Price erosion in amorphous silicon TFT LCDs for portable PCs and displays made itself felt until the end of 2001. Sales prices also fell in small-sized dis- plays for cellular phones, as inventory levels remained high in Japan and many new suppliers entered the market. As a result, Toshiba’s sales declined to ¥125 billion (US$940 million), 17% down year-on-year. However, Toshiba is moving away from reli- ance on amorphous silicon TFTs, and is the clear technology and market leader in low-temperature polysilicon (LTPS) TFT LCDs. These offer richer satu- ration, higher resolution and faster refresh times than amorphous silicon TFT LCDs, and are better suited to display of video images on cellular phones and portable PCs and PDAs. They are also an essential stepping stone to next generation organic light emit- ting displays (OLEDs). Toshiba reinforced its posi- tion in LTPS TFTs with the June 2001 start of produc- tion of small-sized LCDs for cellular phone applica- tions at Fukaya Operations, in Saitama, Japan, and the October 2001 launch of a second line for larger displays there. The company expects to see strong demand for all its LTPS TFT products. Fiscal 2001 saw us initiate a series of struc- tural changes that will promote the continued growth and prosperity of our LCD business. In August, we ended our joint venture with IBM Corporation, Dis- play Technologies Inc. (DTI). One of the longest lived and most successful JVs in the industr y, DTI pio- neered development and manufacturing of amor- phous silicon TFTs, and brought great benefits to both par tners. The decision to wind down the company was mutually agreed and reflected the strategic di- vergence of its parents. DTI’s Himeji Operations’ small- and medium-sized TFT lines in Hyogo, Japan, became a wholly-owned Toshiba subsidiary, TFPD Co., Ltd. A more extensive restructuring was initiated in October 2001, when Toshiba and Matsushita Elec- tric Industrial Co., Ltd. agreed to merge all aspects of their TFT businesses—from development through sales and marketing—into a new joint venture. This was brought to fruition in April 2002, when Toshiba Matsushita Display Technology Co., Ltd. (TMDT) star ted operation. The company will be a forceful presence in the global LCD market, and will reinforce 29 its leadership in LTPS TFT LCDs in August 2002 when it opens a new factory in Singapore, AFPD Pte., Ltd. This will be the world's largest LTPS TFT manufactur- ing facility, with a monthly capacity of 55,000 720 x 920mm glass substrates by the end of fiscal 2003. TMDT’s initial targets are to consolidate and improve on its position as the world's No. 3 supplier of LCDs and to achieve profit from fiscal 2003 on. To do this, it will direct its attentions to three major areas of LCD applications—portable PCs and displays, TVs, and cellular phones and PDAs—using its capa- bilities to reinforce ties with present customers and to expand its customer base. The company anticipates particular growth in small- and medium-sized TFTs for cellular phones, PDAs, car navigation systems and entertainment products. A key concern in the cathode ray tube (CRT) business was to reinforce cost competitiveness. In this connection, production of CRTs for monitors was shifted from Japan to Thailand. In procurement, Toshiba and Matsushita Electric Industrial Co., Ltd. agreed to establish MT Display Procurement Co., Ltd., a joint venture to purchase parts and materi- als for the respective operations of its parent com- panies throughout the world. The company started operation in April 2002. In January 2002, Toshiba sold its Sur face Acoustic Wave (SAW) filter business to Fujitsu Media Devices Limited. Others N E T S A L E S (Billions of yen) 477 468 426 O P E R A T I N G I N C O M E (Billions of yen) 27 27 15 '00 '01 '02 '00 '01 '02 This segment’s primary revenue streams are leas- ing and other financial services, real estate opera- tions, including leasing and sales, and logistics op- erations. Consolidated net sales for fiscal 2001 decreased 9% to ¥426.4 billion (US$3,206 million), and operating income was ¥15.3 billion (US$115 million), down 44% year-on-year. In financing ser- vices, we are vigorously reducing debts through securitization. Research and Development The Corporate R&D Center regards itself as responsible for the Toshiba Group’s future, in the sense that it has the singular mission of creating growth and profit drivers for the entire Group. In addition to this basic and explorator y work the R&D Center also engages in research and development that contributes to the Group’s current businesses. To date, the R&D center has focused most of its effor ts on three areas: IT, materials and devices, and production technologies. To gear itself for the 21st centur y, the R&D Center has adopted six- sigma-based Management Innovation methodology in all aspects of its work. One example of what this means can be seen in the October 2001 establishment of a company-wide BluetoothTM project that provides a suppor t framework for all aspects of BluetoothTM-related research. We plan to push ahead with similar research projects through other initiatives with group companies. 30 Some Recent Research Projects 1. A BluetoothTM-based ubiquitous headset There is a lot of talk about ubiquitous computing—the fact that the future will see computing and communications adding to ev- er y aspect of life. Toshiba is contributing to this with its ubiqui- tous headset for next-generation communications. It makes pos- sible voice control of equipment and high-quality audio input and output in a hands-free, wireless environment. The headset suppor ts wireless communications based on BluetoothTM and voice recognition technology. 2. Multilingual voice recognition system Toshiba has developed a multilingual voice recognition system that can recognize different languages simply by replacing the language database. Currently, the system works with Japanese, American English, British English, French, German, Spanish, Italian, Dutch and Mandarin. With a compact design and high-speed operating capabilities, the system can be applied to car navigation systems, cellular phones and other equipment with limited CPU per formance and memor y size. Other aspects of the system’s versatility are a high level of resistance to noise, which can degrade voice recogni- tion, and a recognition algorithm that guarantees a wide array of practical applications. The development of simple, versatile recognition of various languages will bring voice recogni- tion to home appliances, PDAs and other mobile equipment and allow users to choose different languages at different times. Toshiba is working on early development of high-per formance, multi- functional, multilingual voice recognition systems at R&D centers in Japan, China and Europe. 3. Digital printer with simultaneous four-color transfer The R&D Center and Toshiba Machine Co., Ltd. have developed an offset printing method that trans- fers toner to paper without generating an electric field, thus enabling color printing of high-image quality onto standard plain paper, thick paper, rough paper and cloth, as well as metal plates. “image-on-image color processing” allows colors to be overlaid and developed on a photosensitive material and then immediately transferred onto paper, realizing rapid output of high-quality color images without color displacement. 4. Multi-layer interconnection technology using nanotechnology New wiring technology enables low-cost production of wiring boards with fine-pitch, multi-layer inter- connections. The technology features inter-layer connections with fine three-dimensional wiring, formed on a porous substrate with nanascopic holes using photo-induced selective plating. Filling the de- sired areas on the substrate with metal forms wires to run through the vias on the board. If insulat- ing material is used instead, an insulating layer is formed. Using only a simple process of exposure and plating, the wiring technology enables successful formation of vias only 15µm in diameter— world-leading accuracy. The wiring technology also enables simultaneous formation of wires and vias, a process that eliminates dislocation between wires and vias, thereby improving yield. 5. Development of a small fuel cell for portable equipment Toshiba has been conducting R&D into small-sized direct methanol fuel cells (DMFCs) for mobile equipment, and achieved enhanced cell per formance with newly developed materials. Required peripheral equipment and electric driver circuits mounted with the cells have also been developed, and a prototype for Toshiba’s PDA has been completed. The DMFC features a maximum 8W output and continuous display for 40 hours with ten cubic centimeters of fuel—about five times longer than the secondar y lithium-ion batteries in wide use today. We are now working to raise output and make the fuel cell even smaller, in readiness for the star t of mass production in 2003. 31 Toward Sustainable Development Toshiba Group appreciates that all its products bring with them environmental impacts. Guided by the Group slogan, “Committed to People, Committed to the Future, TOSHIBA,” Toshiba is dedicated to minimizing such impacts and maximizing environmental awareness and concerns in all aspects of our business. We will promote technological innovations and awareness as we work toward sustain- able development. That means encouraging environmental consciousness and making full and effec- tive use of the minimum possible resources. Turning to par ticulars, we will continue our effor ts to reduce energy consumption, promote a positive commitment to environmental protection and take leadership in establishing a recycling-based society. In fiscal 2001, we launched our “Third Voluntar y Environmental Plan,” which sets corporate targets for the period to fiscal 2005. Strengthening Environment-related Communications We believe it is essential to communicate Toshiba Group’s environment-related work. We issue an- nual environmental repor ts, and The Toshiba Environmental Repor t 2002 details the actual environ- mental impacts of our activities on a site-by-site basis, quantifying the costs and effects of environ- mental protection. We seek to account for the costs of environmental measures by considering four areas: real benefit, deemed benefit, customer benefit and risk aversion benefit. In addition to this, we welcome the general public to our environmental exhibitions. The most recent, the 11th Toshiba Environment Technology Exhibition, was held in Februar y 2002. Targets of the Third Voluntary Environmental Plan and First Year Results Initiated in fiscal 2001, the Third Voluntar y Environmental Plan promotes eight targets for fiscal 2005. These include the attainment of zero waste emission and the creation of environmentally conscious products through such measures as adoption of lead-free solder. We recorded satisfac- tor y progress in the first year of the plan. Efforts to Prevent Global Warming Heightened energy efficiency is central to all of our development activities. This approach also ex- tends to energy conser vation at our facilities and moves to prevent global warming through dedicated effor ts to reduce CO2 release. With that in mind, we have set ourselves the target of reducing “CO2 releases to net sales” by 25% in fiscal 2010, with fiscal 1990 as our benchmark. Reducing the Environmental Impacts from Production to Recycling Toshiba is a manufacturer, and we believe that means we should make utmost effor ts to reduce environmental impacts in all product processes, from manufacturing to use and through to reuse. We are also committed to maximizing recycling. The following par ts of this section looks at some of our effor ts. Zero Emission of Waste The volume of waste generated by Toshiba Group in fiscal 2001 totaled 180,000 tons, a 20,000-ton decrease against fiscal 2000. We are pleased to record that 94% of this was recycled. However, our ultimate target is “zero emission” of waste, which means that waste undergoing final disposal to landfill must be less than 1% of the total waste emitted. We expect to reach that under the Third Voluntar y Environmental Plan, by fiscal 2003. 32 Creation and Promotion of Environmentally Conscious Products Toshiba Group’s fundamental concern in manufacturing is the creation of environmentally conscious products (ECPs) that impose fewer environmental impacts. We focus on environmentally conscious design, life cycle assessment and environmental labels. One way we reinforce this is with our own Ear th Protection Mark: this can be displayed on products meeting our 20-plus criteria for environ- mentally conscious products. Our design process seeks to promote the use of lead-free solder—by fiscal 2001 it was used in 18 products including washing machines and por table PCs, and it will be found in all Toshiba products by fiscal 2003. In December 2000, our por table PCs became the first in their product categor y to receive Germany’s “Blue Angel RAL-UZ 93” cer tification. This was wel- come recognition of our outstanding eco-friendly products from one of the world’s major environmen- tal labeling standards. Recycling End-of-Life Products Recycling is another essential aspect of our activities, and we promote development of recycling schemes to stand alongside the Group-wide recycling system we are developing. In fiscal 2001, Japan introduced a recycling law requiring manufacturers to take back four kinds of products at the end of their life: TVs, refrigerators, washing machines and air-conditioners. In that first year, we collected a total of 1,350,000 units. We also set up recycling centers to collect and recycle PCs from companies in ten major cities across the countr y. Toshiba’s Standards of Conduct A central tenet of the Toshiba Group’s approach to management is that we not only obser ve the laws of the countries and regions in which we do business but also respect their social mores and ethics and seek to contribute to society. To clarify what this means in practice, we published our Standards of Conduct in 1990. They establish a clear, shared code of conduct for Toshiba Group management and employees, wherever in the world they may be. Full compliance with legal, social, ethical stan- dards, and strict adherence to these standards of conduct constitute the core of our risk manage- ment strategy and provide essential conditions for Toshiba’s continued growth and success as a global enterprise. Activities for Local Communities Toshiba Group companies are active in contributing to the societies in which they operate, as can be seen in suppor t for educational programs and philanthropic and voluntar y activities. Toshiba Science Museum in Kawasaki, Japan, is a showcase for our advanced technologies and a place where kids can enjoy interactive exhibitions and experiments that stimulate their interest in science. That same concern explains why we suppor t science competitions in Nor th America, the U.K. and China. Other cultural and educational programs are supported by our three charitable foun- dations, two overseas and one in Japan, the Toshiba International Foundation. In Japan, Toshiba employees are active in their local communities. We promote a volunteering spirit among employees by providing volunteer recruitment information and other information related to voluntar y activities. We also offer financial suppor t to volunteer organizations in which our employ- ees par ticipate. One example is our provision of financial assistance to a Japanese organization working for physically-challenged children. In the aftermath of the September 11 attacks in the United States, employees of 109 group companies offered suppor t to a victims aid fund. For more information on Toshiba Group environmental activities and social contributions, please visit our web sites at: Environment Citizenship http://www.toshiba.co.jp/env/english/index.htm http://www.toshiba.co.jp/worldwide/about/philanthropy.html 33 Board of Directors, Executive Officers and Statutory Auditors BOARD OF DIRECTORS Taizo Nishimuro* Director Chairman of the Board Tadashi Okamura* Director President and Chief Executive Officer Kiyoaki Shimagami* Director Yasuo Morimoto* Director Tetsuya Mizoguchi Director Takeshi Iida Director Makoto Nakagawa Director Tadashi Matsumoto Director Kosaku Inaba Director Sakutaro Tanino Director Yasuhiko Torii Director *Representative Director EXECUTIVE OFFICERS STATUTORY AUDITORS Corporate Kiyoaki Shimagami Senior Executive Vice President Yasuo Morimoto Senior Executive Vice President Tetsuya Mizoguchi Executive Vice President Takeshi Iida Executive Vice President Makoto Nakagawa Executive Vice President Yuji Kiyokawa Senior Vice President Tadashi Matsumoto Senior Vice President Masaki Matsuhashi Senior Vice President Toshitake Takagi Vice President Sadazumi Ryu Vice President Toshio Yonezawa Vice President Makoto Azuma Vice President Yoshiaki Sato Vice President Shunsuke Kobayashi Vice President Company Shinsuke Kawamura Vice President Tsuyoshi Kimura Senior Vice President Tsutomu Miyamoto Vice President Atsutoshi Nishida Senior Vice President Ginzo Yamazaki Vice President Yoshihiro Nitta Vice President Toshiyuki Oshima Senior Vice President Masao Niwano Vice President Takeshi Nakagawa Senior Vice President Susumu Kohyama Senior Vice President Shigeo Koguchi Vice President Katsuji Fujita Vice President Eisaburo Hamano Vice President Masamichi Katsurada Vice President Akinobu Kasami Susumu Terao Shunsaku Hashimoto Eiichi Kakei (As of June 26, 2002) 34 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 35 Management’s Discussion and 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 income (loss) Per share of common stock: Net income (loss) —Basic —Diluted Cash dividends Total assets Shareholders’ equity Capital expenditures (property, plant and equipment) Depreciation R&D Expenditures Number of employees Millions of yen, except per share amounts 2002 2001 2000 1999 1998 ¥5,394,033 4,070,130 1,437,478 (113,575) ¥5,951,357 4,323,525 1,395,699 232,133 ¥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 (376,687) (113,915) (254,017) 188,099 96,145 96,168 (44,844) (4,530) (32,903) 11,218 20,901 (9,095) 18,748 17,313 14,723 ¥(78.91) (78.91) — ¥5,407,782 705,314 ¥29.88 29.71 10.00 ¥5,724,564 1,047,925 ¥(10.22) (10.22) 3.00 ¥5,780,006 1,060,099 ¥(2.83) (2.83) 6.00 ¥6,101,929 1,128,753 ¥4.57 4.57 10.00 ¥6,166,323 1,305,946 348,235 311,208 326,170 176,398 269,545 308,294 327,915 188,042 298,512 329,630 334,398 190,870 375,464 309,836 316,703 198,000 339,584 291,418 322,928 186,000 Note: 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. RESULTS OF OPERATIONS NET SALES Consolidated net sales in fiscal 2001, ended March 31, 2002, declined 9% from the previous fiscal year, to ¥5,394.0 billion (US$40,557 million). This decline was influenced by a steep drop in demand for electronic devices, mainly for DRAMs and other semiconductors, resulting from the global IT slowdown. Moreover, sales of equipment to pub- lic utilities and industry and of digital information products, including PCs, fell short of targets, as IT-related investment was postponed and sales prices declined. In terms of average exchange rates, the yen dropped by ¥17 against the U.S. dollar from ¥109 to ¥126, which increased sales by about ¥220.0 billion. Consolidated figures include the results of 206 domestic subsidiaries and 123 overseas. By region, sales in Japan decreased by 11%, to ¥3,340.5 billion (US$25,116 million). Overseas sales were down 7% from the previous fiscal year, to ¥2,053.5 billion (US$15,440 million), and accounted for 38% of net sales, up from 37% in the previous fiscal year. Overseas production rose 1%, from ¥1,040.0 billion to ¥1,050.0 billion (US$7,895 million). Information & Communications Systems—Sales decreased 2% from the previous fiscal year, to ¥956.7 billion (US$7,193 million). This decline reflected the absence of sales of BS digital broadcasting equipment that was record- ed in the previous year as well as decreases in sales of optical submarine systems, railway station service systems, and postal-service equipment that resulted from curtailments in capital investment. In addition, such factors as a con- tinued downtrend in sales prices led to a steep fall in income. Overseas sales rose 3% from the previous fiscal year, to ¥237.2 billion (US$1,783 million), owing to firm sales in electronic imaging business. Social Infrastructure Systems—Sales decreased 2% from the previous fiscal year, to ¥955.3 billion (US$7,183 mil- lion). Sales declined owing to decreases in public- and private-sector capital investment. However, sales of medical systems increased from the previous fiscal year, due to the introduction of new products. Overseas sales increased 9% from the previous year, to ¥176.0 billion (US$1,324 million). Power Systems—Sales decreased 1%, to ¥579.6 billion (US$4,358 million). The overall decline in sales, which is attributable to the effects of restraints in capital investment by domestic power companies. While sales for thermal power generating devices for overseas increased, and overseas sales in power systems soared 64%, from ¥73.1 bil- lion, to ¥119.6 billion (US$899 million). Digital Media—Sales decreased 1%, to ¥1,468.6 billion (US$11,042 million). This decrease in sales was due to lower sales of PCs in Japan and overseas, underscoring the effects of curbs in IT investments resulting from economic slow- downs as well as price reductions. It was also caused by a decline in sales of cellular phones in North America owing to stagnation of market demand. On the other hand, growth in sales of such PC peripheral equipment as DVD-ROMs and CD-R/RWs, together with higher sales in North America, mainly televisions, enabled sales in this segment to be maintained at the same level as the previous year, at ¥971.0 billion (US$7,301 million). Home Appliances—Sales decreased 4% from the previous fiscal year, to ¥680.7 billion (US$5,118 million). This is based on a shrinking of the market which resulted from a decline in consumer spending and a falloff in demand after a one-time surge in demand at the end of the previous year prior to the implementation of the Law for Recycling of 35 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 36 Specified Kinds of Home Appliances, despite sturdy performances that included principal products increasing mar- ket share. Overseas sales soared 13%, to ¥45.2 billion (US$340 million). Electronic Devices & Components—Sales decreased 31%, to ¥1,074.8 billion (US$8,082 million). Despite a slow recovery in demand for semiconductors, the sales of IT-related products, mainly such semiconductors as DRAMs, declined sharply because of the global IT slump. Sales of semiconductors declined ¥375.0 billion from the previous fiscal year, owing to drops in memory prices. And LCD sales decreased owing to a decrease in demand for digital-related devices. Overseas sales declined 35%, to ¥442.3 billion (US$3,325 million). Others—Sales decreased 9% from the previous fiscal year, to ¥426.4 billion (US$3,206 million), due to a large drop in sales by Shibaura Mechatronics Corporation and Toshiba Chemical Corporation. NET SALES BY REGION Year ended March 31 Japan North America Asia Europe Other Net sales Millions of yen 2002 2001 2000 ¥3,340,491 825,902 659,820 453,093 114,727 ¥5,394,033 ¥3,753,052 828,671 728,969 519,186 121,479 ¥5,951,357 ¥3,514,068 906,165 636,317 546,645 146,177 ¥5,749,372 Note: Net sales by region are determined based upon the location of the customers. Therefore, this information is different from the net sales for geographic segments in segment information on page 39, which are determined based upon where the sales originated. Japan—Domestic sales amounted to ¥3,340.5 billion (US$25,116 million) amid a difficult operating environment resulting from sluggish economic conditions throughout the fiscal year and continued weakness in personal consumption. Sales declined sharply as a result of a deterioration of IT-related demand accompanied by a worse- than-expected fall in demand for electronic devices. Other factors undermining performance included lower sales in information and communications systems caused by curtailments in capital investment as well as a decrease in home appliance sales due to a natural falloff in demand following a temporary upsurge prior to the implementation of the Law for Recycling of Specified Kinds of Home Appliances. North America—With the worsening business results of companies in the United States and a severe downturn in the U.S. market in the wake of the terrorist attacks, sales amounted to ¥825.9 billion (US$6,210 million), virtually the same as in the previous year. Although sales of semiconductors, cellular phones, and PCs were down from the previous year owing to the adverse effects of the slump in IT, sales were maintained at the same level in the previous year thanks to favorable performances by thermal power generating devices, steam turbines and visual equipment. Asia—The slowdown in IT in Asia resulted in lower sales of semiconductors and CRTs. Despite higher sales of PC devices and electric power equipment, overall sales in Asia declined 9%, to ¥659.8 billion (US$4,961 million). Europe—Sales decreased 13% in Europe from the previous year, to ¥453.1 billion (US$3,407 million) due to the mar- ket recession and a steep decrease in sales of semiconductors and PCs. Along with the large decrease in net sales, gross profit shrank 19% from the previous fiscal year, to ¥1,323.9 billion (US$9,954 million). Selling, general and administrative expenses rose ¥41.8 billion, to ¥1,437.5 billion (US$10,808 million), due principally to the effects of exchange rates and expenses from an increase in newly con- solidated companies. Toshiba posted a ¥113.6 billion (US$854 million) operating loss, a ¥345.7 billion drop compared with the previous fiscal year. This reflected a decrease in sales resulting from falling sales prices and decrease in sales volumes, which exceeded a 9.5% reduction in procurement costs equivalent and reductions in personnel, depreciation, and other fixed costs. By segment, operating income in Information & Communications Systems declined 59%, to ¥9.7 billion (US$73 mil- lion). This decrease resulted from lower sales to public and private-sector markets amid curbs in capital investment as well as the sharp downtrend in sales prices. Operating income in Social Infrastructure Systems expanded ¥4.3 billion, to ¥13.6 billion (US$102 million). Despite lower operating income in social infrastructure systems resulting from cutbacks in public and private-sector investment, favorable performance of medical equipment buoyed by the introduction of new products and the imple- mentation of new measures to improve costs as well as higher income in the elevator business supported overall growth in operating income in this segment. Although sales remained at approximately the same level as in the previous fiscal year, Power Systems posted a 54% surge in operating income, to ¥26.8 billion (US$202 million). This increase was underpinned by cost reductions as well as the effects of the weakening of the yen. Digital Media reported an operating loss of ¥14.9 billion (US$112 million), a ¥32.9 billion difference from operating income recorded in the previous fiscal year. Despite a favorable performance by optical disk-related products, the sharp declines in sales prices for PCs in Japan and overseas conspired with lower sales volumes for PCs to outpace reduc- tions in procurement costs, leading to the operating loss in this segment. In Home Appliances, operating income shrank 38%, to ¥11.4 billion (US$85 million), mirroring a decline in sales NET INCOME 36 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 37 resulting from a shrinking of the market. Electronic Devices & Components recorded a ¥176.3 billion (US$1,325 million) operating loss, attributable to plum- meting sales prices, beginning with those for memories that resulted from the global slump in IT, as well as worsening market conditions such as waning demand for LCDs and other devices. Operating income in Others declined 44%, to ¥15.3 billion (US$115 million), owing to deteriorating performances by Shibaura Mechatronics Corporation and Toshiba Chemical Corporation. The net effect of foreign exchange movements during the fiscal year was a ¥31.0 billion increase in operating income. This consisted of a ¥220.0 billion increase in net sales and a ¥189.0 billion rise in procurement costs, including for the purchase of components. The company posted a non-operating loss of ¥263.1 billion (US$1,978 million), ¥219.1 billion lower than in the previous fiscal year. This non-operating loss is attributable to non-operating expenses of ¥208.9 billion (US$1,571 million), consisting of ¥111.3 billion (US$837 million) in restructuring charges that included the withdrawal from the DRAM business, ¥97.6 billion (US$734 million) with respect to additional termination benefits for voluntary early retirement of employees and the absence of a gain from the contribution of marketable securities to employee retirement benefit trusts that was recorded in the previous fiscal year. The company recorded a ¥7.7 bil- lion improvement in its net financial expenses, to ¥15.2 billion (US$114 million), from ¥22.9 billion (US$172 mil- lion) in net expenses in the previous fiscal year, due to a large decline in interest expenses, which exceeded a decrease in interest and dividend income received. As a result, loss before income taxes, minority interest and equity in earnings of affiliates amounted to ¥376.7 bil- lion (US$2,832 million), a change of ¥564.8 billion from ¥188.1 billion in income before income recorded in the pre- vious year. SEGMENT INFORMATION The following segment information is based on Japanese accounting standards. Along with a review of internal man- agement jurisdictions made in April 2001, Toshiba has reclassified its former Information & Communications and Industrial Systems into Information & Communications Systems and Social Infrastructure Systems as well as reviewed a portion of its business classifications in Digital Media and Others. Consolidated financial data for previous years have been reclassified to conform with the current segments. INDUSTRY SEGMENTS Year ended March 31 Net sales: Information & Communications Systems Unaffiliated customers Intersegment Total Social Infrastructure Systems Unaffiliated customers Intersegment Total Power Systems Unaffiliated customers Intersegment Total Digital Media Unaffiliated customers Intersegment Total Home Appliances Unaffiliated customers Intersegment Total Electronic Devices & Components Unaffiliated customers Intersegment Total Others Unaffiliated customers Intersegment Total Eliminations Consolidated Millions of yen 2002 2001 2000 Thousands of U.S. dollars 2002 ¥ 784,071 172,643 956,714 ¥ 800,941 171,048 971,989 ¥ 797,279 188,474 985,753 $ 5,895,271 1,298,067 7,193,338 890,718 64,632 955,350 565,973 13,587 579,560 925,351 49,787 975,138 568,244 14,423 582,667 918,350 49,410 967,760 553,322 17,359 570,681 1,405,328 63,271 1,468,599 1,398,161 88,242 1,486,403 1,361,191 73,367 1,434,558 656,905 23,777 680,682 676,820 31,497 708,317 636,054 23,840 659,894 905,178 169,674 1,074,852 1,332,711 218,640 1,551,351 1,204,047 169,204 1,373,251 6,697,128 485,955 7,183,083 4,255,436 102,158 4,357,594 10,566,376 475,722 11,042,098 4,939,135 178,775 5,117,910 6,805,850 1,275,744 8,081,594 185,860 240,511 426,371 (748,095) ¥ 5,394,033 249,129 219,143 468,272 (792,780) ¥ 5,951,357 279,129 197,871 477,000 (719,525) ¥ 5,749,372 1,397,444 1,808,353 3,205,797 (5,624,775) $ 40,556,639 37 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 38 Year ended March 31 2002 2001 2000 Millions of yen Operating income (loss): Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Eliminations ¥ 9,662 13,601 26,828 (14,873) 11,358 (176,277) 15,314 812 ¥ 23,744 9,338 17,457 18,041 18,429 116,354 27,153 1,617 ¥ 24,084 16,377 9,342 46,002 5,354 (23,524) 26,694 (3,360) Thousands of U.S. dollars 2002 $ 72,647 102,263 201,714 (111,827) 85,399 (1,325,391) 115,143 6,105 Consolidated ¥ (113,575) ¥ 232,133 ¥ 100,969 $ (853,947) Identifiable assets: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate and Eliminations ¥ 679,932 878,829 597,794 598,894 381,563 1,386,600 907,652 (23,482) ¥ 639,880 855,684 632,643 643,045 417,088 1,441,406 1,138,414 (43,596) ¥ 590,083 789,554 668,068 584,974 366,029 1,468,014 1,268,282 45,002 $ 5,112,271 6,607,737 4,494,692 4,502,962 2,868,895 10,425,564 6,824,451 (176,557) Consolidated ¥ 5,407,782 ¥ 5,724,564 ¥ 5,780,006 $40,660,015 Depreciation and amortization: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate ¥ 34,033 25,088 18,153 27,456 18,646 163,141 39,722 — ¥ 29,339 22,030 15,572 27,107 21,884 184,496 39,388 — ¥ 31,641 23,820 16,725 24,275 22,822 192,254 37,224 — Consolidated ¥ 326,239 ¥ 339,816 ¥ 348,761 Capital expenditures: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate ¥ 41,286 16,885 10,370 32,460 21,683 210,918 45,230 — ¥ 37,571 11,399 12,467 25,568 20,713 157,879 37,152 — ¥ 40,749 12,412 7,236 41,170 16,377 156,671 44,157 — Consolidated ¥ 378,832 ¥ 302,749 ¥ 318,772 $ 255,887 188,632 136,489 206,436 140,195 1,226,624 298,662 — $ 2,452,925 $ 310,421 126,955 77,970 244,060 163,030 1,585,850 340,075 — $ 2,848,361 38 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 39 GEOGRAPHIC SEGMENTS Year ended March 31 Net sales: Japan Millions of yen 2002 2001 2000 Thousands of U.S. dollars 2002 Unaffiliated customers ¥ 3,716,437 ¥ 4,168,795 ¥ 3,889,623 $ 27,943,135 Intersegment Total North America Unaffiliated customers Intersegment Total Asia Unaffiliated customers Intersegment Total Europe Unaffiliated customers Intersegment Total Other Unaffiliated customers Intersegment Total Eliminations Consolidated Operating income (loss): Japan North America Asia Europe Other Eliminations Consolidated Indentifiable assets: Japan North America Asia Europe Other 999,914 1,004,448 1,050,500 7,518,151 4,716,351 5,173,243 4,940,123 35,461,286 728,595 86,334 814,929 470,518 429,904 900,422 426,089 13,026 439,115 52,394 5,220 57,614 738,294 77,994 816,288 508,888 299,224 808,112 484,721 14,269 498,990 50,659 2,819 53,478 816,804 53,062 869,866 478,269 265,593 743,862 506,595 10,649 517,244 58,081 4,918 62,999 5,478,158 649,128 6,127,286 3,537,729 3,232,361 6,770,090 3,203,676 97,940 3,301,616 393,940 39,248 433,188 (1,534,398) (1,398,754) (1,384,722) (11,536,827) ¥ 5,394,033 ¥ 5,951,357 ¥ 5,749,372 $ 40,556,639 ¥ (166,231) ¥ 193,258 ¥ 58,734 $ (1,249,857) 19,189 22,844 (128) 14 10,737 6,642 31,246 5,493 655 (5,161) 12,411 23,216 2,989 742 2,877 144,278 171,760 (962) 105 80,729 ¥ (113,575) ¥ 232,133 ¥ 100,969 $ (853,947) ¥ 4,430,716 ¥ 4,783,739 ¥4,975,486 $ 33,313,654 360,366 434,112 186,900 36,061 413,777 323,183 205,960 34,276 261,545 276,451 188,000 28,558 49,966 2,709,519 3,264,000 1,405,263 271,135 (303,556) Corporate and Eliminations (40,373) (36,371) Consolidated ¥ 5,407,782 ¥ 5,724,564 ¥5,780,006 $ 40,660,015 Note: Geographic segment information for the fiscal years ended March 31, 2001 and 2000 have been reclassified to conform with the current classification. 39 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 40 RESEARCH AND DEVELOPMENT Consolidated R&D expenditures declined 1% from the previous fiscal year, to ¥326.2 billion (US$2,452 million). This was equivalent to 6% of net sales, up from 5.5% in the previous fiscal year. Looking at principal R&D achievements and expen- ditures by segment, in Information & Communications Systems, R&D expenditures were ¥49.1 billion (US$369 million), and were mainly for digital broadcasting and knowledge management support software. R&D expenditures in Social Infrastructure Systems totaled ¥31.5 billion (US$237 million), and were for the development of a new type of remote mon- itoring system using IT and for the development of diagnostic ultrasound systems. In Power Systems, R&D expenditures amounted to ¥21.1 billion (US$159 million) and were for the joint development of a steam turbine blade together with General Electric Company, as well as the development of technologies for electric power plant maintenance. R&D expen- ditures in Digital Media amounted to ¥58.3 billion (US$438 million) and were for PCs and cellular phones with CCD cam- eras, BS digital plasma TVs, and PDAs. In Home Appliances, R&D expenditures were ¥19.1 billion (US$143 million) and covered the development of network home appliances using BluetoothTM as well as home appliances that offer higher per- formance capabilities and greater energy conservation. In Electronic Devices & Components, R&D expenditures amounted to ¥140.6 billion (US$1,057 million), and were for organic EL panels, large-sized low-temperature polysilicon LCDs, various LSIs, and the development of high-density cubic wiring technologies that utilize nanotechnologies, as well as the development of long-life batteries for digital cameras. In Others, R&D expenditures were ¥6.5 billion (US$49 mil- lion), and consisted mainly of research carried out at Shibaura Mechatronics Corporation and Toshiba Chemical Corporation. CAPITAL EXPENDITURES Toshiba’s basic strategy for capital expenditures is to concentrate the allocation of its management resources in growth fields. Capital expenditures, which included investments in property, plant and equipment of ¥348.2 billion (US$2,619 million), amounted to ¥378.8 billion (US$2,848 million), and were made primarily in Electronic Devices & Components and IT-related business. Capital expenditures in Electronics Devices & Components amounted to ¥210.9 billion (US$1,586 million), and were for the development and increased production capacity of semiconductors and LCD displays. Principal facility completions during the fiscal year included manufacturing facilities for low-temperature polysilicon LCDs at Fukaya Operations, facilities for manufacturing advanced system LSI at Oita Operations, and NAND flash memory manufacturing facilities at Yokkaichi Operations. In Digital Media, capital expenditures amounted to ¥32.4 billion (US$244 million), and were for the development and man- ufacturing of new PC and cellular phone-related facilities. Principal facilities completed during the fiscal year included a new facility for the development of mobile network technologies at Ome Operations. Capital expenditures in Information & Communications Systems totaled ¥41.3 billion (US$310 million), and were allocated mainly for the development of systems as well as for the broadcast and network service business. Capital expenditures amounted to ¥16.9 billion (US$127 million) in Social Infrastructure Systems and were concentrated on social and gov- ernment-related infrastructure businesses, ¥10.4 billion (US$78 million) in Power Systems, including for the renovation and upgrading of infrastructure; ¥21.7 billion (US$163 million) in Home Appliances, including for the development and man- ufacture of new types of appliances, and ¥45.2 billion (US$340 million) in Others. As of March 31, 2002, total assets amounted to ¥5,407.8 billion (US$40,660 million), a decrease of ¥316.8 billion from the previous fiscal year-end. Current assets declined ¥415.6 billion from the end of the previous fiscal year, to ¥2,674.5 billion (US$20,109 million). Among principal changes, cash and cash equivalents were down ¥117.2 billion, to ¥370.4 billion (US$2,785 million), due to a reduction in cash on hand to cover a worsening of cash flow. Notes and accounts receivable declined ¥69.0 billion and ¥41.6 billion, respectively, owing to the effects of a decline in sales at the end of year. Inventories shrank 15%, to ¥693.4 billion (US$5,213 million). Long-term deferred tax assets rose ¥254.1 billion, to ¥487.5 billion (US$3,666 million), due to an increase in net operating loss carried forward as a result of the net loss. On the liabilities side, total current and long-term liabilities amounted to ¥4,512.8 billion (US$33,931 million), a decline of ¥25.2 billion from the previous fiscal year-end. Total interest-bearing liabilities rose ¥30.9 billion from the end of the previous fiscal year end, to ¥1,818.5 billion (US$13,673 million), due to the securing of cash on hand because of the worsening of cash flow as well as the effects of the weakening of the yen. Notes and accounts payable declined ¥41.5 billion and ¥60.1 billion, respectively. In shareholders’ equity, consolidated retained earnings declined ¥270.1 billion, to ¥443.6 billion (US$3,335 million). Accumulated other comprehensive loss worsened ¥72.4 billion, to ¥298.8 billion (US$2,247 million), due to such factors as a decline in minimum pension liability adjustment as a result of a decline in yields on pension funds under management. FINANCIAL CONDITION 40 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 41 CASH FLOWS Net cash provided by operating activities amounted to ¥149.2 billion (US$1,122 million), a steep ¥304.4 billion decline from ¥453.6 billion recorded in the previous fiscal year. Despite a rise in cash inflows resulting from a decline in notes and accounts receivables and inventories, net cash provided by operating activities declined because of the large net loss as well as a decrease in such non-cash items as deferred tax expenses. Net loss for fiscal year 2001 included a ¥94.6 billion non-cash loss from sales disposal and impairment of property and securities, net, and that was eliminated in adjustment to net cash. Net cash used in investing activities rose ¥148.9 billion from the previous fiscal year, from ¥176.7 billion, to ¥325.6 bil- lion (US$2,448 million), owing to such factors as increases in property, plant and equipment. Net cash provided by financing activities amounted to ¥53.5 billion (US$402 million), compared with ¥285.6 billion in net cash used in financing activities in the previous fiscal year. This was due to a ¥30.9 billion rise in interest-bearing liabilities and ¥52.4 billion (US$394 million) in proceeds from stock offering by subsidiaries despite Toshiba’s continued efforts to reduce interest-bearing liabilities. In addition, the effect of exchange rate changes was to increase cash by ¥5.7 billion (US$43 million). Cash and cash equiv- alents at the end of the fiscal year declined ¥117.2 billion from ¥487.6 billion the end of the previous fiscal year, to ¥370.4 billion (US$2,785 million). PRINCIPAL SUBSIDIARIES AND AFFILIATED COMPANIES As of March 31, 2002 Consolidated Subsidiaries: Japan Toshiba Building & Lease Co., Ltd. Toshiba Elevator and Building System Corporation Toshiba Plant Kensetsu Co., Ltd. Toshiba TEC Corporation U.S.A Semiconductor America, Inc. Toshiba America Electronic Components, Inc. Toshiba America, Inc. 100 80 56 50 100 100 100 Affiliated Companies: Japan Toshiba Ceramics Co., Ltd. U.S.A. Flash Vision, L.L.C. Percentage held by Group 41 50 41 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 42 Consolidated Balance Sheets Toshiba Corporation and its subsidiaries As of March 31, 2002 and 2001 Assets Current assets: Cash and cash equivalents Notes and accounts receivable, trade — Notes (Note 5) Accounts (Note 5) Allowance for doubtful notes and accounts Finance receivables, net (Note 5) Inventories (Note 6) Prepaid expenses and other current assets (Note 15) Millions of Yen 2002 2001 Thousands of U.S. dollars (Note 3) 2002 ¥ 370,432 ¥ 487,595 $ 2,785,203 136,890 976,037 (26,780) 190,912 693,350 333,686 205,844 1,018,246 (27,410) 222,976 819,633 363,207 1,029,248 7,338,624 (201,353) 1,435,429 5,213,158 2,508,917 Total current assets 2,674,527 3,090,091 20,109,226 Long-term receivables and investments: Long-term receivables Long-term finance receivables, net (Note 5) Investments in and advances to affiliates (Note 7) Marketable securities and other investments (Notes 4 and 8) Property, plant and equipment (Note 8): Land Buildings Machinery and equipment Construction in progress Less—Accumulated depreciation 14,523 313,058 132,974 230,300 690,855 18,957 341,492 132,485 252,303 745,237 175,682 1,168,861 2,712,073 92,594 175,873 1,157,875 3,046,897 66,539 4,149,210 4,447,184 (2,794,888) (3,007,428) 109,194 2,353,820 999,805 1,731,579 5,194,398 1,320,917 8,788,429 20,391,526 696,195 31,197,067 (21,014,195) 1,354,322 1,439,756 10,182,872 Deferred tax assets (Note 15) Other assets (Note 9) 487,524 200,554 233,391 216,089 3,665,594 1,507,925 The accompanying notes are an integral part of these statements. ¥5,407,782 ¥5,724,564 $40,660,015 42 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 43 Liabilities and shareholders’ equity Current liabilities: 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 Total current liabilities Long-term liabilities: Long-term debt (Note 8) Accrued pension and severance costs (Note 9) Other liabilities Millions of Yen 2002 2001 Thousands of U.S. dollars (Note 3) 2002 ¥ 658,854 ¥526,865 $ 4,953,789 270,924 140,879 837,141 340,232 36,768 273,107 314,588 270,466 182,377 897,245 336,153 55,239 283,074 329,431 2,037,023 1,059,241 6,294,293 2,558,135 276,451 2,053,436 2,365,324 2,872,493 2,880,850 21,597,692 888,755 709,233 42,324 990,305 633,642 33,231 6,682,368 5,332,579 318,226 1,640,312 1,657,178 12,333,173 Minority interest in consolidated subsidiaries (Note 16) 189,663 138,611 1,426,037 Shareholders’ equity (Note 17) Common stock, without par value: Authorized—10,000,000,000 shares Issued and outstanding: 2002—3,219,027,165 shares 2001—3,219,014,736 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost 225,288 shares Commitments and contingent liabilities (Note 20) 274,926 — 285,736 443,555 — 274,921 285,732 713,667 2,067,113 — 2,148,391 3,335,000 (298,792) (226,395) (2,246,556) (111) — (835) 705,314 1,047,925 5,303,113 ¥5,407,782 ¥5,724,564 $40,660,015 43 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 44 Consolidated Statements of Operations Toshiba Corporation and its subsidiaries For the years ended March 31, 2002 and 2001 Sales and other income: Net sales Interest and dividends Other income (Notes 4 and 9) Costs and expenses: Cost of sales (Notes 10 and 12) Selling, general and administrative (Notes 10, 11 and 12) Restructuring charges (Note 14) Interest Other (Notes 4 and 13) Income (loss) before income taxes, minority interest and equity in earnings of affiliates Income taxes (Note 15): Current Deferred Millions of Yen 2002 2001 Thousands of U.S. dollars (Note 3) 2002 ¥5,394,033 ¥5,951,357 $40,556,639 14,704 59,100 18,230 110,601 110,556 444,361 5,467,837 6,080,188 41,111,556 4,070,130 1,437,478 208,954 29,891 98,071 4,323,525 1,395,699 — 41,102 131,763 30,602,481 10,808,105 1,571,083 224,744 737,376 5,844,524 5,892,089 43,943,789 (376,687) 188,099 (2,832,233) 36,185 (150,100) (113,915) 53,223 42,922 96,145 272,068 (1,128,572) (856,504) Income (loss) before minority interest and equity in earnings of affiliates (262,772) 91,954 (1,975,729) Minority interest in income (loss) of consolidated subsidiaries Income (loss) before equity in earnings of affiliates Equity in earnings of affiliates (Note 7) (6,315) (256,457) 2,440 5,140 86,814 9,354 (47,481) (1,928,248) 18,346 Net income (loss) ¥ (254,017) ¥ 96,168 $ (1,909,902) Per share (Note 18): Net income (loss): Basic Diluted Cash dividends The accompanying notes are an integral part of these statements. Yen U.S. dollars (Note 3) ¥(78.91) (78.91) ¥29.88 29.71 $(0.593) (0.593) — ¥10.00 — 44 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 45 Consolidated Statements of Shareholders’ Equity Toshiba Corporation and its subsidiaries For the years ended March 31, 2002 and 2001 Millions of yen Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total Balance at March 31, 2000 ¥274,919 ¥285,729 ¥643,250 ¥(143,799) ¥1,060,099 Conversion of convertible debentures Comprehensive income (loss): Net income Other comprehensive income (loss), net of tax (Note 17)— Unrealized gains on securities (Note 4) Foreign currency translation adjustments Minimum pension liability adjustment (Note 9) Comprehensive income Cash dividends 2 3 96,168 (41,959) 50,052 (90,689) (25,751) 5 96,168 (41,959) 50,052 (90,689) 13,572 (25,751) Balance at March 31, 2001 274,921 285,732 713,667 (226,395) 1,047,925 Conversion of convertible debentures Comprehensive income (loss): Net loss Other comprehensive income (loss), net of tax (Note 17)— Unrealized gains on securities (Note 4) Foreign currency translation adjustments Minimum pension liability adjustment (Note 9) Unrealized losses on derivative instruments Comprehensive loss Cash dividends Purchase of treasury stock, at cost 5 4 (254,017) (3,542) 13,987 (80,754) (2,088) (16,095) ¥(111) 9 (254,017) (3,542) 13,987 (80,754) (2,088) (326,414) (16,095) (111) Balance at March 31, 2002 ¥274,926 ¥285,736 ¥ 443,555 ¥(298,792) ¥(111) ¥ 705,314 Thousands of U.S. dollars (Note 3) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total Balance at March 31, 2001 $2,067,075 $2,148,361 $ 5,365,917 $(1,702,218) $ 7,879,135 Conversion of convertible debentures Comprehensive income (loss): Net loss Other comprehensive income (loss), net of tax (Note 17): Unrealized gains on securities (Note 4) Foreign currency translation adjustments Minimum pension liability adjustment (Note 9) Unrealized losses on derivative instruments Comprehensive loss Cash dividends Purchase of treasury stock, at cost 38 30 68 (1,909,902) (1,909,902) (26,632) 105,166 (26,632) 105,166 (607,173) (607,173) (15,699) (15,699) (2,454,240) (121,015) (835) $(835) (121,015) Balance at March 31, 2002 $2,067,113 $2,148,391 $ 3,335,000 $(2,246,556) $(835) $ 5,303,113 The accompanying notes are an integral part of these statements. 45 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 46 Consolidated Statements of Cash Flows Toshiba Corporation and its subsidiaries For the years ended March 31, 2002 and 2001 Cash flows from operating activities: Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities— Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income tax provision (benefit) Equity in income of affiliates Loss (gain) from sales, disposal and impairment of property and securities, net Minority interest in (loss) income of consolidated subsidiaries Decrease in notes and accounts receivable, trade Decrease in finance receivables, net Decrease in inventories Decrease (increase) in other current assets Decrease in long-term receivables Decrease (increase) in long-term finance receivables, net (Decrease) increase in notes and accounts payable, trade (Decrease) increase in accrued income and other taxes Decrease in advance payments received Increase (decrease) in accounts payable and other liabilities Net cash provided by operating activities Cash flows from investing activities: Proceeds from sale of property Proceeds from sale of securities Acquisition of property and equipment Purchase of securities Decrease in investments in affiliates (Increase) decrease in other assets and other Net cash used in investing activities Cash flows from financing activities: Proceeds from long-term debt Repayment of long-term debt Increase (decrease) in short-term borrowings Dividends paid Proceeds from stock offering by subsidiaries Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Millions of Yen 2002 2001 Thousands of U.S. dollars (Note 3) 2002 ¥(254,017) ¥ 96,168 $(1,909,902) 326,239 (45,621) (150,100) (2,440) 94,579 (6,315) 118,775 32,056 141,137 4,354 4,366 28,434 (108,060) (19,038) (16,964) 1,780 149,165 65,604 29,714 (364,671) (39,489) 4,956 (21,693) (325,579) 322,941 (420,726) 114,913 (16,045) 52,412 53,495 5,756 (117,163) 339,816 (10,667) 42,922 (9,354) (30,758) 5,140 34,857 22,255 51,755 (70,750) 695 (6,639) 13,804 8,672 (17,415) (16,860) 453,641 12,565 23,774 (257,448) (13,126) 19,272 38,216 (176,747) 233,929 (398,669) (95,310) (25,598) — (285,648) 31,112 22,358 2,452,925 (343,015) (1,128,572) (18,346) 711,121 (47,481) 893,045 241,023 1,061,180 32,737 32,827 213,789 (812,481) (143,143) (127,549) 13,383 1,121,541 493,263 223,414 (2,741,887) (296,910) 37,263 (163,105) (2,447,962) 2,428,128 (3,163,353) 864,007 (120,639) 394,075 402,218 43,278 (880,925) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 487,595 ¥ 370,432 465,237 ¥ 487,595 3,666,128 $ 2,785,203 Supplemental disclosure of cash flow information: Cash paid during the year for— Interest Income taxes The accompanying notes are an integral part of these statements. 46 ¥ 39,347 ¥ 55,340 ¥ 52,789 ¥ 61,161 $ 295,842 $ 416,090 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 47 Notes to Consolidated Financial Statements Toshiba Corporation and its subsidiaries 1. COMPANY OPERATIONS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Toshiba Corporation and its subsidiaries (the “Company”) is engaged in research and development, manufacturing and sales of high-technology electronic and energy products, which span (1) information & communications systems, (2) social infrastructure systems, (3) power systems, (4) digital media, (5) home appliances, (6) electronic devices & components, and (7) others. For the year ended March 31, 2002, sales of digital media represented approx- imately 24 percent, the most significant portion, of the Company’s total sales and information & communications sys- tems, social infrastructure systems, and electronic devices & components each represented slightly over 15 percent of the Company’s total sales, while sales of power systems and home appliances were approximately equal in amount, each representing approximately 10 percent of the Company’s total sales. Sales from other lines of busi- ness were small compared to those noted above. The products are manufactured and marketed throughout the world with 62 percent of sales in Japan and the remainder in North America, Asia, Europe and elsewhere. Preparation of Financial Statements Toshiba Corporation and its domestic subsidiaries maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America. These adjustments were not recorded in the statutory books of account. Basis of Consolidation and Investments in Affiliates The consolidated financial statements include the accounts of Toshiba Corporation and those of its majority owned subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation. Investments in affiliates (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. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the Untied 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 con- solidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Foreign Currency Translation The assets and liabilities of foreign consolidated subsidiaries and affiliates 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 includ- ed in other comprehensive income (loss) and reported as a component of shareholders’ equity. Exchange gains and losses resulting from foreign currency transactions and translation of assets and liabilities denominated in foreign currencies are included in other expenses in the consolidated statements of operations. Marketable Securities and Other Investments The Company classifies its marketable equity securities and all debt securities as available-for-sale which are report- ed at fair value, with unrealized gains and losses included in accumulated other comprehensive income (loss), net of taxes. Other investments without quoted market prices are stated at cost. Realized gains or losses on the sale of securities are based on the average cost of a particular security held at the time of sale. Marketable securities and other investment securities are regularly reviewed for other-than-temporary declines in car- rying value based on criteria that include; the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the Company’s intent and ability to retain marketable securities and investment securities for a period of time sufficient to allow for any anticipated recovery in market value. When such a decline exists, the Company recognizes an impairment loss to the extent of such decline. 47 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 48 Inventories Raw materials, finished products and work in process for stock sales items are stated at the lower of cost or mar- ket, 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. 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. Maintenance and repairs, including minor renewals and betterments, are expensed as incurred. Depreciation is computed generally by the declining-balance method at rates based on the following estimated use- ful lives of the assets: buildings, 3 to 50 years, machinery and equipment, 2 to 18 years. Impairment of Long-Lived Assets Long-lived assets including goodwill and other intangible assets are evaluated for impairment using an estimate of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. If the estimate of undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded based on the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Income Taxes The provision (benefit) for income taxes is computed based on the pre-tax income (loss) included in the consolidated statements of operations. 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 state- ments, and are measured by applying currently enacted tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Accrued Pension and Severance Costs The Company has various retirement benefit plans covering substantially all employees. Current service costs of the retirement benefit plans are accrued in the period. The unrecognized net obligation existing at initial application of SFAS No. 87 and prior service costs resulting from amendments to the plans are amortized over the average remain- ing service period of employees expected to receive benefits. Unrecognized actuarial losses that exceed 10 percent of the greater of the projected benefit obligation or the fair value of plan assets are also amortized over the average remaining service period of employees expected to receive benefits. Additional Paid-in Capital Under the Japanese Commercial Code, the entire amount of the issue price of shares is required to be accounted for in the common stock account although a company in Japan may, by a resolution of its board of directors, account for an amount not exceeding one-half of the issue price of the shares as additional paid-in capital. Issuance of Stock by a Subsidiary When a subsidiary issues stock to an unrelated third party, the Company’s ownership interest in the subsidiary decreas- es; however, if the price per share is more or less than the Company’s average carrying amount per share, the Company is required to adjust the carrying amount of its investment in the subsidiary. The Company recognizes such gains or losses in income for the year in which the change in ownership interest occurs. For the year ended March 31, 2002, a subsidiary sold its newly-issued common stock to a third party investor. In con- nection with this transaction, the Company recognized a gain of ¥9,185 million ($69,060 thousand) and deferred taxes on this gain of ¥3,867 million ($29,075 thousand). Net Income Per Share Basic net income 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, unless their inclusion would have an antidilutive effect. Revenue Recognition Revenue of mass-produced standard products is recognized when there is persuasive evidence of an arrangement, the product has been delivered, the sales price is fixed or determinable, and collectibility is reasonably assured. The mass-produced standard products are considered delivered to customers once they have been shipped, and the title and risk of loss have transferred. Revenue from services is recognized as the services are provided. 48 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 49 Revenue from development of custom software products is recognized when the software products have been deliv- ered and accepted by the customer. Revenue related to equipment that requires installation is recognized upon the completion of the installation of the equipment. Revenue under long-term contracts is recorded under the percentage of completion method. Shipping and Handling Costs The Company includes shipping and handling costs which totaled ¥88,332 million ($664,150 thousand) and ¥96,180 million for the years ended March 31, 2002 and 2001, respectively in selling, general and administrative expenses. Derivative Financial Instruments The Company uses a variety of derivative financial instruments, which include forward exchange contracts, interest rate swap agreements and currency swap agreements, for the purpose of currency exchange rate and interest rate risk management. Refer to Note 19 for descriptions of these financial instruments. Effective April 1, 2001, the Company adopted the Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133”. Adoption of SFAS No. 133 and 138 was not significant to the operating results and the financial position of the Company. As a result of the adoption of SFAS No. 133 and 138, the Company recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap agreements and currency swap agreements, in the consolidated financial statements at fair value regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in share- holders’ equity as a component of other comprehensive income (loss) depending on whether the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in fair values of derivative financial instruments accounted for as fair value hedges are recorded in income along with the portion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in fair value of derivative financial instruments accounted for as cash flow hedges, to the extent they are effective as a hedge, are recorded in other comprehensive income (loss), net of tax. Changes in the fair value of deriv- ative financial instruments not qualifying as a hedge are reported in income. Prior to April 1, 2001, the Company used forward exchange contracts, interest rate swap agreements and currency swap agreements for hedging purposes. For forward exchange contracts, gains and losses explicitly deferred, aris- ing from contracts related to future trade transactions, were insignificant. As these forward exchange contracts were utilized solely for hedging purposes, the resulting gains or losses were offset against foreign exchange gains or loss- es on the underlying hedged assets and liabilities. Gains and losses related to qualifying hedges of firm commitments denominated in foreign currencies were deferred and were recognized in income when the hedged transaction occurred. For interest rate swap agreements, the related differentials to be paid or received under the interest rate swaps were recognized in interest expense over the terms of the agreements. Currency swaps were accounted for in a manner similar to the accounting for forward exchange contracts. Sales of Receivables The Company enters into transactions to sell certain trade accounts receivable, trade notes receivable and finance receivables. The Company may retain certain interests in these transactions. Gain or loss on the sale of receiv- ables is based on the carrying amount of the receivables sold, allocated between the receivables sold and the retained interests based on their relative fair values at the date of sale. Retained interests are carried at fair value and are included in finance receivables in the consolidated financial statements. The Company estimates fair value based on the present value of future expected cash flows less credit losses. Transactions entered into prior to April 1, 2001 were accounted for under SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement 125” was effective for the transactions occurring after March 31, 2001. SFAS No. 140 revised criteria for accounting for securitizations, other financial asset transfers and collateral, and introduces new disclosures, but otherwise carries forward most of the provisions of SFAS No. 125. The adoption of SFAS No. 140 did not have a material effect on the Company’s financial position and results of operations. Recent Pronouncements The Company has adopted SFAS No. 141, “Business Combinations” and will adopt SFAS No. 142, “Goodwill and Other Intangible Assets” on April 1, 2002. Under the new rule, goodwill and other indefinite lived intangible assets will no 49 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 50 3. U.S. DOLLAR AMOUNTS 4. MARKETABLE SECURITIES AND OTHER INVESTMENTS longer be amortized but will be reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The Company does not antic- ipate that adoption of SFAS No. 142 will have a material effect on the Company’s financial position and results of operations. In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and super- sedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations” for a disposal of a segment of a business. SFAS No. 144 is effective for the year beginning after December 15, 2001, with earlier application encouraged. The Company will adopt SFAS No. 144 effective April 1, 2002. The Company does not anticipate that adoption of SFAS No. 144 will have a material effect on the Company’s financial position and results of operations. Reclassifications Certain reclassifications to the prior year’s consolidated financial statements and related footnote amounts have been made to conform to the presentation for the current year. U.S. dollar amounts are included solely for convenience. These translations should not be construed as a repre- sentation that the yen could be converted into U.S. dollars at this rate or any other rate. 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 ¥133 = U.S.$1, the approximate current rate of exchange at March 31, 2002, has been used throughout for the purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial statements. The aggregate cost, gross unrealized holding gains and losses, and aggregate fair value for marketable equity secu- rities and debt securities classified as available-for-sale securities by security type at March 31, 2002 and 2001 are as follows: March 31, 2002: Equity securities Debt securities March 31, 2001: Equity securities Debt securities March 31, 2002: Equity securities Debt securities Millions of yen Gross unrealized holding gains Gross unrealized holding losses Fair value ¥50,952 — ¥50,952 ¥62,308 342 ¥62,650 ¥6,553 9 ¥6,562 ¥129,000 2,356 ¥131,356 ¥12,736 161 ¥138,833 4,489 ¥12,897 ¥143,322 Cost ¥84,601 2,365 ¥86,966 ¥89,261 4,308 ¥93,569 Thousands of U.S. dollars Gross unrealized holding gains Gross unrealized holding losses Cost Fair value $636,098 17,782 $653,880 $383,098 — $383,098 $49,271 68 $969,925 17,714 $49,339 $987,639 At March 31, 2002, debt securities mainly consist of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale were as follows at March 31, 2002: Due within one year Due after one year 50 Millions of yen Thousands of U.S. dollars Cost ¥1,100 1,265 ¥2,365 Fair value ¥1,099 1,257 ¥2,356 Cost $ 8,271 9,511 $17,782 Fair value $ 8,263 9,451 $17,714 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 51 The proceeds from sales of available-for-sale securities for the years ended March 31, 2002 and 2001 were ¥29,714 million ($223,414 thousand) and ¥23,774 million, respectively. The gross realized gains on those sales for the years ended March 31, 2002 and 2001 were ¥9,474 million ($71,233 thousand) and ¥5,443 million, respectively. The gross realized losses on those sales for the years ended March 31, 2002 and 2001 were ¥644 million ($4,842 thou- sand) and ¥1,992 million, respectively. The Company recorded a charge of ¥27,572 million ($207,308 thousand) related to other-than-temporary declines in the marketable and non-marketable equity securities for the year ended March 31, 2002, which is includ- ed in other expenses. 5. FINANCE RECEIVABLES AND SECURITIZATIONS Investment in financing leases consists of sales-type and direct financing leases mainly for information systems, med- ical equipment, 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. Finance receivables comprise the following: March 31 Investment in financing leases: Total minimum lease payments receivable Estimated executory costs Unearned income Estimated residual values Less—allowance for doubtful accounts Less—current portion Other finance receivables Less—allowance for doubtful accounts Less—current portion Millions of yen 2002 2001 ¥ 286,019 (10,471) (11,771) 2,417 266,194 (1,161) 265,033 (81,464) ¥ 321,444 (12,579) (15,576) 3,725 297,014 (1,339) 295,675 (97,475) Thousands of U.S. dollars 2002 $ 2,150,519 (78,729) (88,504) 18,173 2,001,459 (8,729) 1,992,730 (612,512) ¥ 183,569 ¥ 198,200 $ 1,380,218 ¥ 250,223 (11,286) 238,937 (109,448) ¥ 278,658 (9,865) 268,793 (125,501) $ 1,881,376 (84,857) 1,796,519 (822,917) ¥ 129,489 ¥ 143,292 $ 973,602 At March 31, 2002, 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 2003 2004 2005 2006 2007 Thereafter Investment in financing leases Other finance receivables Millions of yen ¥ 88,504 78,585 58,220 37,620 18,047 5,043 ¥286,019 Thousands of U.S. dollars $ 665,444 590,865 437,744 282,857 135,692 37,917 $2,150,519 Millions of yen ¥116,045 47,290 27,115 17,323 10,127 32,323 ¥250,223 Thousands of U.S. dollars $ 872,519 355,564 203,872 130,248 76,143 243,030 $1,881,376 51 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 52 The allowance for doubtful accounts is provided based upon past loss experience and the estimation of value of the underlying collateral for certain loans. The Company has several securitization programs under which trade accounts receivable, trade notes receivable and finance receivables are transferred to a special purpose entity (“SPE”) or the financial institutions. Upon the sale of receivables, the Company holds subordinated retained interests for certain trade account and finance receivables which are not material to the Company’s financial position. Credit losses related to the securitized receivables have not been material. The Company recognized gains of ¥669 million ($5,030 thousand) and losses of ¥965 million on the secu- ritizations of receivables for the years ended March 31, 2002 and 2001, respectively. Subsequent to sale, the Company retains collection and administrative responsibilities for the receivables. The Company received servicing fees of ¥447 million ($3,361 thousand) and ¥405 million for the years ended March 31, 2002 and 2001, respectively. Servicing assets or liabilities are immaterial to the Company’s financial position. Proceeds from new securitizations of trade receivables, including notes receivable, and finance receivables for the year ended March 31, 2002 are ¥824,339 million ($6,198,038 thousand) and ¥103,818 million ($780,586 thousand), respectively. Proceeds from new securitizations of trade receivables, including notes receivable, and finance receivables for the year ended March 31, 2001 are ¥767,147 million and ¥93,040 million, respectively. 6. INVENTORIES Inventories comprise the following: March 31 Finished products Work in process: Long-term contracts Other Raw materials Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥280,178 ¥345,183 $2,106,601 128,486 163,782 120,904 148,462 201,060 124,928 ¥693,350 ¥819,633 966,060 1,231,444 909,053 $5,213,158 7. INVESTMENTS IN AND ADVANCES TO AFFILIATES Of the affiliates which are accounted for by the equity method, the investment in common stock of the listed com- panies (five companies) is carried at ¥60,174 million ($452,436 thousand) and ¥62,327 million at March 31, 2002 and 2001, respectively. The Company’s investments in these companies had a market value of ¥58,330 million ($438,571 thousand) and ¥78,671 million at March 31, 2002 and 2001, respectively, based on quoted market prices at those dates. Summarized financial information of the affiliates accounted for by the equity method is shown below: March 31 Current assets Other assets including property, plant and equipment Total assets Current liabilities Long-term liabilities Shareholders’ equity Total liabilities and shareholders’ equity Year ended March 31 Sales Net income Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥450,226 ¥412,480 $3,385,158 262,323 ¥712,549 ¥323,950 66,072 322,527 ¥712,549 251,477 ¥663,957 ¥296,864 71,908 295,185 ¥663,957 Millions of yen 2002 ¥614,580 ¥ 11,002 2001 ¥688,527 ¥ 18,636 1,972,353 $5,357,511 $2,435,714 496,782 2,425,015 $5,357,511 Thousands of U.S. dollars 2002 $4,620,902 $ 82,722 52 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 53 A summary of transactions and balances with the affiliates accounted for by the equity method is presented below: Year ended March 31 Sales Purchases March 31 Accounts receivable, trade Other receivables Accounts payable, trade Millions of yen 2001 ¥ 16,450 ¥122,261 Millions of yen 2001 ¥ 7,201 ¥ 4,265 ¥30,433 2002 ¥22,164 ¥63,355 2002 ¥15,033 ¥ 3,349 ¥44,618 Short-term borrowings at March 31, 2002 and 2001 comprise the following: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 $166,647 $476,353 Thousands of U.S. dollars 2002 $113,030 $ 25,180 $335,474 Thousands of U.S. dollars 2002 8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT March 31 Loans, principally from banks, including bank overdrafts, with weighted-average interest rate of 0.84% at March 31, 2002 and 1.13% at March 31, 2001: Secured Unsecured Commercial paper with weighted-average interest rate of 0.15% at March 31, 2002 and 5.31% at March 31, 2001 Euro yen or U.S. dollar medium-term notes of a subsidiary, with weighted-average interest rate of 0.36% at March 31, 2002 and 0.57% at March 31, 2001 (swapped for floating rate (LIBOR, etc.) or fixed rate U.S. dollar, yen or Euro obligations) ¥ 3,516 456,510 ¥ 7,940 468,918 $ 26,436 3,432,406 168,693 27,731 1,268,368 30,135 ¥658,854 22,276 ¥526,865 226,579 $4,953,789 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, 2002, the Company had unused committed lines of credit from short-term financing arrangements aggre- gating ¥513,514 million ($3,861,008 thousand), of which ¥31,314 million ($235,444 thousand) was in support of the Company’s commercial paper. These lines of credit have commitment fee requirements. 53 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 54 Long-term debt at March 31, 2002 and 2001 comprise the following: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 March 31 Loans, principally from banks and insurance companies, due 2002 to 2034 with interest ranging from zero % to 16.50% at March 31, 2002 and due 2001 to 2034 with interest ranging from zero % to 13.50% at March 31, 2001: Secured Unsecured ¥ 19,268 574,838 ¥ 57,883 538,697 $ 144,872 4,322,090 Unsecured yen bonds, due 2002 to 2008 with interest ranging from 0.6% to 3.025% at March 31, 2002 and due 2001 to 2008 with interest ranging from 0.7% to 3.025% at March 31, 2001 Euro yen medium-term notes, due 2002 to 2008 with interest ranging from zero % to 2.34% at March 31, 2002 and due 2001 to 2008 with interest ranging from zero % to 2.34% at March 31, 2001 (swapped for floating rate (LIBOR, etc.) or fixed rate yen obligations) 6.75% Euro U.S. dollar medium-term notes due 2008 (swapped for fixed rate yen obligations) 1.8% unsecured yen convertible debentures due 2002 convertible at ¥724 per share Unsecured yen bonds of subsidiaries, due 2002 to 2004 with interest ranging from 0.95% to 3.0% at March 31, 2002 and due 2002 to 2004 with interest ranging from 0.95% to 3.0% at March 31, 2001 1.825% secured yen bonds of a subsidiary due 2004 Euro yen or U.S. dollar medium-term notes of subsidiaries, due 2002 to 2012 with interest ranging from zero % to 4.0% at March 31, 2002 and due 2001 to 2011 with interest ranging from zero % to 7.26% at March 31, 2001 (swapped for floating rate (LIBOR, etc.) U.S. dollar, Yen or Euro obligations) 2.2% secured yen convertible debentures of a subsidiary due 2002 convertible at ¥1,095.8 per share Zero % unsecured yen convertible debentures of a subsidiary due 2004 convertible currently at ¥803 per share Less—Portion due within one year 420,622 438,422 3,162,571 39,375 58,925 296,053 — — 630 17,736 — — 14,000 19,000 105,263 300 300 2,256 88,456 118,341 665,083 — 8,017 — 2,820 2,820 1,159,679 (270,924) 1,260,771 (270,466) 21,203 8,719,391 (2,037,023) ¥ 888,755 ¥ 990,305 $ 6,682,368 54 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 55 9. ACCRUED PENSION AND SEVERANCE COSTS 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, 2002 are property, plant and equipment with a book value of ¥55,087 million ($414,188 thousand) and marketable securities and other investments of ¥4,509 million ($33,902 thousand). The aggregate annual maturities of long-term debt are as follows: Year ending March 31 2003 2004 2005 2006 2007 Thereafter Millions of yen ¥ 270,924 304,989 201,337 113,129 94,329 174,971 ¥1,159,679 Thousands of U.S. dollars $2,037,023 2,293,150 1,513,812 850,594 709,241 1,315,571 $8,719,391 All employees whose services with the Company 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 fund- ing of tax-qualified non-contributory pension plans and contributory trusteed employee pension funds. Certain subsidiaries have tax-qualified non-contributory 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 also has contributory trusteed employee pension funds. The contributory employee pension funds are comprised of a portion covering part of the severance indemnity benefits and another portion covering social security benefits, to which the Company and employees make contributions. For the year ended March 31, 2001, the Company has amended the regulations of the lump-sum severance indemnities and the severance indemnity benefits portion under the contributory trusteed employee pension funds. For the year ended March 31, 2002, the Company has amended the regulations of the social security benefits portion under the contributory trusteed employee pension funds in accordance with the revisions of the Japanese Welfare Pension Insurance Law. These amendments resulted in the reduction of the projected benefit obligations of the funds. Net periodic pension and severance cost for the years ended March 31, 2002 and 2001 included the following com- ponents: Year ended March 31 Service cost—benefits earned during the year Interest cost on projected benefit obligation Expected return on plan assets Amortization of unrecognized net obligation at transition Amortization of prior service cost Recognized actuarial loss Millions of yen 2002 2001 ¥ 62,687 61,439 (37,864) ¥ 62,801 60,380 (40,788) 12,025 (4,202) 18,693 12,025 (3,212) 13,350 Thousands of U.S. dollars 2002 $ 471,331 461,947 (284,692) 90,414 (31,594) 140,549 Net periodic pension and severance cost ¥ 112,778 ¥ 104,556 $ 847,955 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 2.1 percent were used in measuring the pension obligations at March 31, 2002 and 2001. The changes in the benefit obligations and plan assets and reconciliations of net amount recognized to funded sta- tus and accrued pension and severance costs for the years ended March 31, 2002 and 2001 were as follows: 55 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 56 March 31 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participants’ contributions Plan amendments Actuarial loss Benefits paid Foreign currency exchange impact Millions of yen 2002 2001 ¥ 1,823,810 62,687 61,439 8,745 (39,154) 67,633 (169,461) 957 ¥ 1,752,086 62,801 60,380 9,210 (15,838) 52,602 (99,042) 1,611 Benefit obligation at end of year 1,816,656 1,823,810 Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Plan participants’ contributions Benefits paid Foreign currency exchange impact Fair value of plan assets at end of year Funded status Unrecognized actuarial loss Unrecognized net obligation at transition Unrecognized prior service cost 1,044,142 (55,441) 40,371 8,745 (50,648) 943 988,112 828,544 (638,072) (49,163) 78,740 987,517 (56,975) 138,782 9,210 (36,108) 1,716 1,044,142 779,668 (495,740) (61,189) 43,690 Thousands of U.S. dollars 2002 $ 13,712,857 471,331 461,947 65,752 (294,391) 508,519 (1,274,142) 7,195 13,659,068 7,850,692 (416,850) 303,541 65,752 (380,811) 7,090 7,429,414 6,229,654 (4,797,533) (369,647) 592,030 Net amount recognized ¥ 220,049 ¥ 266,429 $ 1,654,504 Amounts recognized in the consolidated balance sheets consist of: Accrued pension and severance costs Intangible asset Accumulated other comprehensive loss, pre-tax ¥ 709,233 — ¥ 633,642 (17,499) $ 5,332,579 — (489,184) (349,714) (3,678,075) Net amounts recognized ¥ 220,049 ¥ 266,429 $ 1,654,504 Accumulated benefit obligation at end of year ¥ 1,696,572 ¥ 1,677,784 $ 12,756,180 For the year ended March 31, 2001, the Company contributed certain marketable equity securities, not including those of its subsidiaries and affiliates, and cash to employee retirement benefit trusts, with no cash proceeds thereon. The securities and the cash held in these trusts are qualified as plan assets. The fair value of these securities at the time of contribution, including the contributed cash, was ¥89,016 million. Upon contribution of these available-for-sale secu- rities, a net unrealized gain of ¥35,942 million was realized and included in other income for the year ended March 31, 2001. Research and development costs are expensed as incurred and amounted to ¥ 326,170 million ($2,452,406 thou- sand) and ¥327,915 million for the years ended March 31, 2002 and 2001, respectively. Advertising costs are expensed as incurred. Advertising expenses amounted to ¥59,390 million ($446,541 thousand) and ¥57,106 million for the years ended March 31, 2002 and 2001, respectively. The Company leases office and warehouse space, and certain other assets under operating leases. Rent expenses under such leases for the years ended March 31, 2002 and 2001 are ¥84,781 million ($637,451 thousand) and ¥81,503 million, respectively. 10. RESEARCH AND DEVELOPMENT EXPENSES 11. ADVERTISING COSTS 12. RENT EXPENSES 56 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 57 13. FOREIGN EXCHANGE GAINS AND LOSSES 14. RESTRUCTURING CHARGES For the years ended March 31, 2002 and 2001, the net foreign exchange losses are ¥6,682 million ($50,241 thou- sand) and ¥7,776 million, respectively. Restructuring charges consist of various reorganization costs totaling ¥111,280 million ($836,692 thousand) primarily related to the “01 Action Plan,” a series of measures to reshape business operations and strengthen competitiveness announced in August 2001 and additional termination benefits for voluntary early retirement of ¥97,674 million ($734,391 thousand). The reorganization costs of ¥111,280 million ($836,692 thousand) comprised the following. For the year ended March 31, 2002, the Company incurred sluggish demand and price erosion of semiconductors especially commodity DRAMs and consequently the Company’s gross margin significantly decreased. Given these cir- cumstances the Company evaluated certain machinery and equipment for memory production to be held and used for impairment. The impairment of such machinery and equipment was based upon an analysis of projected undis- counted cash flows, which were no longer deemed adequate to support their value. Consequently, the Company record- ed an impairment loss of ¥55,247 million ($415,391 thousand) for assets to be held and used. The Company decided to exit the commodity DRAM business. In December 2001, the Company announced that it would sell Dominion Semiconductor, L.L.C. (“Dominion”) to Micron Technology, Inc. (“Micron”). The sale covers all of the assets of Dominion, including its land, buildings and DRAM production equipment. In connection with the exit, certain NAND flash manufacturing equipment will be transferred to a Company facility in Japan. Furthermore, the Company determined to liquidate a wholly-owned subsidiary, which had been engaged mainly in the assembly of DRAMs. In connection with such reorganization of the DRAM business, the Company has incurred losses on disposal and impairment for building, machinery and equipment of ¥5,125 million ($38,534 thousand) and various other loss- es including; losses on contract terminations, purchase commitment losses, dismantling costs for machinery and equip- ment to be disposed of, totaling ¥31,083 million ($233,707 thousand). The Company anticipates that substantially all of the restructuring liabilities will be paid during the year ending March 31, 2003. Other reorganization costs of ¥19,825 million ($149,060 thousand) mainly related to impairment losses of building, machinery and equipment for other businesses to be discontinued or already discontinued. The Company anticipates that substantially all of such assets will be disposed during the year ending March 31, 2003. The Company recorded a loss of ¥97,674 million ($734,391 thousand) with respect to the additional termination ben- efits for the voluntary early retirement of approximately 8,200 employees under the “01 Action Plan”. Substantially all of these additional termination benefits were paid as of March 31, 2002. Approximately ¥79,993 million ($601,451 thousand) of the restructuring charges are non-cash charges. 15. INCOME TAXES The Company is subject to a number of different taxes based on income which, in the aggregate, result in a normal statutory tax rate in Japan of approximately 42.1 percent for the years ended March 31, 2002 and 2001. A recon- ciliation between the reported income tax expense (benefit) and the amount computed by multiplying the income (loss) before income taxes, minority interest and equity in earnings of affiliates by the applicable statutory tax rate is as fol- lows: Year ended March 31 Computed expected income tax expense (benefit) Increase in taxes resulting from: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥(158,585) ¥79,190 $(1,192,368) Non-deductible expenses for tax purposes Net changes in valuation allowance Tax rate difference relating to reclassification adjustments for gains on securities Other 3,256 41,575 308 (469) 3,979 2,256 4,061 6,659 24,481 312,594 2,316 (3,527) Income tax expense (benefit) ¥(113,915) ¥96,145 $ (856,504) 57 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 58 The significant components of deferred tax assets and deferred tax liabilities recorded on the consolidated balance sheets as of March 31, 2002 and 2001 are as follows: March 31 Gross deferred tax assets: Inventories Accrued pension and severance costs Tax loss carryforwards Minimum pension liability adjustment Accrued bonus Other Valuation allowance for deferred tax assets Deferred tax assets Gross deferred tax liabilities: Retained earnings appropriated for tax allowable reserves Unrealized gains on securities Gain on securities contributed to employee retirement benefit trusts Other Deferred tax liabilities Net deferred tax assets Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥ 24,805 ¥ 23,823 $ 186,504 97,788 180,125 205,946 27,746 174,958 711,368 (77,644) 633,724 (15,661) (18,356) (17,763) (17,450) (69,230) 81,520 34,695 147,230 29,168 151,555 467,991 (42,197) 425,794 (17,064) (21,157) (17,763) (13,473) (69,457) 735,248 1,354,323 1,548,466 208,617 1,315,473 5,348,631 (583,789) 4,764,842 (117,752) (138,015) (133,556) (131,203) (520,526) ¥ 564,494 ¥ 356,337 $ 4,244,316 Net current deferred tax assets at March 31, 2002 and 2001 are reflected in the consolidated balance sheets under the caption of prepaid expenses and other current assets, ¥84,402 million ($634,602 thousand) and ¥122,946 mil- lion, respectively. The net changes in the total valuation allowance for the years ended March 31, 2002 and 2001 were an increase of ¥35,447 million ($266,519 thousand) and a decrease of ¥4,562 million, respectively. Available corporate tax loss carryforwards of the Company at March 31, 2002 amounted to approximately ¥430,476 million ($3,236,662 thousand), the majority of which will expire during the period from 2003 through 2007. Realization is dependent on the Company generating sufficient taxable income prior to their expiration or the Company exercising certain available tax strategies. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets, less the 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 affiliates deemed indefinitely reinvested in foreign operations. As of March 31, 2002, the undistributed earnings of the foreign subsidiaries not subject to deferred tax liabilities were ¥103,248 million ($776,301 thousand). It is not practicable to estimate the amount of the deferred income tax liabilities on such earnings. A foreign subsidiary issued 35 shares of ¥1,000 million par value redeemable preferred stock with a totaling ¥35,000 million ($263,158 thousand) to the third parties. This preferred stock is included in minority interest in the consolidated subsidiaries. Holders of the preferred stock have no voting rights and are to receive preferred dividends quarterly, based on LIBOR, which currently approximates 1.06 percent per annum. On October 1, 2001, an amendment (“Amendment”) to the Japanese Commercial Code became effective. The Amendment eliminates the stated par value of Toshiba Corporation’s outstanding shares which results in all out- standing shares having no par value as of October 1, 2001. The Amendment also provides that share issuances after September 30, 2001 will be of shares with no par value. Before the Amendment, Toshiba Corporation’s shares had a par value of ¥50 per share. 16. ISSUANCE OF PREFERRED STOCK BY A SUBSIDIARY 17. SHAREHOLDERS’ EQUITY 58 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 59 Retained Earnings Retained earnings at March 31, 2002 and 2001 include a legal reserve of ¥81,815 million ($615,150 thousand) and ¥80,933 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 Toshiba Corporation and its Japanese sub- sidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of the addi- tional paid-in capital and the legal reserve equals 25 percent of their respective stated capital. The amount of retained earnings available for dividends is based on Toshiba Corporation’s retained earnings determined in accordance with generally accepted accounting principles in Japan and the Japanese Commercial Code. Accumulated Other Comprehensive Income (Loss) An analysis of the changes in accumulated other comprehensive income (loss), net of tax, for the years ended March 31, 2002 and 2001 is shown below: March 31 Unrealized gains on securities: Balance at beginning of year Current-period change Balance at end of year Foreign currency translation adjustments: Balance at beginning of year Current-period change Balance at end of year Minimum pension liability adjustement: Balance at beginning of year Current-period change Balance at end of year Unrealized losses on derivative instruments: Balance at beginning of year Current-period change Balance at end of year Total accumulated other comprehensive loss: Balance at beginning of year Current-period change Balance at end of year Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥ 28,728 ¥ 70,687 $ 216,000 (3,542) (41,959) (26,632) ¥ 25,186 ¥ 28,728 $ 189,368 ¥ (55,938) 13,987 ¥ (41,951) ¥(199,185) (80,754) ¥(279,939) — ¥ (2,088) ¥ (2,088) ¥(226,395) (72,397) ¥(298,792) ¥(105,990) 50,052 ¥ (55,938) ¥(108,496) (90,689) ¥(199,185) — — — ¥(143,799) (82,596) ¥(226,395) $ (420,586) 105,166 $ (315,420) $(1,497,632) (607,173) $(2,104,805) — $ (15,699) $ (15,699) $(1,702,218) (544,338) $(2,246,556) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2002 and 2001 are shown below: For the year ended March 31, 2002: Unrealized gains on securities: Unrealized holding gains arising during period Less: reclassification adjustment for gains included in net loss Foreign currency translation adjustements Minimum pension liability adjustement Unrealized losses on derivative instruments Pre-tax amount Millions of yen Tax benefit (expense) Net-of-tax amount ¥ 10,052 ¥ (4,179) ¥ 5,873 (16,233) 13,976 (139,471) (3,465) 6,818 11 58,717 1,377 Other comprehensive income (loss) ¥(135,141) ¥ 62,744 (9,415) 13,987 (80,754) (2,088) ¥(72,397) 59 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 60 For the year ended March 31, 2001: Unrealized gains on securities: Unrealized holding gains arising during period Less: reclassification adjustment for gains included in net income Foreign currency translation adjustements Minimum pension liability adjustement ¥ (29,752) ¥ 12,530 ¥(17,222) (45,527) 50,438 (156,630) 20,790 (386) 65,941 (24,737) 50,052 (90,689) ¥(82,596) Other comprehensive income (loss) ¥(181,471) ¥ 98,875 Thousands of U.S. dollars Pre-tax amount Tax benefit (expense) Net-of-tax amount For the year ended March 31, 2002: Unrealized gains on securities: Unrealized holding gains arising during period Less: reclassification adjustment for gains included in net loss Foreign currency translation adjustements Minimum pension liability adjustement Unrealized losses on derivative instruments $ 75,579 $ (31,421) $ 44,158 (122,053) 105,083 (1,048,654) (26,053) 51,263 83 441,481 10,354 (70,790) 105,166 (607,173) (15,699) Other comprehensive income (loss) $(1,016,098) $ 471,760 $(544,338) A reconciliation of the numerators and denominators between basic and diluted net income per share (EPS) for the years ended March 31, 2002 and 2001 is as follows: Year ended March 31 Net income (loss) available to common shareholders Net income effect of dilutive convertible debentures Net income (loss) available to common shareholders and assumed conversions Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥(254,017) ¥96,168 $(1,909,902) — 186 — ¥(254,017) ¥96,354 $(1,909,902) Year ended March 31 Number of shares for basic EPS computations: Weighted—average number of shares of common stock outstanding for the year Incremental shares from assumed conversions of dilutive convertible debentures Number of shares for diluted EPS computations Thousands of shares 2002 2001 3,218,951 3,218,982 — 3,218,951 24,499 3,243,481 Year ended March 31 2002 2001 Net income (loss) per share of common stock: Yen Basic Diluted ¥(78.91) ¥(78.91) ¥29.88 ¥29.71 U.S. dollars 2002 $(0.593) $(0.593) (1) Derivative 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 forward exchange contracts, interest rate 18. NET INCOME (LOSS) PER SHARE 19. FINANCIAL INSTRUMENTS 60 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 61 swap agreements and currency swap agreements, to reduce its exposures. The Company has policies and procedures for risk management and the approval, reporting and monitoring of derivative financial instruments. The Company’s policies prohibit holding or issuing derivative financial instruments for trading purposes. The counterparties to the Company’s derivative transactions are financial institutions of high credit standing. The Company does not anticipate any credit loss from nonperformance by the counterparties to forward exchange con- tract, interest rate swap agreements and currency swap agreements. The Company has entered into forward exchange contracts with banks as hedges against fluctuations in foreign cur- rency exchange rates on monetary assets and liabilities denominated in foreign currencies. The forward exchange con- tracts related to accounts receivable and payable, and commitments on future trade transactions denominated in foreign currencies mature primarily within a few months subsequent to the balance sheet date. 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 peri- od 2002 to 2012. Forward exchange contracts and certain interest rate swap agreements and currency swap agreements are designated as either fair value hedges or cash flow hedges depending on the foreign currency denominated accounts receivable or commitments on future trade transactions and the interest rate characteristics of the underlying debt as discussed below. Fair Value Hedge Strategy The forward exchange contracts utilized by the Company effectively reduce fluctuation in fair value of accounts receiv- able denominated in foreign currencies. The interest rate swap agreements utilized by the Company effectively convert a portion of its fixed-rate debt to a float- ing-rate basis. Cash Flow Hedge Strategy The forward exchange contracts utilized by the Company effectively reduce fluctuation in cash flow from commitments on future trade transactions denominated in foreign currencies for the next six months, approximately. The interest rate swap agreements utilized by the Company effectively convert a portion of its floating-rate debt to a fixed-rate basis for the next 10 years. The Company expects to reclassify ¥214 million ($1,609 thousand) of net losses on derivative financial instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months due to the collection of accounts receivable denominated in foreign currency and the payment of variable interest associated with the float- ing rate debts. At March 31, 2002, there were no significant gains or losses on derivative financial instruments or portions thereof that are either ineffective as hedges, excluded from assessment of hedge effectiveness, or where the under- lying risk did not occur. 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, 2002 and 2001 are summarized below: March 31 Forward exchange contracts: To sell foreign currencies To buy foreign currencies Interest rate swap agreements Currency swap agreements Millions of yen 2002 2001 Thousands of U.S. dollars 2002 ¥ 98,878 ¥157,532 $ 743,444 29,036 410,377 122,755 30,829 432,884 132,836 218,316 3,085,541 922,970 61 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 62 (2) Fair value of financial instruments The estimated fair values of the Company’s financial instruments at March 31, 2002 and 2001 are summarized as follows: March 31 2002 2001 2002 Millions of yen Thousands of U.S. dollars Carrying amount Estimated fair value Carrying amount Estimated fair value Carrying amount Estimated fair value Nonderivatives: Assets— Long-term finance receivables, net Liabilities— Long-term debt, including current portion Derivative financial instruments: Forward exchange contracts Interest rate swap agreements Currency swap agreements ¥ 129,489 ¥ 132,267 ¥ 143,292 ¥ 145,043 $ 973,602 $ 994,489 (1,159,679) (1,181,925) (1,260,771) (1,299,526) (8,719,391) (8,886,654) 384 384 (592) (5,474) 2,887 2,887 (3,994) (3,994) — (5,042) (30,030) (30,030) (6,884) (6,884) (9,403) (10,038) (51,759) (51,759) 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 instru- ments, 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 expens- es, 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 a part of marketable securities and other invest- ments. 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. Marketable securities and other investments include investment securities which represent holdings in a number of non-public companies. The aggregate carrying amount of these investments in non-public companies was ¥94,427 million ($709,977 thousand) and ¥103,147 million at March 31, 2002 and 2001, respectively. However, the corresponding fair value of these investments at those dates was not computed as such estimation was not practicable. 20 COMMITMENTS AND CONTINGENT LIABILITIES Commitments outstanding at March 31, 2002 for the purchase of property, plant and equipment approximated ¥10,098 million ($75,925 thousand). At March 31, 2002, contingent liabilities, principally for loans guaranteed, approximated ¥531,888 million ($3,999,158 thousand). The Company is a defendant in several pending lawsuits with respect to patent infringement, breaches of contract and warranties and others. The Company management believes that there are meritorious defenses to all of these actions. Based on the information currently available to both the Company and its legal counsel, management believes that damages from such lawsuits, if any, would not have a material adverse effect on the financial positions or the results of operations of the Company. 21 SUBSEQUENT EVENTS On May 29, 2002, Toshiba Corporation issued unsecured yen bonds of ¥60,000 million ($451,128 thousand) and ¥40,000 million ($300,752 thousand) with maturity dates of May 27, 2005 and May 29, 2008, respectively. The inter- est rates for the bond offerings are 0.49 percent and 1.08 percent, respectively. 62 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 63 Repor t of Independent Auditors The Board of Directors and Shareholders Toshiba Corporation ■Hibiya Kokusai Bldg. 2-2-3, Uchisaiwai-cho Chiyoda-ku, Tokyo 100-0011 C.P.O. Box1196, Tokyo 100-8841 ■Phone: : Fax 03-3503-1191 03-3503-1277 We have audited the accompanying consolidated balance sheet of Toshiba Corporation (the “Company”) as of March 31, 2002, and the relat- ed consolidated statements of operations, shareholders’ equity and cash flows for the year then ended, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial state- ments based on our audit. The consolidated balance sheet of the Company as of March 31, 2001 and the related consolidated statements of income, shareholders’ equity and cash flows for the year ended March 31, 2001, all expressed in Japanese yen, were audited by other audi- tors whose report dated April 27, 2001 on those statements was qualified with respect to the omission of segment information. We conducted our audit 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 mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over- all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The Company has not presented segment information required to be disclosed in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” for the year ended March 31, 2002. In our opinion, pre- sentation of segment information is required under accounting principles generally accepted in the United States of America for a complete presentation of the Company’s consolidated financial statements. As discussed in Note 2 to the consolidated financial statements, effective April 1, 2001, the Company changed its method of accounting for derivative financial instruments and hedging activities. In our opinion, except for the omission of segment information discussed in the preceding paragraph, the fiscal 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at March 31, 2002, and the con- solidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. We have also reviewed the translation of the financial statements mentioned above into United States dollars on the basis described in Note 3. In our opinion, such statements have been translated on such basis. April 25, 2002, except for Note 21, as to which the date is May 29, 2002 63 p35-p66（英）3.3J 02.8.12 4:51 PM ページ 64 Global Network OVERSEA OFFICES EUROPE Moscow AFRICA Johannesburg MIDDLE EAST Baghdad Abu Dhabi ASIA Shanghai Manila Bangkok New Delhi 64 OVERSEAS SUBSIDIARIES AND AFFILIATES NORTH AMERICA Toshiba of Canada, Ltd. Markham, Ontario, Canada 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 Toshiba GE Automation Systems Canada Mexico S.R.L. de C.V. Corporation Peel, 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 Consumer Products, Inc. Wayne, New Jersey, 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. Semiconductor North America, Inc. Irvine, California, U.S.A. Toshiba America Venture Capital, Inc. New York, New York, U.S.A. Toshiba GE Automation Systems International, L.L.C. Wilmington, Delaware, U.S.A. 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 Serviços 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 International (Europe) Ltd. West Drayton, U.K. Toshiba Electronics (UK) Ltd. Camberley, U.K. Toshiba Electronics Scandinavia A.B. Bromma, Sweden Toshiba International Finance (Netherlands) B.V. Haarlem, The Netherlands Toshiba Medical Systems Europe B.V. Zoetermeer, The Netherlands Toshiba Medical Systems B.V. Zoetermeer, The Netherlands GE Toshiba Automation Systems, L.L.C. Wilmington, Delaware, U.S.A. Toshiba Medical Systems NV/SA Antwerpen, Belgium Flash Vision, L.L.C. Manassas, Virginia, U.S.A. Toshiba Hawaii, Inc. Honolulu, Hawaii, U.S.A. ArTile Microsystems, Inc. San Jose, California, U.S.A. Enceratec, Inc. Columbus, Indiana, U.S.A. Toshiba Medical Systems GmbH Neuss, Germany Toshiba Europe GmbH Neuss, Germany Toshiba Semiconductor G.m.b.H. Braunschweig, Germany Toshiba Electronics Europe GmbH Düsseldorf, Germany Toshiba Medical France S.A. Puteaux, France p35-p66（英）3.3J 02.8.12 4:51 PM ページ 65 Toshiba Systèmes (France) S.A. Puteaux, France Toshiba Electronics France S.A.R.L. Rosny-Sous-Bois, France Schneider Toshiba Inverter Europe S.A.S. Pacy-sur-Eure, 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, CIS MIDDLE EAST Toshiba Gulf FZE Dubai, U.A.E. ASIA Toshiba India Pte. Ltd. New Delhi, India 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 Dalian Toshiba Television Co., Ltd. Dalian, The People’s Republic of China Toshiba Computer Systems (Shanghai) Co., Ltd. Shanghai, The People’s Republic of China Changzhou Toshiba Transformer Co., Ltd. Changzhou, The People’s Republic of China Wuxi Huazhi Semiconductor Co., Ltd. Wuxi, The People’s Republic of China Jiangxi Toshiba Electronic Materials Co., Ltd. Jiangxi, The People’s Republic of China Ningbo Toshiba Huatong Switchgear Co., Ltd. Ningbo, The People’s Republic of China Shengyang Neusoft Business Software Co., Ltd. Shengyang, The People’s Republic of China Jiangsu Honshiba Network System Toshiba Consumer Products (Thailand) Equipment Co., Ltd. Nanjing, The People’s Republic of China Co., Ltd. Bangkok, Thailand Nanjing Postel Wong Zhi Telecommunications Co., Ltd. Nanjing, The People’s Republic of China Henan Pinggao Toshiba High-Voltage Switchgear Co., Ltd. Henan, The People’s Republic of China Toshiba Display Devices (Thailand) Co., Ltd. Bangkok, Thailand Toshiba Semiconductor (Thailand) Co., Ltd. Bangkok, Thailand Toshiba Electronics Service (Thailand) Zhuhai Xujizhi Power System Automation Co., Ltd. Co., Ltd. Zhuhai, The People’s Republic of China Tsurong Xiamen Xiangyu Trading Co., Ltd. Xiamen, The People’s Republic of China Guangzhou Toshiba Baiyan Electrical Equipment Co., Ltd. Guangzhou, The People’s Republic of China Toshiba Hong Kong Ltd. Shatin, Hong Kong SAR Toshiba Electronics Asia, Ltd. Kowloon, Hong Kong SAR Toshiba Electronics Korea Corporation Seoul, The Republic of Korea Korea Electronic Material Co., Ltd. Inchon City, The Republic of Korea Toshiba Digital Media Network Korea Corporation Seoul, The Republic of Korea Toshiba Memory Semiconductor Taiwan Corp. Kaohsiung, Taiwan Toshiba Electronics Taiwan Corporation Taipei, Taiwan Taiwan Toshiba International Procurement Corp. Taipei, Taiwan Bangkok, Thailand Toshiba Sales and Services Sdn. Bhd. Selangor, Malaysia Toshiba Electronics Malaysia Sdn. Bhd. Selangor, Malaysia Toshiba Electronics Trading (Malaysia) Sdn. Bhd. Kuala Lumpur, Malaysia Toshiba Capital (Asia) Ltd. Singapore Toshiba Asia Pacific Pte., Ltd. Singapore Toshiba Medical Systems Asia Pte., Ltd. Singapore Toshiba Video Products Pte., Ltd. Singapore Toshiba Singapore Pte., Ltd. Singapore Toshiba Electronics Asia (Singapore) Pte., Ltd. Singapore Toshiba Data Dynamics Pte., Ltd. Singapore AFPD PTE., LTD. Singapore Toshiba Information, Industrial and Power Systems Taiwan Corp. Taipei, Taiwan Toshiba Memory Semiconductor Taiwan P.T. Toshiba Consumer Products Indonesia Bekasi, Indonesia P.T. Toshiba Display Devices Indonesia Jawa Barat, Indonesia Corp. 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 Vietnam Home Appliances Co., Ltd. Binh Duong, Vietnam Toshiba Thailand Co., Ltd. Bangkok, Thailand Thai Toshiba Electric Industries Co., Ltd. Bangkok, Thailand P.T. Tosjaya Abadi Ventura Jawa Barat, Indonesia P.T. Schneider Electric Manufacturing Batam Batam Island, Indonesia P.T. Display and Devices Indonesia Jawa Barat, Indnesia OCEANIA Toshiba (Australia) Pty., Ltd. Sydney, Australia Toshiba International Corporation Pty., Ltd. Sydney, Australia (As of March 31, 2002) 65 Af filiated Companies Accounted by The Equity Method DOMESTIC D.T. Circuit Technology Co., Ltd. ep Corporation GE Toshiba Silicones Co., Ltd. Media Serve Corporation Mobile Broadcasting Corporation NEC Toshiba Space Systems, Ltd. Nishishiba Electric Co., Ltd. TMA Electric Corporation Topcon Corporation Toshiba Ceramics Co., Ltd. Toshiba GE Turbine Service Co., Ltd. Toshiba Machine Co., Ltd. Toshiba Tungaloy Co., Ltd. Toshiba-EMI Limited Plus 7 Others OVERSEAS Flash Vision, L.L.C. GE Toshiba Turbine Components de Mexico S.R.L. de C.V. Guangdong Meizhi Compressor Limited Guangdong Meizhi Motor Limited Kumdong Lighting Co., Ltd Schneider Toshiba Inverter S.A.S Semp Toshiba Amazonas S.A. Thai Toshiba Electric Industries Co., Ltd. Toshiba Carrier (Thailand) Co., Ltd. Toshiba Carrier UK Ltd. Plus 4 Others (As of March 31,2002) p35-p66（英）3.3J 02.8.12 4:51 PM ページ 66 Consolidated Subsidiaries DOMESTIC OVERSEAS A&T Battery Corporation Device Link, Inc. FreshEye Corporation Fukuoka Toshiba Electronics Corporation Harison Toshiba Lighting Co., Ltd. Iwate Toshiba Electronics Co., Ltd. Joint Fuel Co., Ltd. Kaga Toshiba Electronics Corporation Kawasaki Estate Management Co., Ltd. Kitashiba Electric Co., Ltd. Shibaura Mechatronics Corporation Term Corporation TFPD 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 and Building Systems Corporation Toshiba Elevator Products Corporation Toshiba Engineering Corporation Toshiba Finance Corporation Toshiba GE Automation Systems Corporation Toshiba GE Turbine Components Co., Ltd Toshiba Hokuto Electronics Corporation Toshiba Home Technology Corporation Toshiba Industrial Products Manufacturing Corporation Toshiba Industrial Products Sales Corporation Toshiba Information Equipments Co., Ltd. Toshiba Information Systems (Japan) Corporation Toshiba International Fuel Sells Inc. Toshiba It-Solutions Corporation Toshiba 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 TEC Corporation Toyo Carrier Engineering Co., Ltd. Yokkaichi Toshiba Electronics Corporation Plus 157 Others 66 AFPD Pte., Ltd Changzhou Toshiba Transformer Co., Ltd Dalian Toshiba Television Co., Ltd. Dominion Semiconductor, L.L.C. GE Toshiba Automation Systems, L.L.C. Hangzhi Machinery & Electronics Co., Ltd. P.T. Display Devices Indonesia P.T. Toshiba Consumer Products Indonesia P.T. Toshiba Display Devices Indonesia Pacific Fuel Cell Capital (U.S.A.), Inc. Semiconductor America , Inc. Semiconductor North America, Inc. Shanghai Toshiba Elevator Co., Ltd. Shenyang Toshiba Elevator Co., Ltd. TEC America, Inc. TEC Singapore Electronics Pte. Ltd. TGA Holdings L.L.C. TIM Electronics Sdn. Bhd Toshiba (Australia) Pty., Ltd. Toshiba (China) Co., 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 Asia Pacific Pte., Ltd. Toshiba Capital (Asia) Ltd. Toshiba Chemical Singapore Pte., Ltd. Toshiba Compressor (Taiwan) Corporation Toshiba Computer Systems (Shanghai) Co., Ltd. Toshiba Consumer Products (Thailand) Co., Ltd. Toshiba Copying Machine (Shenzhen) Co., Ltd. Toshiba Dalian Co., Ltd. Toshiba Display Devices (Thailand) Co., Ltd. Toshiba Display Devices Inc. Toshiba do Brazil, S.A. Toshiba Electronics Europe GmbH Toshiba Electronics Malaysia Sdn. Bhd. 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 G.m.b.H. Toshiba Singapore Pte., Ltd. Toshiba Systemes (France) S.A. Toshiba TEC Europe Imaging Systems S.A. Toshiba TEC France Imaging Systems S.A. Toshiba TEC Germany Imaging Systems GmbH Toshiba TEC U.K. Imaging Systems Ltd. Toshiba Ventuer Capital, Inc. Toshiba Video Products Pte., Ltd Wuxi Huazhi Semiconductor Co., Ltd. Wuxi Tochemi Electro-Chemical Co., Ltd. Plus 60 Others Basic Commitment of the TOSHIBA Group We, the Toshiba Group companies, based on our total commitment to people and to the future, are deter- mined 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 respon- sible 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 ser vices 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 commu- nity, including ways to improve the global environment. Financial Highlights To Our Shareholders Regeneration of TOSHIBA Wireless & Seamless office Mobile Communications An Age of New Advances Review of Operations Toward Sustainable Development Board of Directors, Executive Officers and Statutory Auditors Management’s Discussion and Analysis Consolidated Financial Statements Global Network Consolidated Subsidiaries Investor Reference 1 2 5 12 14 16 18 32 34 35 42 64 66 67 Investor Reference TOSHIBA CORPORATION FOUNDED July 1875 CAPITAL ¥274,926 million (US$2,067 million) EMPLOYEES 176,398 COMMON STOCK Authorized: 10,000,000,000 shares Issued: 3,219,027,165 shares No. of shareholders: 475,649 Average holding: 6,768 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 (%) Sumitomo Mitsui Banking Corporation. .......................................... 3.88 The Dai-ichi Mutual Life Insurance Company .................................. 3.75 Nippon Life Insurance Company .................................................... 3.36 Japan Trustee Service Bank, Ltd. .................................................. 2.94 State Street Bank and Trust Company ........................................... 2.37 The Mitsubishi Trust and Banking Corporation ................................ 1.81 UFJ Trust Bank Limited ................................................................. 1.80 The Chase Manhattan Bank NA London ......................................... 1.71 Employees Stock Ownership Plan .................................................. 1.63 NIPPONKOA Insurance Company, Limited ....................................... 1.55 As of March 31, 2002 Web site information Toshiba is vigorously carrying out Internet-based IR activities to ensure timely and fair www.toshiba.co.jp/about/ir/index.htm www including press releases and investors' guides. There is also a section that allows site disclosure to all investors. Our investor relations site features information for investors, visitors to express their opinions and ask questions, part of our efforts to improve the quality of our IR activities through interactive communications with investors. FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements concerning Toshiba’s fu- ture plans, strategies and per formance. These for ward-looking statements are not historical facts, rather they represent assumptions and beliefs based on eco- nomic, financial and competitive data currently available. Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. For further information, please contact: Toshiba Corporation Investor Relations Group Corporate Communications Office 1-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan Phone: +81-3-3457-2096 Facsimile: +81-3-5444-9202 Mail: ir@toshiba.co.jp 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 I T O S H B A A N N U A L R E P O R T 2 0 0 2 Printed in Japan TOSHIBA ANNUAL REPORT 2002 Year ended March 31, 2002 

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