Toshiba Corp.
Annual Report 2003

Plain-text annual report

For Anyone Anytime Anywhere Communication Comes Alive ANNUAL REPORT 2003 Year ended March 31, 2003 Basic Commitment of the TOSHIBA Group We, the Toshiba Group of companies, based on our total commitment to people and to the future, are determined to help create a higher quality of life for all people, and to do our part to help ensure that progress continues within the world community. Commitment to People We endeavor to serve the needs of all people, especially our customers, shareholders, and employees, by implementing forward-looking corporate strategies while carrying out responsible and responsive business activities. As good corporate citizens, we actively contribute to further the goals of society. Commitment to the Future By continually developing innovative technologies centering on the fields of Electronics and Energy, we strive to create products and services that enhance human life, and which lead to a thriving, healthy society. We constantly seek new approaches that help realize the goals of the world community, including ways to improve the global environment. FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements concerning Toshiba’s future plans, strategies and performance. These forward-looking statements are not historical facts, rather they represent assumptions and beliefs based on economic, financial and competitive data currently available. Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. INVESTOR REFERENCE TOSHIBA CORPORATION 61 Investor Reference TOSHIBA CORPORATION PRINCIPAL SHAREHOLDERS (%) FOUNDED July 1875 CAPITAL ¥274,926 million EMPLOYEES 165,776 COMMON STOCK Authorized: 10,000,000,000 shares Issued: 3,219,027,165 shares No. of shareholders: 486,702 Average holdings: 6,614 shares Stock Code: 6502 Transfer Agent: The Chuo Mitsui Trust and Banking Company, Limited HEADQUARTERS 1-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan The Master Trust Bank of Japan, Ltd. (trust accounts) The Dai-ichi Mutual Life Insurance Company Japan Trustee Service Bank, Ltd. (trust accounts) Nippon Life Insurance Company Sumitomo Mitsui Banking Corporation State Street Bank and Trust Company Employees Stock Ownership Plan The Chase Manhattan Bank NA London NIPPONKOA Insurance Co., Ltd. Shinsei Bank, Limited 5.32 3.63 3.61 3.24 2.36 1.80 1.65 1.60 1.55 1.52 As of March 31, 2003 Web site information Toshiba is vigorously carrying out Internet-based IR activities to ensure timely and fair disclosure to all investors. Our investor relations site features information for investors, including press releases, investors’ guides and business results announcements, as well as streaming video of business results meetings and explanatory sessions. There is also a section that allows site 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. www.toshiba.co.jp/about/ir/index.htm 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 E-mail: ir@toshiba.co.jp http://www.toshiba.co.jp/about/ir/index.htm Product names may be trademarks of their respective companies. ｱﾆﾚﾎﾟH1-4(英) Page 61 03.6.25, 8:12 PM Adobe PageMaker 7.0J/PPC TABLE OF CONTENTS 3-6P 7-9P 10-11 P 12-13 P 14-17 P 18-19 P 20-21 P TABLE OF CONTENTS TOSHIBA CORPORATION 1 To Our Shareholders A Confident Step toward Earnings Recovery Growth Policies that Make Toshiba a Winner Becoming a Highly Profitable Group with Growth Potential and Earnings Stability Corporate Governance At a Glance Leveraging Optimal Business Models to Accelerate Growth under Competitive Conditions A View to the Future Toshiba’s Growth Business Domains Expansion in China, the Growth Market Research and Development Advancing R&D to Create a New Future 22-23 P Toward Sustainable Development and a Recycling-Based Society Toward a Sustainable Recycling-Based Society P24-25 P26-55 P56-57 P58-59 P60 P61 Directors & Officers Financial Section Organization Chart Global Network Consolidated Subsidiaries Investor Reference ｱﾆﾚﾎﾟp1-26(英)6.18 Page 1 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 2 TOSHIBA CORPORATION FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS Toshiba Corporation and its subsidiaries Years ended March 31, 2003 and 2002 Net sales–Japan –Overseas Net sales Operating income (loss) Income (loss) before income taxes and minority interest Net income (loss) Total assets Shareholders’ equity Capital expenditures (property, plant and equipment) Research and development expenditures Return on equity (ROE) (%) Return on total assets (ROA) (%) Per share of common stock: Net income (loss) –basic –diluted Cash dividends Number of employees Millions of yen Change (%) Thousands of U.S. dollars 2003 2002 2003/2002 2003 ¥3,343,551 2,312,227 ¥3,340,491 2,053,542 5,655,778 115,542 53,123 18,503 5,238,936 571,064 230,512 331,494 2.9 0.3 5,394,033 (113,575) (376,687) (254,017) 5,407,782 705,314 348,235 326,170 (29.0) (4.6) 0.1 12.6 4.9 — — — (3.1) (19.0) (33.8) 1.6 — — $27,862,925 19,268,558 47,131,483 962,850 442,692 154,192 43,657,800 4,758,867 1,920,933 2,762,450 Yen U.S. dollars ¥5.75 5.75 3.00 ¥(78.91) (78.91) — — — — $0.048 0.048 0.025 165,776 176,398 (6.0) Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥120=U.S. $1. 2. Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share assumes the dilution that would occur if dilutive convertible debentures were converted into common stock. NET SALES (Billions of yen) NET INCOME (LOSS) (Billions of yen) ROE (%) ROA (%) ｱﾆﾚﾎﾟp1-26(英)6.18 Page 2 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC TO OUR SHAREHOLDERS TOSHIBA CORPORATION 3 TO OUR SHAREHOLDERS over two years, a Group-wide reduction of human resources by 10%, and ¥800 billion asset cuts. Drawing on Toshiba Value Created (TVC), a methodology we created for evaluating business performance, we initiated a series of restructuring measures in fiscal 2002. Among these were a joint venture with Matsushita Electric Industrial Co., Ltd. in color cathode ray tubes, and the merger of our indus- trial electric and automation systems businesses with that of Mitsubishi Electric Corporation. Continued competitiveness in the semiconductor industry was bolstered by the decision to initiate a four-year, ¥350 billion investment program to construct advanced fabrication facilities that will put 300 millimeter wafer lines at the center of Toshiba’s production of memory devices and system LSIs. In a move made to en- hance the brand value of our digital products businesses, Toshiba acquired Amuse Pictures, Inc., one of Japan’s leading independent film producers and distributors. As we worked for our ambitious goal of cutting procurement costs by 20% over two years, we also saw progress in Group- wide integration of procurement and in bringing engineers into procurement activities. These and other measures, in- cluding a greater emphasis on e-procurement, are expected to promote cost reductions in all aspects of our activities and add to the competitiveness of Toshiba products. Our efforts to reduce human resources were rewarded when we met our headcount target in fiscal 2002, a year earlier than planned. We were also successful in efforts to reduce as- sets by ¥450 billion, in addition to the ¥350 billion originally planned. Achievements in Fiscal 2002 Consolidated Group sales in fiscal 2002 were ¥5,655.8 bil- lion, a 5% increase compared to fiscal 2001. Operating income amounted to ¥115.5 billion, an increase of ¥229.1 billion over fiscal 2001. Income before taxes totaled ¥53.1 billion, an increase of ¥429.8 billion against fiscal 2001. These results took us a steady step forward toward recovery, and allowed us to pay a three-yen full-term dividend. Mid-term Business Plan This year marks the launch of our latest mid-term business plan, which builds on our achievements in fiscal 2002 and represents our expectations for the years after fiscal 2003. We are at the threshold of a new age, an age of ubiquitous computing. In coming years, immense processing capabilities and powerful broadband networks will support the creation Tadashi Okamura Director, President and Chief Executive Officer An Overview of Fiscal 2002 Industry Environment Fiscal 2002, to March 31, 2003, opened on a positive note, as the world’s markets saw encouraging signs of recovery in the United States, and inventory adjustments contributed to an upturn in production. However, hopes for a moderate but sustainable global recovery proved short-lived. Overseas, geopolitical instability provoked doubt and a change of mood. In the U.S., the stock market declined as petroleum prices edged up, and individual consumption stagnated as concerns for property values undermined consumer confi- dence. In Europe, markets once again became sluggish. The only bright spots and expanding markets were to be found in China and other Asian countries that have become the workshops of the world. But the appearance of Severe Acute Respiratory Syndrome (SARS) in those countries raises ques- tions about the economic impact of the illness, and how affected regions can maintain high growth. While Japan ex- perienced substantial growth, due to the economic conditions in other Asian countries and a focus on recovery in export-led industries, domestic deflation combined with a long-term slump in private-sector capital investment and public spending to produce a negative nominal growth rate. Japan continues to experience severe setbacks in its transi- tion to recovery. Progress of the 01 Action Plan Even in the midst of these severe economic conditions, we de- clared fiscal 2002 to be “The First Year of Toshiba’s Regeneration” and took decisive steps to strengthen competi- tiveness. Chief amongst these steps was accelerated execution of our 01 Action Plan—a three-year initiative announced in fiscal 2001—to bring forward the positive results we targeted. The Plan has supported us in raising management efficiency across the Group, promoting asset-light management and de- veloping a clear focus on selected businesses. Achievements of the 01 Action Plan include a 20% reduction in procurement ｱﾆﾚﾎﾟp1-26(英)6.18 Page 3 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 4 4 TOSHIBA CORPORATION TOSHIBA CORPORATION TO OUR SHAREHOLDERS of products and services that remake our work and living envi- ronments. The changes to come will range wide and deep, extending beyond the office, beyond the home, into areas such as administration and medical services, into pleasure and enter- tainment, and into the fabric of society. The developments we will see will add to the quality of life while respecting the earth and our natural environment. Toshiba is ready to play a central, proactive role in the shift to ubiqui- tous computing networks, both through its advanced technologies and long years of experience in bringing to market high-value-added products. Times of social transition are also those of opportunity, and we will make use of all opportunities to assure that Toshiba Group becomes a highly profitable business across its business domains. Within Toshiba Group, we have defined three key business areas, to which we will channel management resources. Digital products and electronic devices are areas where we anticipate high growth and high profitability, and see rapid progress to a top-three position in world markets. In our social infrastructure domain, we anticipate steady growth, sustained profits, and business expansion. The digital products domain encompasses diverse strength in PCs, mobile products, storage devices, visual imaging and wireless tech- nology. Toshiba’s portable PCs lead the industry and constantly redefine performance standards. Our mobile phones do the same with advanced video imaging. We are a market leader in small-form- factor hard disk drives and in optical storage, both areas where we are defining new applications. Toshiba’s wireless know-how includes leadership in creating the Bluetooth™ standard. And we lead the way in DVD and digital TV. These capabilities will come into play with growing demand for mobile products with wireless functionality. The electronic devices domain covers semiconductors and liquid crystal displays (LCDs). Our continuing world leadership in discrete devices demonstrates Toshiba’s formidable strength in semiconduc- tors, as do our sustained profits in analog devices and NAND flash memories. Alongside these, we will continue to develop the system- on-chip (SoC) business that is positioning Toshiba as a solutions provider and that will help assure our place among the world’s top- three semiconductor makers. In LCDs, we will combine innovation in new generations of displays with support for new applications. The social infrastructure domain includes power systems, social sys- tems, communications, solutions and medical equipment. While rooted in hardware, this is also a domain where the development of new services holds the promise of steady profit. The same is true of such emerging business areas as the environment, and new markets, where we are bringing products and services developed for Japan to Asian markets and beyond to the wider global stage. Along with these growth domains, Toshiba considers home appli- ances and network services and content as important business areas where it will promote reorganization and expansion. Under the umbrella of a new marketing company, our businesses related to home appliances will adopt new marketing structures and move more proactively into overseas markets. By combining our network service capabilities, including the Web-based services we have marketed to individuals, we will support the continued emergence of the virtual economy through digital broadcasting systems and services and content, including digital images and music. In fiscal 2005, the final year of the current mid-term business plan, Toshiba anticipates dynamic Group operations and a strong profit structure. The Company targets consolidated sales of ¥6,600 bil- lion, operating income of over ¥270 billion, and an enhanced financial standing, with a debt-to-equity ratio of less than 160%. Structural Reform The earliest realization of goals laid out in the 01 Action Plan will be supported by a series of structural reforms initiated in April 2003. Building a Platfor m for Consistently High Earnings ｱﾆﾚﾎﾟp1-26(英)6.18 Page 4 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC TO OUR SHAREHOLDERS TOSHIBA CORPORATION TOSHIBA CORPORATION 5 5 Business Reorganization As the business environment becomes ever more demanding and less forgiving, Toshiba is determined to devise an operational frame- work that provides management direction for the overall Group, while supporting individual businesses facing different circumstances and different requirements. A comprehensive review of our operations has made it clear that the time constraints, business cycles and particular demands that our in-house companies face are growing increasingly diverse. In response, we have adopted a four-fold approach to reor- ganization: the integration of in-house companies with Group companies, complete autonomy where it will enhance efficiency, full independence to pursue alliances and collaboration with other com- panies, and freedom to adopt a particular management style or organization to reinforce strength and operations. As a result of this approach, the Display Devices & Components Com- pany, e-Solutions Company, Medical Systems Company and Home Appliances Company have all been spun off and integrated with Group companies, and are now developing new operating structures. Introducing Business Groups As already noted, Toshiba needs an organization that provides a clear direction. To that we must add the need for faster, more reso- lute decision-making. In pursuit of this, our structural reforms include the establishment of business groups that bring together those operations with similar time constraints and growth rates. Each group comprises several in-house companies and Group com- panies, and will develop the management approach best suited to its businesses. As a result of the above measures, the pace of management deci- sion-making will be significantly accelerated and the management g a Platfor m for tently High Earnings ｱﾆﾚﾎﾟp1-26(英)6.18 Page 5 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 6 TOSHIBA CORPORATION TO OUR SHAREHOLDERS resources available to each business group will be directed to the areas where they can have the biggest impact. Becoming a Company with Committees In recent years, we have rolled out significant reforms. In 1998, we introduced an executive officer system, and in 1999 we initiated an in-house company system. A year later, we established the Nomination and Compensation Commit- tees, and in June 2001 we increased the number of external directors to three, while lowering the tenure period of each director to one year. Through these measures, we anticipated changes in the wider world and assured Toshiba’s place in the vanguard of reform. Another way in which Toshiba will progress toward growth is through evolutionary improvements in its culture and busi- ness practices. One area where this is particularly important is our “TM1 Movement,” or “Time to Market No. 1.” This program is dedicated to cutting lead times at every stage of product development and manufacture, from the planning process through to customers. To realize our goal of a mar- ket-centric approach to management, we are doing all we can to remove barriers between product development, pro- curement, production, distribution and sales and marketing, while raising efficiency in each of these activities. This will assure our ability to cut lead times and launch differentiated products in advance of other companies. We remain there today through our decision to make Toshiba a “Company with Committees.” Adoption of this new sys- tem allows us to take reform even further, as it defines a clear supervisory function for the Board of Directors and enhanc- es management authority and flexibility. As we promote these measures to improve transparency and corporate gover- nance, we are also reinforcing our risk management and compliance systems. Developments for Fiscal 2003 Pursuing Further Growth Forecasts for fiscal 2003 show no easing in the severity of the business environment. If Toshiba Group is going to over- come these conditions and achieve further growth, it must continue to rebuild and to reinforce its operating structures. We must also utilize our technological assets, production strengths and business acumen to stimulate new demand, and to assure that the positive results we recorded in fiscal 2002 are the foundations for sustained growth and higher profit in fiscal 2003. Toward that objective, we will make every effort to promote business development, particularly through investments in our high-growth domains, the foundation for creating new demand. Management Forecast for Fiscal 2003 In fiscal 2003, to March 31, 2004, Toshiba forecasts a 1% increase against fiscal 2002 in consolidated net sales, to ¥5,700 billion. Operating income is projected to rise ¥54.5 billion, to ¥170 billion. We anticipate an increase of ¥36.9 billion in net income before taxes, to ¥90 billion, and a gain of ¥21.5 billion in net income, to ¥40 billion. Closing Remarks In 128 years of operations, Toshiba and Toshiba Group have won a vast number of customers, built up an abundance of technological know-how and assets, and developed a brand name that has become a byword for high quality and trust- worthy products. That is our heritage, and the base from which we will work to create new value that meets the needs and expectations of our customers around the world. Through our efforts, we will open a new chapter in Toshiba’s history, and assure a dynamic Toshiba Group that contrib- utes to society. We will continue to adhere to our slogan, “Innovation-driv- en, Customer-focused Growth,” and to build a highly profitable group of companies that is active in both high- growth and stable-growth businesses. As we do so, we hope we may rely on your continued understanding and support. Taizo Nishimuro Chairman of the Board Tadashi Okamura Director, President and Chief Executive Officer ｱﾆﾚﾎﾟp1-26(英)6.18 Page 6 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC GROWTH POLICIES THAT MAKE TOSHIBA A WINNER TOSHIBA CORPORATION TOSHIBA CORPORATION 7 7 Aiming to be a Highly Profitable Corporate Group that Offers Stability and Growth Potential Vision and Direction Major Business Domains Goals for Fiscal 2005 Policies toward Growth TM1: Compressed Lead Times For Anyone Anytime Anywhere Communication Comes Alive ｱﾆﾚﾎﾟp1-26(英)6.18 Page 7 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 8 8 TOSHIBA CORPORATION TOSHIBA CORPORATION GROWTH POLICIES THAT MAKE TOSHIBA A WINNER GROWTH POLICIES THAT MAKE TOSHIBA A WINNER Management innovation and maximization of management resources will support Toshiba as it promotes forward-looking reforms. Through this approach, we will reach a balance in our high-growth and stable-growth domains and take our place among other high-profit companies. Vision and Direction Low growth around the world has gradual- ly given way to the current state of global stagnation. Seeking opportunity in adversi- ty, Toshiba has used its 01 Action Plan to promote concerted efforts to boost profit- ability and to improve its financial position. Launched in fiscal 2001, the Plan has fostered vigorous reforms in Toshiba’s business structure, achieved significant re- ductions in procurement and fixed costs, and supported an “asset-light” strategy that has trimmed property and other assets. Major Business Domains Our recent mid-term business plan defines three key business domains. The digital October 2003 Business Reorganization products and electronic devices domains are both high-growth areas; the first as a source of the products of tomorrow, the second of the key technologies that help to realize them. In the social infrastructure do- main, we expect to see continued stable growth. Toshiba will promote expansion in all of these domains by channeling manage- ment resources into them, particularly the high-growth domains. Goals for Fiscal 2005 Our goal in digital products and electronic devices is clear: a top-three position in terms of sales in the world market in key product areas. We will achieve this through growth rates that surpass those of the mar- ket, with the expectation of achieving ｱﾆﾚﾎﾟp1-26(英)6.18 Page 8 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC GROWTH POLICIES THAT MAKE TOSHIBA A WINNER TOSHIBA CORPORATION TOSHIBA CORPORATION 9 9 average annual sales growth of 8% and of realizing ¥180 billion in combined operat- ing income from these two domains in fiscal 2005. In the social infrastructure domain, our target is operating income of ¥70 billion in fiscal 2005, which we expect to achieve even if the average sales increase is as low as 2% a year. In all three of these core domains, we expect overseas sales to account for 50% of net sales in fiscal 2005, up 10% from the fiscal year under review. Through the 01 Action Plan and our new mid-term business plan, we expect consolidated net sales to increase to ¥6,600 billion by fiscal 2005, and project operat- ing income of at least ¥270 billion. We also expect to reduce the debt-to-equity ratio to less than 160%. Policies toward Growth The direction technology will take in com- ing years is strongly in Toshiba’s favor. Industry-leading know-how in the digital, mobile and network areas will sustain us in developing innovative technologies, as growth engines for products that will drive the creation of promising new markets. Our strengths include rich capabilities in wireless and mobile technologies, such as Bluetooth™, wireless LAN, MPEG4 digi- tal image compression, portable PCs, lithium-ion secondary batteries and fuel cells. Accelerated R&D will be directed at integrating these and other advanced tech- nologies in differentiated products that come to market at least one step ahead of products from other companies. Toward that goal, we will continue to promote a high level of investment in R&D, following on from fiscal 2002’s ¥340 billion with a total investment of ¥1,100 billion in the three years to fiscal 2005. Reflecting Toshiba’s commitment to boost profitability, about three-fourths of research funding will be channeled to the high-growth domains. In the same period, we will also promote significant capital expenditure, from ¥204 billion in fiscal 2002, to ¥840 billion. Here too, the emphasis will be on our growth domains, with about 75% of expenditure earmarked for semiconductors and other growth areas. TM1: Compressed Lead Times We have already mentioned our resolve to get products to market ahead of our com- petitors. That is more than just ambition. Through MI 2001, the six-sigma-based management initiative introduced in 1999, we have promoted concerted efforts to maximize efficiency and cut lead times at every stage, from product planning to mar- ket launch. We have also achieved some notable successes. In August 2002, we brought new PCs to the marketplace by placing priority on time and on cross-functional cooperation across sales and marketing, product planning, de- velopment, procurement and production. As a result, we met the demand spike at the start of European and U.S. school years— the intense, back-to-school market that can make a big difference to the bottom line— with products that met sales goals and made a positive contribution to our profit and loss figures. We were also able to close August 2002 as the number one portable PC vendor in the U.S. retail market. Among the provisions of our latest mid- term business plan is the “TM1 Movement,” or “Time to Market No. 1.” Building on our successes so far, we will make the TM1 Movement an essential part of new product launches. We will promote successive reductions in lead times and use them to achieve rapid gains in market share and improved sales and profits. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 9 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 10 10 TOSHIBA CORPORATION TOSHIBA CORPORATION GROWTH POLICIES THAT MAKE TOSHIBA A WINNER CORPORATE GOVERNANCE Toshiba is determined to achieve the highest standards of corporate governance. Toward this, we will bring greater transparency to management processes and business strategy, reinforce disclosure and accountability, and continue to refine thoroughgoing risk management procedures. Through enhancements to our system of corporate governance, we will seek continued enhancement of the value of the company. Building on Accomplishments Since improving corporate governance re- quires higher levels of operating openness and timely decision-making, we consistent- ly advocate management innovation and reform. As a result, Toshiba moved ahead of other Japanese companies in the intro- duction of an executive officer system in 1998, and in the deployment of an in- house company system in 1999. Fiscal 2003 will involve another round of reform, as we take full advantage of revisions to the Japanese Commercial Code to initiate a Company with Committees system. This new system will reinforce the supervisory function of management, enhance manage- ment transparency and further improve corporate governance. Moreover, the new system will promote greater management agility and flexibility by clearly separating responsibility for business supervision and execution, and improve management speed by delegating a wide range of authority and freedom to Toshiba’s executive officers. Increasing Management Agility by Separating Business Supervision and Execution Through the Company with Committees system, the role of the Board of Directors is focused on compliance. The Board essen- tially acts on behalf of stakeholders, including the shareholders, to ensure that basic policy decisions and important man- agement initiatives reflect stakeholder interests. Three legally mandated commit- tees—Nomination, Audit and Compensation—all of which must contain a majority of outside directors, further bol- ster the supervisory function and transparency of governance, while also rep- resenting stakeholder concerns. The Audit Committee serves to provide a potential check on management, as a vehicle for monitoring Toshiba’s activities for compli- ance with legal and regulatory requirements. The Company with Committees system is positioned to transfer a wide range of au- thority from directors to executive officers, which will accelerate the speed of manage- ment decision-making. With the implementation of a clearly defined system for business supervision and execution, along with the reconstruction of mecha- nisms for internal corporate controls and monitoring, executive officers will gain the freedom to concentrate more clearly on business performance. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 10 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC GROWTH POLICIES THAT MAKE TOSHIBA A WINNER TOSHIBA CORPORATION TOSHIBA CORPORATION 11 11 Thoroughgoing Risk Management Openness and Accountability In a turbulent, fast-changing business envi- ronment, it is imperative that risk management is at the forefront of manage- ment’s concerns. The recent revisions to the Japanese Commercial Code are clear in re- quiring companies that make the transition to the Company with Committees system to set up an internal control system for managing risk and compliance with laws and other requirements. Toshiba has al- ready established a strong system for risk management throughout Group opera- tions. Measures already implemented include a corporate Risk Management Committee and a comprehensive compli- ance system, all of which will be evaluated and improved on as necessary. Toshiba regards proactive investor relations activities as an essential component of full management transparency, and constantly strives to maximize information disclosure. The quarterly reports we initiated in the quarter ending in December 2001 play a key part in this pursuit, allowing us to provide stakeholders with timely updates on fore- casts and business conditions. And since we also consider the exchange of information to be a mutual process, stakeholder views, opinions and suggestions are routinely re- ported to Toshiba’s management. In other words, we place central importance on in- creasing shareholder value through positive investor relations activities. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 11 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 12 TOSHIBA CORPORATION AT A GLANCE AT A GLANCE Digital Products In-House Companies, Affiliated Companies and Corporate Divisions that Comprise Business Groups Percentage of Net Sales (FY 2002) Mobile Communications Company Digital Media Network Company Toshiba TEC Corporation NET SALES (¥ Billion) OPERATING INCOME (LOSS) (¥ Billion) 3,000 2,500 2,000 1,500 1,000 500 0 33% FY 01 FY 02 FY 03 Forecast 55 45 35 25 15 5 0 -5 FY 01 FY 02 FY 03 Forecast Electronic Devices & Components NET SALES (¥ Billion) OPERATING INCOME (LOSS) (¥ Billion) Semiconductor Company Display Devices & Components Control Center Toshiba Matsushita Display Technology Co., Ltd. 3,000 2,500 2,000 1,500 1,000 500 0 20% 20% FY 01 FY 02 FY 03 Forecast 100 50 0 -50 -100 -150 -200 FY 01 FY 02 FY 03 Forecast Social Infrastructure Systems NET SALES (¥ Billion) OPERATING INCOME (LOSS) (¥ Billion) Home Appliances Others Industrial and Power Systems & Services Company Social Network & Infrastructure Systems Company Toshiba Elevator and Building Systems Corporation e-Solutions New Company Medical Systems New Company 29% Marketing New Company Home Appliances (White Goods) New Company Toshiba Lighting & Technology Corporation 10% Toshiba Carrier Corporation Toshiba Battery Co., Ltd. Network Services & Contents Control Center Other 8% 3,000 2,500 2,000 1,500 1,000 500 0 FY 01 FY 02 FY 03 Forecast 60 50 40 30 20 10 0 FY 01 FY 02 FY 03 Forecast NET SALES (¥ Billion) OPERATING INCOME (LOSS) (¥ Billion) 900 750 600 450 300 150 0 FY 01 FY 02 FY 03 Forecast 12 10 8 6 4 2 0 FY 01 FY 02 FY 03 Forecast NET SALES (¥ Billion) OPERATING INCOME (LOSS) (¥ Billion) 600 500 400 300 200 100 0 FY 01 FY 02 FY 03 Forecast 30 25 20 15 10 5 0 FY 01 FY 02 FY 03 Forecast Business Strategies (¥ billion) Net Sales Operating Income (Loss) We will secure our position among the global leaders through effective mobile and wireless solutions strategies and by channeling resources into products for ubiquitous networks. AT A GLANCE TOSHIBA CORPORATION 13 Mobile Communications Company: Continuous investments in so- phisticated, high-value-added products will assure we maintain a high market share and strengthen profitability. Development of ad- vanced products will support business expansion in the two key markets we have recently entered, Europe and China. Digital Media Network Company: The ability to meet the emergence of ubiquitous networks with competitive products based on techno- logical innovations and the integration of wireless and broadband technologies will drive strategies for market leadership and contin- ued growth. Semiconductor Company: Three product areas sustaining growth and high profitability—discrete devices, analog ICs and NAND flash memory—will support us in expanding solutions that build our SoC business and assuring that we continue to number among the world’s top-three companies in sales. Toshiba Matsushita Display Technology Co., Ltd.: A strategic focus on small- and medium-sized displays and further cost reductions in manufacturing low temperature polysilicon LCDs will bring us a significant improvement in profitability. In products, our emphasis is on high-growth areas such as digital con- sumer products and mobile equipment, and on markets in China and Asia, where we anticipate substantial growth and important customers in the global market. As a Toshiba Group core industry, we will work for high growth and sustained profitability. Structural reorganization will support efficient allocation of management resources and promote an improved cost structure and strengthened profitability. As we work to expand overseas business we will also devel- op new businesses that will support a stable base of profits. Industrial and Power Systems & Services Company: The focus of our expansion strategy will be on growth in China and other Asian markets. We will enter Japan’s power generation business and pro- mote further development of environmentally friendly systems and expansion into other new businesses. Social Network & Infrastructure Systems Company: Broadcasting, com- munications and image recognition hardware will be our springboard for an overseas expansion of our systems solutions business that will assure maintained stable profits. Toshiba Elevator and Building Systems Corporation: We will reinforce relations with Kone of Finland, our strategic business partner. We will continue to introduce competitive products, such as machine room-less elevators, and work towards global business logistics. e-Solutions New Company: The unification of marketing, technology and development allows us to make the most of our wide-ranging expertise, sophisticated technologies, and high-level reliability, and supports our ability to offer advanced solutions and to reinforce a comprehensive package-solution business. Medical Systems New Company: We will initiate a system that sus- tains global consistency in all aspects of our business, from planning to development, production, marketing and maintenance services. As a Total Medical Solutions Company we will deliver exclusive services and achieve early market introduction of excellent products. With the intent of reorganizing and strengthening our overseas busi- ness and overall marketing, our October 2003 reorganization of the home appliance business establishes a Marketing New Company. This unifies marketing at four businesses and affiliates: Home Appliances (White Goods) New Company, Toshiba Lighting & Technology Corpora- tion, Toshiba Carrier Corporation and Toshiba Battery Co., Ltd. The Network Services & Contents Control Center unifies management of the network service business, content business and media services business. FY 01 FY 02 FY 03 (forecast) 1,885.3 - 1.9 2,073.0 24.8 2,180.0 50.0 (¥ billion) Net Sales Operating Income (Loss) FY 01 FY 02 FY 03 (forecast) 1,044.4 - 175.2 1,274.4 31.9 1,330.0 55.0 (¥ billion) Net Sales Operating Income (Loss) FY 01 FY 02 FY 03 (forecast) 1,930.9 41.1 1,822.6 39.2 1,740.0 42.0 (¥ billion) Net Sales Operating Income (Loss) FY 01 FY 02 FY 03 (forecast) 655.7 10.2 633.6 650.0 4.1 8.0 (¥ billion) Net Sales Operating Income (Loss) FY 01 FY 02 FY 03 (forecast) 484.9 11.4 491.1 15.5 510.0 15.0 ｱﾆﾚﾎﾟp1-26(英)6.18 Page 13 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 14 TOSHIBA CORPORATION A VIEW TO THE FUTURE A VIEW TO THE FUTURE Our mid-term business plan, announced in March 2003, identifies two high-growth domains, digital products and electronic devices In FY 2005, the last year of the plan, we anticipate consolidated sales of ¥6,600 billion and consolidated operating income of ¥270 billion. In achieving that, and an average annual growth rate of 8%, we expect our high-growth domains to secure a top- three position in terms of global sales in all major business areas, and to generate consolidated sales of ¥4,320 billion and consolidated operating income of ¥180 billion. Individual businesses will have the freedom to develop the business model best suited to their competitive environment and to promoting accelerated growth. Toshiba’s Growth Business Domains Digital Products Businesses Mobile Communications Company The digital products domain has a crucial mis- sion: to meet the emergence of ubiquitous networks with innovative mobile and wireless solutions that secure leading positions in glo- bal markets. Businesses in the domain will draw on the core competencies of our in-house companies, in such areas as video image compression, speech recognition and nanotechnology, to promote differentiated technologies that sup- port winning business strategies. With the January 2003 release of the “dynabook C7” into the Japanese market, Toshiba took portable computing to the next level by making user comfort the core design concept. A Clear Super View LCD offers striking visual reproduction that is complemented by high-end specs, including an Intel Pentium III processor and a 40GB hard disk drive. Vision and Strategy Mobile communications is an attention-getter everywhere, not least in Japan, where services include mobile Internet connectivity and transmission of still and moving pictures from camera-equipped mobile phones. Toshiba brings broad capabilities to this business, not least the fusion of movie recording and trans- mission with the AVC5 technologies of audio, visual, computer, communications, camera, card and content. This ability supports our continuous delivery of high value-added mul- timedia mobile phones to key regional markets. We are confident that the know-how we have cultivated and the strategies we are promoting will prove to be winners, allowing us to raise market share, increase profitability and establish Toshiba in the top three in the world multimedia mobile phone market. Markets, Products and Technology In a domestic market driven by replacement demand, Toshiba is carving out a steadily growing market share. In 2002 we advanced to fourth position in overall sales, with approxi- mately 26% of the NCC (New Common Carrier) market. Our goal for 2003 is to con- tinue improving on core technologies that support us in the early launch of flagship mod- els that can define the direction of the industry and secure our technological and market lead- ership Overseas, we will bring the technologies that succeed in Japan to full-featured mobile phones for the global market. We will seek to optimize the effective allocation of our re- sources and to boost our international ｱﾆﾚﾎﾟp1-26(英)6.18 Page 14 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC A VIEW TO THE FUTURE TOSHIBA CORPORATION 15 The 57-inch Projection TV uses Liquid Crystal on Silicon technology (LCOS) to achieve a resolution of 1080 pixels. business. With Audiovox Corporation, our business partner in North America, we will venture beyond the mid-range models that have, until now, been the nucleus of our strat- egy, to reveal our strengths in high-value-added markets. In Europe, we started to supply 2.5G GSM mode GPRS Method i-mode terminals to Holland’s KPN Group in November 2002. From there, we now hope to work with the world’s largest mobile service provider, allow- ing us to enter Europe’s value-added service market and further develop our business. We also brought multimedia to the Chinese mar- ket, when we introduced terminals supporting movie mail in March 2003. China is expected to see substantial growth in demand, and we want to win in the market by continuously supplying advanced high-end products. Digital Media Network Company Vision, Products and Technology The immense broadband capacities of ubiqui- tous networks will soon make wireless transmission of high-quality streaming video and other data-rich content a fact of daily life. Wherever we are, even while traveling, we will be able to access and enjoy a vast range of en- tertainment content, downloading it to a PC, PDA, or even a mobile phone. The same is true of access to information, whether we are at home or on the move—fast, easy access that will expand the possibilities of telecommuting from home or a mobile office. The future is drawing near, and it offers dramatic changes that will enhance work styles and lifestyles. The Digital Media Network Company is leading the way to the future of ubiquitous networking with core technologies in three es- sential areas: the home, the office and the pub- lic environment. The breadth of our capabilities covers computing, visual imaging, data storage, wireless and security technolo- gies, and finds form in market-defining products, a long list that includes portable PCs, computer network equipment, HDD and ODD drives, TVs and other visual equip- ment, and new generations of personal mobile devices. In bringing cutting-edge capabilities to ad- vanced products, we are guided and informed by VOC, the voices of our customers. Listen- ing closely to the market and what people want, right from the point of concept develop- ment, allows us to create highly original, practical products and services that meet real needs to the fullest. Drawing on Toshiba’s rich storehouse of technological know-how, and making full use of our abundant experience in PCs and software assets, we create imaginative, differentiated products that assure the Digital Media Network Company’s continued leader- ship in the age of ubiquitous networks. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 15 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 16 TOSHIBA CORPORATION A VIEW TO THE FUTURE Toshiba’s world-first combination HDD/DVD video recorder with network connectivity made a big splash on its launch into the Japanese market in December 2002. In addition to the largest hard drive available—a full 120GB—it is capable of recording up to 156 hours of video. Electronic Devices Businesses Toshiba’s electronic devices domain begins with semiconductors and goes on to the liquid crystal display business—now the responsibili- ty of Toshiba Matsushita Display Technology Co. Ltd., our joint venture with Matsushita Electric Industrial, Co., Ltd. — secondary bat- teries and parts and materials. Semiconductors are a core growth industry. As an integrated device manufacturer (IDM), we are determined to retain our leadership in the global market and our position among the world’s top-three IC manufacturers. Semiconductor Company Strategy and Vision The Semiconductor Company is intent on NAND flash memory capacity reached a new high in June 2002, when we started mass production of a 2GB device. Use of state-of-the-art 130nm process technology allowed us to use the same package as 1GB products fabricated with our 160nm technology. achieving a leading position in the global SoC business. These efforts are supported by world- class capabilities in three core product areas: discrete devices, where Toshiba is number one in the global market; analog products, which enjoy wide demand in fields as diverse as au- dio-visual products communications, and automotive products; and NAND flash mem- ory, the versatile non-volatile memory that supports rapid advances in memory cards and electronic equipment such as digital still cam- eras and mobile telephones. By nurturing the growth field of SoC, we look to acquire busi- ness from the leading companies we target in each business field. Our business strategy is centered on the ability to propose innovative solutions to our customers. This allows us to create new mar- kets and to cultivate next-generation sources of growth that will secure continued global lead- ership. We also attach great importance to cooperation with strategic partners. Markets, Products and Technology Memories Withdrawal from a commodity DRAM busi- ness that was increasingly uncertain and buffeted by shifts in the PC market freed re- sources for investment in NAND flash memory—an increasingly important product area that will grow alongside demand for mul- ｱﾆﾚﾎﾟp1-26(英)6.18 Page 16 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC A VIEW TO THE FUTURE TOSHIBA CORPORATION TOSHIBA CORPORATION 17 17 nology. These capabilities will be further en- hanced by fabrication of 300mm wafers at our new LSI facility at Oita Operations, our LSI pro- duction facility. Construction of this advanced facility started in June 2003 and mass production is scheduled for the first half of 2004. Once full capacity is reached output will climb to 12,500 wafers a month. Investment is expected to total around ¥200 billion, with the first ¥40 billion directed to construction of the building and clean room in this fiscal year. The main product of the facility will be advanced broadband pro- cessors, a product area where we anticipate high demand in future. Production will draw on our strengths in system LSI with embedded DRAM process technology. While first-generation prod- ucts will be manufactured with 65nm process technology, we will make an early transition to the 45nm design rule in the future. Discretes While Toshiba remains the clear No. 1 in the world discrete devices market, that does not mean any relaxation in our efforts or commit- ment. On the contrary, we will continue efforts to expand business and improve cost competitiveness. Toward these goals, we are pushing for a stronger presence in the Chinese and Korean markets, today’s two main growth markets, developing differentiated core prod- ucts and transferring assembly to China. timedia products and technologies. Mobile phones with cameras, digital still cameras and replacement HDDs are expected to continue to be in high demand. Toshiba’s basic strategy is to build on its technological strengths and to lead the way in mass-producing high-value- added products while promoting measures to further raise cost competitiveness, especially using multi-level cell process technology ahead of competitors. One advantage that we will fully leverage is the fact that Toshiba invented NAND flash memory and owns essential IP rights. This will provide us with positive sup- port in many areas, including efforts to enhance multi-chip packages (MCP) for mo- bile phones that integrate NAND flash, NOR flash, SRAM and PSRAM in a single package. A further plus will come from the construction of 300mm wafer lines at Yokkaichi, scheduled to start in 2005 and to begin mass production in 2006. Investment in the facility and its equipment is expected to total around ¥150 billion. System LSIs Toshiba is determined to focus on two areas: digital consumer and mobile. Advanced SoC now accounts for a little over 25% of Toshiba’s system LSI business. Our goal for 2005 is to take that to beyond 30%. We are working to fortify new product proposals and constantly searching for new markets for SoC products. Our commitment to integrating cutting-edge technologies and realizing new levels of func- tionality are exemplified by an image processing LSI that support high-capacity, high-speed processing. Our concentration on such value-added products and differentiated technologies also supports us in forging alli- ances with leading companies in our target areas. For instance, in the CMOS image sensor business, we have maintained strategic collabo- rations with major phone manufacturers and increased market share as the market for mo- bile phones with cameras has grown to become the mainstream. Another undoubted asset is our ability to pio- neer new levels of process technology—the secret to advances in miniaturization and device func- tionality. We were first in the industry to deploy 90nm process technology and we have already gone beyond that to realize 65nm process tech- ｱﾆﾚﾎﾟp1-26(英)6.18 Page 17 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 18 TOSHIBA CORPORATION A VIEW TO THE FUTURE Expansion in China, the Growth Market Semiconductor Operations Reinforced Any company looking to the future must give full weight to the significant growth that Chi- na promises in coming years. Toshiba does. The Company is already a well-established presence in China: 37 locally incorporated subsidiaries promote activities across the com- plete range of Toshiba’s businesses and already employ approximately 13,000 people. In the last fiscal year, Toshiba’s sales in China totaled a healthy ¥350 billion and they are expected to rise to at least ¥600 billion by 2005. Given these figures, it comes as no surprise that Toshiba considers expansion in China as one of the most important issues for manage- ment, or that the Company is now promoting a series of policies to promote market success and profitability. China’s rapid development in recent years has transformed the economy. Once thought of simply as a cost-efficient production base, China is now much more an important market in its own right and a promising development base for products and services. Toshiba’s activi- ties in recent years reflect this evolution. By October 2001, Toshiba China Co. Ltd. was ready to open its own R&D Center, allowing local development of products geared to the Chinese market. In April 2002, the Company established a new Customer Service Center to promote a central strategy—the ability to hear the voices of customers, and to reflect their needs and de- sires in products that are brought to market as quickly as possible. This was followed by a se- ries of key moves related to manufacturing. In July 2002, Toshiba revitalized its semicon- ductor operation in China when it made Wuxi Huazhi Semiconductor Co., Ltd. a wholly owned subsidiary, buying out the interest of its joint-venture partner, Huajing Electronics Group Corp. This was only Toshiba’s first step in a radical makeover. Renamed Toshiba Semi- conductor (Wuxi) Co., Ltd., the company received additional funds to raise its capital to U.S. $15 million and moved to a new produc- tion facility, where a two-year, ¥5 billion investment program will raise production ten- fold while extending it from bipolar and Bi-CMOS ICs into discrete devices. There were sound reasons for the move. While China accounted for only 11% of the world semiconductor market in 2002, that fig- ure is expected to climb to as high as 20% by 2010. The new company gives Toshiba a cost- efficient production base that will support early delivery of products that meet the needs of customers in China. Manufacturing Portable PCs for the Global Market Toshiba Information Equipment (Hangzhou) Co., Ltd. became the first company to start operations at the new Hangzhou site. Toshiba was developing to serve global markets, when it began production of portable PCs in April 2003. In its first year of operation, the new fa- cility will manufacture approximately 750,000 PCs with annual output expected to rise to 2,000,000 units in the near future. Over time, the new company will cultivate development and design capabilities, and also provide sup- ｱﾆﾚﾎﾟp1-26(英)6.18 Page 18 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC A VIEW TO THE FUTURE TOSHIBA CORPORATION 19 The T618X brought movie mail to China in March 2003. Its key feature is Toshiba- developed MPEG4 technology that delivers up to 15 seconds of quality moving pictures at one time. port services. PCs produced at the facility will contribute to Toshiba global logistics and cost competitiveness, and support the Company in securing leadership in China’s fast growing PC market. Toshiba Mobile Phones Bring Movie Mail to China Over 200 million subscribers make China the world’s number one in mobile telephone pene- tration. Demand, already strong, is expected to receive a further boost from the transition from voice to value-added data transmissions that deliver a wide range of entertainment and other services. Toshiba is in the vanguard of this shift. In March 2003, Nanjing Postel Wong Zhi Telecommunications Co., Ltd., a joint venture between Toshiba, Nanjing Postel Telecommunications Co., Ltd, (a subsidiary of China Putian Corporation) and Hong Kong’s Wong’s Industrial (Holdings), launched the “T618X,” China’s very first phone supporting movie mail communication and other ad- vanced broadband services. Already a hit, the T618X draws on advanced technology devel- oped for the Japanese market. Toshiba will continue to use this advantage to deliver dif- ferentiated products that can win in the market place. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 19 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 20 TOSHIBA CORPORATION RESEARCH AND DEVELOPMENT RESEARCH AND DEVELOPMENT Toshiba is concentrating efforts on technological development that will provide the platform for the impending digital mobile networking era. Our Corporate R&D Center works to improve development speed and efficiency by actively engaging in Management Innovation (MI). From the fiscal year under review, we aim to shorten product development times through Time to Market No.1 (TM1) activities. Financial Simulation Technology Applying know-how accumulated in nuclear energy and other areas of power systems tech- nology to other fields is allowing Toshiba to propose new solutions and to maximize over- all strengths and capabilities. One advance that brings this home is development of the Financial Boltzmann Model, a financial mod- el derived from simulations of the behavior of neutrons inside nuclear reactors. The Boltzmann equation describes particle transport phenomena and is an essential aspect of nuclear reactor theory. Toshiba’s Financial Boltzmann Model applies it to track stock prices, altering the global standard financial simulation model developed in the U.S. The new model demonstrates the ability to accu- rately track complicated structures that accompany the price movements of stocks, and by doing so it lowers financial risks for securi- ties houses and investors alike. At present, the model has been applied to reproducing the characteristics of the Nikkei 225 option market prices, and is expected to contribute to reduc- tion of the large risks that are option-specific. The Financial Boltzmann Model is the world’s first simulation model to apply the nuclear reactor theory to financial fields. Re- sults so far indicate that its application will not be limited to stocks. Delivering High-Speed Web Site Access Improved speed is always a must-have re- quirement of Internet users. Toshiba offers an original solution to this demand by caching Web page content and minimizing data trans- fer volumes. Using standard hardware and software, this method boosts response speeds and cuts communication costs by reducing transmitted data volumes by as much as 90% and increasing transfer rates by up to 60%. The heart of this new technology is a power- ful cache function that works alongside a system for monitoring and handling changes in the dy- namic content of Web pages, such as those for receiving orders or delivering estimates. Previously, the cache function could save and provide high-speed delivery only of those parts of a Web site that were static. Toshiba’s difference management function overcomes the problem by fine-grained management of difference information of Web sites. When a particular site is accessed, only the updated parts of the page are transmitted to the PC, where they are combined with the content of the cache. The result is rapid download and display, including high-speed transmission and a reduced delay in displaying dynamic content. One example of where this new technology can make a difference is at a company that has made the switch to a Web-based business sys- tem, but that tries to reduce communication costs by using low-speed private-network con- nections to link its head office with sales offices. With Toshiba’s high-speed system, traffic is re- duced, while system responsiveness and data delivery are enhanced. This technology can end the need to invest in high-speed networks, allow for lower operating costs and improve the per- formance of Web-based systems. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 20 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC RESEARCH AND DEVELOPMENT TOSHIBA CORPORATION 21 ApriAlpha introduces the concept of a robot information home appliance. Speech recognition and synthesis capabilities and diverse communication capabilities support ApriAlpha as an interface with home networks, for controlling home appliances and in carrying out many other tasks. Realizing a Concept Home Robot with Communication Capabilities In the next few years, wired and wireless net- works will bring exciting new services into our lives and with them a lot of complexity. Managing this will be possible only with a simple, user-friendly interface ready to inter- mediate between the diverse network equipment and the people who use it. In an- ticipation of this need Toshiba has developed the ApriAlpha “Robotic Information Home Appliance.” In addition to its abilities to move and communicate, ApriAlpha is easily programmable. It has been designed to grow in capabilities to become a “life support part- ner” that will ultimately provide assistance with handling household chores and care for the aged. The first generation ApriAlpha communi- cates through voice recognition and voice synthesis that allow it to recognize spoken commands and hold conversations. It can also recognize individuals, with the capacity to register up to 100 individual faces through its image recognition technology. Among the wide range of data transmission capabilities integrated into ApriAlpha is an IEEE802.11b wireless LAN, along with sup- port for NTT DoCoMo’s i-mode mobile phone standard that allows remote supervision and operation of ApriAlpha. ApriAlpha can also control certain networked home applianc- es via a Bluetooth™ compliant home server. Movement-related capabilities include the ability to input data of a room layout and programming ApriAlpha to follow a specific route and carry out surveillance patrols. As far as Toshiba is concerned, these di- verse capabilities are just the beginning, and future research will extend and refine ApriAl- pha’s versatility. An LCD that Displays and Captures Images With its new “input display,” Toshiba Mat- sushita Display Technology Co., Ltd. (TMD) has drawn on its leadership in Systems on Glass technology to develop the world’s first TFT LCD that is able to capture images as well as display them. The company’s prototype display is a 3.5 inch (8.9 cm) low-temperature polysilicon (LTPS) TFT LCD with QVGA (320/240) resolution. Alongside the standard display function, the capabilities of the input display allow it capture and redisplay monochrome images with an input resolution of up to 960 X 240 pixels. The new technology utilizes photo sensors embedded in each pixel of the display. This represents the latest advance in the TMD’s pioneering work in Systems on Glass, namely the ability to form the components of LTPS displays directly on their glass substrate. Image capture is accomplished by placing the image, a document or a photograph, for ex- ample, face-down on the display. The input display differs from a camera in that its built-in image sensors record an actual-size image of the original, opening up a wide range of business and personal uses. One application that Toshiba is considering, along with further refinement of the tech- nology, is a fingerprint recognition technology that could be employed in iden- tification systems for e-commerce and other financial transactions. The world’s first Input Display not only displays images, it can also capture them directly from its polysilicon TFT LCD. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 21 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC 22 TOSHIBA CORPORATION TOWARD SUSTAINABLE DEVELOPMENT AND A RECYCLING-BASED SOCIETY TOWARD SUSTAINABLE DEVELOPMENT AND A RECYCLING-BASED SOCIETY Toshiba Group is fully conscious of the holistic nature of the product life cycle, from development and manufacturing, through purchase, use, disposal and recycling. As a major manufacturer of a wide range of products, Toshiba positions reduction of environmental impacts as central to production processes. The Company makes every effort to help protect the environment in all its business activities through ongoing activities to lighten environmental loads by reducing energy consumption and reducing the use of water and chemicals. A determination to make a significant contribution to the realization of sustainable development and the achievement of a recycling-based society inspires Toshiba’s activities in five basic areas: efficient use of resources, prevention of global warming, strengthened management of chemicals, development of environmentally friendly products, and recycling end-of-life products. All Toshiba Group companies coordinate efforts in line with the objectives of the Third Voluntary Environmental Plan, launched in fiscal 2001 to guide the Group toward stringent targets for fiscal 2005. The plan identifies eight areas in the achievement of the overall goal of zero emission of waste. Working for a better global environment as a responsible corporate citizen, Toshiba considers the needs of regional communities while promoting activities that support the ultimate goal of contributing to the advancement of society. Maximizing Efficiency in Resource and Energy Utilization Toshiba believes that environmental conserva- tion in the 21st century revolves around the concept of sustainable development. The Company makes concerted efforts to develop products that use energy efficiently, and at the same time works to prevent global warming by reducing CO2 emissions through efforts to slash energy consumption at all of its facili- ties. Toshiba aims to lower “CO2 releases to net sales” by 25% by fiscal 2010, with fiscal 1990 as its benchmark, and the Company has shown results bettering the 1% annual im- provement target set by the Energy Conservation Law in Japan. In the fiscal year ended March 31, 2003, Toshiba cut CO2 re- leases by 22% compared with fiscal 1990 levels and 13% compared with the previous fiscal year by increasing the energy efficiency of its clean rooms. By segment, CO2 releases in Electronic De- vices & Components, which includes semiconductors and LCDs, increased 12% compared with fiscal 1990, but CO2 releases to net sales improved 13% against the bench- mark. The Company achieved a 26-54% reduction in Information & Communications Systems, Power Systems and Home Appliances. Achievement of Zero Emission of Waste In the production phase of product life cycles, Toshiba aims to minimize environmental im- pacts and the use of resources and energy. Efforts here include working to achieve zero emissions by recycling all waste generated by our facilities, which means that waste un- dergoing final disposal in landfills must be less than 1% of the total waste emitted. We are making Group-wide efforts to achieve these targets. Three of the most important points in re- ducing waste comprise thoroughly separating and sorting waste, disposal in a way that is sensitive to regional characteristics and through tie-ups with other industries, and us- ing appropriate third-party disposal adhering to strict standards. We aim to reduce our waste release through classification and appli- cations development at the emission stage. In the fiscal year under review, Toshiba Group released a total of 106 thousand tons of waste, achieving a reduction of 5,300 tons against the previous fiscal year. Of this amount, 88.1% was recycled, and 890 tons were dis- posed of in landfill, a year-on-year decrease of 770 tons. Accordingly, Toshiba has achieved the objective of zero emission of waste (less than 1% of total waste emitted is disposed of in landfill) in the Third Voluntary Environ- mental Plan one year ahead of schedule. Creation and Promotion of Environmentally Conscious Products The ultimate goal of Toshiba Group is to de- velop environmentally conscious products (ECPs) as a contribution to a recycling-based society. To achieve this objective, Toshiba has established a set of guidelines and put in place a system emphasizing the creation of environ- mentally conscious products: that is, products whose environmental impacts are minimized at every stage of their entire life cycles—from ｱﾆﾚﾎﾟp1-26(英)6.18 Page 22 03.6.25, 8:05 PM Adobe PageMaker 7.0J/PPC TOWARD SUSTAINABLE DEVELOPMENT AND A RECYCLING-BASED SOCIETY TOSHIBA CORPORATION 23 The dual-inverter system and new coolant of the New Super Power Eco achieve an air-conditioning system that cuts power consumption to 40% of earlier models. Its performance won the Director-General’s Prize from the Agency for Natural Resources and Energy in the 2002 Energy Conservation Awards. materials procurement, manufacturing and distribution, through to consumption and eventual disposal. These guidelines call for en- vironmentally conscious design, environmental assessment of all products, and full disclosure of environmental impacts and other information. Toshiba promotes environmentally con- scious design grounded in the principle of the “5Rs”: design to achieve reduction, reuse, re- cycling, reduction of energy consumption and reduction of substances with an environmen- tal impact. In establishing its “Environmentally Conscious Product Design Guidelines” and “Eco Material Selection Guidelines,” Toshiba promotes the use of lead-free solder, green procurement, and the development of an environmentally conscious design support system. In the area of environmental assessment of products, Toshiba has introduced “Product Assessment Guidelines” for its complete prod- uct range, to clarify the extent to which the environmental impact of a contemplated product is reduced compared with that of the previous model. In particular, Toshiba has in- corporated a lifecycle assessment (LCA)-based quantitative evaluation in the product assess- ment of mass-produced mainstay models. The application of LCA is expected to increase over a broader range of products in the future. Toshiba applies stringent standards in the disclosure of environmental performance. The Company has adopted a leading position in the industry, adopting 13 criteria, including the “5Rs,” in its “voluntary environmental standards.” Toshiba products that comply with all of the Company’s voluntary standards and that have gained eco-labels, Toshiba Group’s environmental performance self-dec- laration mark in compliance with ISO 14021, are introduced on the Company’s Web site. A prime example of Toshiba’s environmen- tally conscious products is the “New Super Power Eco,” an air conditioner used in large stores. Equipped with Toshiba’s unique dual inverter system for simultaneous control of two inverter compressors, and using a new high-efficiency refrigerant, R-410A, this new product has achieved an air-conditioning sys- tem that cuts power consumption to 40% of earlier models and was awarded the Director- General’s Prize from the Agency for Natural Resources and Energy in the 2002 Energy Conservation Awards. Recycling Activities Recycling is another essential aspect of Toshi- ba’s activities. All Group companies focus on the development of technologies that recycle discarded products and the materials from which they are made. Emphasis is also placed on the reduction of waste and costs. In accor- dance with Japan’s recycling law, which requires manufacturers to take back TVs, re- frigerators, washing machines and air-conditioners at the end of their life, Toshi- ba recycled 1,560,000 units during fiscal 2002. In preparation for the introduction of recycling laws in Europe in 2005, Toshiba has established a European Environmental Divi- sion in Germany. Activities for Society and Local Communities Toshiba Group companies actively contribute to the communities in which they operate, and for the betterment of society as a whole. Opened in 1961, the Toshiba Science Mu- seum welcomes more than 120,000 visitors each year to view the Company’s latest tech- nologies. The museum also serves to increase interest in science as a place for people to in- teract with science displays, and offers personal computer courses for beginners. In addition, Toshiba has three charitable foundations around the world, including the Toshiba International Foundation and Toshi- ba America Foundation, which support cultural and educational activities. Toshiba also works closely with regional groups in Ja- pan to hold events in tune with the needs of local communities. Toshiba believes it is essential to disclose its activities and results in protecting the envi- ronment based on environmental management systems to as many people as possible through open communication both within and outside the Company. To this end, the Company publishes an Environmental Report and discloses related information on its Web site. For more information on Toshiba Group environmental protection activities, please vis- it our Web site at: http://www.toshiba.co.jp/ env/english/index.htm. ｱﾆﾚﾎﾟp1-26(英)6.18 Page 23 03.6.25, 8:06 PM Adobe PageMaker 7.0J/PPC 24 TOSHIBA CORPORATION BOARD OF DIRECTORS AND EXECUTIVE OFFICERS Board of Directors and Executive Officers Taizo Nishimuro Director Chairman of the Board Tadashi Okamura Director Yasuo Morimoto Director Takeshi Iida Director Makoto Nakagawa Director Yuji Kiyokawa Director Atsutoshi Nishida Director Tadashi Matsumoto Director Representative Executive Officer, President and Chief Executive Officer Tadashi Okamura Representative Executive Officers, Corporate Senior Executive Vice Presidents Yasuo Morimoto Takeshi Iida Makoto Nakagawa Executive Officers, Corporate Executive Vice Presidents Executive Officers, Corporate Senior Vice Presidents Yuji Kiyokawa Atsutoshi Nishida Tadashi Matsumoto Takeshi Nakagawa Susumu Kohyama Masaki Matsuhashi Tsuyoshi Kimura Toshitake Takagi Sadazumi Ryu Masao Niwano Tsutomu Miyamoto Makoto Azuma Shigeo Koguchi Yoshiaki Sato Yoshihiro Nitta ｱﾆﾚﾎﾟp1-26(英)6.18 Page 24 03.6.25, 8:06 PM Adobe PageMaker 7.0J/PPC BOARD OF DIRECTORS AND EXECUTIVE OFFICERS TOSHIBA CORPORATION 25 Takeshi Nakagawa Director Sadazumi Ryu Director Akinobu Kasami Director Susumu Terao Director Sakutaro Tanino Director Yasuhiko Torii Director Eiichi Kakei Director Shunsaku Hashimoto Director Executive Officers, Corporate Vice Presidents Shinsuke Kawamura Ginzo Yamazaki Yasusuke Sumitomo Masamichi Katsurada Katsuji Fujita Shunsuke Kobayashi Toru Uchiike Hisatsugu Nonaka Mutsuhiro Arinobu Fumio Muraoka Ichiro Tai Nobuhiro Yoshida Toshinori Moriyasu Masao Namiki Hisayoshi Fuwa Yoshihide Fujii ｱﾆﾚﾎﾟp1-26(英)6.18 Page 25 03.6.25, 8:06 PM Adobe PageMaker 7.0J/PPC 26 26 TOSHIBA CORPORATION TOSHIBA CORPORATION FINANCIAL SECTION Financial Section P27 Management’s Discussion and Analysis P34 P36 P37 P38 P39 P55 Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors ｱﾆﾚﾎﾟp1-26(英)6.18 Page 26 03.6.25, 8:06 PM Adobe PageMaker 7.0J/PPC ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 27 MANAGEMENT’S DISCUSSION AND ANALYSIS TOSHIBA CORPORATION 27 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 (loss) 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 Millions of yen, except per share amounts 2003 2002 2001 2000 1999 ¥5,655,778 4,146,460 1,393,776 115,542 ¥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 53,123 48,532 18,503 (376,687) (113,915) (254,017) 188,099 96,145 96,168 (44,844) (4,530) (32,903) 11,218 20,901 (9,095) ¥5.75 5.75 3.00 ¥(78.91) (78.91) — ¥29.88 29.71 10.00 ¥(10.22) (10.22) 3.00 ¥(2.83) (2.83) 6.00 ¥5,238,936 571,064 ¥5,407,782 705,314 Total assets Shareholders’ equity Capital expenditures (Property, plant and equipment) Depreciation (Property, plant and equipment) R&D expenditures Number of employees Notes: 1. Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. 2. Diluted earnings per share assumes the dilution that would occur if dilutive convertible debentures were converted into common stock. 3. The Company adopted SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” beginning with the fiscal year ended March 31, 2001, 308,294 327,915 188,042 329,630 334,398 190,870 311,208 326,170 176,398 237,888 331,494 165,776 ¥5,724,564 1,047,925 ¥5,780,006 1,060,099 298,512 348,235 269,545 230,512 ¥6,101,929 1,128,753 375,464 309,836 316,703 198,000 and has restated its prior years’ consolidated financial statements. SCOPE OF CONSOLIDATION Toshiba Group consists of Toshiba Corporation and 315 consolidated subsidiaries (201 domestic companies and 114 foreign com- panies) as well as 52 companies reflected under the equity method (consisting of 28 domestic and 24 foreign companies). The net number of consolidated subsidiaries for the period under review was 14 companies less than the previous year. The number of newly consolidated subsidiaries, including our strategic joint venture with Matsushita Electric Industrial in the LCD and liquid crys- tal business—Toshiba Matsushita Display Technology—increased by 31 companies during the year. However, as the result of restructuring efforts, we also consolidated, rationalized and sold-off some 45 subsidiaries. RESULTS OF OPERATIONS NET SALES NET SALES BY REGION Consolidated net sales in fiscal 2002, ended March 31, 2003, increased by 5% to ¥5,655.8 billion (US$47,131 million). Supported by growth in consumer-use digital products and overseas sales particularly in Asia, electronic device sales centering on semiconductors and overseas PC sales recorded strong growth. On the other hand, sales of industrial-use equipment declined due to weak public works investment as well as private capital expenditures in Japan, while weak domestic personal con- sumption was behind the decline in sales volumes and falling unit prices for home appliances. In addition, an appreciating yen against the major currencies depreciated reported sales. The average yen-dollar rate for sales was ¥122/US$, or ¥4 stronger than the previous fiscal year, while the yen dropped by ¥10 against the euro from ¥120 to ¥110. Years ended March 31 Japan North America Asia Europe Other Net sales Millions of yen 2003 2002 2001 ¥3,343,551 860,306 837,845 509,620 104,456 ¥5,655,778 ¥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 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 31, which are determined based upon where the sales originated. Japan—Domestic sales were relatively flat compared with the previous fiscal year, amounting to ¥3,343.6 billion (US$27,863 mil- lion). Sluggish domestic capital investment in the private and public sectors contributed to a sales decline in systems for public institutions and industrial equipment. In Home Appliances, sales were undermined by price erosion and weak consumer demand. Otherwise, however, sales climbed for visual products and mobile phones for digital media, semiconductors for digital consumer products, and NAND flash memories in the Electronic Devices & Components segment. North America—Sales increased 4% year on year to ¥860.3 billion (US$7,169 million). Despite the decline in sales of Electronic Devices & Components due to the exit of the DRAM business during the previous fiscal year, sales of portable PCs, HDD/DVD recorders and other visual products increased significantly. Asia—A rise in sales of thermal power stations in Taiwan, and in semiconductors for digital consumer products, contributed to ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 28 28 TOSHIBA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS NET INCOME (LOSS) SEGMENT INFORMATION a sales increase of 27% year on year to ¥837.8 billion (US$6,982 million). Europe—Overall sales growth of 12% to ¥509.6 billion (US$4,247 million) year on year was recorded, thanks to steady demand for portable PCs and PC peripherals. As net sales increased ¥261.7 billion year on year to ¥5,655.8 billion (US$47,132 million), the gross profit margin improved 2.2 per- centage points to 26.7%. Selling, general and administrative expenses decreased ¥43.7 billion year on year to ¥1,393.8 billion (US$11,615 million). The primary reason for the decrease in selling, general and administrative expenses was the restructuring effect of an approximate ¥30.0 billion reduction in fixed costs. Although the impact of an average sales-price reduction of 9.4% amounted to ¥587.0 billion, operating income increased ¥229.1 billion year on year to ¥115.5 billion (US$963 million). The primary reasons for this increase included a reduction of ¥441.0 billion in procurement costs, ¥182.0 billion in personnel and restructuring costs, a ¥17.0 billion foreign exchange gain, and changes in sales volume and product mix of ¥176.1 billion. Non-operating loss decreased ¥200.7 billion year on year to ¥62.4 billion (US$520 million). The main reasons for this decrease were a decline in restructuring charges and additional termination benefits for voluntary early retirement of employees. Total restructuring charges and additional termination benefits in fiscal 2002 and 2001 were ¥10.9 billion (US$91 million) and ¥208.9 billion, respectively. During the fiscal year under review, the Company recorded a ¥4.3 billion improvement in its net financial expens- es, primarily due to a decline in interest expenses and an increase in dividend income. The Company also recorded a ¥21.5 bil- lion (US$179 million) loss on marketable securities. Income before income taxes greatly improved from a loss of ¥376.7 billion in the previous fiscal year, to a gain of ¥53.1 bil- lion (US$443 million) in the fiscal year under review. Accordingly, income taxes increased ¥162.4 billion, which included the effect of a revaluation of deferred income taxes in connection with adoption of Business Scale Taxation. Minority interest in losses increased ¥5.0 billion from the previous fiscal year. This reflected mainly the increased net loss of consolidated subsidiaries where Toshiba's ownership is less than 100%. The Company recorded equity in earnings of affiliates of ¥2.6 billion (US$22 million), and this mainly reflected gains posted by foreign affiliates, while the domestic affiliates posted loss- es. As a result, net income greatly improved by ¥272.5 billion from the previous fiscal year to ¥18.5 billion (US$154 million). Information & Communications Systems—Sales declined by 5% against the previous fiscal year to ¥908.7 billion (US$7,573 million), and the segment’s proportion of total sales slipped to 14% from 16% the previous year. Operating income for the seg- ment, while negatively affected by the decline in sales, nevertheless recorded an 8% increase to ¥10.4 billion (US$87 million), owing to effects from restructuring and other measures. Sales of information systems continued to feel the adverse effects of falling stock prices, curtailed IT investment in the pri- vate sector, and continued deterioration in the domestic financial services sector due to delays in disposal of non-performing loans. Communications systems saw a sharp fall in sales and global demand as the telecommunications industry sought to overcome a shortage of funds and past excess investment. On the positive side, orders booked for broadcasting systems were boosted by investments in digital broadcasting facilities. Social Infrastructure Systems—Sales for the segment slipped 3% from the previous year to ¥922.8 billion (US$7,690 million). Operating income rose 52% for the year to ¥20.7 billion (US$173 million), boosted by structural reforms and efforts to reduce costs, which also contributed to profit increases in social infrastructure and industrial systems and the medical systems business. Intensified restraint in public spending and private sector capital expenditures led to lower sales of system business in both the public and private sectors. Transportation business sales received a boost despite this climate of restraint, mainly from increased sales of electrical equip- ment and substation facilities for new lines and bullet trains for JR (Japan Railways) group companies. Sales to private railways also contributed to the increase. Conditions remain severe in the domestic medical systems market, as structural reforms to Japan’s health insurance sys- tem are directed to reducing fees for medical service. Increasing cost consciousness among domestic medical institutions and intensified competition from foreign suppliers also added to market severity. Overseas markets were more positive, and sales were particularly robust in the U.S. and Europe. Although a worsened market environment undercut sales from MRI equipment, CT and ultrasonic diagnostic equipment revenues were favorable. Overall sales remained steady, supported by a stronger euro to the yen. Power Systems—Sales in Power Systems were ¥523.7 billion (US$4,364 million), a 10% decline for the year, accounting for 8% of total sales compared to 9% the previous year. Operating income for the division, reflecting lower sales and exchange rate fluc- tuations, declined 19% for the year to ¥21.6 billion (US$180 million). In the domestic market, electric power companies met rolling deregulation by curtailing capital expenditures, and sales results were also impacted by the transfer of the power distribution and transmission business to a joint venture with Mitsubishi Electric Corporation. Overseas, exports of thermal power plants to Taiwan saw solid growth. Digital Media—Sales for the segement grew by 13% to ¥1,658.1 billion (US$13,818 million), and increased as a proportion of total sales to 26% from 24% the previous year. Operating income recovered from a ¥14.9 billion deficit in the previous year to ¥9.3 bil- lion (US$78 million), and accounted for 8% of total operating income. In the portable PC market, PC sales saw a notable downturn in market demand due to large U.S. and European corporations’ deteriorated capital spending. The severe slump in demand lasted in Japan as IT investment was cut back due to the sluggish econ- omy. Models for consumers achieved steady sales in the U.S. and Europe, but sales in Japan declined reflecting raised prices due to raised components prices from spring to summer, and reserved consumer spending. Toshiba focused on retail sales, succeeded in increasing market shares in each region and achieved higher growth in unit sales. In optical disk drives, the sales shift from single-functional CD-R/RW or DVD-ROM to multifunctional DVD-ROM/CDR-RW dri- ves accelerated further. Toshiba was able to lead the market with the introduction of an ultra-thin recordable DVD (DVD- R/RW). Mobile phone sales in Japan grew favorably and Toshiba’s introduction of leading-edge models with moving picture functions allowed it to win market share. Overseas sales were weaker, hampered by waning sales in North America. Meanwhile, Toshiba successfully launched the CDMA 1X handsets in the China market, and the GPRS models that support i-mode features in Europe. In the network services and content business, the “Ekimae Tanken Club” portal site became an established revenue earner, and mobile application service provider (ASP) services also contributed to segment sales growth. Home Appliances—Sales for the year eased 3% to ¥660.7 billion (US$5,506 million), accounting for 10% of total gross sales against 11% in the previous year. Operating income fell by 69% to ¥3.5 billion (US$29 million). The prolonged economic malaise in Japan has shrunk consumer spending, and overall demand for home appliances remained flat. Shipments of major products, such as refrigerators and washing machines, were higher by volume than in the pre- ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 29 MANAGEMENT’S DISCUSSION AND ANALYSIS TOSHIBA CORPORATION 29 vious year, but further declines in sales prices impacted total sales value. In order to drive growth, we enhanced design in prod- ucts like the Trilobite robot cleaner (in the “Electrolux by Toshiba” series), and we continue to develop overseas markets, centering on China and other Asian countries. Electronic Devices & Components—Sales for the segment rebounded 21% for the year to ¥1,296.0 billion (US$10,800 million), and accounted for 20% of total sales, up from 17% the previous year. Operating income rebounded sharply from a ¥176.3 bil- lion deficit in the previous year to a profit of ¥30.5 billion (US$254 million), and contributed nearly 27% of total operating profits, as the operating margin recovered to 2.0%. Demand for semiconductors in yen terms increased approximately 9%, boosted by higher demand for consumer products in Japan and southeastern Asian countries, stimulated by the June 2002 World Cup soccer tournament. Sales of discrete devices were supported by high demand from China and Asia in the first half of the fiscal year, particular- ly for consumer AV products, DVDs and game consoles. Completion of inventory adjustments also boosted demand for products for mobile phone applications. In contrast, demand for amusement equipment did not meet expectations, and demand for power devices for mobile phones, PCs, and AV equipment applications weakened. In the first half of the fiscal year, system LSI sales were driven by logic devices for digital consumer products, LCD drivers for mobile phones and PCs, and bipolar ICs for audio and other applications. In the second half, sales of custom LSIs for SD Cards, DVCs, mobile phones and amusement applications remained firm, while demand for MCUs declined. In memory devices, demand for NAND flash memories for digital still cameras was particularly strong, and NAND flash mem- ories found increasing application in the mobile phone market in the second half of the fiscal year. There was also rapid growth in sales of MCP products incorporating NAND and NOR flash memories, SRAMs and pseudo-SRAMs. Sales for LCDs increased sharply, by 88% to ¥235 billion (US$1,958 million), due to the launch of Toshiba Matsushita Display Technology Co., Ltd. (TMD), a joint venture with Matsushita Electric Industrial Co., Ltd. While sales prices for displays for portable PCs and monitors declined, small-sized displays for mobile phones saw brisk demand, and growth in TMD’s market-lead- ing QVGA LCDs was particularly robust. Others—Sales increased 1% for the year to ¥431.4 billion (US$3,595 million), and produced operating income of ¥18.6 billion (US$155 million), representing a 21% increase from the previous year. The following segment information is based on Japanese accounting standards. Along with a review of internal management juris- dictions made in April 2001, Toshiba has reclassified its former Information & Communications and Industrial Systems into Information & Communication Systems and Social Infrastructure Systems as well as reviewed a portion of its business classifi- cations in Digital Media and Others. Consolidated financial data for the fiscal year ended March 31, 2001 have been reclassified to comform with the fiscal year ended March 31, 2002. INDUSTRY SEGMENTS Year ended March 31 Net sales: Information & Communication 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 2003 2002 2001 Thousands of U.S. dollars 2003 ¥ 775,307 133,425 908,732 ¥ 784,071 172,643 956,714 ¥ 800,941 171,048 971,989 $ 6,460,892 1,111,875 7,572,767 875,239 47,515 922,754 513,681 10,054 523,735 1,603,698 54,409 1,658,107 633,438 27,276 660,714 1,091,673 204,278 1,295,951 890,718 64,632 955,350 565,973 13,587 579,560 1,405,328 63,271 1,468,599 656,905 23,777 680,682 905,178 169,674 1,074,852 925,351 49,787 975,138 568,244 14,423 582,667 1,398,161 88,242 1,486,403 676,820 31,497 708,317 1,332,711 218,640 1,551,351 7,293,659 395,958 7,689,617 4,280,675 83,783 4,364,458 13,364,150 453,408 13,817,558 5,278,650 227,300 5,505,950 9,097,275 1,702,317 10,799,592 162,742 268,692 431,434 (745,649) ¥ 5,655,778 185,860 240,511 426,371 (748,095) ¥ 5,394,033 249,129 219,143 468,272 (792,780) ¥ 5,951,357 1,356,183 2,239,100 3,595,283 (6,213,742) $ 47,131,483 ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 30 30 TOSHIBA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS Year ended March 31 Operating income (loss): Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Eliminations Millions of yen 2003 2002 2001 ¥ 10,407 20,655 21,603 9,316 3,477 30,490 18,602 992 ¥ 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 Thousands of U.S. dollars 2003 $ 86,725 172,125 180,025 77,633 28,975 254,083 155,017 8,267 Consolidated ¥ 115,542 ¥ (113,575) ¥ 232,133 $ 962,850 Identifiable assets: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate and Eliminations ¥ 634,859 848,591 564,556 614,608 380,628 1,294,040 942,449 (40,795) ¥ 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) $ 5,290,492 7,071,592 4,704,633 5,121,733 3,171,900 10,783,667 7,853,742 (339,959) Consolidated ¥ 5,238,936 ¥ 5,407,782 ¥ 5,724,564 $ 43,657,800 Depreciation and amortization: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate ¥ 26,626 18,907 11,649 21,054 18,950 126,649 37,000 — ¥ 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 — $ 221,883 157,558 97,075 175,450 157,917 1,055,409 308,333 — Consolidated ¥ 260,835 ¥ 326,239 ¥ 339,816 $ 2,173,625 Capital expenditures: Information & Communications Systems Social Infrastructure Systems Power Systems Digital Media Home Appliances Electronic Devices & Components Others Corporate ¥ 23,578 19,496 6,712 21,117 20,850 117,171 47,893 — ¥ 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 — $ 196,483 162,467 55,933 175,975 173,750 976,425 399,108 — Consolidated ¥ 256,817 ¥ 378,832 ¥ 302,749 $ 2,140,141 ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 31 MANAGEMENT’S DISCUSSION AND ANALYSIS TOSHIBA CORPORATION 31 GEOGRAPHIC SEGMENTS Year ended March 31 Net sales: Japan Millions of yen 2003 2002 2001 Thousands of U.S. dollars 2003 Unaffiliated customers ¥ 3,773,309 ¥ 3,716,437 ¥ 4,168,795 $ 31,444,242 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 1,169,802 999,914 1,004,448 9,748,350 4,943,111 4,716,351 5,173,243 41,192,592 784,683 20,052 804,735 563,639 521,620 1,085,259 477,870 13,957 491,827 56,277 1,533 57,810 728,595 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 6,539,025 167,100 6,706,125 4,696,992 4,346,833 9,043,825 3,982,250 116,308 4,098,558 468,975 12,775 481,750 (1,726,964) (1,534,398) (1,398,754) (14,391,367) ¥ 5,655,778 ¥ 5,394,033 ¥ 5,951,357 $ 47,131,483 ¥ 89,780 ¥ (166,231) ¥ 193,258 $ 748,167 11,722 24,540 (3,197) (286) (7,017) 19,189 22,844 (128) 14 10,737 6,642 31,246 5,493 655 (5,161) 97,683 204,500 (26,642) (2,383) (58,475) ¥ 115,542 ¥ (113,575) ¥ 232,133 $ 962,850 ¥ 4,403,984 ¥ 4,430,716 ¥ 4,783,739 $ 36,699,867 218,782 416,726 202,575 30,057 360,366 434,112 186,900 36,061 413,777 323,183 205,960 34,276 1,823,183 3,472,717 1,688,125 250,475 Corporate and Eliminations (33,188) (40,373) (36,371) (276,567) Consolidated ¥ 5,238,936 ¥ 5,407,782 ¥ 5,724,564 $ 43,657,800 Note: Geographic segment information for the fiscal year ended March 31, 2001 has been reclassified to conform with the fiscal year ended March 31, 2002. ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 32 32 TOSHIBA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS RESEARCH AND DEVELOPMENT CAPITAL EXPENDITURES FINANCIAL CONDITION CASH FLOWS Consolidated R&D expenditures increased 2% from the previous fiscal year to ¥331.5 billion (US$2,762 million). This was equivalent to 6% of consolidated net sales, virtually unchanged from the previous fiscal year. Principal R&D achievements and expenditures by segment were as follows. In Information & Communication Systems, R&D expenditures were ¥43.6 billion (US$363 million), mainly for the development of Web acceleration technology and mobile financial transaction technology; in Social Infrastructure Systems, R&D expenditures were ¥33.8 billion (US$282 million), primarily for the development of airport radar mon- itoring equipment and DNA chips. In Power Systems, R&D expenditures were ¥18.3 billion (US$153 million), principally for nuclear reactor inspection technology and electrical power plant distributed control systems. In Digital Media, R&D expenditures were ¥65.7 billion (US$548 million), chiefly for the development of wireless home media stations and small-form-factor direct-methanol fuel cells (DMFCs) for portable PCs. In Home Appliances, R&D expenditures were ¥19.8 billion (US$165 million), mainly for the devel- opment of non-fluorochloro hydrocarbon (fluorine) refrigerators and “FEMINITY” networked home appliances. In Electronic Devices & Components, R&D expenditures were ¥146.3 billion (US$1,219 million), primarily for the development of the world’s first large-size low-temperature polysilicon LCD that enables display on rounded surfaces, and RISC processors with common key data encryption systems (DES). In the Others segment, R&D expenditures were ¥4.0 billion (US$33 million), consisting mainly of research carried out at Shibaura Mechatronics Corporation. 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 ¥230.5 billion (US$1,921 million), amounted to ¥256.8 billion (US$2,140 million), and were made primarily in Electronic Devices & Components and Digital Media. Capital expenditures in Electronics Devices & Components amounted to ¥117.2 billion (US$976 million), and were for the devel- opment and increased production capacity of semiconductors and LCD displays. Principal facility completions during the fiscal year included manufacturing facilities for AFPD Pte., Ltd., low-temperature polysilicon TFT LCDs, facilities for manufacturing advanced system LSI at Oita Operations, and development facilities for advanced system ULSI at Yokohama Operations. Capital expenditures in Information & Communication Systems totaled ¥23.6 billion (US$196 million), and were allocated main- ly for the broadcast and network services business. In Digital Media, capital expenditures amounted to ¥21.1 billion (US$176 million), and were for the development and manu- facturing of new PC and mobile phone-related facilities. Principal facilities completed during the fiscal year included a PC man- ufacturing facilities for Toshiba Information Equipment (Hangzhou) Co., Ltd. Capital expenditures amounted to ¥20.9 billion (US$174 million) for the development and manufacturing of new types of appli- ances in Home Appliances; ¥19.5 billion (US$162 million) in Social Infrastructure Systems for the system development and the ren- ovation and upgrading of infrastructure; ¥6.7 billion (US$56 million) in Power Systems, including for the renovation and upgrading of infrastructure; and ¥47.9 billion (US$399 million) in Others. As of March 31, 2003, total assets amounted to ¥5,238.9 billion (US$43,658 million), a decrease of ¥168.8 billion from the previous fiscal year-end. Current assets declined ¥53.3 billion year on year to ¥2,621.2 billion (US$21,843 million). The primary reason for the decrease in current assets included the reduction of inventories, which decreased 9% year on year to ¥629.7 billion (US$5,247 million) due to the promotion of an “asset-light” program and transfer of the business line. Property, plant and equip- ment declined ¥155.0 billion year on year to ¥1,199.3 billion (US$9,994 million) primarily due to capital investment restraints and lease-back transactions. Deferred tax assets increased ¥113.7 billion year on year to ¥685.6 billion (US$5,713 million) primarily due to increase in accrued pension and severance costs. On the liabilities side, current and long-term liabilities decreased ¥20.9 billion year on year to ¥4,491.9 billion (US$37,433 mil- lion). Total interest-bearing liability was reduced by ¥165.1 billion year on year to ¥1,653.4 billion (US$13,778 million) with the cash flow generated from operations. Accrued pension and severance costs increased ¥241.8 billion year on year to ¥951.0 billion (US$7,925 million) due to a declined rate of return on plan asset and an amended discount rate for the projected benefit obligation. Shareholders’ equity decreased ¥134.3 billion year on year to ¥571.1 billion (US$4,759 million) primarily due to the increase in accumulated other comprehensive loss. Accumulated other comprehensive loss increased ¥152.0 billion year on year to ¥450.8 billion (US$3,756 million) mainly due to an increase in minimum pension liability adjustment. Retained earnings increased ¥18.5 billion year on year to ¥462.1 billion (US$3,850 million) due to the net income for the year. Net cash provided by operating activities amounted to ¥271.6 billion (US$2,263 million), a large increase of ¥122.4 billion from ¥149.2 billion recorded in the previous fiscal year. Despite increased cash outflows resulting from an increase in notes and accounts receiv- able and inventories, net cash provided by operating activities increased because of a large improvement in net income. Net cash used in investing activities amounted to ¥148.0 billion (US$1,233 million), a decrease of ¥177.6 billion from ¥325.6 billion recorded in the previous fiscal year. This was mainly due to decreased capital investments in property, plant and equipment in line with the selective investments and increased cash inflows through the transfer of the DRAM business and sale and leaseback transactions. Net cash used in financing activities amounted to ¥159.8 billion (US$1,331 million) compared with ¥53.5 billion in net cash pro- vided by financing activities in the previous fiscal year. This decrease was primarily due to a reduction of interest-bearing liabil- ities through the reinforcement of cash flow management. Accordingly, the interest-bearing liabilities were reduced by ¥165.1 billion. In addition, the effect of exchange rate changes was to decrease cash by ¥7.2 billion. As a result, cash and cash equivalents at the fiscal year-end decreased ¥43.3 billion to ¥327.1 billion (US$2,726 million) com- pared with ¥370.4 billion recorded in the previous fiscal year. ｱﾆﾚﾎﾟp27-33(英)6.18 03.6.25 5:41 PM ページ 33 MANAGEMENT’S DISCUSSION AND ANALYSIS TOSHIBA CORPORATION 33 Affiliated Companies: Japan Flash Vision MT Picture Display Co., Ltd. TM T&D Corporation Toshiba Ceramics Co., Ltd. Toshiba Machine Co., Ltd. Toshiba Tungaloy Co., Ltd. Percentage held by Group 50 36 50 41 48 38 Principal Subsidiaries and Affiliated Companies As of March 31, 2003 Consolidated Subsidiaries: Japan Harison Toshiba Lighting Corporation Toshiba Battery Co., Ltd. Toshiba Building Co., Ltd. Toshiba Elevator and Building Systems Corporation Toshiba Information Systems (Japan) Corporation Toshiba Logistics Corporation Toshiba Matsushita Display Technology Co., Ltd. Toshiba Plant Kensetsu Co., Ltd. Toshiba TEC Corporation U.S.A. Toshiba America Consumer Products, Inc. Toshiba America Electronic Components, Inc. Toshiba America Information Systems, Inc. Toshiba America, Inc. Brazil Toshiba do Brasil, S.A. Philippines 70 100 100 80 88 100 60 56 51 100 100 100 100 100 Toshiba Information Equipment (Philippines), Inc. 100 Malaysia Toshiba Electronics Malaysia Sdn. Bhd. Singapore AFPD Pte., Ltd. TEC Singapore Electronics Pte., Ltd. Toshiba Electronics Asia (Singapore) Pte., Ltd. 100 100 100 100 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 34 34 TOSHIBA CORPORATION CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS Toshiba Corporation and its subsidiaries As of March 31, 2003 and 2002 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) Deferred tax assets (Note 15) Prepaid expenses and other current assets (Note 5) Millions of yen 2003 2002 Thousands of U.S. dollars (Note 3) 2003 ¥ 327,098 ¥ 370,432 $ 2,725,817 107,920 1,007,396 (25,776) 166,190 629,659 143,087 265,642 136,890 976,037 (26,780) 190,912 693,350 84,402 249,284 899,333 8,394,967 (214,800) 1,384,917 5,247,158 1,192,392 2,213,683 Total current assets 2,621,216 2,674,527 21,843,467 Long-term receivables and investments: Long-term receivables (Note 5) Long-term finance receivables, net (Note 5) Investments in and advances to affiliates (Note 7) Marketable securities and other investments (Note 4) Property, plant and equipment (Note 9): Land Buildings Machinery and equipment Construction in progress Less—Accumulated depreciation 27,153 260,361 186,685 209,374 683,573 174,701 1,116,868 2,670,750 37,642 3,999,961 (2,800,676) 14,523 313,058 132,974 230,300 690,855 175,682 1,168,861 2,712,073 92,594 4,149,210 (2,794,888) 226,275 2,169,675 1,555,708 1,744,784 5,696,442 1,455,842 9,307,233 22,256,250 313,683 33,333,008 (23,338,967) 1,199,285 1,354,322 9,994,041 Deferred tax assets (Note 15) Other assets (Note 8) 542,507 192,355 487,524 200,554 4,520,892 1,602,958 The accompanying notes are an integral part of these statements. ¥5,238,936 ¥5,407,782 $43,657,800 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 35 CONSOLIDATED BALANCE SHEETS TOSHIBA CORPORATION 35 Liabilities and shareholders’ equity Current liabilities: Short-term borrowings (Note 9) Current portion of long-term debt (Note 9) Notes payable, trade Accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Advance payments received Other current liabilities (Note 22) Total current liabilities Long-term liabilities: Long-term debt (Note 9) Accrued pension and severance costs (Note 10) Other liabilities Millions of yen 2003 2002 Thousands of U.S. dollars (Note 3) 2003 ¥ 427,969 ¥ 658,854 $ 3,566,408 343,373 107,817 874,153 269,885 49,934 243,187 302,459 270,924 140,879 837,141 340,232 36,768 273,107 314,588 2,861,442 898,475 7,284,608 2,249,042 416,117 2,026,558 2,520,492 2,618,777 2,872,493 21,823,142 882,026 950,997 40,127 888,755 709,233 42,324 7,350,217 7,924,975 334,391 1,873,150 1,640,312 15,609,583 Minority interest in consolidated subsidiaries (Note 16) 175,945 189,663 1,466,208 Shareholders’ equity (Note 17) Common stock, without par value: Authorized—10,000,000,000 shares Issued and outstanding: 2003 and 2002—3,219,027,165 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost: 2003—2,269,483 shares 2002—225,288 shares Commitments and contingent liabilities (Notes 21 and 22) 274,926 285,736 462,058 (450,775) (881) — 274,926 285,736 443,555 2,291,050 2,381,133 3,850,484 (298,792) (3,756,458) — (111) (7,342) — 571,064 705,314 4,758,867 ¥5,238,936 ¥5,407,782 $43,657,800 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 36 36 TOSHIBA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF OPERATIONS Toshiba Corporation and its subsidiaries For the years ended March 31, 2003 and 2002 Sales and other income: Net sales Interest and dividends Other income (Notes 4, 5, and 23) Costs and expenses: Cost of sales (Notes 11 and 19) Selling, general and administrative (Notes 8, 11, 12, and 19) Restructuring charges (Note 14) Interest Other expense (Notes 4, 5, 13, and 23) Income (loss) before income taxes, minority interest and equity in earnings of affiliates Income taxes (Note 15): Current Deferred Millions of yen 2003 2002 Thousands of U.S. dollars (Note 3) 2003 ¥5,655,778 ¥5,394,033 $47,131,483 13,381 65,937 14,704 59,100 111,509 549,475 5,735,096 5,467,837 47,792,467 4,146,460 1,393,776 10,906 24,257 106,574 4,070,130 1,437,478 208,954 29,891 98,071 34,553,833 11,614,800 90,883 202,142 888,117 5,681,973 5,844,524 47,349,775 53,123 (376,687) 442,692 50,986 (2,454) 48,532 36,185 (150,100) (113,915) 424,883 (20,450) 404,433 Income (loss) before minority interest and equity in earnings of affiliates 4,591 (262,772) 38,259 Minority interest in income (loss) of consolidated subsidiaries (11,330) Income (loss) before equity in earnings of affiliates Equity in earnings of affiliates (Note 7) 15,921 2,582 (6,315) (256,457) 2,440 (94,417) 132,676 21,516 Net income (loss) ¥ 18,503 ¥ (254,017) $ 154,192 Basic and diluted net income (loss) per share ¥ 5.75 ¥ (78.91) $ 0.048 Weighted-average number of shares used in calculation of earnings per share (thousands of shares) 3,217,979 3,218,951 Yen U.S. dollars (Note 3) Cash dividends per share (Note 17) ¥ 3.00 — $ 0.025 The accompanying notes are an integral part of these statements. ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 37 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY TOSHIBA CORPORATION 37 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Toshiba Corporation and its subsidiaries For the years ended March 31, 2003 and 2002 Common stock Additional paid-in capital Retained earnings Millions of yen Accumulated other comprehensive loss Treasury stock Balance at March 31, 2001 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 10) Unrealized losses on derivative instruments Comprehensive loss Cash dividends Purchase of treasury stock, at cost Balance at March 31, 2002 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 10) Unrealized losses on derivative instruments Comprehensive loss Purchase of treasury stock, at cost Balance at March 31, 2003 Balance at March 31, 2002 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 10) Unrealized losses on derivative instruments Comprehensive loss Purchase of treasury stock, at cost Balance at March 31, 2003 The accompanying notes are an integral part of these statements. Total ¥1,047,925 9 (254,017) (3,542) 13,987 (80,754) (2,088) (326,414) (16,095) (111) 705,314 18,503 (9,550) (17,638) (125,130) ¥ 274,921 ¥ 285,732 ¥ 713,667 ¥ (226,395) 5 4 (254,017) (3,542) 13,987 (80,754) (2,088) 274,926 285,736 443,555 (298,792) ¥(111) (111) (16,095) 18,503 (9,550) (17,638) (125,130) 335 ¥ 274,926 ¥ 285,736 ¥ 462,058 ¥ (450,775) Thousands of U.S. dollars (Note 3) 335 (133,480) (770) ¥ (881) ¥ 571,064 (770) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total $2,291,050 $2,381,133 $3,696,292 $(2,489,933) $ (925) $5,877,617 154,192 (79,583) (146,983) 154,192 (79,583) (146,983) (1,042,751) (1,042,751) 2,792 $2,291,050 $2,381,133 $3,850,484 $(3,756,458) 2,792 (1,112,333) (6,417) $(7,342) $4,758,867 (6,417) ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 38 38 TOSHIBA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS Toshiba Corporation and its subsidiaries For the years ended March 31, 2003 and 2002 Cash flows from operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities— Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income tax benefit Equity in income of affiliates Loss from sales, disposal and impairment of property and securities, net Minority interest in loss of consolidated subsidiaries (Increase) decrease in notes and accounts receivable, trade Decrease in finance receivables, net Decrease in inventories (Increase) decrease in other current assets (Increase) decrease in long-term receivables Decrease in long-term finance receivables, net Increase (decrease) in notes and accounts payable, trade Increase (decrease) in accrued income and other taxes Decrease in advance payments received (Decrease) increase 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 (Increase) decrease in investments in affiliates Increase in other assets and other Net cash used in investing activities Cash flows from financing activities Proceeds from long-term debt Repayment of long-term debt (Decrease) increase in short-term borrowings Dividends paid Proceeds from stock offering by subsidiaries Repurchase of subsidiary common stock from minority shareholder Purchase of treasury stock Net cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Millions of yen 2003 2002 Thousands of U.S. dollars (Note 3) 2003 ¥ 18,503 ¥(254,017) $ 154,192 260,835 20,296 (2,454) (2,582) 30,337 (11,330) (13,520) 2,538 17,856 (35,299) (15,283) 52,697 6,392 13,183 (16,860) (53,706) 271,603 151,319 13,897 (249,253) (22,557) (12,409) (28,985) (147,988) 363,086 (280,965) (238,600) (2,428) 525 (604) (770) (159,756) (7,193) (43,334) 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) 52,523 — (111) 53,495 5,756 (117,163) 2,173,625 169,133 (20,450) (21,516) 252,808 (94,417) (112,667) 21,150 148,800 (294,158) (127,358) 439,142 53,267 109,858 (140,500) (447,551) 2,263,358 1,260,992 115,808 (2,077,108) (187,975) (103,408) (241,542) (1,233,233) 3,025,716 (2,341,375) (1,988,333) (20,233) 4,375 (5,033) (6,417) (1,331,300) (59,941) (361,116) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 370,432 ¥327,098 487,595 ¥ 370,432 3,086,933 $2,725,817 Supplemental disclosure of cash flow information (Note 23) Cash paid during the year for— Interest Income taxes The accompanying notes are an integral part of these statements. ¥ 31,932 ¥ 43,094 ¥ 39,347 ¥ 55,340 $ 266,100 $ 359,117 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Toshiba Corporation and its subsidiaries 1. DESCRIPTION OF BUSINESS 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 sys- tems, (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, 2003, sales of digital media products rep- resented the most significant portion of the Company’s total sales or approximately 26 percent. Electronic devices & components represented approximately 20 percent of the Company’s total sales, while sales of information & communications systems and social infrastructure systems were approximately equal in amount, each representing approximately 15 percent of the Company’s total sales. Sales of home appliances and power systems represented approximately 10 percent of the Company’s total sales. The Company’s products are manufactured and marketed throughout the world with 59 percent of sales in Japan and the remainder in North America, Asia, Europe and other parts of the world. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 state- ments 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 in which the ability to exercise significant influence exists are stated at cost plus equity in undis- tributed 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 at the date of purchase 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 included 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. Allowance for Uncollectible Receivables An allowance for uncollectible trade receivables is recorded based on a combination of the write-off history, aging analysis, and an evaluation of any specific known troubled accounts. When all collection options are exhausted including legal recourse, the accounts or portions thereof are deemed to be uncollectible and charged against the allowance. An allowance for uncollectible finance receivables is provided based on past loss experience and the estimation of value of the underlying collateral. Marketable Securities and Other Investments The Company classifies all of its marketable securities as available-for-sale which are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive income (loss), net of taxes. Other invest- ments 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 carrying 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 abil- ity to retain marketable securities and investment securities for a period of time sufficient to allow for any antici- pated recovery in market value. When such a decline exists, the Company recognizes an impairment loss to the extent of such decline. Inventories Raw materials, finished products and work in process for stock sales items are stated at the lower of cost or market, cost being determined principally by the average method. Finished products and work in process for contract items ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 40 40 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Depreciable Assets 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. Certain costs incurred in connection with developing or obtaining internal use software are capitalized. These costs consist of payments made to third parties and the salaries of employees working on such software development and are included under the caption Other assets in the accompanying consolidated balance sheets. Depreciation for property, plant and equipment is computed generally by the declining-balance method at rates based on the following estimated useful lives of the assets: buildings, 3 to 50 years; machinery and equipment, 2 to 20 years. Software is depreciated mainly using the straight-line method over the estimated use- ful life of the asset, which is generally less than 5 years. Impairment of Long-Lived Assets Long-lived assets, other than goodwill and intangible assets with indefinite lives, 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 carry- ing amount of the assets, an impairment loss is recorded based on the fair value of the asset. Fair value is deter- mined primarily by using the anticipated cash flows discounted at a rate commensurate with the risk involved. For assets held for sale, an impairment loss is further increased by costs to sell. Long-lived assets to be disposed of other than by sale are considered held and used until disposed of. Intangible Assets Intangible assets, mainly consisting of technical license fees, are amortized over the contractual periods or the esti- mated useful lives on a straight-line basis without residual values. Weighted average amortization period for these intangible assets was 5.3 years as of March 31, 2003. The Company reviews the carrying amount of indefinite lived intangible assets for impairment whenever events or circumstances indicates that the carrying amount may not be recoverable. Income Taxes The provision (benefit) for income taxes is computed based on the pre-tax income (loss) included in the consoli- dated 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 statements, and are measured by applying currently enacted tax laws. The effect on deferred tax assets and lia- bilities of a change in tax rates is recognized in income in the period that the change is enacted. 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 applica- tion of Statement of Financial Accounting Standards (“SFAS”) No. 87 and prior service costs resulting from amend- ments to the plans are amortized over the average remaining 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 decreases; 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 connection with this transaction, the Company recognized a gain of ¥9,185 million and deferred taxes on this gain of ¥3,867 million. 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. 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. ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 41 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. To measure the extent of progress toward completion, the Company generally compares the costs incurred to date to estimated total costs to complete based upon the most recent available information. Revenues from the sale of equipment under sales-type leases are recognized at the inception of the lease. Interest on sales-type leases and direct financing leases is recognized to produce a constant periodic rate of return on the net investment in the lease. Leases not qualifying as sales-type lease or direct financing lease are accounted for as operating leases and related revenues are recognized over the lease term. Shipping and Handling Costs The Company includes shipping and handling costs which totaled ¥88,760 million ($739,667 thousand) and ¥88,332 mil- lion for the years ended March 31, 2003 and 2002, 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, currency swap agreements, and currency options for the purpose of currency exchange rate and interest rate risk management. Refer to Note 18 for descriptions of these financial instruments. The Company recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap agreements, currency swap agreements, and currency options 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 deriv- ative financial instruments are either recognized periodically in income or in shareholders’ 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 value of derivative financial instruments accounted for as fair value hedges are recorded in income along with the por- tion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in fair value of deriv- ative 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 derivative financial instruments not qualifying as a hedge are reported in income. 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 receivables is computed based on the allocated carrying amount of the receivables sold. Retained interests are recorded at the allocated carrying value of the assets based on their relative fair values at the date of sale. The Company estimates fair value based on the present value of future expected cash flows less credit losses. Guarantees Effective January 1, 2003, the Company adopted the Financial Accounting Statements Board (“FASB”) Interpreta- tion No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees. FIN 45 requires a com- pany to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on the Company’s financial position and results of operations. Recent Pronouncements In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. The Statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recog- nition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. The Company will adopt SFAS No.143 on April 1, 2003. The Company is currently evaluating the impact of adoption of SFAS No. 143 on the Company’s financial position and the results of operations. In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, which addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (1) do not have a suf- ficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the equity investors lack an essential characteristic of a controlling financial interest. FIN 46 requires disclosure of VIEs in financial statements initially issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the company will be the primary beneficiary of an existing VIE that will require con- solidation or, (2) the company will hold a significant variable interest in an existing VIE. Pursuant to the transitional requirements of FIN 46, such disclosures are provided in Note 20. Any VIEs created after January 31, 2003 are imme- diately subject to the consolidation guidance in FIN 46. The Company will adopt the consolidation guidance applicable to existing VIEs in the interim reporting period ending September 30, 2003. In accordance with FIN 46, the Company is currently reviewing the existing VIEs to determine if consolidation is required. 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. ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 42 42 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. U.S. DOLLAR AMOUNTS 4. MARKETABLE SECURITIES AND OTHER INVESTMENTS 5. FINANCE RECEIVABLES AND SECURITIZATIONS 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 rates. The amounts shown in U.S. dollars are not intended to be computed in accordance with generally accepted accounting principles in the United States for the translation of foreign currency amounts. The rate of ¥120 = U.S.$1, the approximate current rate of exchange at March 31, 2003, 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, 2003 and 2002 are as follows: March 31, 2003: Equity securities Debt securities March 31, 2002: Equity securities Debt securities March 31, 2003: Equity securities Debt securities Millions of yen Gross unrealized holding gains Gross unrealized holding losses ¥ 36,896 3 ¥ 36,899 ¥ 50,952 — ¥ 50,952 ¥ 6,985 32 ¥ 7,017 ¥ 6,553 9 ¥ 6,562 Thousands of U.S. dollars Gross unrealized holding gains Gross unrealized holding losses Cost ¥75,830 1,994 ¥77,824 ¥84,601 2,365 ¥86,966 Cost $631,916 16,617 $648,533 $307,467 25 $307,492 $58,208 267 $58,475 Fair value ¥105,741 1,965 ¥107,706 ¥129,000 2,356 ¥131,356 Fair value $881,175 16,375 $897,550 At March 31, 2003, debt securities mainly consist of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale were as follows at March 31, 2003: Due within one year Due after one year Millions of yen Thousands of U.S. dollars Cost ¥ 25 1,969 ¥ 1,994 Fair value ¥ 28 1,937 ¥ 1,965 Cost $ 208 16,409 $16,617 Fair value $ 233 16,142 $ 16,375 The proceeds from sales of available-for-sale securities for the years ended March 31, 2003 and 2002 were ¥13,897 million ($115,808 thousand) and ¥29,714 million, respectively. The gross realized gains on those sales for the years ended March 31, 2003 and 2002 were ¥3,347 million ($27,892 thousand) and ¥9,474 million, respectively. The gross realized losses on those sales for the years ended March 31, 2003 and 2002 were ¥934 million ($7,783 thousand) and ¥644 million, respectively. Included in other expense is a charge of ¥21,292 million ($177,433 thousand) and ¥27,572 million related to other- than-temporary declines in the marketable and non-marketable equity securities for the years ended March 31, 2003 and 2002 respectively. Investment in financing leases consists of sales-type and direct financing leases mainly for information systems, medical 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: Millions of yen Thousands of U.S. dollars March 31 Investment in financing leases: Total minimum lease payments receivable Estimated executory costs Unearned income Estimated residual values 2003 2002 2003 ¥231,871 (4,256) (11,214) — 216,401 ¥286,019 (10,471) (11,771) 2,417 266,194 $1,932,258 (35,467) (93,450) — 1,803,341 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 43 Less—allowance for doubtful accounts Less—current portion Other finance receivables Less—allowance for doubtful accounts Less—current portion (925) 215,476 (64,320) ¥151,156 ¥224,426 (13,351) 211,075 (101,870) ¥109,205 (1,161) 265,033 (81,464) ¥183,569 ¥250,223 (11,286) 238,937 (109,448) ¥129,489 (7,708) 1,795,633 (536,000) $1,259,633 $1,870,217 (111,258) 1,758,959 (848,917) $ 910,042 At March 31, 2003, 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 2004 2005 2006 2007 2008 Thereafter Investment in financing leases Other finance receivables Millions of yen ¥ 69,894 70,313 49,423 28,904 12,468 869 ¥231,871 Thousands of U.S. dollars $ 582,450 585,942 411,858 240,867 103,900 7,241 $1,932,258 Millions of yen ¥106,646 47,126 25,632 15,604 9,496 19,922 ¥224,426 Thousands of U.S. dollars $ 888,717 392,717 213,600 130,033 79,133 166,017 $1,870,217 The Company has transferred trade accounts receivable, trade notes receivable and finance receivables under sev- eral securitization programs. These securitization transactions are accounted for as a sale in accordance with SFAS No. 140, because the Company has relinquished control of the receivables. Accordingly, the receivables sold under these facilities are excluded from receivables in the accompanying consolidated balance sheets. Upon the sale of receivables, the Company holds subordinated retained interests for certain trade account receivable, trade notes receivable and finance receivables. A portion of these receivables, where the Company holds subordinated retained interests, are not taken off the balance sheet and are recorded at their fair value. Such car- rying value is adjusted to reflect the portion that is not expected to be collectible. As of March 31, 2003 and 2002, the fair value of retained interest is ¥28,579 million ($238,158 thousand) and ¥31,617 million, respectively. The Company recognized losses of ¥1,210 million ($10,083 thousand) and gains of ¥669 million on the securitizations of receivables for the years ended March 31, 2003 and 2002, respectively. Subsequent to sale, the Company retains collection and administrative responsibilities for the receivables. Servicing fees received by the Company approximated the prevailing market rate. Related servicing assets or lia- bilities are immaterial to the Company’s financial position. The table below summarizes certain cash flows received from and paid to the securitization SPEs on the above transactions. Year ended March 31 Proceeds from new securitizations Servicing fees received Cash flows received on retained interests Purchases of delinquent and foreclosed receivables Millions of yen 2003 ¥1,068,072 458 83,240 2002 ¥876,660 447 133,953 Thousands of U.S. dollars 2003 $8,900,600 3,817 693,667 16 487 133 At March 31, 2003, key economic assumptions used to compute the fair value of retained interests are as follows: Weighted-average life (in years) Residual cash flows discount rate Accounts Receivables 0.15 Other Finance Receivables 0.13 1.40% 0.52%–0.63% 1.50%–2.70% 0.45%–0.85% Lease Receivables 1.95 Note Receivables 0.18 Quantitative information about delinquencies, net credit losses, and components of securitized receivables as of and for the years ended March 31, 2003 and 2002 are as follows: ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 44 44 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Total principal amount of receivables Amount 90 days or more past due Net credit losses March 31, Year ended March 31, Millions of yen Accounts receivables Note receivables Lease receivables Other finance receivables Total managed portfolio Securitized receivables Total receivables 2003 2002 213,105 340,683 359,590 ¥1,105,353 ¥1,106,036 199,176 352,523 350,558 ¥2,018,731 ¥2,008,293 (376,873) ¥1,569,020 ¥1,631,420 (449,711) 2003 ¥23,047 18 1,290 6,105 ¥30,460 2002 ¥23,090 16 1,104 5,574 ¥29,784 2003 ¥3,928 301 — — ¥4,229 2002 ¥3,874 382 — — ¥4,256 Total principal amount of receivables Amount 90 days or more past due Net credit losses Thousands of U.S. dollars Accounts receivables Note receivables Lease receivables Other finance receivables Total managed portfolio Securitized receivables Total receivables $ 9,211,275 1,775,875 2,839,025 2,996,584 $16,822,759 (3,747,592) $13,075,167 March 31, 2003 $192,058 150 10,750 50,875 $253,833 Year ended March 31, 2003 $32,734 2,508 — — $35,242 6. INVENTORIES Inventories comprise the following: March 31 Finished products Work in process: Long-term contracts Other Raw materials Millions of yen 2003 ¥256,299 90,387 175,431 107,542 ¥629,659 2002 ¥280,178 128,486 163,782 120,904 ¥693,350 Thousands of U.S. dollars 2003 $2,135,825 753,225 1,461,925 896,183 $5,247,158 7. INVESTMENTS IN AND ADVANCES TO AFFILIATES The Company’s significant investments in affiliated companies accounted for by the equity method together with the percentage of the Company’s ownership of voting shares at March 31, 2003 are: TM T&D Corporation (“TM T&D”) (50.0%); MT Picture Display Co., Ltd. (“MTPD”) (35.5%); Topcon Corporation (41.9%); Toshiba Ceramics Co., Ltd. (41.4%); Toshiba Machine Co., Ltd. (47.7%); and Toshiba Tungaloy Co., Ltd. (38.3%). Of the affiliates which are accounted for by the equity method, the investment in common stock of the listed companies (five companies) is carried at ¥59,974 million ($499,783 thousand) and ¥60,174 million at March 31, 2003 and 2002, respectively. The Company’s investments in these companies had a market value of ¥49,022 million ($408,517 thousand) and ¥58,330 million at March 31, 2003 and 2002, respectively, based on quoted market prices at those dates. Summarized financial information of the affiliates accounted for by the equity method is shown below: Millions of yen 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 2003 ¥ 689,175 409,779 ¥1,098,954 ¥ 490,717 100,369 507,868 ¥1,098,954 2002 ¥450,226 262,323 ¥712,549 ¥323,950 66,072 322,527 ¥712,549 Year ended March 31 Sales Net income (loss) Millions of yen 2003 ¥770,347 ¥ (3,580) 2002 ¥614,580 ¥ 11,002 Thousands of U.S. dollars 2003 $5,743,125 3,414,825 $9,157,950 $4,089,309 836,408 4,232,233 $9,157,950 Thousands of U.S. dollars 2003 $6,419,558 $ (29,833) ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 45 8. INTANGIBLE ASSETS 9. SHORT-TERM BORROWINGS AND LONG- TERM DEBT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 45 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 Notes and accounts receivable, trade Other receivables Notes and accounts payable, trade Other payables Millions of yen Millions of yen 2003 ¥79,274 ¥73,455 2003 ¥25,544 ¥ 6,383 ¥28,633 ¥ 7,900 2002 ¥22,164 ¥63,355 2002 ¥15,033 ¥ 3,349 ¥44,618 ¥ 5,475 Thousands of U.S. dollars 2003 $660,617 $612,125 Thousands of U.S. dollars 2003 $212,867 $ 53,192 $238,608 $ 65,833 Intangible assets comprise mainly technical license fees and are subject to amortization. At March 31, 2003, gross carrying amounts and related accumulated amortization were ¥90,139 million ($751,158 thousand) and ¥53,110 mil- lion ($442,583 thousand), respectively. At March 31, 2002, gross carrying amounts and related accumulated amor- tization were ¥82,381 million and ¥41,223 million, respectively. For the years ended March 31, 2003 and 2002, amortization expense was ¥15,179 million ($126,492 thousand) and ¥16,174 million, respectively. Estimated amortization expense for each of the five years ending March 31 is: ¥12,651 million ($105,425 thousand) in 2004, ¥10,957 million ($91,308 thousand) in 2005, ¥6,974 million ($58,117 thousand) in 2006, ¥3,168 million ($26,400 thousand) in 2007, and ¥961 million ($8,008 thousand) in 2008. Short-term borrowings at March 31, 2003 and 2002 comprise the following: March 31 Loans, principally from banks, including bank overdrafts, with weighted-average interest rate of 0.77% at March 31, 2003 and 0.84% at March 31, 2002: Secured Unsecured Commercial paper with weighted-average interest rate of 0.04% at March 31, 2003 and 0.15% at March 31, 2002 Euro yen or U.S. dollar medium-term notes of a subsidiary, with weighted-average interest rate of 0.16% at March 31, 2003 and 0.36% at March 31, 2002 (swapped for floating rate (LIBOR, etc.) or fixed rate U.S. dollar, yen or Euro obligations) Millions of yen 2003 2002 Thousands of U.S. dollars 2003 ¥ 2,645 352,048 ¥ 3,516 456,510 $ 22,042 2,933,733 35,000 168,693 291,667 38,276 ¥427,969 30,135 ¥658,854 318,966 $3,566,408 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, 2003, the Company had unused committed lines of credit from short-term financing arrange- ments aggregating ¥542,235 million ($4,518,625 thousand), of which ¥21,035 million ($175,292 thousand) was in support of the Company’s commercial paper. The lines of credit expire on various dates from July 2003 through April 2004. Under the agreements, the Company is required to pay commitment fees raging from 0.1 per- cent to 0.2 percent on the unused portion of the lines of credit. ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 46 46 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-term debt at March 31, 2003 and 2002 comprise the following: March 31 Loans, principally from banks and insurance companies, due 2003 to 2034 with weighted average interest rate of 1.15% at March 31, 2003 and due 2002 to 2034 with weighted average interest rate of 1.20% at March 31, 2002: Millions of yen 2003 2002 Thousands of U.S. dollars 2003 Secured Unsecured ¥ 11,233 597,895 ¥ 19,268 574,838 $ 93,608 4,982,459 Unsecured yen bonds, due 2003 to 2008 with interest ranging from 0.49% to 3.025% at March 31, 2003 and due 2002 to 2008 with interest ranging from 0.60% to 3.025% at March 31, 2002 Euro yen medium-term notes, due 2003 to 2008 with interest ranging from zero % to 2.34% at March 31, 2003 and due 2002 to 2008 with interest ranging from zero % to 2.34% at March 31, 2002 (swapped for floating rate (LIBOR, etc.) or fixed rate yen obligations) Unsecured yen bonds of subsidiaries, due 2004 with interest ranging from 1.69% to 3.00% at March 31, 2003 and due 2002 to 2004 with interest ranging from 0.95% to 3.00% at March 31, 2002 1.825% secured yen bonds of a subsidiary due 2004 Euro yen or U.S. dollar medium-term notes of subsidiaries, due 2003 to 2012 with interest ranging from 0.09% to 3.70% at March 31, 2003 and due 2002 to 2012 with interest ranging from zero % to 4.00% at March 31, 2002 (swapped for floating rate (LIBOR, etc.) U.S. dollar, Yen or Euro obligations) Zero % unsecured yen convertible debentures of a subsidiary due 2004 convertible currently at ¥803 per share Less—Portion due within one year 475,667 420,622 3,963,892 28,525 39,375 237,708 12,000 300 14,000 300 100,000 2,500 96,959 88,456 807,992 2,820 1,225,399 (343,373) 2,820 1,159,679 (270,924) 23,500 10,211,659 (2,861,442) ¥ 882,026 ¥ 888,755 $ 7,350,217 Certain of the secured loan agreements contain provisions, which permit the lenders to require additional collat- eral. 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, 2003 are property, plant and equipment with a book value of ¥53,030 million ($441,917 thousand). The aggregate annual maturities of long-term debt are as follows: Year ending March 31 2004 2005 2006 2007 2008 Thereafter Millions of yen ¥ 343,373 228,053 287,028 119,295 127,395 120,255 ¥1,225,399 Thousands of U.S. dollars $ 2,861,442 1,900,442 2,391,900 994,125 1,061,625 1,002,125 $10,211,659 10. ACCRUED PENSION AND SEVERANCE COSTS All employees whose services with the Company are terminated are usually entitled to lump-sum severance indem- nities 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. Toshiba Corporation and certain subsidiaries in Japan have Employees’ Pension Fund Plans (“EPFs”), which are contributory defined benefit pension plans under the Japanese Welfare Pension Insurance Law (“JWPIL”). These plans are composed of a substitutional portion which is the obligation related to the government-defined ben- ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 47 efit prescribed by JWPIL and a corporate portion based on a contributory defined benefit arrangement established at the discretion of Toshiba Corporation. Certain subsidiaries in Japan 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 con- tribute amounts required to maintain sufficient plan assets to provide for accrued benefits, subject to the limitation on deductibility imposed by Japanese income tax laws. For the year ended March 31, 2002, the Company has amended the regulations of the social security benefits por- tion under the contributory trusteed employee pension funds in accordance with the revisions of the JWPIL. This amendment resulted in the reduction of the projected benefit obligations of the funds. Net periodic pension and severance cost for the years ended March 31, 2003 and 2002 included the following com- ponents: Millions of yen 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 Net periodic pension and severance cost 2003 ¥ 52,287 59,053 (35,546) 12,025 (5,972) 29,184 ¥111,031 2002 ¥ 62,687 61,439 (37,864) 12,025 (4,202) 18,693 ¥112,778 Thousands of U.S. dollars 2003 $435,725 492,108 (296,217) 100,209 (49,767) 243,200 $925,258 A weighted-average discount rate of 3.0 percent and 3.5 percent, an expected long-term rate of return on plan assets of 4.0 percent and 4.0 percent, and an assumed rate of increase in salary levels of 1.9 percent and 2.1 per- cent were used in measuring the pension obligations at March 31, 2003 and 2002, respectively. 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, 2003 and 2002 were as follows: 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 Divestitures Foreign currency exchange impact Benefit obligation at end of year 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 Divestitures 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 Net amount recognized Amounts recognized in the consolidated balance sheets consist of: Accrued pension and severance costs Accumulated other comprehensive loss, pre-tax Net amounts recognized Millions of yen 2003 2002 ¥1,816,656 52,287 59,053 5,308 25,046 95,969 (102,338) (14,273) (1,411) ¥1,936,297 ¥ 988,112 (126,700) 41,627 5,308 (53,972) (8,191) (1,417) ¥ 844,767 ¥1,091,530 (861,688) (36,911) 46,950 ¥ 239,881 ¥1,823,810 62,687 61,439 8,745 (39,154) 67,633 (169,461) — 957 ¥1,816,656 ¥1,044,142 (55,441) 40,371 8,745 (50,648) — 943 ¥ 988,112 ¥ 828,544 (638,072) (49,163) 78,740 ¥ 220,049 Thousands of U.S. dollars 2003 $15,138,800 435,725 492,108 44,233 208,717 799,742 (852,817) (118,942) (11,758) $16,135,808 $ 8,234,267 (1,055,834) 346,892 44,233 (449,767) (68,258) (11,808) $ 7,039,725 $ 9,096,083 (7,180,733) (307,592) 391,250 $ 1,999,008 ¥ 950,997 ¥ 709,233 $ 7,924,975 (711,116) ¥ 239,881 (489,184) ¥ 220,049 (5,925,967) $ 1,999,008 Accumulated benefit obligation at end of year ¥1,796,972 ¥1,696,572 $14,974,767 ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 48 48 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 2003, the Emerging Issue Task Force reached a consensus on Issue No. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities (“EITF 03-2”), which addresses accounting for a transfer to the Japanese government of a substitutional portion of EPFs. In September 2002, the Company received an approval from the Japanese government to transfer the future benefit obligation related to the substitutional portion. In addition, the Company will submit another application to sepa- rate the remaining substitutional portion related to past sevice by its employees. The Company expects to receive final approval from the Japanese government for its second application during the year ending March 31, 2004. Upon receipt of the final approval, the Company will be relieved of all obligations pertaining to the substitutional portion by transferring the benefit obligation and the related government-specified portion of the plan assets which are computed by the Japanese government. The Company will account for the entire process upon completion of the transfer to the Japanese government of the substitutional portion of the benefit obligation and the related plan asset, as the culmination of a series of steps in a single settlement transaction under EITF 03-2. The effect of the completion of the transaction has not yet been determined because the amount of the benefit obligation and the related plan assets to be transferred may change significantly. Research and development costs are expensed as incurred and amounted to ¥331,494 million ($2,762,450 thousand) and ¥326,170 million for the years ended March 31, 2003 and 2002, respectively. Advertising costs are expensed as incurred. Advertising expenses amounted to ¥41,911 million ($349,258 thousand) and ¥59,390 million for the years ended March 31, 2003 and 2002, respectively. For the years ended March 31, 2003 and 2002, the net foreign exchange losses are ¥15,614 million ($130,117 thou- sand) and ¥6,682 million, respectively. During the year ended March 31, 2003, the Company recorded restructuring charges of ¥10,906 million ($90,883 thousand) principally related to its Display Devices and Components division. Included in the restructuring charges is impairment of manufacturing facilities of ¥7,815 million ($65,125 thousand) for the year ended March 31, 2003. During the year ended March 31, 2002, the Company recorded restructuring charges, which consisted of various reorganization costs totaling ¥111,280 million primarily related to the “01 Action Plan,” and additional termination benefits for voluntary early retirement of ¥97,674 million. The reorganization costs of ¥111,280 million comprised the following: For the year ended March 31, 2002, the Company recorded an impairment loss of ¥55,247 million for assets to be held and used related to machinery and equipment pertaining to memory products. In conjunction with a decision to exit the commodity DRAM business, the Company announced in December 2001 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 sale, certain NAND flash manufacturing equipment was 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 dis- posal and impairment for building, machinery and equipment of ¥5,125 million and various other losses including; losses on contract terminations, purchase commitment losses, dismantling costs for machinery and equipment to be disposed of, totaling ¥31,083 million. The Company paid substantially all of the restructuring liabilities during the year ended March 31, 2003. Other reorganization costs of ¥19,825 million mainly related to impairment losses of building, machinery and equipment for other businesses to be discontinued or already discontinued. The Company recorded a loss of ¥97,674 million with respect to the additional termination benefits 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 of the restructuring charges are non-cash charges. At March 31, 2003, approximately ¥2,365 million ($19,708 thousand) of restructuring charges remain accrued for by the Company. The Company is subject to a number of different taxes based on income which, in the aggregate, result in a normal statu- tory tax rate in Japan of approximately 42.1 percent for the years ended March 31, 2003 and 2002, respectively. Commencing with the year ended March 31, 2003, the Japanese tax regulations is permit the filing of a consolidated tax return. In connection with its introduction, a temporary surtax of 2.0 percent is assessed for consolidated tax returns filed for the years ending March 2003 and 2004. Upon the initial filing of a consolidated tax return, net operating loss carryforwards previously generated by a company’s subsidiaries will expire. A change in the corporate enterprise tax rate was enacted in March 2003 and is effective for tax periods ending March 31, 2005. In 2003, Toshiba Corporation applied for and obtained approval from the Japanese tax authorities to file a tax return for the consolidated group starting from the year ending March 2004. As a result of the change in the corporate enter- prise tax rate and commencement of the consolidated tax return filing, the Company’s normal statutory tax rate will change from 42.1 percent to 43.9 percent for the year ending March 31, 2004 and to 40.9 percent for the years end- ing on or after March 31, 2005. The effect on deferred tax assets and liabilities of the future change in the tax rates recorded as deferred tax expense for the year ended March 31, 2003 was ¥4,373 million ($36,442 thousand). 11. RESEARCH AND DEVELOPMENT EXPENSES 12. ADVERTISING COSTS 13. FOREIGN EXCHANGE GAINS AND LOSSES 14. RESTRUCTURING CHARGES 15. INCOME TAXES ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 49 A reconciliation 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 statuto- ry tax rate is as follows: Millions of yen Year ended March 31 Expected income tax expense (benefit) Increase in taxes resulting from: Non-deductible expenses for tax purposes Net changes in valuation allowance Effect of income tax rate change Other Income tax expense (benefit) 2003 ¥22,365 5,076 15,571 4,373 1,147 ¥48,532 2002 ¥(158,585) 3,256 41,575 — (161) ¥(113,915) Thousands of U.S. dollars 2003 $186,375 42,300 129,758 36,442 9,558 $404,433 The significant components of deferred tax assets and deferred tax liabilities as of March 31, 2003 and 2002 are as follows: March 31 Gross deferred tax assets: Inventories Accrued pension and severance costs Tax loss carryforwards Minimum pension liability adjustment Accrued bonus Depreciation and amortization 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 2003 2002 ¥ 24,970 103,998 194,248 298,303 38,920 34,528 107,176 802,143 (65,880) 736,263 (12,888) (12,341) (17,257) (16,299) (58,785) ¥677,478 ¥ 24,805 97,788 180,125 205,946 27,746 38,793 136,165 711,368 (77,644) 633,724 (15,661) (18,356) (17,763) (17,450) (69,230) ¥564,494 Thousands of U.S. dollars 2003 $ 208,083 866,650 1,618,733 2,485,858 324,333 287,733 893,135 6,684,525 (549,000) 6,135,525 (107,400) (102,842) (143,808) (135,825) (489,875) $5,645,650 The net changes in the total valuation allowance for the years ended March 31, 2003 and 2002 were a decrease of ¥11,764 million ($98,033 thousand) and an increase of ¥35,447 million, respectively. Tax loss carryforwards of the Company at March 31, 2003 amounted to approximately ¥487,788 million ($4,064,900 thousand), the majority of which will expire during the period from 2004 through 2008. The Company utilized tax loss carryforwards of ¥31,272 million ($260,600 thousand) to recognize income tax benefits for the current year. Realization of tax loss carryforwards and other deferred tax assets is dependent on the Company generating suffi- cient taxable income prior to their expiration or the Company exercising certain available tax strategies. Although real- ization 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 affil- iates deemed indefinitely reinvested in foreign operations. As of March 31, 2003, and 2002, the undistributed earn- ings of the foreign subsidiaries not subject to deferred tax liabilities were ¥107,328 million ($894,400 thousand), and ¥103,248 million, respectively. It is not practicable to estimate the amount of the deferred income tax liabilities on such earnings. During the year ended March 31, 2002, a foreign subsidiary issued 35 shares of ¥1,000 million par value redeemable preferred stock totaling ¥35,000 million 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 16. ISSUANCE OF PREFERRED STOCK BY A SUBSIDIARY 17. SHAREHOLDERS’ EQUITY ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 50 50 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Corporation’s shares had a par value of ¥50 per share. Retained Earnings Retained earnings at March 31, 2003 and 2002 include a legal reserve of ¥12,869 million ($107,242 thousand) and ¥81,815 million, respectively. The Japanese Commercial Code provides that an amount equal to at least 10 per- cent of cash dividends and other distributions from retained earnings paid by Toshiba Corporation and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of the additional paid-in capital and the legal reserve equals 25 percent of their respective stated capital. The Japanese Commercial Code also provides that to the extent that the sum of the additional paid-in capital and the legal reserve exceeds 25 percent of the stated capital, the amount of the excess (if any) is available for appro- priations by the resolution of the shareholders. The amount of retained earnings available for dividends is based on Toshiba Corporation’s retained earnings deter- mined in accordance with generally accepted accounting principles in Japan and the Japanese Commercial Code. Retained earnings at March 31, 2003 do not reflect year-end dividends of ¥9,656 million ($80,467 thousand) for the year ended March 31, 2003, which are expected to be formally approved at the general shareholders’ meeting held in June 2003, and will be payable subsequently. Retained earnings at March 31, 2003 included the Company’s equity in undistributed earnings of affiliated companies accounted for by the equity method in the amount of ¥45,131 million ($376,092 thousand). Accumulated Other Comprehensive Loss An analysis of the changes in accumulated other comprehensive loss, net of tax, for the years ended March 31, 2003 and 2002 is shown below: March 31 Unrealized gains on securities: Balance at beginning of year Current year change Balance at end of year Foreign currency translation adjustments: Balance at beginning of year Current year change Balance at end of year Minimum pension liability adjustment: Balance at beginning of year Current year change Balance at end of year Unrealized losses on derivative instruments: Balance at beginning of year Current year change Balance at end of year Total accumulated other comprehensive loss: Balance at beginning of year Current year change Balance at end of year Millions of yen 2003 2002 ¥ 25,186 (9,550) ¥ 15,636 ¥ (41,951) (17,638) ¥ (59,589) ¥(279,939) (125,130) ¥(405,069) ¥ (2,088) 335 ¥ (1,753) ¥(298,792) (151,983) ¥(450,775) ¥ 28,728 (3,542) ¥ 25,186 ¥ (55,938) 13,987 ¥ (41,951) ¥(199,185) (80,754) ¥(279,939) — ¥ (2,088) ¥ (2,088) ¥(226,395) (72,397) ¥(298,792) Thousands of U.S. dollars 2003 $ 209,883 (79,583) $ 130,300 $ (349,592) (146,983) $ (496,575) $(2,332,824) (1,042,751) $(3,375,575) $ (17,400) 2,792 $ (14,608) $(2,489,933) (1,266,525) $(3,756,458) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2003 and 2002 are shown below: For the year ended March 31, 2003: Unrealized gains on securities: Unrealized holding losses arising during year Less: reclassification adjustment for losses included in net income Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for losses included in net income Minimum pension liability adjustment Unrealized losses on derivative instruments: Unrealized losses arising during year Less: reclassification adjustment for losses included in net income Other comprehensive income (loss) Pre-tax amount Millions of yen Tax benefit (expense) Net-of-tax amount ¥ (28,670) ¥11,717 ¥ (16,953) 12,524 (5,121) 7,403 (20,363) 3,099 (217,487) (11,210) 11,668 ¥(250,439) (374) — 92,357 4,784 (4,907) ¥98,456 (20,737) 3,099 (125,130) (6,426) 6,761 ¥(151,983) ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 51 For the year ended March 31, 2002: Unrealized gains on securities: Unrealized holding gains arising during year Less: reclassification adjustment for gains included in net loss Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for gains included in net loss Minimum pension liability adjustment Unrealized losses on derivative instruments: Unrealized losses arising during year Less: reclassification adjustment for losses included in net loss Other comprehensive income (loss) ¥ 10,052 ¥ (4,179) (16,233) 6,818 14,030 (54) (139,471) (13,227) 9,762 ¥(135,141) 11 — 58,717 5,481 (4,104) ¥62,744 ¥ 5,873 (9,415) 14,041 (54) (80,754) (7,746) 5,658 ¥(72,397) Thousands of U.S. dollars Pre-tax amount Tax benefit (expense) Net-of-tax amount For the year ended March 31, 2003: Unrealized gains on securities: Unrealized holding losses arising during year Less: reclassification adjustment for losses included in net income Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for losses included in net income Minimum pension liability adjustment Unrealized losses on derivative instruments: Unrealized losses arising during year Less: reclassification adjustment for losses included in net income Other comprehensive income (loss) $ (238,917) $ 97,642 $ (141,275) 104,367 (42,675) 61,692 (169,692) (3,116) (172,808) 25,825 (1,812,392) (93,417) 97,234 $(2,086,992) — 769,641 39,867 (40,892) $820,467 25,825 (1,042,751) (53,550) 56,342 $(1,266,525) (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 swap agreements, currency swap agreements, and currency options to reduce its exposures. The Company has policies and procedures for risk management and the approval, reporting and monitoring of derivative financial instru- ments. 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- tracts, interest rate swap agreements, currency swap agreements and currency options. The Company has entered into forward exchange contracts with banks as hedges against fluctuations in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies. The forward exchange contracts related to accounts receivable and payable, and commitments on future trade transactions denominated in foreign currencies mature primarily within a few months of the balance sheet date. Interest rate swap agreements, currency swap agreements, and currency options are used to limit the Company’s exposure to losses in relation to underlying debt instruments and a certain foreign currency denominated accounts receivable resulting from adverse fluctuations in foreign currency exchange and interest rates. These agreements mature during the period 2003 to 2012. Forward exchange contracts and certain interest rate swap agreements and currency swap agreements are des- ignated 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 under- lying debt as discussed below. Fair Value Hedge Strategy The forward exchange contracts utilized by the Company effectively reduce fluctuation in fair value of accounts receivable denominated in foreign currencies. The interest rate swap agreements utilized by the Company effectively convert a portion of its fixed-rate debt to a floating-rate basis. Cash Flow Hedge Strategy The forward exchange contracts utilized by the Company effectively reduce fluctuation in cash flow from com- mitments on future trade transactions denominated in foreign currencies approximately for the next six months. 18. FINANCIAL INSTRUMENTS ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 52 52 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ¥744 million ($6,200 thousand) of net losses on derivative financial instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months due to the col- lection of accounts receivable denominated in foreign currency and the payment of variable interest associated with the floating-rate debts. At March 31, 2003, there were no significant gains or losses on derivative financial instruments or portions thereof that were 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, currency swap agreements, and currency options outstanding at March 31, 2003 and 2002 are sum- marized below: March 31 Forward exchange contracts: To sell foreign currencies To buy foreign currencies Interest rate swap agreements Currency swap agreements Currency options Millions of yen 2003 2002 ¥ 82,290 29,333 355,517 133,571 101,922 ¥ 98,878 29,036 410,377 114,560 8,195 Thousands of U.S. dollars 2003 $ 685,750 244,442 2,962,642 1,113,092 849,350 (2) Fair value of financial instruments The estimated fair values of the Company’s financial instruments at March 31, 2003 and 2002 are summarized as follows: Millions of yen March 31 Nonderivatives: Assets: 2003 2002 Carrying amount Estimated fair value Carrying amount Estimated fair value Long-term finance receivables, net ¥ 109,394 ¥ 107,256 ¥ 129,489 ¥ 132,267 Liabilities: Long-term debt, including current portion (1,225,399) (1,247,035) (1,159,679) (1,181,925) Derivative financial instruments: Forward exchange contracts Interest rate swap agreements Currency swap agreements Currency options 238 (2,534) (3,611) (575) 238 (2,534) (3,611) (575) 384 (3,994) (6,853) (31) 384 (3,994) (6,853) (31) March 31 Nonderivatives: Assets: Thousands of U.S. dollars 2003 Carrying amount Estimated fair value Long-term finance receivables, net $ 911,617 $ 893,800 Liabilities: Long-term debt, including current portion (10,211,659) (10,391,958) Derivative financial instruments: Forward exchange contracts Interest rate swap agreements Currency swap agreements Currency options 1,983 (21,117) (30,092) (4,792) 1,983 (21,117) (30,092) (4,792) 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 expenses, it was assumed that the carrying amount approximated fair value for the majority of these instruments because of their short maturities. Quoted market prices were used for a part of marketable securities and other investments. Other techniques, such as estimated discounted value of future cash flows, and replacement cost, have been used to determine fair value for the remaining financial instruments. These estimated fair values are not necessarily indicative of the amounts that could be realized in a current market exchange. Marketable securities and other investments include investment securities, which represent holdings in a number of ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOSHIBA CORPORATION 53 non-public companies. The aggregate carrying amount of these investments in non-public companies was ¥97,271 million ($810,592 thousand) and ¥94,427 million at March 31, 2003 and 2002, respectively. However, the cor- responding fair value of these investments at those dates was not computed as such estimation was not practicable. 19. LEASES Lessee The Company leases manufacturing equipment, office and warehouse space, and certain other assets under oper- ating leases. Rent expenses under such leases for the years ended March 31, 2003 and 2002 were ¥76,180 mil- lion ($634,833 thousand) and ¥84,781 million, respectively. The Company sold certain machinery and equipment for approximately ¥82,732 million ($689,433 thousand) and ¥25,000 million during the years ended March 31, 2003 and 2002, respectively. These assets were leased back from the purchaser over periods of less than 5 years under operating lease agreements. The gain or loss on these trans- actions was not significant. Minimum lease payments for the Company’s non-cancelable operating leases as of March 31, 2003 are as follows: Year ending March 31 2004 2005 2006 2007 2008 Thereafter Millions of yen ¥17,798 15,694 12,980 11,240 5,475 2,668 ¥65,855 Thousands of U.S. dollars $148,317 130,783 108,167 93,667 45,625 22,233 $548,792 Lessor The Company is also a lessor to industrial equipment and information systems under operating leases. Future min- imum lease payments to be received as of March 31, 2003 are as follows: Year ending March 31 2004 2005 2006 2007 2008 Thereafter Millions of yen ¥ 5,088 4,841 3,480 2,876 2,041 3,832 ¥22,158 Thousands of U.S. dollars $ 42,400 40,342 29,000 23,967 17,008 31,933 $184,650 20. CONSOLIDATION OF VIEs The Company has entered into several sale and leaseback transactions with SPEs in which certain manufacturing equipment was sold and leased back. The transactions were funded through SPEs. The fair value of the equipment and the outstanding balance of debt of these SPEs in connection with such transactions at March 31, 2003 were ¥68,716 million ($572,633 thousand) and ¥64,370 million ($536,417 thousand), respectively. At the end of the lease term, the Company can either purchase the equipment for the estimated fair market value determined at the incep- tion of the lease, or can terminate the agreement by paying the residual value guarantee. In addition, for a certain transaction, the Company provided a guarantee to the lender of the SPE for principal and interest payments of por- tion of debt incurred by the SPE for the purchase of the equipment. The Company’s maximum exposure to loss with respect to its involvement in these VIEs as of March 31, 2003 was ¥48,269 million ($402,242 thousand), which is the sum of the outstanding balance of debt guaranteed by the Company in the amount of ¥29,142 million ($242,850 thousand) and the residual value guarantee by the Company in the amount of ¥19,127 million ($159,392 thousand). 21. COMMITMENTS AND CONTINGENT LIABILITIES Commitments outstanding at March 31, 2003 for the purchase of property, plant and equipment approximated ¥9,065 million ($75,542 thousand). At March 31, 2003, contingent liabilities, other than guarantees disclosed in Note 22, approximated ¥11,957 mil- lion ($99,642 thousand) principally for recourse obligations related to notes receivable transferred. The Company is a defendant in several pending lawsuits with respect to patent infringement, breaches of contract and warranties and others. The Company’s 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 posi- tion or the results of operations of the Company. 22. GUARANTEES Guarantees of financing arrangements Certain financing subsidiaries of the Company provide guarantees for installment loans and credit financing agreements entered into by its customers for product purchases from third parties. The aggregate amount guaranteed by the Company is ¥349,088 million ($2,909,067 thousand) as of March 31, 2003. The terms of the guar- antees range from less than 1 year to 8 years. The guarantee fee income, which is recognized over the guarantee period, was ¥2,862 million ($23,850 thousand) for the year ended March 31, 2003. The products purchased are ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 54 54 TOSHIBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS pledged as collateral for the Company’s guarantees. Guarantees of unconsolidated affiliates and third party debt The Company guarantees debt as well as certain financial obligations of unconsolidated affiliates and third parties to support the sale of the Company’s products and services. Expiration dates vary from 2003 to 2014 or terminate on payment and/or cancellation of the obligation. A payment by the Company would be triggered by the failure of the guaranteed party to fulfill its obligation under the guarantee. The maximum potential payment under these guar- antees, including the amount provided in Note 20, was ¥127,845 million ($1,065,375 thousand) as of March 31, 2003. Guarantees of employees’ housing loans The Company guarantees housing loans of its employees. The term of the guarantees is equal to the term of the related loans which range from 5 years to 30 years. A payment would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. The maximum potential payments under these guarantees were ¥40,289 million ($335,742 thousand) as of March 31, 2003. However, the Company expects that the majority of such payments would be reimbursed through the Company’s insurance policy. Guarantees of transferred corporate bonds The Company entered into a sale and assumption agreement with an SPE during 2001. As a result, the Company was released from being a primary obligor for ¥20,178 million of the Company’s corporate bonds, which mature on var- ious dates through 2008, and became secondarily liable for these obligations. The maximum potential payment by the Company as a secondary obligor was ¥14,529 million ($121,075 thousand) at March 31, 2003. Residual value guarantees under sale and leaseback transactions As discussed in Note 20, the Company may be required to make payments for residual value guarantees in con- nection with certain sale and leaseback transactions. The operating leases will expire on various dates through September 2007. The maximum potential payments by the Company for such residual value guarantees, including the amount provided in Note 20, were ¥31,224 million ($260,200 thousand) at March 31, 2003. Guarantees of defaulted notes receivable The Company has transferred trade accounts receivable, trade notes receivable and finance receivables under sev- eral securitization programs. Upon certain sales of trade notes receivable, the Company holds a repurchase oblig- ation, which the Company is required to perform upon default of the trade notes receivable. The trade notes receivable generally mature within three months. The maximum potential payment for such repurchase obligation was ¥12,165 million ($101,375 thousand) as of March 31, 2003. The carrying amounts of the liabilities for the Company’s obligations under the guarantees described above at March 31, 2003 were not significant. Warranty Estimated warranty costs are accrued for at the time the product is sold to a customer. Estimates for warranty costs are made based primarily on historical warranty claim experience. The following is a reconciliation of the product warranty accrual: March 31 Balance at beginning of year Warranties issued Settlements made Foreign currency translation Balance at end of year Millions of yen 2003 ¥20,886 19,775 (20,542) (628) ¥19,491 2002 ¥20,945 19,120 (20,429) 1,250 ¥20,886 Thousands of U.S. dollars 2003 $174,050 164,792 (171,183) (5,234) $162,425 23. SUPPLEMENTAL CASH FLOW INFORMATION In April 2002, Toshiba Corporation formed Toshiba Matsushita Display Technology Co., Ltd. (“TMD”) with Matsushita Electric Industrial Co., Ltd. (“Matsushita”). In connection with this transaction, Toshiba Corporation and Matsushita contributed certain operating facilities, in return for 60 percent and 40 percent interests, respectively, in TMD. The carrying value of the assets and liabilities acquired, net of cash received of ¥2,001 million ($16,675 thou- sand), was ¥70,666 million ($588,883 thousand), and ¥59,953 million ($499,608 thousand), respectively. During the year ended March 31, 2003, Toshiba Corporation contributed certain assets and liabilities aggregating ¥55,009 million ($458,408 thousand), and ¥30,568 million ($254,733 thousand), respectively, and formed TM T&D with Mitsubishi Electric Corporation. As a result of this transaction, Toshiba Corporation obtained a 50 percent inter- est in TM T&D. On January 1, 2003, Toshiba Corporation and Matsushita formed MTPD. In connection therewith, Toshiba Corporation contributed substantially all assets and liabilities of four of its subsidiaries, in exchange for 35.5 per- cent interest in MTPD, and recognized a gain of approximately ¥6,269 million ($52,242 thousand). The aggregate book carrying value of the assets and liabilities contributed by Toshiba Corporation amounted to ¥50,622 million ($421,850 thousand) and ¥31,462 million ($262,183 thousand), respectively. The gain of ¥6,269 million ($52,242 thou- sand), representing the difference between the fair value of the investment obtained in MTPD, and the net book value of the assets and liabilities contributed, adjusted for Toshiba Corporation’s interest in MTPD, is included in other income in the accompanying consolidated statement of operations for the year ended March 31, 2003. During the year ended March 2003, certain operating assets and liabilities were sold to unaffiliated parties in exchange for marketable securities. In connection with such activity, Toshiba Corporation obtained marketable equity securities of ¥12,911 million ($107,592 thousand), in return for net assets and liabilities aggregating ¥17,152 mil- lion ($142,933 thousand), and recorded a loss on disposal of assets of ¥4,241 million ($35,342 thousand). ｱﾆﾚﾎﾟp34-55(英)6.18 03.6.25 5:41 PM ページ 55 REPORT OF INDEPENDENT AUDITORS TOSHIBA CORPORATION 55 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Toshiba Corporation We have audited the accompanying consolidated balance sheets of Toshiba Corporation (the “Company”) as of March 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years 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 statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Company has not 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 years ended March 31, 2003 and 2002. In our opinion, presentation 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. In our opinion, except for the omission of segment information discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at March 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 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, 2003 ｱﾆﾚﾎﾟp56-60(英)6.18 03.6.25 5:39 PM ページ 56 56 TOSHIBA CORPORATION ORGANIZATION CHART TOSHIBA CORPORATION MANAGEMENT ORGANIZATION CHART (April 1, 2003) Board of Directors President & Chief Executive Officer Corporate Project (cid:127) Management Innovation Div. (cid:127) Procurement Innovation Div. (cid:127) Kawasaki Development Office (cid:127) Automotive Systems Div. Corporate Staff (cid:127) Corporate Audit Div. (cid:127) Corporate Strategic Planning Div. (cid:127) Consolidated Management Div. (cid:127) Corporate Communications Div. (cid:127) Human Resources and Administration Div. (cid:127) Finance & Accounting Div. (cid:127) Technology Planning Div. (Digital Products Group) (Electronic Devices & Components Group) (Infrastructure Systems Group) Mobile Communications Company Digital Media Network Company Semiconductor Company (cid:127) Mobile Communications · Development Center (cid:127) Hino Operations · Mobile Communications (cid:127) Discrete Semiconductor Div. Himeji Operations - Semiconductor (cid:127) System LSI Div. Kitakyushu Operations Oita Operations Microelectronics Center (cid:127) Memory Div. Yokkaichi Operations (cid:127) Electronic Devices Sales & Marketing Div. (cid:127) Personal Computer Div. · Japanese Operations (cid:127) Personal Computer Div. · International Operations (cid:127) Server & Network Div. (cid:127) Storage Device Div. (cid:127) CTV & Visual Media Equipment Div. (cid:127) Digital Camera & Imaging System Div. (cid:127) Digital AV Div. (cid:127) Core Technology Center (cid:127) Digital Media Development Center (cid:127) Ome Complex (cid:127) Ome Operations · Digital Media Network (cid:127) Fukaya Operations · Digital Media Network Display Devices & Components Control Center (cid:127) Electron Tubes & Devices Div. Nasu Operations - Electron Tubes (cid:127) Materials & Components Div. Yokohama Operations - Materials & Components (cid:127) Battery & Energy Div. (cid:127) Yokohama Complex (cid:127) Fukaya Operations (cid:127) Himeji Operations Industrial and Power Systems & Services Company (cid:127) Nuclear Energy Systems & Services Div. Isogo Nuclear Engineering Center (cid:127) Thermal Power & Hydroelectric Power · Systems & Services Div. (cid:127) Infrastructure Systems Div. (cid:127) Industrial Systems Div. (cid:127) Control & Measurement Div. (cid:127) Transportation Systems Div. (cid:127) International Operations Div. (cid:127) Power and Industrial Systems Research and Development Center (cid:127) Keihin Product Operations (cid:127) Fuchu Complex (cid:127) Fuchu Operations · Social Infrastructure Systems (cid:127) Digital Media Network Mie Operations Statutory Auditors Statutory Auditors Office Corporate S (cid:127) Employee Wellness Div. (cid:127) Legal Affairs Div. (cid:127) Intellectual Property Div. (cid:127) Export Control Div. (cid:127) Corporate Research & Development Center (cid:127) Corporate Manufacturing Engineering Center (cid:127) S (cid:127) E (cid:127) I (cid:127) C (cid:127) (cid:127) E (cid:127) P (Consumer Electronic Consumer Elec Marketing Contr Home Applia Compan (cid:127) Home Appliances (cid:127) Manufacturing Cen Osaka Operation Aichi Operations Social Network & Infrastructure Systems Company (cid:127) Telecommunications Systems Div. (cid:127) Broadcasting Systems Div. (cid:127) System Components Div. (cid:127) Defense & Electronic Systems Div. (cid:127) Komukai Operations (cid:127) Yanagicho Complex (cid:127) Hino Operations (cid:127) Fuchu Operations · Social Network & Infrastructure Systems ｱﾆﾚﾎﾟp56-60(英)6.18 03.6.25 5:39 PM ページ 57 ORGANIZATION CHART TOSHIBA CORPORATION 57 Statutory Auditors Statutory Auditors Office Corporate Support Services (cid:127) Employee Wellness Div. (cid:127) Legal Affairs Div. (cid:127) Intellectual Property Div. (cid:127) Export Control Div. (cid:127) Corporate Research & Development Center (cid:127) Corporate Manufacturing Engineering Center (cid:127) Software Engineering Center (cid:127) Environmental Protection Planning Div. (cid:127) Information Systems Center (cid:127) Corporate Marketing Planning Group (cid:127) Design Center (cid:127) Employee Affairs Service Center (cid:127) Procurement Center (Consumer Electronics Group) Consumer Electronics Marketing Control Center Social Network & Infrastructure Systems Company (cid:127) Telecommunications Systems Div. (cid:127) Broadcasting Systems Div. (cid:127) System Components Div. (cid:127) Defense & Electronic Systems Div. (cid:127) Komukai Operations (cid:127) Yanagicho Complex (cid:127) Hino Operations (cid:127) Fuchu Operations · Social Network & Infrastructure Systems Home Appliances Company e-Solutions Company Medical Systems Company (cid:127) Home Appliances R&D Center (cid:127) Manufacturing Center Osaka Operations Aichi Operations (cid:127) System Integration Technology Center (cid:127) Solutions Sales Div. (cid:127) Solutions Div. 1 (cid:127) Solutions Div. 2 (cid:127) Solutions Div. 3 (cid:127) Platform Solutions Div. (cid:127) System Integration Technology Center (cid:127) Medical Systems Research & Development Center (cid:127) Nasu Operations Network Services & Content Control Center (cid:127) iValue Creation Div. ｱﾆﾚﾎﾟp56-60(英)6.18 03.6.25 5:39 PM ページ 58 58 TOSHIBA CORPORATION GLOBAL NETWORK GLOBAL NETWORK Overseas Offices EUROPE Moscow AFRICA Johannesburg MIDDLE EAST Baghdad Abu Dhabi ASIA Shanghai Overseas Subsidiaries and Affiliates NORTH AMERICA Toshiba of Canada, Ltd. Markham, Ontario, Canada Toshiba GE Automation Systems Canada Corp. Peel, Ontario, Canada Toshiba America, Inc. New York, New York, U.S.A. Toshiba America Capital Corp. New York, New York, U.S.A. Toshiba America Research, Inc. Morristown, New Jersey, U.S.A. Toshiba America Medical Systems, Inc. Tustin, California, U.S.A. Toshiba America MRI Inc. South San Francisco, California, U.S.A. Applied Super Conetics, Inc. San Diego, California, U.S.A. Toshiba America Information Systems, Inc. Irvine, California, U.S.A. Toshiba America Business Solutions, Inc. Irvine, California, U.S.A Toshiba America Consumer Products, Inc. Wayne, New Jersey, U.S.A. Toshiba Hawaii, Inc. Honolulu, Hawaii, U.S.A. Toshiba International Corp. 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. Audiovox Communications Corp. Hauppauge, New York, U.S.A. TGA Holdings L.L.C. New Castle Country, Delaware, U.S.A 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 Toshiba Medical Systems NV/SA Antwerpen, Belgium GE Toshiba Automation Systems, L.L.C. Wilmington, Delaware, U.S.A. Toshiba Europe GmbH Neuss, Germany Enceratec, Inc. Columbus, Indiana, U.S.A. LATIN AMERICA Toshiba de Mexico, S.A. de C.V. Mexico City, Mexico Toshiba Electromex, S.A. de C.V. Ciudad Juárez, Mexico GE Toshiba Turbine Components de Mexico S.R.L. de C.V. Monterrey, Mexico Toshiba de Venezuela C.A. Caracas, Venezuela 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 Toshiba Medical do Brasil Ltda. 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 Information Systems (UK) Ltd. Weybridge, U.K. TTI Card Technology Europe Ltd. Northamptonshire, U.K. Toshiba International (Europe) Ltd. West Drayton, U.K. Toshiba Electronics (UK) Ltd. Camberley, U.K. Toshiba Medical Systems Ltd. Crawley, U.K. Toshiba Semiconductor GmbH Braunschweig, Germany Toshiba Electronics Europe GmbH Düsseldorf, Germany Toshiba Medical Systems GmbH Neuss, Germany Toshiba Systèmes (France) S.A. Puteaux, France Toshiba Electronics France S.A.R.L. Rosny-Sous-Bois, France Schneider Toshiba Inverter S.A.S. Pcy-sur-Eure, France Schneider Toshiba Inverter Europe S.A.S. Pcy-sur-Eure, France Toshiba Medical France S.A. Puteaux, France Toshiba Medical Systems Gesellschaft m.b.H. Wiener Neudorf, Austria Toshiba Medical Systems AG Oetwil am See, Switzerland Toshiba Electronics Italiana S.R.L. Milan, Italy Toshiba Medical Systems S.R.L. Rome, Italy Toshiba Electronics España, S.A. Madrid, Spain Toshiba Medical Systems S.A. Madrid, Spain ZAO Toshiba Medical Systems Moscow, CIS LLC Toshiba Digital Media Network CIS Moscow, Russia MIDDLE EAST Toshiba Gulf FZE Dubai, U.A.E. ｱﾆﾚﾎﾟp56-60(英)6.18 03.6.25 5:39 PM ページ 59 ASIA Toshiba China Co., Ltd. Beijing, The People’s Republic of China Toshiba Dalian Co., Ltd. Dalian, The People’s Republic of China Toshiba Hangzhou Co., Ltd. Hangzhou, The People’s Republic of China Hangzhi Machinery & Electronics Co., Ltd. Hangzhou, The People’s Republic of China Ningbo Toshiba Huatong Switchgear Co., Ltd. Ningbo, The People’s Republic of China Guangzhou Toshiba Baiyun Electrical Equipment Co., Ltd. Guangzhou, The People’s Republic of China Dalian Toshiba Locomotive Electric Equipment Co., Ltd. Dalian, The People’s Republic of China GLOBAL NETWORK TOSHIBA CORPORATION 59 Toshiba Electronics (Shenzhen) Co., Ltd. Shenzhen, The People’s Republic of China Thai Toshiba Electric Industries Co., Ltd. Bangkok, Thailand Toshiba Semiconductor (Wuxi) Co., Ltd. Wuxi, The People’s Republic of China Tsurong Xiamen Xiangyu Trading Co., Ltd. Xiamen, The People’s Republic of China Jiangxi Toshiba Electronics Materials Co., Ltd. Jiangxi, The People’s Republic of China Toshiba Washing Machine (Wuxi) Co., Ltd. Wuxi, The People’s Republic of China Toshiba Electronics Korea Corp. Seoul, The Republic of Korea Toshiba Digital Media Network Korea Corp. Seoul, The Republic of Korea Korea Electronic Material Co., Ltd. Inchon City, The Republic of Korea Taiwan Toshiba International Procurement Corp. Toshiba Consumer Products (Thailand) Co., Ltd. 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 Data Dynamics Pte., Ltd. Singapore Toshiba Video Products Pte., Ltd. Singapore Toshiba Singapore Pte., Ltd. Singapore Shengyang Neusoft Business Software Taipei, Taiwan Co., Ltd. Shengyang, The People’s Republic of China Toshiba Information, Industrial and Power Systems Taiwan Corp. Dalian Toshiba Broadcasting System Co., Taipei, Taiwan Ltd. Dalian, The People’s Republic of China Beijing Tongfang-Tsingshiba Business Machines Co., Ltd. Beijing, The People’s Republic of China Jiangsu Honshiba Network System Equipment Co., Ltd. Jiangsu, 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 Toshiba Information Equipment (Hangzou) Co., Ltd. Hangzhou, The People’s Republic of China Toshiba Storage Device (Shanghai) Co., Ltd. Toshiba Digital Media Network Taiwan Toshiba Electronics Asia (Singapore) Corp. Taipei, Taiwan Pte., Ltd. Singapore Toshiba Memory Semiconductor Taiwan Corp. Taipei, Taiwan Toshiba Electronics Taiwan Corp. Taipei, Taiwan Toshiba Hong Kong Ltd. Shatin, Hong Kong SAR Toshiba Electronics Asia, Ltd. Kowloon, Hong Kong SAR Toshiba Information Equipment (Philippines), Inc. Laguna, Philippines Toshiba Medical Systems Asia Pte., Ltd. Singapore P.T. Schneider Manufacturing Batam Batam Island, Indonesia P.T. Toshiba Consumer Products (Indonesia) Bekasi, Indonesia P.T. Toshiba Visual Media Network Indonesia Jakarta, Indonesia P.T. Toshiba Display Devices Indonesia Bekasi, Indonesia Toshiba Electronics Philippines, Inc. Manila, Philippines P.T. Display Devices Indonesia Bekasi, Indonesia Shanghai, The People’s Republic of China Toshiba Vietnam Consumer Products Nanjing Postel Wang Zhi Telecommunications Co., Ltd. Nanjing, The People’s Republic of China Changzhou Toshiba Transformer Co., Ltd. Changzhou, The People’s Republic of China Henan Pinggao Toshiba High-Voltage Switchgear Co., Ltd. Henan, The People’s Republic of China Zhuhai Xujizhi Power System Automation Co., Ltd. Zhuhai, The People’s Republic of China Langfang Epri Toshiba Arrester Co., Ltd. Langfang, The People’s Republic of China Toshiba Electronics (Shanghai) Co., Ltd. Shanghai, The People’s Republic of China Co., Ltd. Ho Chi Minh City, Vietnam Toshiba Vietnam Home Appliances Co., Ltd. Binh Duong, Vietnam Toshiba Thailand Co., Ltd. Bangkok, Thailand Toshiba Semiconductor (Thailand) Co., Ltd. Bangkok, Thailand Toshiba Electronics Service (Thailand) Co., Ltd. Bangkok, Thailand Toshiba Display Devices (Thailand) Co., Ltd. Bangkok, Thailand Toshiba India Private Ltd. New Delhi, India OCEANIA Toshiba International Corporation Pty., Ltd. Sydney, Australia Toshiba (Australia) Pty., Ltd. Sydney, Australia (As of March 31, 2003) ｱﾆﾚﾎﾟp56-60(英)6.18 03.6.25 5:39 PM ページ 60 60 TOSHIBA CORPORATION CONSOLIDATED SUBSIDIARIES / AFFILIATED COMPANIES ACCOUNTED BY THE EQUITY METHOD CONSOLIDATED SUBSIDIARIES DOMESTIC A&T Battery Corporation Device Link, Inc. OVERSEAS AFPD Pte., Ltd. AFFILIATED COMPANIES ACCOUNTED BY THE EQUITY METHOD DOMESTIC ep Broadcasting Corporation Dalian Toshiba Television Co., Ltd. ep Corporation Harison Toshiba Lighting Corporation GE Toshiba Automation Systems, L.L.C. GE Toshiba Silicones Co., Ltd. IT-Services Corporation Taiwan Toshiba International Procurement Media Serve Corporation Iwate Toshiba Electronics Co., Ltd. Joint Fuel Co., Ltd. Kaga Toshiba Electronics Corporation Kawasaki Estate Management Co., Ltd. Shibaura Mechatronics Corporation Toshiba Battery Co., Ltd. Toshiba Building Co., Ltd. Toshiba Capital Corporation Toshiba Carrier Airconditioning Systems Corporation Toshiba Carrier Corporation Toshiba Device Corporation Toshiba Elevator and Building Systems Corporation Toshiba Finance Corporation Toshiba Home Technology Corporation Toshiba Industrial Products Sales Corporation Corp. TGA Holdings L.L.C. Toshiba (China) Co., Ltd. Mobile Broadcasting Corporation MT Picture Display Co., Ltd. NEC Toshiba Space Systems, 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. TM T&D Corporation Topcon Corporation Toshiba Ceramics Co., Ltd. Toshiba Machine Co., Ltd. Toshiba Tungaloy Co., Ltd. Plus 16 Others Toshiba America MRI, Inc. Toshiba America, Inc. Toshiba Asia Pacific Pte., Ltd. Toshiba Capital (Asia) Ltd. Co., Ltd. Toshiba Dalian Co., Ltd. Toshiba Electronics Asia, Ltd. OVERSEAS Audiovox Communications Corporation Beijing Matsushita Cathode Ray Tube Co., Ltd. GE Toshiba Turbine Components de Mexico S.R.L. de C.V. Guangdong Meizhi Compressor Limited Toshiba Elevator Products Corporation Toshiba Compressor (Taiwan) Corporation Toshiba Engineering Corporation Toshiba Consumer Products (Thailand) Toshiba Information Equipments Co., Ltd. Toshiba Europe Gmbh Toshiba IT-Solutions Corporation Toshiba Information Equipment Toshiba Lifestyle-Electronics Corporation (Philippines), Inc. (M) Sdn. Bhd. Matsushita Display Device of America P.T. Display Devices Indonesia Toshiba Electronics Malaysia Sdn. Bhd. Matsushita Display Device Corporation Toshiba Information Systems (UK) Ltd. P.T. Toshiba Display Devices Indonesia Toshiba International Corporation Semp Toshiba Amazonas S.A. Toshiba Lighting & Technology Corporation Toshiba Logistics Corporation Toshiba Matsushita Display Technology Co., Ltd. Toshiba International Finance (Netherlands) B.V. Toshiba International Finance (UK) Plc. Toshiba Carrier (Thailand) Co., Ltd. Toshiba Carrier UK Ltd. Toshiba Display Devices (Thailand) Co., Ltd. Toshiba Display Devices Inc. Toshiba Medical Finance Co., Ltd. Toshiba Medical Systems Europe B.V. Toshiba Medical Systems Co., Ltd. Toshiba Systemes (France) S.A. Toshiba Multi Media Devices Co., Ltd. Toshiba Tec Europe Imaging Systems S.A. Toshiba Plant Kensetsu Co., Ltd. Toshiba Tec France Imaging Systems S.A. Plus 11 Others Toshiba Sogo Finance Corporation Toshiba TEC Corporation Plus 83 Others Plus 168 Others (As of March 31, 2003) Basic Commitment of the TOSHIBA Group We, the Toshiba Group of companies, based on our total commitment to people and to the future, are determined to help create a higher quality of life for all people, and to do our part to help ensure that progress continues within the world community. Commitment to People We endeavor to serve the needs of all people, especially our customers, shareholders, and employees, by implementing forward-looking corporate strategies while carrying out responsible and responsive business activities. As good corporate citizens, we actively contribute to further the goals of society. Commitment to the Future By continually developing innovative technologies centering on the fields of Electronics and Energy, we strive to create products and services that enhance human life, and which lead to a thriving, healthy society. We constantly seek new approaches that help realize the goals of the world community, including ways to improve the global environment. FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements concerning Toshiba’s future plans, strategies and performance. These forward-looking statements are not historical facts, rather they represent assumptions and beliefs based on economic, financial and competitive data currently available. Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Toshiba therefore wishes to caution readers that actual results may differ materially from our expectations. INVESTOR REFERENCE TOSHIBA CORPORATION 61 Investor Reference TOSHIBA CORPORATION PRINCIPAL SHAREHOLDERS (%) FOUNDED July 1875 CAPITAL ¥274,926 million EMPLOYEES 165,776 COMMON STOCK Authorized: 10,000,000,000 shares Issued: 3,219,027,165 shares No. of shareholders: 486,702 Average holdings: 6,614 shares Stock Code: 6502 Transfer Agent: The Chuo Mitsui Trust and Banking Company, Limited HEADQUARTERS 1-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan The Master Trust Bank of Japan, Ltd. (trust accounts) The Dai-ichi Mutual Life Insurance Company Japan Trustee Service Bank, Ltd. (trust accounts) Nippon Life Insurance Company Sumitomo Mitsui Banking Corporation State Street Bank and Trust Company Employees Stock Ownership Plan The Chase Manhattan Bank NA London NIPPONKOA Insurance Co., Ltd. Shinsei Bank, Limited 5.32 3.63 3.61 3.24 2.36 1.80 1.65 1.60 1.55 1.52 As of March 31, 2003 Web site information Toshiba is vigorously carrying out Internet-based IR activities to ensure timely and fair disclosure to all investors. Our investor relations site features information for investors, including press releases, investors’ guides and business results announcements, as well as streaming video of business results meetings and explanatory sessions. There is also a section that allows site 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. www.toshiba.co.jp/about/ir/index.htm 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 E-mail: ir@toshiba.co.jp http://www.toshiba.co.jp/about/ir/index.htm Product names may be trademarks of their respective companies. ｱﾆﾚﾎﾟH1-4(英) Page 61 03.6.25, 8:12 PM Adobe PageMaker 7.0J/PPC For Anyone Anytime Anywhere Communication Comes Alive This report was printed entirely on recycled paper with soy-based ink. Printed in Japan ANNUAL REPORT 2003 Year ended March 31, 2003 ｱﾆﾚﾎﾟH1-4(英) Page 60 03.6.25, 8:12 PM Adobe PageMaker 7.0J/PPC 

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