Kenwood 2002 Annual Report Download - page 5

However, under the new accounting rule, the Company
was forced to report an extraordinary loss of 27.9 billion
yen from the devaluation of investment securities, loss
on sale of investment securities, and disposition of
inventories and fixed assets. As a result, the Company
had fallen into a capital deficit of 17.0 billion yen as of
March 2002, which was taken very seriously. In June
2002, the entire executive management team was
replaced by a new management board. On July 11,
2002 the new management team formulated the
Kenwood Revitalization Action Plan that focuses on the
reform of the Company's business structure, and on
sweeping measures to augment the cost structure. A
public announcement of the plan was made and its
implementation has become the top priority. Historic in
nature, this plan includes: reconstruction of the home
electronics business to insure stand-alone profitability,
termination of the cellular phone business, liquidation of
other non-profitable businesses, decisive measures to
close and consolidate production facilities in and out of
Japan, laying off as many as one-third of the global
employee workforce, realignment of affiliated
companies, and urgent measures to cut down on
materials cost and expenses.
The measures in the action plan are being enforced
ahead of the original timetable and those concerning
Kenwood Corporation specifically, including downsizing,
were completed at the end of September. Through the
process, The Asahi Bank, Ltd., who has been a true
believer in the Company in an effort to rebuild the
manufacturing industry, has vowed to undertake a debt-
for-equity swap amounting to 25 billion yen before the
end of 2002. At the same time, we were able to receive
further support from our investors and creditors in
finalizing special arrangements for a three-year
repayment. Also noteworthy was the fact that a third
party allotment totaling 2.1 billion yen were accepted by
our top shareholder, SPARX Asset Management Co.,
Ltd. who has shown continuing interest in Kenwood's
potential, and Merrill Lynch Investment Managers Co.,
Ltd. who is going to be a new shareholder. As a result of
this unprecedented simultaneous debt-for-equity swap
and capital increase, the Company's capital will expand
by 27 billion yen. This puts us in a position to erase the
negative net worth, which amounted to 17 billion yen in
the consolidated statement of March 2002, by the end of
this year. Taking this opportunity, we would like to
express our heartfelt gratitude for all concerned. On
behalf of everybody at Kenwood. We will make our best
effort to produce positive results and earn the confidence
of all shareholders at the earliest possible time.
In the process, Kenwood will strive to regain its
"intelligent & independent" brand image and rebuild its
presence as the world's leader in the Mobile & Home
Multimedia Systems — the most promising business
segment in the 21st century. Taking this opportunity, we
sincerely ask for your continued support to the Company.
Haruo Kawahara, President & CEO
KENWOOD Corporation Annual Report 2002 03