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Victor Company of Japan, Limited
Annual Report 2006
For the year ended March 31, 2006
Getting Back on Our Feet

Table of contents

  • Page 1
    Getting Back on Our Feet Victor Company of Japan, Limited Annual Report 2006 For the year ended March 31, 2006

  • Page 2
    ... set forth in such statements. These forward-looking statements are made only as of the date of this annual report. The Company expressly disclaims any obligations or undertakings to release any update or revision to any forward-looking statement contained herein to reflect any change in the Company...

  • Page 3
    ... international community as well as is engaged in a wide array of activities aimed at achieving these management goals. Corporate Information We will protect the JVC brand that has been built Page Page Page Page Page 30 31 32 34 61 Organization Chart JVC Group (Japan) JVC Group (Global) History...

  • Page 4
    ...Total Fiscal 2006 Sales Sales (Billions of Yen) Consumer Electronics '06 600.4 627.3 638.1 675.0 641.3 0 200 400 600 800 74.4 See Page 12 '05 '04 '03 '02 % Professional Electronics '06 67.6 68.3 67.5 71.0 78.3 20 40 60 80 100 8.4 See Page 18 '05 '04 % '03 '02 0 Components & Devices '06 30...

  • Page 5
    ... cameras 10.4 25.8 25.3 • DVD players/recorders • Car AV systems • Audio systems • VCRs • Despite robust sales of LCD TVs and hard disk camcorders, segment sales in Japan were down as a result of the poor performance of DVD equipment and MD audio products. • Growth in sales of HD-ILA...

  • Page 6
    ... 2006) • Compact Component System with Wood Cone Speakers EX-A10 Launched (October 2005) • High-Quality Sound Technology "net K2" Co-Developed with Victor Entertainment, Inc., Introduced (September 2005) • New HD-ILA Hybrid Projection TVs with Newly Developed Full High-Definition D-ILA Device...

  • Page 7
    ... Consumer Electronics business segment recorded greater-than-projected service costs for the fiscal year under review, owing to quality issues with DVD recorders. In addition, sales opportunities were lost due to delays in the development of LCD TVs stemming from an unsuccessful outsourcing strategy...

  • Page 8
    ... AV market. Once we have found a place that we can call home, we will bolster our presence to become a top niche player by making the most of the technological prowess that we have garnered over the years to create original products that set us apart from the competition. 6 Victor Company of Japan...

  • Page 9
    ... to market a full HD home projector and a 4K x 2K țsuper high-definition projector for professional use țEstablish a new business model utilizing JVC's original țhigh-quality "net K2" sound technologies țPut together a sales force dedicated to țhigh-end home theaters țHarness development power...

  • Page 10
    ... the high-end consumer market with the traditional professional electronics market, and focus development activities on specific markets and products capable of generating synergies with core businesses. As for device operations, we will identify devices that can be used in in-house products as well...

  • Page 11
    ... ©HD-ILA hybrid projection TVs ©LCD TVs ©Video cameras ©Car AV products ©Audio systems ©CRT TVs Music Entertainment Collaboration ©Music distribution ©Licensing business ©Pre-recorded CDs ©Pre-recorded DVDs High-End Market Synergies Fulfillment Professional Electronics ©Security...

  • Page 12
    ... into practice a customer-oriented management system that leverages the collective knowledge of the Group via teamwork that pools individual strengths if we are to change this climate and strike a balance between the time-to-market concept and originality. Active communication throughout the entire...

  • Page 13
    .... HD-ILA Hybrid Projection TVs The third JVC option for large-screen flat-panel TVs, our HD-ILA hybrid projection TVs incorporate our proprietary reflective LCD device-D-ILA-to bring high-definition, high-resolution images to people around the world. Victor Company of Japan, Limited 11

  • Page 14
    ... America by expanding retail channels, mainly local mass market retailers and AV specialty stores, and increasing product recognition through proactive marketing. JVC launched its HD-ILA hybrid projection TVs in Japan in June 2005, in China and other parts of Asia in fall 2005, and in Europe in 2006...

  • Page 15
    ... of added value. In addition, JVC will develop D-ILA front projectors, which the Company has traditionally positioned as products for professional systems, for use in the home, with an eye to the prosumer and high-end consumer markets. Armed with full HD, highresolution home projectors with a 10,000...

  • Page 16
    ... growth was reported in sales of "Everio" products, making for highly profitable video camera operations, which helped to support the Company's revenue base along with car AV systems. The popularity of "Everio" camcorders has put hard disk-based video cameras on the market's product category map...

  • Page 17
    ... to market uncompromising home theater systems that marry audio products, which leverage JVC's high-quality sound technologies, with such largescreen, high-definition displays as HD-ILA hybrid projection TVs to recreate the power of the movie theater experience. In the digital audio player market...

  • Page 18
    ... and Future Strategies by Region Americas In the fiscal year under review, although we achieved robust sales of "Everio" hard disk camcorders and DVCs, bolstered our lineup of HD-ILA hybrid projection TVs and expanded sales channels for these products, and saw growth in the LCD TV market, sales in...

  • Page 19
    ... in China Exhibition and sale in Singapore Japan In fiscal 2006, growth in sales of LCD TVs and a strong showing by video cameras owing to the stellar performance of "Everio" hard disk camcorders were hampered by the streamlining of the DVD recorder lineup as well as lower sales of audio products...

  • Page 20
    ... professional cameras. Going forward, we will strengthen cooperation with the Consumer Electronics business segment by developing core technologies and components while working to achieve our targets and moving forward with initiatives in the high-end consumer market. In fiscal 2006, although sales...

  • Page 21
    ... 80 The Components & Devices segment enjoys a strong reputation in the market for its high-performance, high-quality parts that leverage JVC's original technologies and manufacturing processes. Going forward, this segment will support the Company's core Consumer Electronics segment, mainly through...

  • Page 22
    ... for video cameras, and other high-durability, high-grade DVD discs to bolster sales while working to expand sales channels. In addition, we will employ small-lot, multi-product manufacturing, which is becoming mainstream, to enhance the efficiency of our pre-recorded software operations. Mini-DV...

  • Page 23
    ... JVC's Music Entertainment business comprises a number of key companies, including Victor Entertainment, Inc., and Teichiku Entertainment, Inc., which produce and sell music and video content, and Nippon Record Center Co., Ltd., a logistics company. In fiscal 2006, music CD production costs in Japan...

  • Page 24
    ... such high-value-added products as full high-definition HD-ILA hybrid projection TVs equipped with a D-ILA high-definition microdisplay device. In addition, we successfully developed numerous new optical disk media technologies, including DVD and Blu-ray technologies. Furthermore, the JVC Technology...

  • Page 25
    ...'s corporate laboratories that will support the Company today and into the future. To date, the Technology Development Division's development activities have been divided among the Future Product Development Center, which focused on the development of products to be introduced in 2 to 3 years...

  • Page 26
    ... Conservation Center, Japan in recognition of its superior energy conservation properties. 2) Not using hazardous substances JVC compiled information on chemical substances contained in components in its GP-Web System database to promote efficient design and purchasing activities. In fiscal 2006, we...

  • Page 27
    ... the use of packaging materials, changing to better modes of packing, and increasing the number of pallet stacks. In addition, we have been working to ascertain the amount of CO2 emissions generated through logistics activities and make this information visible as part of efforts to gain a clear...

  • Page 28
    ...hold the championships, primarily audio and visual equipment. In addition, JVC's AV products bring the game to fans who are unable to root for their team from the stands because the venue is too far away. We aspire to develop high-definition technologies and products that deliver the inspiration and...

  • Page 29
    ... JVC is committed to being a good corporate citizen. We want to be a company that makes people's lives better and inspires the confidence of the international community. Here, we have provided an overview of just a few of the things that we are doing to make a difference. In Thailand, JVC helps...

  • Page 30
    ..., Components & Device Business Group; In charge of Production Engineering; General Manager, Production Engineering Division 17 Hidetoshi Yoshida President, Europe Company, JVC Europe Ltd. and JVC International (Europe) GmbH 8 Goro Saito In charge of Corporate Planning; General Manager, Corporate...

  • Page 31
    ... a business group system and a regional company system to speed up management processes. Since fiscal 2000, the Company has appointed one outside director to its Board of 17 directors. The objective insight obtained from the outside director helps the Board of Directors to make better, more informed...

  • Page 32
    ... 1, 2006) Victor Company of Japan, Limited (JVC) President Auditors' Office Secretary Office Corporate Planning Headquarters SCM Promotion Office Integrated AV System Strategy Div. Americas Company Europe Company Asia & the Middle East Company Corporate Management Division for China ILA Business...

  • Page 33
    ... Products High-density, multi-layer printed wiring boards, D-ILA devices Video cameras, LCD TVs, HD-ILA hybrid projection TVs Audio equipment DVD discs (pre-recorded), electronics components (optical pickups, FA and molds) Professional, educational, and information-related equipment Recording media...

  • Page 34
    ... TVs, Professional products Electronic components (motors, optical pickups, etc.) Audio products, Car AV products Camcorders, VCRs, DVD recorders, TVs Audio products, DVD players Electronic components (deflection yokes) Electronic components (motors) â- Europe Area: Regional Company and Sales...

  • Page 35
    ... Technology Center Europe GmbH JVC Video Manufacturing Europe GmbH JVC Service and Engineering Company of America JVC Tongguang Beijing Technical Center Location Germany Germany U.S.A. China â- Global Research and Development Centers Company Name JVC Laboratory of America JVC Singapore R&D Center...

  • Page 36
    ...display • Introduced GR-HD1, high-definition digital video camera • Introduced EX-A1, compact component system • Sponsored UEFA EURO 2004 • Introduced HD-ILA hybrid projection TV in North America • Introduced hard disk camcorder "Everio" GZ-MC200/MC100 • JVC becomes UEFA EUROTOP Official...

  • Page 37
    ...-Year Summary 38 Financial Review 42 Consolidated Balance Sheets 44 Consolidated Statements of Operations 45 Consolidated Statements of Stockholders' Equity 46 Consolidated Statements of Cash Flows 47 Notes to Consolidated Financial Statements 60 Independent Auditors' Report Victor Company of Japan...

  • Page 38
    ...Year Summary Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31 2006 2005 2004 2003 For the year: Net sales Overseas Domestic Cost of sales Selling...25,250 21,036 40,973 2006 2005 2004 2003 At year-end: Working capital Stockholders' equity Total assets ...

  • Page 39
    ... 624,050 ¥160,869 250,418 603,920 $0,597,667 1,164,863 3,818,906 U.S. dollars (Note 1) Millions of yen 2002 2001 2000 1999 1998 1997 2006 ¥ (175.3) - - ¥ 9.8 - 3.0 ¥ (21.0) - - ¥ (32.7) - 5.0 ¥ (18.5) - 7.0 ¥00018.0 17.2 7.0 $ (1.03) - - Victor Company of Japan, Limited 37

  • Page 40
    ... 31, 2006, consolidated net sales declined 4.0%, to ¥806.9 billion. In Japan, rising sales of LCD TVs, video cameras, and other consumer electronics products and hit releases of entertainment software products had a positive effect on net sales, but lower sales of DVD recorders and professional...

  • Page 41
    ... level. In Asia excluding Japan, the Company recorded higher sales of car AV systems and LCD TVs. In the United States, higher sales of HD-ILA hybrid projection TVs, video cameras, and LCD TVs offset a fall in sales of CRT TVs and the reduction to the number of DVD recorders in the marketing lineup...

  • Page 42
    .... Property, plant and equipment rose ¥1.1 billion, to ¥97.4 billion, mainly reflecting investments related to the new technology center building in the Company's Head Office complex in Yokohama. Investments and advances increased ¥4.9 billion, largely as a result of changes in the market prices...

  • Page 43
    ...As a result, cash and cash equivalents at the end of fiscal 2006 came to ¥60.1 billion, down ¥2.6 billion from the end of the previous fiscal year. production facilities at the Company's Yokosuka Plant for HD-ILA hybrid projection TV devices. Depreciation and amortization increased 14.6%, to ¥26...

  • Page 44
    Consolidated Balance Sheets Victor Company of Japan, Limited and its consolidated subsidiaries March 31, 2006 and 2005 Thousands of U.S. dollars (Note 1) 2005 2006 Millions of yen ASSETS Current assets: Cash and cash equivalents Notes and accounts receivable: Trade Non-consolidated subsidiaries ...

  • Page 45
    ... of U.S. dollars (Note 1) 2005 2006 LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY Current liabilities: Bank loans (Note 9) Current portion of long-term debt (Note 9) Notes and accounts payable: Trade Non-consolidated subsidiaries and affiliated companies Accrued income taxes (Note...

  • Page 46
    Consolidated Statements of Operations Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars (Note 1) 2004 2006 Millions of yen 2006 2005 Net sales Costs and expenses: Cost of sales Selling, general and administrative ...

  • Page 47
    Consolidated Statements of Stockholders' Equity Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2006, 2005 and 2004 Millions of yen Net unrealized holding gains on availablefor-sale securities Number of shares of common stock (Thousands) Common stock ...

  • Page 48
    Consolidated Statements of Cash Flows Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars (Note 1) 2004 2006 Millions of yen 2006 2005 Cash flows from operating activities: Income (Loss) before income taxes and ...

  • Page 49
    ...Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2006, 2005 and 2004 1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities...

  • Page 50
    ... certain hedging criteria, the Companies defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the related losses or gains on the hedged items are recognized. Property, plant and equipment Property, plant and equipment are stated at cost...

  • Page 51
    ... No. 6 issued by the Accounting Standards Board of Japan on October 31, 2003). This change had no effect to the consolidated statements of operations for the year ended March 31, 2006. 4 RELATIONSHIP WITH MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. The Company is a subsidiary of Matsushita Electric...

  • Page 52
    ... and affiliated companies Total ¥1,195 7 285 ¥1,487 ¥1,482 8 269 ¥1,759 $10,213 60 2,436 $12,709 (3) Available-for-sale securities sold in the years ended March 31, 2006, 2005 and 2004 are as follows: Millions of yen 2006 2005 2004 Thousands of U.S. dollars 2006 Sales Gains Losses ¥36...

  • Page 53
    ...countries in which they domicile. The following table summarizes the significant differences between the statutory tax rate and the Companies' effective tax rate for financial statement purposes for the years ended March 31, 2005 and 2004. Information for 2006... Victor Company of Japan, Limited 51

  • Page 54
    ... 515,846 172,128 ¥40,215 The aggregate annual maturities of long-term debt at March 31, 2006 are as follows: Year ending March 31 $343,718 Millions of yen Thousands of...2006 2005 Thousands of U.S. dollars 2006 Projected benefit obligation: Projected benefit obligation Unamortized prior service...

  • Page 55
    ...are recorded in the subsequent accounting period after the stockholders' approval has been obtained. The Japanese Company Law became effective on May 1, 2006, and superseded the Code. This change had no effect to the consolidated statements for the year ended March 31, 2006. Victor Company of Japan...

  • Page 56
    ... gain (loss) Swap contracts: Receive floating/pay fixed ¥7,159 ¥98 ¥98 The fair value of interest swap contracts is estimated based on the quotes obtained from financial institutions. As the Companies applied hedge accounting to all derivatives in 2006, market value information for 2006...

  • Page 57
    ...one year ¥2,019 3,115 ¥5,134 ¥3,054 3,899 ¥6,953 $17,256 26,624 $43,880 Thousands of U.S. dollars 2006 Millions of yen Operating leases 2006 2005 Due within one year Due after one year ¥1,216 1,085 ¥2,301 ¥1,311 1,306 ¥2,617 $10,393 9,274 $19,667 Victor Company of Japan, Limited 55

  • Page 58
    ...segment information is as follows: Millions of yen Consumer electronics business Professional electronics business Components & Devices business Software & Media business Other business Eliminations and unallocation Consolidated total Total 2006: Sales External sales Intersegment sales Total sales...

  • Page 59
    ...Consumer electronics business Professional Components electronics & Devices business business Software & Media business Other business Eliminations and unallocation Consolidated total Total 2004: Sales External sales Intersegment sales Total sales... 3,085 4,421 Victor Company of Japan, Limited 57

  • Page 60
    ... of U.S. dollars Consumer electronics business Professional electronics business Components & Devices business Software & Media business Other business Eliminations and unallocation Consolidated total Total 2006: Sales External sales Intersegment sales Total sales Operating expenses Operating...

  • Page 61
    ... ¥921,978 67.2% Thousands of U.S. dollars Americas Europe Asia Other areas Total 2006: Overseas sales $1,868,402 Consolidated sales Ratio of overseas sales to consolidated sales 27.1% $1,768,120 25.6% $969,932 14.1% $75,461 $4,681,915 $6,896,581 1.1% 67.9% Victor Company of Japan, Limited 59

  • Page 62
    ..., stockholders' equity and cash flows for each of the three years in the period ended March 31, 2006, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to independently express an opinion on these consolidated...

  • Page 63
    ... S.A. JVC Deutschland GmbH JVC Benelux B.V. JVC International (Europe) GmbH JVC Asia Pte. Ltd. JVC Electronics Singapore Pte. Ltd. JVC Electronics Malaysia Sdn. Bhd. JVC Video Malaysia Sdn. Bhd. JVC Sales & Service (Thailand) Co., Ltd. JVC Manufacturing (Thailand) Co., Ltd. JVC Components (Thailand...

  • Page 64
    EZ-1832 Printed in Japan This annual report is printed on recycled paper. Copyright 2006, Victor Company of Japan, Limited. All Rights Reserved. Printed on 100% Recycled Paper