Kenwood 2002 Annual Report Download - page 9

KENWOOD Corporation Annual Report 2002 07
reduction in manpower to one third. Furthermore, the overall
sales organization, including affiliated sales companies, will
be scrutinized to establish a new marketing organization
geared to the car electronics and wireless radio products.
In addition to the reorganization and closure of
manufacturing facilities and sales offices, the head office and
domestic affiliates will also be reorganized and trimmed to
enable a manpower reduction of 3,000 employees.
The reduction amounts to approximately 35% of total
manpower (8,820 at the end of fiscal 2002) on a
consolidated basis. For Kenwood Japan alone, 642
employees, approximately 27% of current manpower, were
reduced by the end of September 2002, by taking various
measures including a voluntary retirement program.
As for our seventeen affiliated companies that had 1,028
employees as of March 2002, we plan to trim their number
and size to eleven companies with 648 total employees. As
described earlier, Kenwood Precision and Kenwood ID have
been liquidated and Kenwood TMI has been sold. Further
reorganizations will take place, including the planned
integration of Kenwood Business and Kenwood Laboratory
into Kenwood Administration.
Also in progress are critical cost containment initiatives
that began in July 2002 to reduce materials cost and
business expenses throughout Kenwood's global
operations. This action is aimed at reducing raw materials
and component costs at all overseas plants by 10%,
expenses at the head office and domestic affiliates by 20%,
and sales costs at all overseas sales companies by10%.
One Time Loss and Expected Results
The Company expects to report a one time loss of 12.8
billion yen for the term ending in March 2003, due to various
measures prescribed in the action plan, among which is the
termination of the cellular phone business, the
reorganization of overseas plants, and the manpower
reduction in Japan. All of these contribute to a one time
major financial impact. However, 10.0 billion yen of the said
loss has already been reserved as a loss on buisiness
restructuring in the financial statements for the fiscal year-
end March 2002, and the net loss for the new term will be
2.8 billion yen. Since the one time loss for the year was
originally estimated at 11.6 billion yen, of which 10.0 billion
yen was reserved in March 2002, the actual loss will be in
line with the original plan. The expected effects of the
action plan include an annual savings of 21.4 billion yen on
fixed expenses, or approximately one quarter of the 87.0
billion yen in fixed expenses spent the previous year. In
addition, the Company will avoid at least 5.0 billion yen or
more in losses by March 2003 over the previous year by
having divested the cellular phone business. When a 9.0
billion yen profit and loss improvement from the home
electronics business reform is added, the projected
improvement in operating income for March 2003 will reach
14.0 billion yen.
Every measure in the action plan will be completed by
December 2002, three months earlier than originally planned.
Since the plan's announcement in July 2002, the entire
company has been focused on implementing the necessary
reforms.
Erasure of Negative Net Worth by the End of December
2002 to Prepare for Rebuilding
... Simultaneous Debt-for-equity Swap and Allocation
of New Stock to Third Parties, Unprecedented in Japan
During the process of making the Kenwood Revitalization
Action Plan, the goal was set to complete the rebuilding
process and erase the negative net worth by year-end March
2004. However, The Asahi Bank, Ltd., our long-time lender
and a supporter of our rebuilding effort, has agreed on a
debt-for-equity swap through an issuing of preference stocks
within this year. Furthermore, the bank has committed new
loans with a credit line of 20.0 billion yen. Thanks to these
arrangements, the negative net worth of 17.0 billion yen is
expected to disappear within 2002. Other bankers, with
whom Kenwood has accounts, were also generous enough
to agree on a special arrangement to repay debts in three
years. In addition, a new capital fund amounting to 2.1
billion yen was provided by an allocation of new stock to
SPARX Asset Management, our largest shareholder and a
group that has exhibited an extensive understanding and
support for our business, and Merrill Lynch Investment
Managers, who will be our new shareholder. The fund will be
used to enhance the Company's R&D activities,
manufacturing facilities, and infrastructure for effective
consolidated management, and to lay the foundation for
future success. This unprecedented simultaneous debt-for-