Kenwood 2003 Annual Report Download - page 4

02 KENWOOD Corporation Annual Report 2003
To Shareholders
The business climate of Kenwood Corporation
remained harsh due to weakened capital investment
and consumer spending, amid the prolonged sluggish
economy and falling stock prices, as well as the
ongoing deflation in Japan and abroad.
Under these circumstances, the Company booked an
extraordinary loss of 27.9 billion yen in the fiscal year
ended March 2002 due to a valuation loss on
investment securities as well as losses on sales of
investment securities, disposal of inventories and fixed
assets — dormant assets that had no effects on cash
and cash equivalents. As a result, the Company had a
negative net worth of 17 billion yen by the end of March
2002.
Considering the situation extremely grave, the
Company reshuffled the entire executive management
team in June 2002, creating a wholly new management
board. On July 11, 2002, the new management team
announced its Kenwood Revitalization Action Plan that
focuses on a sweeping reform of the Kenwood's
corporate and cost structures. Since then, the
Company has been implementing the plan.
Under the plan, the Company proceeded with
drastic, epochal reorganizations, including: structural
streamlining of the home electronics business, whereby
a stand-alone profitability was secured for this segment;
terminating the cellular phone business operations with
no outlook of fresh demand; liquidating other
unprofitable businesses; shutting down and
consolidating production facilities and sales bases in
Japan and elsewhere; reducing approximately 45% of
its global employee workforce; realigning affiliated firms;
and cutting material as well as other costs.
The Company moved ahead with the measures in the
action plan, completing its downsizing and other
measures by the end of September 2002.
In the course of these voluntary restructuring
activities, The Asahi Bank, Ltd. (present Resona
Holdings, Inc.), which has always been a true believer in
the Company, undertook a debt-for-equity swap
amounting to 25 billion yen in an effort to rebuild the
manufacturing industry. Concurrently, we were able to
receive further support from other banks we do
business with in finalizing special arrangements for a
three-year repayment period.
Also noteworthy was the fact that a third party
allotment totaling some 2 billion yen was provided by
our major shareholder SPARX Asset Management Co.,
Ltd. who has shown continuing interest in Kenwood's
potential, as well as Merrill Lynch Investment Managers
Co., Ltd. With this unprecedented simultaneous debt-
for-equity swap and capital increase by allotting these
new shares, the Company's capital grew by
approximately 27 billion yen.
As a result, the Company could eliminate the negative
net worth by the end of 2002. Taking this opportunity,
we would like to express our deep gratitude to all
concerned.
In the fiscal year ended March 2003, overseas sales
of car electronics products were brisk, which, however,
was offset by negative factors, including the sluggish
domestic economy, as well as the effects of phasing
out the personal digital cellular (PDC) terminal business
and the home electronics operations in Asia. As a
result, consolidated net sales dropped 25.5%, year on
year, to 225.6 billion yen from 302.6 billion yen for the
previous fiscal year.
Meanwhile, operating income doubled to top 12.3
billion yen, a sharp rise of 6.2 billion yen from a year
earlier. The favorable performance is attributable to
substantially strong results from the three core
operations, with the car electronics business expanding