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ANNUAL REPORT 2004
Year ended March 31, 2004
UNIQUE Competencies
GLOBAL Expansion
Profitable Growth
TOSHIBA ANNUAL REPORT2004

Table of contents

  • Page 1
    UNIQUE Competencies GLOBAL Expansion Profitable Growth ANNUAL REPORT 2004 Year ended March 31, 2004

  • Page 2
    ... 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...

  • Page 3
    ... Special Features Establishing a high-earning corporate group that combines stability and profitability 8-9 Toshiba's Semiconductor Business Model 10-11 Chinese Strategy 12-13 Increasing Profitability in the Digital Products Business and Developing Growth Engines 14-15 16-24 Business at a Glance...

  • Page 4
    ... 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 & GROSS PROFIT MARGIN (Billions of yen) 6,000 5,000 30 4,000 3,000 2,000 10 1,000 300...

  • Page 5
    ..., boosting sales of digital still cameras, mobile phones and digital flat-panel TVs in both Japan and overseas markets, including China and the United States. However, the commoditization of portable PCs gathered steam and Tadashi Okamura, made a strong impact on Toshiba Corporation's performance...

  • Page 6
    4

  • Page 7
    ... in China, Southeast Asia and in new business areas, while expanding the scale of our power plant rehabilitation businesses in Europe and North America. 4) We have identified strategic products and technologies that will drive future profits, and defined a strategic product map that will support the...

  • Page 8
    ... market and our customers, we are making progress in building a growth-oriented company. At the same time, we are striving to make Toshiba Group a place where people can develop their skills, and direct their energies and talents into developing and delivering products and services that reverberate...

  • Page 9
    ... Expansion Profitable Growth Toshiba is seeking to establish a high-earning corporate group that effectively combines stability and profitability. The visual imaging business, built on core technologies in digital imaging and storage, will be a new pillar of growth for the digital products business...

  • Page 10
    ... us to push monthly production to a level as high as 37,500 wafers. In flash memory production, Toshiba is now promoting simultaneous development of three generations of process technology, covering the 90nm, 70nm and 55nm design rules, which will secure the Company's continued lead in submicron...

  • Page 11
    ...Toshiba is working with Sony Corporation on next-generation 45nm process technology, targeting completion of development by the end of fiscal 2005. The Company is also promoting other strategic alliances, including joint development of CELL with Sony Computer Entertainment and IBM; joint development...

  • Page 12
    10 GLOBAL EXPANSION Chinese Strategy In the review of its current mid-term business plan, Toshiba set itself the target of raising overseas sales to 50% by the end of fiscal 2006. Overseas operations are already a long-established and essential part of the Company's business, accounting for 39% of ...

  • Page 13
    ... other white goods. Market penetration of these products, alongside Toshiba brand TVs, portable PCs, mobile telephones and semiconductors, will reinforce recognition and acceptance of the Toshiba brand name. For the same reason, we also intend to provide customers with a level of service and support...

  • Page 14
    ... business plan, one primarily concerned with reconstructing the growth strategy. Achieving the targets of the new plan will raise the value of Toshiba by securing high profit and sustainable growth. Fiscal 2006 Targets (consolidated) Net Sales Operating Income ROE Debt-to-Equity Ratio Capital...

  • Page 15
    ...development with Sony Computer Entertainment Inc. and IBM Corporation), high-capacity NAND flash memory, and CMOS image sensors (which already have a top share of the market for mobile phones with cameras). Synergies among these technologies will support the continuous launch of competitive products...

  • Page 16
    ...and Power Systems & Services Company Social Network & Infrastructure Systems Company Toshiba Elevator and Building Systems Corporation Toshiba Solutions Corporation Toshiba Medical Systems Corporation 3,000 2,500 2,000 1,500 1,000 500 0 60 50 40 30 20 10 (Billions of yen) Sales Operating Income...

  • Page 17
    ... in digital consumer products and mobile products, and the company will work to secure greater growth and higher earnings. >> Toshiba Matsushita Display Technology Co., Ltd. Income and earnings rose as a result of greater yields from the company's manufacturing plant in Singapore, and strong sales...

  • Page 18
    ..., flat-panel TVs for terrestrial digital broadcasts, HDD/ DVD video recorders, digital audio players and other products. In business applications, Toshiba's visual products business extends to network cameras and liquid crystal projectors. In storage, Toshiba recently developed the world's smallest...

  • Page 19
    ... Major Products Mobile phones Portable PCs Personal digital assistants (PDAs) Servers Hard disk drives (HDDs) CD-RW/DVD-ROM drives DVD-ROM drives DVD-RAM drives Color TVs Digital Hi-Vision TVs Projection TVs HDD/DVD video recorders DVD video players DVD video recorders Liquid crystal display (LCD...

  • Page 20
    ...technologies from Toshiba Group. These products will support us in our activi- ties in the three essential spheres of a society of ubiquitous networks: the home, the office and mobile applications. In developing new products and services, the Personal Computer & Network Company listens very closely...

  • Page 21
    ... 21 Electronic Devices Major Products General-purpose CMOS Logic series Small signal devices Power devices Opto semiconductor devices System LSIs Microcomputer and peripheral control system LSIs Bipolar/BiCMOS ICs Custom DRAMs SRAMs Flash memories Amorphous silicon thin film transistor (TFT) LCDs...

  • Page 22
    .... The company also advanced business globalization in both manufacturing and distribution by establishing OeT Bank Note Sorting Solutions GmbH as a base for sales expansion in the European Generating Electricity A gas engine electricity generator developed on the site of Toshiba's Keihin Product...

  • Page 23
    ... Major Products and Services Control systems for water purification plants and sewage treatment plants Road and airport systems Building automation systems Substation systems New energy systems Rolling stock electrical systems Railway station service systems Boiling water reactor (BWR) power plants...

  • Page 24
    ... new products and services that increase operational efficiency in medical institutions. Toshiba Elevator and Building Systems Corporation Sales for Toshiba Elevator and Building Systems Corporation in fiscal 2003 were on par with the previous fiscal year. New products that the company developed...

  • Page 25
    23 Home Appliances Major Products Washing machines Vacuum cleaners Refrigerators Microwave ovens Fluorescent lights Air conditioners Primary batteries Others Major Products and Services Web service Intelligent traffic systems Automotive equipment Real estate Distribution services

  • Page 26
    ... the home appliances segment: Toshiba HA Products Co., Ltd.; Toshiba Lighting & Technology Corporation, which handles the lighting-equipment business; Toshiba Carrier Corporation, active in air-conditioning; primary battery manufacturer Toshiba Battery Co., Ltd.; and Toshiba Service & Engineering Co...

  • Page 27
    ... in the human interface, visual images, security, system LSIs and storage-all areas that fall within the core expertise of Toshiba Group. By further developing and integrating these technologies, Toshiba's digital products and electronic devices businesses will generate outstanding new products and...

  • Page 28
    ... Portable PC IC Card HDD Medical Imaging System Patents Optical disks in conformity with standards and recorder/player Motion picture coding in conformity with standards Flash memory and DRAM circuit, structure and manufacturing BIOS, mounting technology, and power saving for personal computers...

  • Page 29
    ... the United Nations' Global Compact, and will support and promote its initiatives on the environment, human rights and labor. Toshiba Group, while ensuring honest and open corporate management, will pursue technical innovations focused on ubiquitous networking and the environment in its efforts to...

  • Page 30
    ... compliance structure, corporate regulations and ethical standards, Toshiba Group is reinforcing its equitable and open management system. The Commercial Code of Japan clearly states that under the company-with-committees structure, a company must put in place an internal control system for risk...

  • Page 31
    ... of used products, Toshiba is playing a leading role in the building of a recycling-based society. Environmental management is one of the supporting pillars of Toshiba Group's corporate management, where each employee is not just a member of the Group, but a responsible citizen working to address...

  • Page 32
    30 BOARD OF DIRECTORS AND EXECUTIVE OFFICERS Taizo Nishimuro Director/Chairman of the Board Tadashi Okamura Director Yasuo Morimoto Director ...Ryu Shigeo Koguchi Yoshiaki Sato (Representative Executive Officer) Executive Officers/Corporate Senior Vice Presidents Masao Niwano Tsutomu Miyamoto ...

  • Page 33
    31 FINANCIAL SECTION Financial Section 32 42 44 45 46 47 67 Management's Discussion and Analysis Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements ...

  • Page 34
    32 MANAGEMENT'S DISCUSSION AND ANALYSIS ELEVEN-YEAR SUMMARY Toshiba Corporation and its subsidiaries Years ended March 31 Millions of yen, except per share amounts 2004 2003 2002 2001 Net sales Cost of sales Selling, general and administrative expenses Operating income (loss) Income (loss) ...

  • Page 35
    33 2000 1999 1998 1997 1996 1995 1994 ¥5,749,372 4,254,444 1,393,959 100,969 (44,844) (4,530) (32,903) ¥5,300,902 3,890,622 1,379,797 30,483 11,218 20,901 (9,095) ¥5,458,498 3,960,158 1,416,046 82,294 18,748 17,313 14,...

  • Page 36
    ...venture with Mitsubishi Electric Corporation in industrial systems. Electronic devices, including semiconductors and LCDs, recorded positive results. > ASIA-Sales of ¥829.9 billion (US$7,829 million) were 1% lower year on year, due to the transfer of the CRT business. > NORTH AMERICA-Sales of ¥710...

  • Page 37
    ... audio equipment. Toshiba Group maintains its top position in ODDs by directing resources to the development of drives with DVD recording capability, typified by the multiformat DVD drives integrated into our DVD video recorders. In color TVs, price declines for projection TVs in North America...

  • Page 38
    ...business recorded an operating loss due to an expected loss on overseas thermal power plants. The Social Network & Infrastructure Systems Company increased profits due to a growing market for radio wave systems such as digital terrestrial broadcasting and radar devices. Toshiba Solutions Corporation...

  • Page 39
    37 Segment information below is based on Japanese accounting standards. On April 1 , 2 0 0 3 , Toshiba adopted a system of reporting five business segments: Digital Products, Electronic Devices, Social Infrastructure, Home Appliances and Others. This segmentation replaces the p revi ou s syst em of...

  • Page 40
    ...dollars (Note 3) Years ended March 31 2004 2003 2002 2004 Operating income (loss): Digital Products Electronic Devices Social Infrastructure Home... of long-lived assets: Digital Products Electronic Devices Social Infrastructure Home Appliances Others Corporate Consolidated Capital expenditures...

  • Page 41
    ... 2004 Sales: Japan Unaffiliated customers Intersegment Total Asia Unaffiliated customers Intersegment Total North America Unaffiliated customers Intersegment Total Europe Unaffiliated customers Intersegment Total Others Unaffiliated customers Intersegment Total Eliminations Consolidated Operating...

  • Page 42
    ... Operations, and lowtemperature polysilicon LCD production facilities at Toshiba Matsushita Display Technology Co., Ltd. In digital products, capital expenditures totaled ¥48.6 billion (US$458 million) and were channeled into the development and manufacturing of new products, such as PCs and mobile...

  • Page 43
    ...., Ltd. Toshiba Elevator and Building Systems Corporation Toshiba Plant Systems & Services Corporation Toshiba TEC Corporation U.S.A. 100 100 80 69 52 Affiliated Companies: Japan MT Picture Display Co., Ltd. Toshiba Ceramics Co., Ltd. Toshiba Machine Co., Ltd. 36 41 33 Toshiba America Electronic...

  • Page 44
    ... BALANCE SHEETS Toshiba Corporation and its subsidiaries As of March 31, 2004 and 2003 Millions of yen Thousands of U.S. dollars (Note 3) Assets Current assets: 2004 2003 2004 Cash and cash equivalents Notes and accounts receivable, trade- Notes (Note 5) Accounts (Note 5) Allowance...

  • Page 45
    43 Millions of yen Thousands of U.S. dollars (Note 3) Liabilities and shareholders' equity Current liabilities: 2004 2003 2004 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 ...

  • Page 46
    ... OF INCOME Toshiba Corporation and its subsidiaries For the years ended March 31, 2004 and 2003 Millions of yen Thousands of U.S. dollars (Note 3) 2004 2003 2004 Sales and other income: Net sales Subsidy received on return of substitutional portion of Employees' Pension Fund Plan, net of...

  • Page 47
    ... gains on securities (Note 4) Foreign currency translation adjustments Minimum pension liability adjustment (Note 10) Unrealized gains on derivative instruments Comprehensive income Cash dividends Purchase of treasury stock, net, at cost Balance at March 3 1 , 2 0 0 4 (9,550) (17,638) (125,130) 335...

  • Page 48
    ... of long-term debt Decrease in short-term borrowings Dividends paid Proceeds from stock offering by subsidiaries Repurchase of subsidiary common stock Redemption of subsidiary preferred stock Purchase of treasury stock, net Other Net cash used in financing activities Effect of exchange rate changes...

  • Page 49
    ... OF BUSINESS Toshiba Corporation and its subsidiaries (collectively, the " Company" ) is engaged in research and development, manufacturing and sales of high-technology electronic and energy products, which span (1 ) digital products, (2 ) electronic devices, (3) social infrastructure, (4) home...

  • Page 50
    ... 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...

  • Page 51
    ... 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...

  • Page 52
    ...non-marketable equity securities for the years ended March 31, 2004 and 2003, respectively. 5. FINANCE RECEIVABLES AND SECURITIZATIONS Investment in financing leases consists of sales-type and direct financing leases mainly for information systems, medical equipment, industrial equipment and others...

  • Page 53
    ..., 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 2004 2003 2004 Investment in financing leases: Total minimum lease payments receivable Executory...

  • Page 54
    ...,5 7 5 6. INVENTORIES Inventories comprise the following: Millions of yen Thousands of U.S. dollars March 31 2004 2003 2004 Finished products Work in process: Long-term contracts Other Raw materials ¥ 2 7 0 ,5 6 9 8 5 ,8 5 7 1 6 4 ,9 3 3 1 0 7 ,6 8 5 ¥ 6 2 9 ,0 4 4 ¥256,299 90,387 175,431...

  • Page 55
    ... Co., Ltd. (4 1 .4 %); Toshiba Machine Co., Ltd. (3 3 .5 %); TFC (3 5 .0 %); and Toshiba Mitsubishi-Electric Industrial Systems Corporation (" TMEIC" ) (50.0%). Of the affiliates which are accounted for by the equity method, the investment in common stock of the listed companies (five companies) is...

  • Page 56
    ... in 2009. 9. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Short-term borrowings at March 31, 2004 and 2003 comprise the following: Millions of yen Thousands of U.S. dollars March 31 2004 2003 2004 Loans, principally from banks, including bank overdrafts, with weighted-average interest rate of 0.74...

  • Page 57
    ... 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, 2004 are property, plant and equipment with a book...

  • Page 58
    ...rate of pay, length of service and conditions under which their employment terminates. The obligation for the severance indemnity benefit is provided for through accruals, funding of tax-qualified non-contributory pension plans, contributory trusteed employee pension funds, and the corporate pension...

  • Page 59
    ... ended March 31 2 .7 % 3 .0 % 2004 3.0% 1.9% 2003 Discount rate Expected long-term return on plan assets Rate of compensation increase Following is information about domestic pension and severance plans: 3 .0 % 4 .0 % 1 .9 % 3.5% 4.0% 2.1% The Company determines the expected long-term rate...

  • Page 60
    ...14. IMPAIRMENT OF LONG-LIVED ASSETS Due to general price erosion and severe market competition, the Company recorded impairment charges of ¥10,018 million ($94,509 thousand) related to the manufacturing facilities of the lithium-ion rechargeable battery business, and ¥7,815 million related to the...

  • Page 61
    ... of yen Thousands of U.S. dollars Years ended March 31 2004 2003 2004 Expected income tax expense Increase (decrease) in taxes resulting from: Dividends Non-deductible expenses for tax purposes Net changes in valuation allowance Tax rate difference relating to foreign subsidiaries Effect of...

  • Page 62
    ... 2004, Toshiba Samsung Storage Technology Corporation (" TSST" ), issued 294 shares of its common stock to Samsung Electronics Co., Ltd. for ¥13,713 million ($129,368 thousand). TSST is engaged in the business of product development, manufacturing outsourcing and sales of optical disk drives and...

  • Page 63
    ... Minimum pension liability adjustment Unrealized gains on derivative instruments: Unrealized gains arising during year Less: reclassification adjustment for losses included in net income Other comprehensive income (loss) For the year ended March 31, 2003: Unrealized gains on securities: Unrealized...

  • Page 64
    ...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...

  • Page 65
    ...Thousands of U.S.dollars 2004 March 31 Carrying amount Estimated fair value Nonderivatives: Assets: Long-term finance receivables, net Liabilities: Long-term debt, including current portion Derivative financial instruments: Forward exchange contracts Interest rate swap agreements Currency swap...

  • Page 66
    ... under operating leases. Rent expenses under such leases for the years ended March 31, 2004 and 2003 were ¥83,889 million ($791,406 thousand) and ¥76,180 million, respectively. The Company also leases certain machinery and equipment which are accounted for as capital leases from TFC, an affiliate...

  • Page 67
    ... of operations of the Company. 22. 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...

  • Page 68
    ... the year ended March 31, 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, in return for net assets and liabilities...

  • Page 69
    ... fairly, in all material respects, the consolidated financial position of the Company at March 31, 2004 and 2003, 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...

  • Page 70
    ... Digital Products Group Electronic Devices Group Mobile Communications Company Mobile Communications • Development Center Hino Operations Digital Media Network Company Storage Device Div. CTV & Visual Media Equipment Div. Digital Camera & Imaging System Div. Digital AV Div. Core Technology...

  • Page 71
    ... Systems Div. Corporate Branding Office Design Center Technology Planning Div. Intellectual Property Div. Corporate Research & Development Center Software Engineering Center Social Infrastructure Group Display Devices & Components Control Center Battery & Energy Div. Fukaya Operations Himeji...

  • Page 72
    ... Corporation New York, New York, U.S.A. Toshiba Information Systems (UK) Ltd. Weybridge, U.K. Toshiba El Araby Home Appliances Marketi Cairo, Egypt Toshiba America Research, Inc. Morristown, New Jersey, U.S.A. TTI Card Technology Europe Ltd. Northamptonshire, U.K. ASIA Toshiba America Medical...

  • Page 73
    ... of China Toshiba Electronics Asia, Ltd. Kowloon, Hong Kong SAR P.T. Display Devices Indonesia Bekasi, Indonesia Toshiba Semiconductor (Wuxi) Co., Ltd. Wuxi, The People's Republic of China Toshiba Information Equipment (Philippines), Inc. Laguna, Philippines Toshiba India Private Ltd. New Delhi...

  • Page 74
    ... Logistics Corporation Toshiba LSI Package Solutions Corporation Toshiba Matsushita Display Technology Co., Ltd. Toshiba Medical Finance Co., Ltd. Toshiba Medical Systems Corporation Toshiba Multi Media Devices Co., Ltd. Toshiba Plant Systems & Services Corporation Toshiba Samsung Storage Technology...

  • Page 75
    ... Banking Company, Limited HEADQUARTERS 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...

  • Page 76
    TOSHIBA ANNUAL REPORT 2004 Printed in Japan This report was printed entirely on recycled paper with soy-based ink.