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Constant Change
Constant Change
toshiba corporation
toshiba corporation
Annual Report 2006 • Operational Review
Annual Report 2006 • Operational Review

Table of contents

  • Page 1
    Constant Change t o s h i b a c o r p o r a t i o n Annual Report 2006 • Operational Review

  • Page 2
    ... 2,961,363 Net sales 6,343,506 Operating income (loss) (Note 2) 240,610 Income (loss) before income taxes and minority interest 178,177 Net income (loss) 78,186 Total assets 4,727,113 Shareholders' equity 1,002,165 Capital expenditures (property, plant and equipment) 338,800 Research and development...

  • Page 3
    ... Businesses 20. Business at a Glance 22. Business Review 32. Research and Development 34. Board of Directors and Executive Officers 35. Corporate Governance 36. CSR Management 39. Investor Reference, Investor Relations 40. Global Network . Consolidated Subsidiaries and Affiliated Companies Accounted...

  • Page 4
    Toshiba Group mid-term plan and vision for 2010 Toshiba positions the Electronic Devices business, Digital Products business and Social Infrastructure business as its main business domains, the basis for a Toshiba Group that can generate high growth and stable profitability. As we look toward 2008, ...

  • Page 5
    ... digital information network market. Infrastructure Accelerate global development, promote service businesses, and assure stable growth and stable profit. 16.9 17.8 05 2,040.0 13.0 2010 Toshiba Group net sale s FY02 03 10.9 04 06 Interest-bearing debt Shareholders' equity ratio Capital...

  • Page 6
    ... our mid-term plan to the end of fiscal year 2008, and set the goals of net sales of 7,800 billion yen and operating income ratio of over 5%. We will achieve our mid-term plan through constant innovation to secure a firm profit structure and by taking strategic capital expenditures plan to a new...

  • Page 7
    4 5 Tadashi Okamura Chairman of the Board of Directors • Atsutoshi Nishida Director, President and CEO

  • Page 8
    ... saw increased profits in the Power Systems & Services business, in the Social Network Infrastructure business and in the Solutions business. The Medical Systems business was a real winner. It enjoyed large sales of medical diagnostic multi-slice CT systems and posted record high revenues, allowing...

  • Page 9
    ...market research. On the financial front, we have space to invest, as we have improved our free cash flow considerably. We will strategically allocate our managerial resources to high-growth, highly profitable businesses, in line with the growth strategy that Toshiba Group is implementing. Companies...

  • Page 10
    ... companies call for innovation. How different is your innovation strategy from theirs? Any executive in an excellent company knows the importance of innovation. We are currently promoting a program that allows us to promote innovation in all operations related to development, manufacturing and sales...

  • Page 11
    ... provide the world with new products appropriate for the coming age. We will engineer constant innovation by drawing on our electronics technologies, "the wisdom of the industry," and our energy technologies, "the cornerstone of industry," and secure our place as a leading company driving the global...

  • Page 12
    ... management practices including promotion of business focus and foresight, reductions in procurement costs, reduction of human resources, and asset reduction. The last 10 years is a record of continuing globalization and intensifying mega-competition in energy and electronics, Toshiba Group's main...

  • Page 13
    ... image quality. management >> Established five new group companies of Home Appliances, eSolutions, Medical Systems, Materials and Components, and Electron Tubes in order to enhance each business within Toshiba Group and to build optimized management systems. technology >> Developed a 0.85-inch...

  • Page 14
    ... to market trends Toshiba Group creates new products and systems ahead of emerging market needs, in a perpetual quest for technological advances that has been hard-wired into our corporate DNA since the company's inception. We aim to stay a step ahead of the times. Toshiba Group will continue to...

  • Page 15
    ... • Strengthen profitability • Establish a solid revenue base • Accelerate global development • Aim for high growth and profitability in the Nuclear Power and Medical Systems businesses • Maintain the No. 1 position in Japan • Accelerate global development • Cultivate new businesses

  • Page 16
    ... the world's first HD DVD player, the first notebook PC to integrate a tuner for terrestrial digital TV broadcasts, a mobile phone with an HDD to support music playback, and a new line of flat panel TVs under the new " REGZA " brand. One after another, we introduced products leading the way to the...

  • Page 17
    ...current DVD players, especially on a large screen. 14 15 AV Notebook PC compatible with Terrestrial Digital Broadcasting "Qosmio G30" was the Qosmio line-up of AV notebook PCs, and the world's first notebook PCs to integrate a small digital terrestrial TV tuner, developed by Toshiba, and full high...

  • Page 18
    ..., bright, high contrast, high resolution images by bringing CRT technology to the level of individual pixels. Direct Methanol Fuel Cell (DMFC) Our breakthrough fuel cell system, certified as the world's smallest by the Guinness World Records 2006, is the ideal power supply for portable personal...

  • Page 19
    ... have brought 70-nanometer process technology to the mass production of NAND Flash memory. Other state-of-theart products brought to market include the Broadband System LSI. In Display Devices and Components businesses, we are directing our energies at SED and Fuel Cells, both of which are expected...

  • Page 20
    ... Group Chief Executive Officer, Social Infrastructure Group Perhaps the most important move we made in FY2005 was the decision to acquire Westinghouse. This opens the way for Toshiba to join the world leaders in the nuclear power generation system business, and puts us in the unique position...

  • Page 21
    ... state-ofthe-art medical treatment. Toshiba's helical scanning system and multi-slice detectors, both protected by worldwide patents, have won the CT system close to 50% of the domestic market and fast-growing adoption in medical centers around the world. Elevator Our technological advances include...

  • Page 22
    ..., lighting equipment, air-conditioning equipment and primary batteries, Toshiba Consumer Marketing Corporation (TCM) concentrates and promotes the comprehensive capabilities of 77 domestic and overseas Group companies. From research and development and product planning through to sales and service...

  • Page 23
    ... price erosion in TVs and DVD recorders. Personal Computer & Network Company The age of ubiquitous networking embraces three key spaces: the home, the office, and the mobile. We respond with essential computer network equipment- such as notebook PCs and IA servers-that bring together Toshiba Group...

  • Page 24
    Constant Change b u s i n e s s r e v i e w Promoting innovation-the leader asks questions that get to the heart of the issue, and the team responds with constructive proposals for discussion.

  • Page 25
    ... power, we will promote sales expansion in Europe and Asia as a priority measure. Digital Media Network Company 22 23 In FY2005, sales rose on improved performance in the TV business and growth in the hard disk drive (HDD) business. In the TV business, a burgeoning lineup of flat panel display TVs...

  • Page 26
    ...generation DVD drives. As the notebook PC market continues to record high rates of growth, we will continue to reinforce our business in the US, Europe and Japan, and promote global operations by building a strong presence in emerging economies and the countries of the Middle East. In FY2005, sales...

  • Page 27
    Constant Change b u s i n e s s r e v i e w 24 25 Resolving the essential issues-it is impossible to compete and win if problems are avoided. The door to innovation is opened by meeting problems head on and finding solutions.

  • Page 28
    ... technological leadership and execute "Proactive Management," including strategic investments in plant and equipment, which will promote profit expansion. Our target now is high growth and high profitability, and we will carry this over to the long term by cultivating SED and fuel cells for mobile...

  • Page 29
    ... start-up of new production lines for Low Temperature Polysilicon LCD at the Company's Ishikawa Operations. With this enhanced production capacity, TMD is ready to meet growing demand from large accounts both in Japan and overseas, and ready to accelerate sales expansion. Direct Methanol Fuel Cell...

  • Page 30
    Constant Change b u s i n e s s r e v i e w Deskbound theory-that's not what innovation is all about. Work things out at the site, through trial and error. Be determined to succeed. Only this realistic approach can create value.

  • Page 31
    ... models designed for mobile carriers will support expansion in the network systems business. In radio application systems, the goal is to build a future On April 1, 2006, Toshiba reorganized the businesses of two inhouse companies, Industrial and Power Systems & Services Company and Social Network...

  • Page 32
    ... engineering solutions, where the Company can integrate rich business experience with the latest advances in information technologies and platform solutions supported by a broad alliance and a wealth of expertise. Toshiba Medical Systems Corporation With government and public offices promoting...

  • Page 33
    ... and dry 4kg of clothes. Home Appliances business Sales of high added value products grew in FY2005, centering on the drum type washing machine-dryer incorporating the S-DD (Super Direct Drive) engine, the industry No. 1 in terms of speed, low noise and low energy consumption, and a microwave oven...

  • Page 34
    Constant Change r e s e a r c h a n d d e v e l o p m e n t We value 130 years of success. But we look to the future, and open it up through acts of imagination. We systematize new ideas and approaches, produce innovative products and services.

  • Page 35
    ...in the Electronic Devices business include development of NAND Flash memory, high performance System LSI and next-generation flat panel displays. Corporate Research and Development Center Digital Products Electronic Devices Social Infrastructure Home Appliances Others R&D System Board of Directors...

  • Page 36
    Board of Directors and Executive Officers Board of Directors TADASHI OKAMURA Chairman of the Board of Directors ATSUTOSHI NISHIDA Director SHIGEO KOGUCHI Director YOSHIAKI SATO Director MASAO NIWANO Director TOSHIO YONEZAWA Director TSUYOSHI KIMURA Director FUMIO MURAOKA Director SADAZUMI ...

  • Page 37
    ... to determine the structure of corporate governance and internal control system of the board of directors. Toshiba took this as an opportunity to develop an internal control system that applies not only to Toshiba Corporation but to all group companies, both at home and abroad; as a means to...

  • Page 38
    Constant Change c o r p o r a t e s o c i a l r e s p o n s i b i l i t y Protect human life and safety and respect the law- Toshiba Corporation never forgets the basic roles of the company. Through communication with society, Toshiba aims to win trust and be recognized as an excellent company.

  • Page 39
    ... 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 40
    ... and plans call for two new schools every year from FY2005. China Toshiba Group provides stationery and PCs to the schools once they open, and continues to provide long term support. Toshiba Forest To mark the Company's 130th anniversary, Toshiba decided to participate in the Company Forest System...

  • Page 41
    ... to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide megacompetition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations, and other factors. Toshiba therefore wishes to caution readers that actual...

  • Page 42
    ...Medical do Brasil Ltda. MIDDLE EAST U.A.E. • Toshiba Gulf FZE • Toshiba El Araby Home Appriances Marketing Company EUROPE UK • Toshiba of Europe Ltd. • Toshiba International Finance (UK) Plc. • Toshiba Research Europe Ltd. • Toshiba Information Systems (UK) Ltd. • TTI Card Technology...

  • Page 43
    ... Malaysia Sdn. Bhd. • Toshiba Electronics Taiwan Corporation • Toshiba Europe GmbH • Toshiba Information Equipment (Hangzhou) Co., Ltd. • Toshiba Information Equipment (Philippines), Inc. Singapore • Toshiba Capital (Asia) Ltd. • Toshiba Asia Pacific Pte., Ltd. • Toshiba Data Dynamics...

  • Page 44
    ...Japan & Asia Operations . Personal Computer Div. America, EMEA & Oceania Operations . Server & Network Div. . PC Development Center . Global Production & Logistics Management Center . Ome Complex Digital Media Network Company . Storage Device Div. . TV & Visual Media Equipment Div. . Digital Camera...

  • Page 45
    ... Overseas Business Promotion Div. (Overseas Offices) . Moscow . Johannesburg . Baghdad . Abu Dhabi . Corporate Branding Office . Design Center Group Relations Group . Group Relations Div. 42 43 Infrastructure Systems Group Power Systems Company SED Project Team . Nuclear Energy Systems & Services...

  • Page 46

  • Page 47
    Constant Change t o s h i b a c o r p o r a t i o n Annual Report 2006 • Financial Review

  • Page 48
    Management's Discussion and Analysis Eleven-year Summary Toshiba Corporation and Subsidiaries Years ended March 31 Net sales Cost of sales Selling, general and administrative expenses (Note 1) Operating income (loss) (Note 2) Income (loss) before income taxes and minority interest Income taxes Net...

  • Page 49
    ...130 1,437,478 (113,575) (374,247) (113,915) (254,017) 2001 ¥5,951,357 4,323,525 1,395,699 232,133 197,453 96,145 96,168 2000 ¥5,749,372 4,254,444 1,393,959 100,969 (39,161) (4,530) (32,903) 1999 ¥5,300... 314,774 186,000 2 3 2. Management's Discussion and Analysis 14. Consolidated Balance ...

  • Page 50
    ... their economic expansion. Toshiba Group aims for high growth in its Digital Products and Electronic Devices business domains. In Social Infrastructure domain, the Group seeks to secure stable growth and profits, mainly through expansion of its international business. Toshiba's consolidated sales in...

  • Page 51
    ... Digital Media Network business saw sales increase on higher sales of storage devices. The Mobile Phones business also increased sales, as new products, mainly high-end models, met a positive response in the Japanese market. The Retail Information and Office Document Processing Systems business also...

  • Page 52
    Management's Discussion and Analysis HOME APPLIANCES Consolidated net sales in Home Appliances increased by ¥26.5 billion from the previous year to ¥687.5 billion (US$5,876.1 million) on higher sales of washing machines and backlights for LCDs. The segment posted profit of ¥2.7 billion (US$23.2 ...

  • Page 53
    ...: Digital Products Electronic Devices Social Infrastructure Home Appliances Others Corporate Consolidated Impairment of long-lived assets: Digital Products Electronic Devices Social Infrastructure Home Appliances Others Corporate Consolidated Capital expenditures: Digital Products Electronic Devices...

  • Page 54
    ...Millions of yen Year ended March 31 Thousands of U.S. dollars 2006 2005 2004 2006 Sales: Japan Unaffiliated customers Intersegment Total Asia Unaffiliated customers Intersegment Total North America Unaffiliated customers Intersegment Total Europe Unaffiliated customers Intersegment Total Others...

  • Page 55
    ... flash memory at Yokkaichi Works, a new production line for System LSI and other devices at Iwate Toshiba Electronics Co., Ltd., and a new plant and manufacturing equipment for low temperature polysilicon LCD at Toshiba Matsushita Display Technology Co., Ltd. In the Digital Products segment, capital...

  • Page 56
    ... Toshiba Elevator and Building Systems Corporation Toshiba Medical Systems Corporation Toshiba Plant Systems & Services Corporation Toshiba TEC Corporation U.S.A. Toshiba America Information Systems, Inc. Toshiba America, Inc. 100 80 100 69 52 100 100 Affiliated Companies: Japan MT Picture Display...

  • Page 57
    ... or decisions unfavorable to the Group may impact on Group operations. Lexar Media, Inc. filed suit against the Company and its US subsidiary, Toshiba America Electronic Components, Inc. alleging misappropriation of NAND flash-related trade secrets and related misconduct. In December 2005, the...

  • Page 58
    ... relating to product quality. (14) Information securities The Group keeps and manages various personal information obtained in the process of business operations. The Group also keeps various trade secrets regarding the Group's technology, marketing and other business operations. While the Group...

  • Page 59
    ... key suppliers may impact on the Group's competitiveness. Any case of defective components and materials may also have an adverse effect on the reliability and reputation of the Group and Toshiba brand products. (16) Securing human resources Success of the Group's businesses depends in large part...

  • Page 60
    Consolidated Balance Sheets Toshiba Corporation and Subsidiaries As of March 31, 2006 and 2005 Millions of yen Thousands of U.S. dollars (Note 3) Assets Current assets: Cash and cash equivalents Notes and accounts receivable, trade: Notes (Note 5) Accounts (Note 5) Allowance for doubtful notes ...

  • Page 61
    ...dollars (Note 3) Liabilities and shareholders' equity Current liabilities: Short-term borrowings (Note 9) Current portion of long-term debt (Notes 9 and 19) Notes payable, trade Accounts payable, trade Accounts payable...in capital Retained earnings Accumulated other comprehensive loss Treasury stock,...

  • Page 62
    ... Statements of Income Toshiba Corporation and Subsidiaries For the years ended March 31, 2006 and 2005 Millions of yen Thousands of U.S. dollars (Note 3) 2006 Sales and other income: Net sales Subsidy received on return of substitutional portion of Employees' Pension Fund Plan, net of settlement...

  • Page 63
    Consolidated Statements of Shareholders' Equity Toshiba Corporation and Subsidiaries For the years ended March 31, 2006 and 2005 Common stock Additional paid-in capital Millions of yen Accumulated Retained other earnings comprehensive loss Treasury stock Total Balance at March 31, 2004 ¥ 274,...

  • Page 64
    ... by operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of securities Acquisition of property, plant and equipment Purchase of securities Increase in investments in affiliates Purchase of business from an affiliate Increase...

  • Page 65
    ... OF BUSINESS Toshiba Corporation and its subsidiaries (collectively, the "Company") are 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 Appliances...

  • Page 66
    ... expected to receive 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...

  • Page 67
    ... 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. Revenue from arrangements with multiple elements, which may include any combination of products, equipment...

  • Page 68
    ... securities mainly consisted of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale at March 31, 2006 are as follows: Millions of yen March 31, 2006: Due within one year Due after one year Cost Fair value Thousands of U.S. dollars Cost Fair value...

  • Page 69
    ... equity securities for the years ended March 31, 2006 and 2005, respectively. At March 31, 2006, the cost and fair value of available-for-sale securities in an unrealized loss position over 12 consecutive months were not significant. Aggregate cost of non-marketable equity securities accounted for...

  • Page 70
    ... investments in affiliated companies accounted for by the equity method together with the percentage of the Company's ownership of voting shares at March 31, 2006 were: MT Picture Display Co., Ltd. (35.5%); Topcon Corporation (35.5%); Toshiba Ceramics Co., Ltd. (41.4%); Toshiba Machine Co., Ltd...

  • Page 71
    ... 2006 $ 13,642,214 (219,974) A summary of transactions and balances with the affiliates accounted for by the equity method is presented below: Millions of yen Year ended March 31 Thousands of U.S. dollars Sales Purchases Dividends 2006 ¥ 110,336 96,835 13,526 2005 ¥ 99,408 115,074 8,819 2006...

  • Page 72
    ... of the purchase price over the fair value of the net assets acquired. The changes in the carrying amount of goodwill for the years ended March 31, 2006 and 2005 are as follows: Millions of yen Year ended March 31 Thousands of U.S. dollars Balance at beginning of year Goodwill acquired during the...

  • Page 73
    ... in support of the Company's commercial paper. The lines of credit expire on various dates from April 2006 through March 2007. Under the agreements, the Company is required to pay commitment fees ranging from 0.065 percent to 0.120 percent on the unused portion of the lines of credit. Long-term debt...

  • Page 74
    ... 31, 2006 were property, plant and equipment with a book value of ¥14,353 million ($122,675 thousand). The aggregate annual maturities of long-term debt, excluding those of capital lease obligations are as follows: Year ending March 31 Millions of yen Thousands of U.S. dollars 2007 2008 2009 2010...

  • Page 75
    ... income tax laws. The Company uses a March 31 measurement date for the majority of its plans. The changes in the benefit obligation and plan assets and reconciliations of net amount recognized to funded status and accrued pension and severance costs for the years ended March 31, 2006 and 2005...

  • Page 76
    ... and net periodic pension and severance cost for the years then ended are as follows: March 31 Discount rate Rate of compensation increase Year ended March 31 2006 2.5% 3.0% 2006 2.6% 4.0% 3.0% 2005 2.6% 3.0% 2005 2.7% 4.0% 3.0% Discount rate Expected long-term rate of return on plan assets Rate...

  • Page 77
    ...-LIVED ASSETS Due to general price erosion, severe market competition and others, the Company recorded impairment charges of ¥11,974 million ($102,342 thousand) related primarily to the manufacturing facilities of the Digital Products division and the Electronic Devices division for the year ended...

  • Page 78
    ...of retained earnings available for dividends is based on Toshiba Corporation's retained earnings determined in accordance with generally accepted accounting principles in Japan and the Japanese Commercial Code. Retained earnings at March 31, 2006 do not reflect current year-end dividends of ¥11,251...

  • Page 79
    ... effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2006 and 2005 are shown below: Pre-tax amount Millions of yen Tax benefit (expense) Net-of-tax amount For the year ended March 31, 2006: Unrealized gains on securities: Unrealized holding gains...

  • Page 80
    ... Financial Statements Toshiba Corporation and Subsidiaries March 31, 2006 Pre-tax amount Thousands of U.S. dollars Tax benefit (expense) Net-of-tax amount For the year ended March 31, 2006: Unrealized gains on securities: Unrealized holding gains arising during year Less: reclassification...

  • Page 81
    ... on future trade transactions and the interest rate characteristics of the underlying debt as discussed below. Fair Value Hedge Strategy The forward exchange contracts and currency swap agreements utilized by the Company effectively reduce fluctuation in fair value of accounts receivable and payable...

  • Page 82
    ... fair values are not necessarily indicative of the amounts that could be realized in a current market exchange. 20 . LEASES LESSEE The Company leases manufacturing equipment, office and warehouse space, and certain other assets under operating leases. Rent expenses under such leases for the years...

  • Page 83
    ... related to notes receivable transferred. Toshiba Corporation has entered into a definitive Purchase and Sale Agreement with British Nuclear Fuels plc and its subsidiary, under which Toshiba Corporation will acquire BNFL USA Group Inc. and Westinghouse Electric UK Limited (collectively "Westinghouse...

  • Page 84
    ... 31, 2006 and 2005, respectively, for environmental remediation and restoration costs for products or equipment with PCB which some Toshiba operations in Japan have retained. The costs recorded during the year are included as cost of sales in the accompanying consolidated statements of income. The...

  • Page 85
    ... referred to above present fairly, in all material respects, the consolidated financial position of the Company at March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in...

  • Page 86
    This report was printed on recycled paper with soy-based ink. Printed in Japan