Hitachi Kokusai Electric is a provider of information communication systems
that offer borderless capabilities through compatibility with global standards
on which the next generation of mobile communication systems will be
based. We also offer total support of broadcasting and video systems that
shape our image culture, and are also moving forward with research and
development on the provision of mobile multimedia products and systems.
Next-generation advanced information and communication systems will be
based on semiconductors. Hitachi Kokusai Electric is therefore also moving
ahead with semiconductor manufacturing systems.
Hitachi Kokusai Electric is also a leading manufacturer of semiconductor
manufacturing systems that are held in high regard by semiconductor
manufacturers the world over. The Company is constantly utilizing its
advanced research and development capabilities to provide new,
next-generation products that incorporate the latest advances in semiconductor
manufacturing technology.
Contents
Financial Highlights ... 1
To Our Stakeholders... 2
Results and Outlook by Segment ... 4-6 · Wireless Communications and Information Systems Segment...4
· Broadcasting and Video Systems Segment...5
· Semiconductor Manufacturing Systems Segment...6
Financial Review ... 7
Consolidated Balance Sheets ... 8
Consolidated Statements of Income ... 10
Consolidated Statements of Shareholders’ Equity ... 11
Consolidated Statements of Cash Flows ... 12
Notes to Consolidated Financial Statements ... 13
Independent Auditors’ Report ... 25
Global Network... 26
Corporate Data ... 27
Shareholder Information ... 28
Cautionary Statement With Respect to Forward-looking Statements:
Statements made in this annual report with respect to Hitachi Kokusai Electric’s plans and projections as well as other statements that are not historical facts are forward-looking statements, which involve risks and uncertainties. Potential risks and uncertainties include, without limitation, general economic conditions in Hitachi Kokusai Electric’s markets, exchange rates and Hitachi Kokusai Electric’s ability to continue to win customers’ acceptance of its products, which are offered in highly competitive markets characterized by continual new product introductions and rapid developments in technology.
For the Year:
Net sales...
Operating income ...
Net income ...
At Year-End:
Total assets ...
Total shareholders’ equity ...
Per share of common stock (in Yen and U.S. Dollars):
Net income ...
Cash dividends applicable to the year ...
Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥107.39 to $1, the rate of exchange at March 31, 2005.
142,998
159,259
129,361
6,592
13,373
544
186,922
176,667
169,781
2005 2004
2003 2003 2004 2005 2003 2004 2005
Net sales
(Millions of Yen)
Operating income
(Millions of Yen)
Total assets
(Millions of Yen)
0 50,000 100,000 150,000 200,000
0 40,000 80,000 120,000 160,000
0 3,000 6,000 9,000 12,000 15,000
Financial Highlights
Hitachi Kokusai Electric Inc. and Consolidated Subsidiaries
Years ended March 31
Thousands of Millions of Yen U.S. Dollars
Yen U.S. Dollars
2005
¥159,259
13,373
6,328
¥176,667
87,346
2004
¥142,998
6,592
1,748
¥186,922
81,930
2005
$1,482,997
124,527
58,925
$1,645,097
813,353
2005
¥ 59.96
8.00
2004
¥ 16.19
6.00
2005
$ 0.56
To Our Stakeholders
use. Along with this, terrestrial digital broadcasting
services have started, and we expect to see the
development of new businesses, such as services that
fuse communication systems with broadcasting and
video systems. This is creating a ubiquitous information
society, the necessary infrastructures for which are
steadily being put in place. For Hitachi Kokusai Electric,
with its fund of wireless communication, broadcasting
and video technologies, this all represents a huge
business opportunity.
In semiconductor manufacturing systems, our other major
business, we are making rapid progress towards DRAM
fabrication systems that use a 45nm line process, and are
using our thermal process technology to position Hitachi
Kokusai Electric as the global market leader.
To prepare the Hitachi Kokusai Electric Group for the
major business opportunities represented by the ubiquitous
information society and ensure our sustained growth and
development, we are strengthening liaison between the
Group’s Wireless Communications and Information
Systems, Broadcasting and Video Systems and
Semiconductor Manufacturing Systems business segments.
Results by Segment
With the domestic market for mobile telephone
base-stations for system integrators reaching saturation point,
the Wireless Communications and Information Systems
segment has to look for growth in overseas markets.
Thus, the focus is on increasing sales in overseas
markets as well as in Japan.
In the area of communication systems for public utilities,
Japan is in the process of replacing analogue wireless
systems for public business applications with digital
systems. This generates an extensive range of business
opportunities on which we are aggressively focusing.
In the Broadcasting and Video Systems segment, the
move to digital terrestrial broadcasting systems represents
another business opportunity for our broadcasting
systems business, as broadcasters will be making capital
investments in the various related areas in the runup to the
2011 deadline for completing the switch to digital.
In video systems, government agencies have been the
main source of demand for our monitoring cameras and
surveillance systems. However, we expect to see growth
in the sales of systems to the private sector, and are
therefore moving to develop new products and systems
tailored to the needs of that market.
Since the merger of 2000 that created Hitachi Kokusai
Electric, the Company has carried out restructuring moves
in the midst of very challenging economic conditions, and
has moved forward with a range of measures. In
combination with a moderate recovery in capital
investment and other such factors, these moves had the
effect of improving our results from fiscal 2003 to fiscal
2004. In fiscal 2005, ended March 31, 2005, while sales by
the Broadcasting and Video Systems segment declined,
increases posted by the Wireless Communications and
Information Systems and Semiconductor Manufacturing
Systems segments enabled the Company to achieve an
overall gain, year on year.
Income rose year on year, helped by higher sales of
semiconductor manufacturing equipment and mobile
telephone base-stations, and by the effects of the
Company’s efforts to reduce costs and fixed expenses.
In fiscal 2006, ending March 31, 2006, market
conditions are expected to be somewhat severe. In that
environment, Hitachi Kokusai Electric will focus on
improving its corporate results by concentrating on
growth sectors and developing new markets.
In communications and broadcasting systems, which
constitute a major component of our business,
To make the best use of the global strength of the Yagi
brand, in October 2004 the Yagi Antenna Division was split
off and established as a new company, Yagi Antenna Inc.
The new company will concentrate on general-market
products such as receiving antennas for the growing area
of terrestrial digital broadcasting applications.
With respect to the Semiconductor Manufacturing
Systems segment, the semiconductor industry is in a
favorable phase of the silicon cycle. Hitachi Kokusai
Electric is well set for this area of business, having
developed products that are generating a larger market
share as the semiconductor industry moves to new plants
for fabricating 300mm wafers. The Company believes that
a further forceful move in that direction can generate even
stronger growth in this area of its business operations.
Management Vision
In April 2005, Hitachi Kokusai Electric launched a new
medium-term management plan. In line with the new
plan, the Company will use tighter liaison between its
three business segments to implement a strategy for
sustainable growth to achieve consolidated sales of ¥200
billion and a ratio of operating income to net sales of 10%
in the fiscal year ending March 31, 2010. To attain these
targets, we will use our flagship products to grow our
overseas business and, in allocating business resources,
will give priority to the cultivation of new businesses, such
as wireless broadband applications based on a fusion of
digital wireless and video technologies.
At the same time, in order to improve the efficiency of
operations, we have reorganized the wireless
communi-cations, information systems, broadcasting and video
systems businesses, centralized business units,
integrated design and development operations, and
consolidated production systems. In addition, at the end
of March 2006, we will move our head office, upgrade
our information systems and implement a number of
other projects that will generate increased synergies.
The following three policies are of fundamental
importance to the efforts of the Hitachi Kokusai Electric
Group to successfully implement reforms in which the
keywords are “speed and the challenge of change.”
• Ceaseless pursuit of overall optimization
• The creation of products that are uniquely Hitachi
Kokusai Electric’s
• Comprehensive streamlining of operations
Internal Control System
In June 2003, Hitachi Kokusai Electric adopted the
Committee System to speed up decision-making and the
execution of business operations. Under the new system,
the Board of Directors is made up of five directors, three of
whom are from outside Hitachi Kokusai Electric. Within the
Board of Directors, there are three statutory committees:
the Nominating Committee, the Audit Committee, and the
Compensation Committee, with outside directors
accounting for the majority of the members of each
committee. The aim of this system is to strengthen
oversight of the execution of business operations and to
ensure management that is fair and transparent.
With respect to risks relating to the operations of the
Company, the necessary regulations and guidelines are
required to be established via the departments concerned,
and internal audits thereof conducted via the Internal
Auditing Department, with the Audit Committee verifying
the audits in consultation with the Accounting Auditor.
Execution of business matters is implemented by
executive officers. There are 11 executive officers, one of
whom serves concurrently as director, who are charged
with ensuring decision-making that is speedy and
correct. Important management policies and matters are
comprehensively reviewed by an Executive Officers’
Meeting before any decision is made by the executive
officer concerned.
CSR Management
At all times, the Hitachi Kokusai Electric Group endeavors
to obtain the satisfaction and trust of customers by
developing and providing safe, quality products and
services that take environmental considerations into
account. In addition, the Group also endeavors, on an
independent, autonomous basis, to conserve and
improve the global and local environments.
To further expedite the Group’s CSR activities, Hitachi
Kokusai Electric established a CSR Promotion Division in
April 2005. This will provide a further centralization and
strengthening of CSR activities relating to compliance,
contri-butions to local communities, and environmental protection.
October 2005
Kunio Hasegawa
Results and Outlook by Segment
Consolidated orders received by the Wireless Communications and Information Systems segment during fiscal 2005 amounted to ¥63,224 million, ¥5,770 million (10%) more than the preceding fiscal year. Net sales rose ¥3,675 million (6%), to ¥61,162 million, an increase largely attributable to gains made by station equipment for digital cellular telephones and digital wireless systems for public business. Operating income rose ¥3,758 million, to ¥5,000 million.
In wireless systems for public communication networks, Hitachi Kokusai Electric is the domestic market leader in infrastructure products, such as amplifiers for NTT’s DoCoMo cellular telephone network. Major growth was recorded by base-station peripherals, such as optical transmission equipment. In Japan and overseas, these areas are being expanded as mainstay businesses.
To respond to the pressing demand for bandwidth in Japan, the government is expected to reorganize current frequency reallocations. Hitachi Kokusai Electric is readying itself to respond to fresh demand generated by new communication systems, including fourth-generation cellular systems.
Overseas expansion centers on China and North America. There is particular
emphasis on China, where the very high pace of growth makes it the world’s most active market region. Hitachi Kokusai Electric has been strengthening its ties with major local corporations in China, and is stepping up these and other endeavors aimed at expanding and reinforcing its local operations in that region.
In the area of wireless communications systems for private-sector applications, the Company is responding to replacement demand generated as enterprises move from analogue to digital systems. Among the many sectors undergoing this transition are disaster management and information systems, fire-fighting services, taxi services, airports, and railroads. Hitachi Kokusai Electric is reinforcing its position as the leading supplier of vehicle dispatch systems for taxi services. Most of the taxis used in major cities are equipped with Hitachi Kokusai Electric’s systems, and the Company is also expanding in more regional and rural areas. Airports in Tokyo and Nagoya already use the Company’s airport wireless systems, which will also be installed in other airports. Hitachi Kokusai Electric is also moving to meet demand for wireless communication systems for railroad system and fire-fighting service applications. Also, system platforms are being implemented to improved reliability and reduce costs.
0 20,000 40,000 60,000
57,487
61,162
2005 2004 2003
Net sales
(Millions of Yen)
54,647
80,000
1,242
5,000
2005 2004 2003
0 1,000 2,000 3,000
Operating income
(Millions of Yen)
1,290
5,000
4,000
Wireless Communications and Information Systems Segment
Transition to digital technology and wireless broadband, and expansion of overseas markets
Main Products
Station Equipment for Digital Cellular Telephones, Radio Equipment for Packet Communication Systems, Digital Wireless Systems for Public Business, On-premises Digital Wireless Communication Systems, Disaster Management Communication Systems, Disaster Information Systems, Train Communication Systems, Airport MCA Wireless Systems, Stock-Price Display Systems, Assorted Display Boards and Display Devices
Consolidated orders received by the Broadcasting and Video Systems segment during fiscal 2005 amounted to ¥40,746 million, ¥3,793 million (9%) less than the preceding year. Although sales of terrestrial digital broadcasting products were up, there was a decrease in orders received for monitoring and surveillance systems for government agencies, reflecting cutbacks in investments in public utilities. In addition, intense competition drove down prices. As a result, net sales declined ¥1,035 million (2%), to ¥44,353 million. The segment recorded an operating loss of ¥100 million, compared to an operating income of ¥1,313 million the preceding year.
Terrestrial digital broadcasting started in December 2003 in Tokyo, Nagoya and Osaka, and coverage is now expanding across Japan. Hitachi Kokusai Electric is a supplier of all of the products used in this sector, from field cameras to broadcasting equipment, relay transmitters and antennas. The Company is the market leader in FPUs, and has received orders for broadcasting equipment from a major broadcasting station in Nagoya.
The expansion of digital broadcasting services towards full coverage of all parts of Japan is expected to generate demand for digital relay transmitters for areas with poor reception. Hitachi Kokusai Electric is also focussing on growing sales of terrestrial digital receiving antennas by its subsidiary, Yagi Antenna.
Overseas, with the demand for broadcasting equipment expected to rise in the runup to the Beijing Olympic Games in 2008, the Company is responding by releasing compact relay transmitters.
With the market for monitoring and surveillance systems for government agencies reaching saturation point, Hitachi Kokusai Electric is strengthening its security network systems business with solutions that fuse information servers, wireless broadband systems and image processing technology. In monitoring systems for railroads, the Company has launched a project to meet replacement and fresh demand. Looking ahead, the Company is aggressively tackling overseas markets. In addition to its current activities in North America and Europe, Hitachi Kokusai Electric is also developing sales operations in China.
The Company is enhancing its core technologies in a number of areas. As part of this, it is entering into alliances with overseas research organizations to develop leading-edge image processing technology.
0 10,000 20,000 30,000 40,000
45,388 44,353
43,636
2005 2004 2003
Net sales
(Millions of Yen) 50,000
(100)
273
1,313
2005 2004 2003
Operating income (loss)
(Millions of Yen)
-300 0 300 600 900 1,200 1,500
Broadcasting and Video Systems Segment
Expanding sales of products for terrestrial digital broadcasting and security surveillance network systems
Main Products
Digital Microwave Relay Equipment, Digital Relay Transmitters, Digital TV Transmission Systems, FM/AM Broadcasting Equipment, Non-linear Video Editing, Recording and Transmission Systems, Digital TV Cameras, Satellite Broadcasting and Receiving Equipment, CATV Equipment, Interference and Bad Reception Safeguard Equipment, Wide-Area Monitoring Systems (for Roads, Rivers and Railroad Networks), Security Surveillance Systems, Assorted Commercial Cameras, Wireless Communication Antennas
Network-based surveillance camera
Consolidated orders received by the Semiconductor Manufacturing Systems segment came to ¥53,994 million, ¥10,101 million (23%) more than the preceding year. Net sales amounted to ¥53,744 million, an increase of ¥13,621 million (34%) compared to the preceding year. One factor in this increase was the brisk pace of capital investment by overseas manufacturers of semiconductor memories. Operating income rose ¥4,436 million, to ¥8,473 million.
Strong gains recorded by the semiconductor manufacturing equipment division in fiscal 2004 were a prominent factor contributing to the turnaround in the Company’s results. While this had its roots in the major improvement in the semiconductor market, it was also due to the efforts made to develop new products and restructure during the preceding period of market stagnation. The semiconductor industry is subject to the four-year swings of the silicon cycle. During the previous downswing phase, the market declined more rapidly than fixed expenses could be reduced and corporate results were further hurt by lack of new product development, making it necessary to take measures such as reducing the number of employees through an early-retirement incentive program.
Following that, Hitachi Kokusai Electric concentrated on developing new, strategic products, such as the Quixace QTAT system, which have been of pivotal importance in driving growth during the current up-phase. The cycle is expected to go into the down-phase from fiscal 2006 during which the Company will focus on the development of new products, with the emphasis on thermal process systems. Research and development is now underway on fourth-generation systems with 45nm line process capabilities.
Exports account for more than 70% of the segment’s sales. This is an indication of the excellent reputation Hitachi Kokusai Electric’s products have among the world’s leading manufacturers of semiconductor devices. The Company will continue to focus on providing services and support that ensure maximum customer trust and
satisfaction, while at the same time seeking out new customers.
The Company will continue to strengthen its ability to withstand the effects of the silicon cycle, by building a system that can also generate profits during a down-phase.
Hitachi Kokusai Electric intends to use to above measures to become the global market leader in vertical systems by 2007.
40,123
53,744
31,078
2005 2004 2003
Net sales
(Millions of Yen)
0 10,000 20,000 30,000 40,000 60,000
50,000
4,037
8,473
2005 2004 2003
-2,000 0 4,000
2,000
Operating income (loss)
(Millions of Yen)
(1,019)
10,000
8,000
6,000
Semiconductor Manufacturing Systems Segment
Increasing sales of new, strategic products, and research and development for next-generation products
Main Products
Vertical Diffusion/LPCVD Systems, Load Lock Vertical
Diffusion/LPCVD Systems, Vertical QTAT Systems, Vertical ALD Systems, Vertical SiGe Epitaxial Growth Systems, Vertical High-temperature Annealing Systems, Single Wafer MMT Plasma Nitriding Systems, Silicon Epitaxial Growth Systems, Single Wafer Diffusion/LPCVD Systems, Ashing Systems, High Performance Tube Controllers
Vertical high-temperature annealing systems
Financial Review
Operating Results
Financial Position
Cash Flows
Consolidated operating results for the fiscal year under review were as follows.
Orders received by Broadcasting and Video Systems declined year on year, reflecting the impact that curbs on public-works spending had on orders for video monitoring systems. However, increases were posted by wireless communications and information systems and semiconductor manufacturing systems, lifting total orders received to ¥157,965 million, ¥12,079 million (8%) more than the preceding year. While Broadcasting and Video Systems sales were also lower than the preceding year, gains were posted by Wireless Communications and Information Systems and Semiconductor Manufacturing Systems, bringing total net sales to ¥159,259 million, ¥16,261 million (11%) more than the preceding year. Operating income rose ¥6,781 million, to ¥13,373 million. This increase is attributable to higher sales of semiconductor manufacturing equipment and station equipment for digital cellular telephones, and to the effectiveness of efforts to reduce costs and fixed expenses.
The Company posted a net income of ¥6,328 million for the year, ¥4,580 million more than the preceding year. This included an extraordinary gain of ¥30 million from reversal of accrual for business restructuring by the sale of welfare facilities.
By geographic segment, higher sales of semiconductor manufacturing equipment, and station equipment for digital cellular telephones, resulted in net sales in Japan of ¥146,809 million, ¥14,809 million (11%) more than the preceding year. Operating income rose ¥5,799 million, to ¥12,548 million.
In North America, sales rose ¥1,766 million (22%), to ¥9,838 million, helped by higher sales of semiconductor manufac-turing equipment and cameras for industrial applications. Operating income amounted to ¥375 million, an increase of ¥619 million compared to the preceding year’s operating loss of ¥244 million.
In other areas, sales decreased ¥314 million (11%), to ¥2,612 million. However, operating income rose ¥231 million, to ¥306 million, an increase attributable to efforts to reduce costs and fixed expenses.
Total assets at the end of fiscal 2005 stood at ¥176,667 million, ¥10,255 million less than the preceding year. Current assets were ¥129,841 million, ¥9,607 million less than the preceding year. This decrease is attributable to a decrease of ¥12,813 million in deposits with Hitachi, Ltd. accompanying the redemption of bonds amounting to ¥20,000 million. Although the Company made capital investments amounting to ¥3,159 million, fixed assets decreased by ¥648 million, to ¥46,826 million due to depreciation expenses amounting to ¥3,229 million and to the sale of welfare facilities.
Total liabilities decreased ¥15,720 million, to ¥89,172 million. This is attributable to an increase of ¥2,233 million in trade notes and trade accounts payable, reflecting increased purchases of materials to keep pace with needs generated by higher sales, and a decrease of ¥20,000 million to redeem bonds.
Shareholders’ equity totalled ¥87,346 million, ¥5,416 million more than the preceding year. This was the result of the net income of ¥6,328 million, and a decrease of ¥839 million due to payment of cash dividends.
Consolidated cash and cash equivalents (hereinafter “cash”) at the end of the year stood at ¥49,352 million, a decrease of ¥10,637 million due to gains from operating activities being offset by financing-activity expenditures to redeem convertible bonds.
The main factors involved in cash flows in the fiscal year under review were as follows.
Net cash provided by operating activities amounted to ¥15,137 million, an increase of ¥3,981 million (36%) compared to the preceding year. The main items contributing to the increase were net income before income taxes of ¥10,778 million, non-cash depreciation expenses of ¥3,229 million, an increase of ¥1,500 million in the provision for employees’ retirement benefits, an increase of ¥2,228 million in notes and accounts payable, and an increase of ¥1,331 million in other
current liabilities, which exceeded decrease components such as the increase of ¥1,422 million in inventories and the increase of ¥1,163 million in notes and accounts receivable.
Net cash provided by investing activities amounted to ¥3,464 million, ¥5,283 less than the preceding year. The cash primarily comprised an expenditure of ¥2,800 million for purchases of property, plant and equipment, and an investment expenditure of ¥1,000 million in long-term deposits.
ASSETS
CURRENT ASSETS:
Cash and time deposits (Note 3) ... Deposits with Hitachi, Ltd. (Notes 3 and 16) ... Receivables (Note 16):
Trade notes ... Trade accounts ... Unconsolidated subsidiaries and associated companies ... Other ... Allowance for doubtful receivables ... Inventories ... Deferred tax assets (Note 8) ... Prepaid expenses and other current assets ... Total current assets ...
PROPERTY, PLANT AND EQUIPMENT (Note 5):
Land ... Buildings and structures ... Machinery and equipment ... Furniture and fixtures ... Construction in progress ... Total ... Accumulated depreciation ... Net property, plant and equipment ...
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 4) ... Investments in unconsolidated subsidiaries and associated companies... Long-term loans receivable ... Deferred tax assets (Note 8) ... Other assets ... Total investments and other assets ... TOTAL...
See notes to consolidated financial statements.
Consolidated Balance Sheets
Hitachi Kokusai Electric Inc. and Consolidated Subsidiaries
March 31, 2005 and 2004
Thousands of U.S. Dollars Millions of Yen (Note 1)
2005
¥ 22,971 26,607
2,827 45,651 922 755 (62) 23,984
5,796 390 129,841
7,462 41,954 16,407 23,902 250 89,975 (63,212)
26,763
3,880 882 31 11,927 3,343 20,063 ¥176,667
2004
¥ 20,711 39,420
2,751 44,071 1,346 652 (50) 22,515
7,633 399 139,448
7,840 42,097 16,800 24,864 305 91,906 (64,305)
27,601
4,154 580 39 12,317 2,783 19,873 ¥186,922
2005
$ 213,903 247,760
26,325 425,095 8,586 7,030 (577) 223,336
53,972 3,630 1,209,060
69,485 390,669 152,780 222,572 2,328 837,834 (588,621)
249,213
Thousands of U.S. Dollars Millions of Yen (Note 1)
2005
¥ 1,667
2,552 27,970 272 1,600 1,858 12,700 3,504 52,123
6,000
27,304 365 3,091 289 37,049
149
10,058 26,152 50,240 1,073 44 87,567 (221) 87,346 ¥176,667
2004
¥ 3,068 20,006
3,230 25,059 271 1,427 886 11,149 3,762 68,858
6,000
25,802 575 3,461 196 36,034
100
10,058 26,151 44,799 1,206 (161) 82,053
(123) 81,930 ¥186,922
2005
$ 15,523
23,764 260,453 2,533 14,899 17,301 118,261 32,628 485,362
55,871
254,251 3,399 28,783 2,691 344,995
1,387
93,659 243,524 467,828 9,991 409 815,411 (2,058) 813,353 $1,645,097 LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term bank loans (Note 5) ... Current portion of long-term debt (Note 5)... Payables (Note 16):
Trade notes ... Trade accounts ... Unconsolidated subsidiaries and associated companies ... Other ... Income taxes payable... Accrued expenses ... Other current liabilities ... Total current liabilities ...
LONG-TERM LIABILITIES:
Long-term debt (Note 5) ... Liability for retirement benefits (Note 6):
Employees ... Directors and executive officers ... Accrual for business restructuring ... Other long-term liabilities ... Total long-term liabilities ...
MINORITY INTERESTS ...
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 10, 11 and 12) SHAREHOLDERS’ EQUITY (Notes 7 and 14):
Common stock—authorized, 400,000,000 shares;
NET SALES (Note 16) ...
COST OF SALES (Note 9) ...
Gross profit ...
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 9)...
Operating income ...
OTHER INCOME (EXPENSES):
Interest income ... Dividend income ... Interest expense ... Write-down of inventories... Equity in earnings of associated company ... Foreign exchange gain (loss) ... Gain on sale of property, plant and equipment ... Loss on disposals of property, plant and equipment ... Reversal of accrual for business restructuring ... Business restructuring charge ... Other—net ...
Other expenses—net...
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS...
INCOME TAXES (Note 8):
Current ... Deferred ...
Total income taxes ...
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES...
NET INCOME ...
PER SHARE OF COMMON STOCK (Notes 2.r and 13):
Net income ... Diluted net income ... Cash dividends applicable to the year ...
See notes to consolidated financial statements.
Thousands of U.S. Dollars Millions of Yen (Note 1)
2005 ¥159,259
116,086
43,173
29,800
13,373
61 60 (160) (2,045) 249
(25) 2 (501)
30
(266)
(2,595)
10,778
2,078 2,315
4,393
57
¥ 6,328
2004 ¥142,998
108,932
34,066
27,474
6,592
53 63 (629) (710) 120 181 354 (341)
(3,296) 121
(4,084)
2,508
1,150 (412)
738
22
¥ 1,748
2005 $1,482,997
1,080,976
402,021
277,494
124,527
568 559 (1,490) (19,043) 2,319
(233) 19 (4,665)
279
(2,477)
(24,164)
100,363
19,350 21,557
40,907
531
$ 58,925
Yen U.S. Dollars
¥ 59.96 57.30 8.00
¥ 16.19 15.95 6.00
$ 0.56 0.53 0.07
Consolidated Statements of Income
BALANCE, APRIL 1, 2003 ...
Paid-in capital from treasury
stock transaction (8,881 shares) ... Net income ... Bonuses to directors... Cash dividends, ¥6 per share ... Increase in treasury stock
(70,616 shares) ... Net increase in unrealized gain on
available-for-sale securities... Net change in foreign currency
translation adjustments ...
BALANCE, MARCH 31, 2004...
Paid-in capital from treasury
stock transaction (5,877 shares) ... Net income ... Bonuses to directors... Cash dividends, ¥8 per share ... Increase in treasury stock
(119,964 shares) ... Net decrease in unrealized gain on
available-for-sale securities... Net change in foreign currency
translation adjustments ...
BALANCE, MARCH 31, 2005...
BALANCE, MARCH 31, 2004...
Paid-in capital from treasury
stock transaction (5,877 shares)... Net income... Bonuses to directors ... Cash dividends, $0.07 per share ... Increase in treasury stock
(119,964 shares) ... Net increase in unrealized gain on
available-for-sale securities ... Net change in foreign currency
translation adjustments ...
BALANCE, MARCH 31, 2005...
See notes to consolidated financial statements.
Millions of Yen Thousands Retained Earnings ¥43,762 1,748 (81) (630) 44,799 6,328 (48) (839) ¥50,240 Capital Surplus ¥26,148 3 26,151 1 ¥26,152 Common Stock ¥10,058 10,058 ¥10,058 Issued Number of Shares of Common Stock 105,221 105,221 105,221 Unrealized Gain on Available-for-sale Securities
¥ 223
983 1,206 (133) ¥ 1,073 Foreign Currency Translation Adjustments
¥ 168
(329)
(161)
205
¥ 44
Treasury Stock
¥ (81)
4
(46)
(123)
3
(101)
¥ (221)
Consolidated Statements of Shareholders’ Equity
Hitachi Kokusai Electric Inc. and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004
Thousands of U.S. Dollars (Note 1)
Retained Earnings $417,162 58,925 (447) (7,812) $467,828 Capital Surplus $243,514 10 $243,524 Common Stock
$ 93,659
$ 93,659
Unrealized Gain on Available-for-sale Securities $11,230 (1,239)
$ 9,991
Foreign Currency Translation Adjustments
$ (1,499)
1,908
$ 409
Treasury Stock
$ (1,145)
28
(941)
OPERATING ACTIVITIES:
Income before income taxes and minority interests... Adjustments for:
Income taxes—paid ... Income taxes—refunded ... Depreciation and amortization ... Loss on disposal of property, plant and equipment ... Gain on sale of property, plant and equipment... Provision for employees’ retirement benefits ... Provision for directors’ and executive officers’
retirement benefits ... Decrease (increase) in accrual for business restructuring... Changes in assets and liabilities:
Increase in notes and accounts receivables ... Increase in inventories ... (Increase) decrease in other current assets ... Increase in notes and accounts payables ... Increase in other current liabilities ... Other—net ... Total adjustments ... Net cash provided by operating activities ...
INVESTING ACTIVITIES:
Payments for time deposits ... Maturities of time deposits ... Purchases of investment securities ... Proceeds from sales of investment securities ... Purchases of property, plant and equipment ... Proceeds from sales of property, plant and equipment ... Decrease in short-term loans receivable ... Refund from group life insurance due to maturity ... Increase in investment in long-term deposit ... Decrease (increase) in other assets ... Net cash (used in) provided by investing activities ...
FINANCING ACTIVITIES:
Decrease in short-term bank loans—net ... Redemption of long-term debt ... Proceeds from issuance of long-term debt ... Dividends paid ... Other—net ... Net cash (used in) provided by financing activities ...
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS... NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) ...
See notes to consolidated financial statements.
Thousands of U.S. Dollars Millions of Yen (Note 1)
2005 ¥ 10,778 (1,332) 245 3,229 765 (2) 1,500 (210) (370) (1,163) (1,422) (260) 2,228 1,331 (180) 4,359 15,137 (100) (16) 117 (2,800) 270 3 (1,000) 62 (3,464) (1,423) (20,000) (848) (96) (22,367) 57 (10,637) 59,989 ¥ 49,352 2004
¥ 2,508
(1,142) 106 4,012 432 (354) 1,538 (72) 886 (5,392) (2,328) 1,373 6,680 3,678 (769) 8,648 11,156 (161) 200 323 (1,813) 1,923 6 1,347 (6) 1,819 (2,632) 6,000 (637) (41) 2,690 (185) 15,480 44,509 ¥59,989 2005 $100,363 (12,403) 2,281 30,068 7,124 (19) 13,968 (1,955) (3,445) (10,830) (13,241) (2,421) 20,747 12,394 (1,677) 40,591 140,954 (931) (149) 1,089 (26,073) 2,514 28 (9,312) 577 (32,257) (13,251) (186,237) (7,896) (894) (208,278) 531 (99,050) 558,609 $459,559
Consolidated Statements of Cash Flows
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Notes to Consolidated Financial Statements
Hitachi Kokusai Electric Inc. and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure require-ments of International Financial Reporting Standards.
In preparing these consolidated financial statements, cer-tain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications
have been made in the 2004 financial statements to conform to the classifications used in 2005.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Hitachi Kokusai Electric Inc. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥107.39 to $1, the rate of exchange at March 31, 2005. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dol-lars at that or any other rate.
a. Consolidation—The consolidated financial statements include the accounts of the Company and 18 (19 in 2004) subsidiaries (together, the “Group”).
Under the control or influence concept, those compa-nies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.
Investments in 1 (1 in 2004) associated company are accounted for by the equity method.
Investments in the remaining 7 unconsolidated sub-sidiaries and 1 associated company are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accom-panying consolidated financial statements would not be material.
The excess of cost of the Company’s investments in consolidated subsidiaries and associated companies over the fair value of the net assets at the respective dates of acquisition is being amortized over its estimated useful lives, or 5 years in circumstances in which the useful lives cannot be estimated.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unreal-ized profit included in assets resulting from transactions within the Group is eliminated.
b. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value.
Cash equivalents include time deposits, certificate of deposits and mutual funds investing in bonds, all of which mature or become due within three months of the date of acquisition.
c. Inventories—Finished products and work in process are stated at cost substantially on a specific identification method. Certain finished products and work in process
are stated at cost determined by the moving-average method or average method and mass-produced finished products and work in process which experience sharp fluctuations in price are stated at the lower of cost, on a specific identification method or determined by the mov-ing-average method, or market.
Raw materials are substantially stated at the lower of cost, determined by the average method, or market. Certain raw materials are stated at the lower of cost, on a specific identification method or determined by the mov-ing-average method, or market.
d. Investment Securities—Investments in unconsolidated subsidiaries and the associated company are stated at cost determined by the moving-average method.
Available-for-sale securities, which are not classified as either trading securities or held-to-maturity debt securi-ties, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of shareholders’ equity.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method.
For other than temporary declines in fair value, invest-ment securities are reduced to net realizable value by a charge to income.
e. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed by the declining-bal-ance method, while the straight-line method is applied to buildings of the Company and its consolidated domestic subsidiaries acquired after April 1, 1998. The range of useful lives is from 3 to 60 years for buildings and struc-tures, from 2 to 17 years for machinery and equipment, and from 2 to 20 years for furniture and fixtures.
the Company is amortized by the straight-line method over 5 years.
g. Allowance for Doubtful Receivables—The allowance for doubtful receivables is stated in amounts considered to be appropriate based on the Group’s past credit loss experience and an evaluation of potential losses in the receivables outstanding.
h. Retirement Benefit Plans—The Company has contribu-tory and non-contribucontribu-tory trusteed pension plans covering a certain portion of employees’ retirement benefits. Benefits paid to some employees upon retirement or ter-mination of employment may exceed the amount of bene-fits computed based on years of service. Benebene-fits paid to such persons are not computed as a retirement benefit liability. Effective January 1, 2005, the Company and cer-tain domestic subsidiaries amended the retirement benefit system to establish the cash balance plan by introducing a point-based benefit system. The liability for employees’ retirement benefits is stated at amounts based on pro-jected benefit obligations and plan assets at the balance sheet date.
The liability for directors’ and executive officers’ retire-ment benefits for the Company is provided at the amount which would be required if all directors and executive offi-cers retired at the balance sheet date. The above liability includes a liability for directors’ retirement benefits for cer-tain of the Company’s consolidated subsidiaries.
i. Accrual for Business Restructuring—The accrual for business restructuring is stated at the amounts consid-ered to be appropriate based on the estimated future costs for restructuring surplus facilities, terminating employees and other costs at certain subsidiaries.
j. Research and Development Costs—Research and development costs are charged to income as incurred.
k. Revenue Recognition—The Company applies the per-centage-of-completion method to some contracts con-tracted by construction agreements.
l. Leases—All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as oper-ating lease transactions if certain “as if capitalized” infor-mation is disclosed in the notes to the lessee’s financial statements.
m. Income Taxes—The provision for income taxes is com-puted based on the pretax income included in the consoli-dated statements of income. The asset and liability approach is used to recognize deferred tax assets and
lia-bilities for the expected future tax consequences of tem-porary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are mea-sured by applying currently enacted tax laws to the tem-porary differences.
n. Appropriations of Retained Earnings—Appropriations of retained earnings are reflected in the financial statements for the following year upon shareholders’ approval.
o. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denomi-nated in foreign currencies are translated into Japanese yen at the exchange rate at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts.
p. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for shareholders’ equity, which is translated at the historical rate.
Differences arising from such translations were shown as “Foreign currency translation adjustments” in a sepa-rate component of shareholders’ equity.
Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the current
exchange rate.
q. Derivatives and Hedging Activities—The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange. Foreign exchange for-ward contracts are utilized by the Group to reduce foreign currency exchange risks. The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives be recognized as either assets or liabili-ties and measured at fair value, and gains or losses on derivative transactions are recognized in the statements of income and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instru-ments and the hedged items, gains or losses on deriva-tives are deferred until maturity of the hedged transac-tions.
Foreign currency forward contracts are utilized to hedge foreign currency exposures in sales of products to overseas customers. Trade receivables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.
shareholders by the weighted-average number of com-mon shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilu-tion that could occur if securities were exercised or con-verted into common stock. Diluted net income per share of common stock assumes full conversion of the out-standing convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompany-ing consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of the year.
s. Bonuses to Directors and Executive Officers—The compensation committee of the Company approves bonuses to directors and executive officers of the
Company and recorded on an accrual basis with a related charge to income. On the other hand, bonuses to direc-tors of certain of the Company’s consolidated subsidiaries were accounted for as a reduction of retained earnings after approval of appropriation of retained earnings at the general shareholders meeting of the subsidiaries.
t. New Accounting Pronouncements—In August 2002, the Business Accounting Council issued a Statement of Opinion, “Accounting for Impairment of Fixed Assets,” and in October 2003 the Accounting Standards Board of Japan (“ASB”) issued ASB Guidance No. 6, “Guidance for Accounting Standard for Impairment of Fixed Assets.” These new pronouncements are effective for fiscal years beginning on or after April 1, 2005 with early adoption per-mitted for fiscal years ending on or after March 31, 2004.
The new accounting standard requires an entity to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undis-counted future cash flows expected to result from the con-tinued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the dis-counted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
The Group expects to adopt these pronouncements as of April 1, 2005 and is currently in the process of assess-ing the effect of adoption of these pronouncements.
Cash and time deposits ... Deposits with Hitachi, Ltd. ... Less—time deposits with maturities over 3 months ... Money Management Fund ... Total ...
Millions of Yen
2005 ¥22,971
26,607 (246)
20 ¥49,352
2004 ¥20,711
39,420 (142)
¥59,989
Thousands of U.S. Dollars
2005 $213,903
247,760 (2,291)
187 $459,559
Deposits with Hitachi, Ltd. represent a deposit to Hitachi, Ltd. under the Hitachi Pooling System for concentration of surplus deposits of Hitachi group companies.
4. INVESTMENT SECURITIES
Investment securities as of March 31, 2005 and 2004 consisted of the following:
Investment securities:
Marketable equity securities ... Other ... Total ...
Millions of Yen
2005
¥3,538 342 ¥3,880
2004
¥3,747 407 ¥4,154
Thousands of U.S. Dollars
2005
$32,945 3,185 $36,130
3. CASH AND CASH EQUIVALENTS
Carrying Amount
Available for sale securities whose fair value was not readily determinable as of March 31, 2005 and 2004 were as follows:
Proceeds from sales of available-for-sale securities for the years ended March 31, 2005 and 2004 were ¥117 million ($1,089 thousand) and ¥323 million, respectively. Gross real-ized gains and losses on these sales, computed on the moving-average cost basis, were ¥85 million ($792 thousand) and nil, respectively, for the year ended March 31, 2005 and ¥238 mil-lion and nil, respectively, for the year ended March 31, 2004.
For other than temporary declines in fair value, marketable and investment securities which are reduced to net realizable value by a charge to income for the years ended March 31, 2005 and 2004 were ¥38 million ($354 thousand) and ¥3 million, respectively.
Information regarding each category of the securities classified as available for sale at March 31, 2005 and 2004 was as follows:
Securities classified as available-for-sale equity securities ...
Millions of Yen
2005
Unrealized Gains
¥2,019
Cost
¥1,756
Unrealized Loss
¥ 74
Fair Value
¥3,747
Securities classified as available-for-sale equity securities ...
Thousands of U.S. Dollars
2005
Unrealized Gains
$18,800
Cost
$16,352
Unrealized Loss
$ 2,207
Fair Value
$32,945
Available-for-sale—Equity securities ... Total ...
Millions of Yen
2005 ¥342 ¥342
2004 ¥407 ¥407
Thousands of U.S. Dollars
2005 $3,185 $3,185
5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans were made under general security agreements with banks.
Long-term debt at March 31, 2005 and 2004 consisted of the following:
Unsecured 2.825% yen notes, due 2004... Zero coupon convertible notes with stock acquisition rights,
convertible into common stock at ¥1,232 per share, due 2008 ... Loans from banks, due serially to March 31, 2005
with interest average rates 2.0% in 2004 ... Total... Less current portion ... Long-term debt, less current portion ...
Millions of Yen
2005
¥6,000
6,000
¥6,000
2004 ¥20,000
6,000
6 26,006 (20,006) ¥ 6,000
Thousands of U.S. Dollars
2005
$55,871
55,871
$55,871 Securities classified as available-for-sale equity securities ...
Millions of Yen
2004
Unrealized Gains
¥2,077
Cost
¥1,744
Unrealized Loss
¥ 74
Fair Value
Projected benefit obligation ... Fair value of plan assets... Unrecognized prior service cost ... Unrecognized actuarial loss ... Net liability ...
Millions of Yen
2005 ¥54,954
(27,481) 8,326 (8,495) ¥27,304
2004 ¥62,345
(26,135) 652 (11,060) ¥25,802
Thousands of U.S. Dollars
2005 $511,724
(255,899) 77,530 (79,104) $254,251 Annual maturities of long term debt at March 31, 2005 were as follows:
Year Ending March 31
2009... Total...
Millions of Yen
¥6,000 ¥6,000
Thousands of U.S. Dollars
$55,871 $55,871
The carrying amounts of assets pledged as collateral for short term debt of ¥200 million ($1,862 thousand) at March 31, 2005 were as follows:
Land
Buildings and structures—net of accumulated depreciation ... Total ...
Millions of Yen
¥141 264 ¥405
Thousands of U.S. Dollars
$1,313 2,458 $3,771
The liability for employees’ retirement benefits at March 31, 2005 and 2004 consisted of the following:
6. RETIREMENT BENEFIT PLANS
The Company has severance payment plans for employees, directors and executive officers. Moreover, the Company’s certain consolidated subsidiaries have severance payment plans for employees and directors.
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee. Employees are entitled to
larger payments if the termination is involuntary, by retire-ment at the mandatory retireretire-ment age, by death, or by volun-tary retirement at certain specific ages prior to the mandatory retirement age.
Liability for directors’ and executive officers’ retirement benefits of the Company is paid subject to the approval of the compensation committee of the Company. On the other hand, liability for directors’ retirement benefits of the Company’s certain consolidated subsidiaries is paid subject to the approval of the shareholders.
The stock acquisition rights are able to be convertible notes since December 19, 2003 until November 21, 2008 and were not convertible at March 31, 2005. The conversion prices are subject to adjustments in certain circumstances.
Service cost ... Interest cost ... Expected return on plan assets ... Amortization of prior service cost ... Recognized actuarial loss ... Net periodic benefit costs ...
Millions of Yen
2005 ¥2,153
1,501 (653) (191) 858 ¥3,668
2004 ¥2,046
1,533 (478)
(49) 1,195 ¥4,247
Thousands of U.S. Dollars
2005 $20,048
Discount rate ... Expected rate of return on plan assets ... Amortization period of prior service cost... Recognition period of actuarial loss ...
2005 2.5% 2.5% 16 years From 14 to 17 years
2004 2.5% 2.5% 16 years From 14 to 17 years Assumptions used for the years ended March 31, 2005 and 2004 are set forth as follows:
7. SHAREHOLDERS’ EQUITY
Japanese companies are subject to the Japanese
Commercial Code (the “Code”) to which certain amendments became effective from October 1, 2001.
The Code was revised whereby common stock par value was eliminated resulting in all shares being recorded with no par value and at least 50% of the issue price of new shares is required to be recorded as common stock and the remaining net proceeds as additional paid-in capital, which is included in capital surplus. The Code permits Japanese companies, upon approval of the Board of Directors, to issue shares to existing shareholders without consideration as a stock split. Such issuance of shares generally does not give rise to changes within the shareholders’ accounts.
The revised Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other appropriations of retained earnings associated with cash outlays applicable to each period shall be appropri-ated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equals 25% of common stock. The amount of total additional paid-in cap-ital and legal reserve that exceeds 25% of the common stock may be available for dividends by resolution of the sharehold-ers. In addition, the Code permits the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution of the Board of Directors.
The revised Code eliminated restrictions on the repurchase and use of treasury stock allowing Japanese companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders meeting and dispose of such treasury stock by resolution of the Board of Directors begin-ning April 1, 2002. The repurchased amount of treasury stock cannot exceed the amount available for future dividend plus amount of common stock, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders meeting.
The amount of retained earnings available for dividends under the Code was ¥36,589 million ($340,711 thousand) as of March 31, 2005, based on the amount recorded in the par-ent company’s general books of account. In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment, the Code imposes certain limitations on the amount of retained earnings available for dividends.
For the company which adopted the committees system, dividends are approved by the Board of Directors and reported to the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable.
Semiannual interim dividends may also be paid upon resolu-tion of the Board of Directors, subject to certain limitaresolu-tions imposed by the Code.
8. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in normal effective statutory tax rates of approximately 40% and 41% for the years ended March 31, 2005 and 2004, respectively.
Effective January 1, 2005, the Company and certain domestic subsidiaries amended their employee benefit plans.
Deferred tax assets (current):
Inventories ... Accrued bonuses ... Tax loss carryforwards ... Other ... Less valuation allowance ... Total (current) ...
Net deferred tax assets (current)...
Deferred tax assets (non-current):
Employees’ retirement benefits ... Depreciation ... Directors’ and executive officers’ retirement benefits ... Deferred assets... Tax loss carryforwards ... Accrual for business restructuring ... Devaluation of investments in subsidiaries and associated companies ... Other ... Less valuation allowance ... Total (non-current) ...
Deferred tax liabilities (non-current):
Special depreciation reserve ... Unrealized gain on available-for-sale securities ... Total (non-current) ... Net deferred tax assets (non-current) ... Net deferred tax assets ...
Millions of Yen
2005
¥ 2,212 1,866 99 1,842 (223) 5,796
5,796
10,771 1,326 143 26 72 1,227 2,885 283 (3,993) 12,740
(104) (709) (813) 11,927 ¥17,723
2004
¥ 1,713 1,625 2,614 2,039 (358) 7,633
7,633
9,813 1,319 262 68 2,871 1,374 2,885 436 (5,763) 13,265
(152) (796) (948) 12,317 ¥19,950
Thousands of U.S. Dollars
2005
$ 20,598 17,376 922 17,153 (2,077) 53,972
53,972
100,298 12,348 1,332 242 670 11,426 26,865 2,634 (37,182) 118,633
(969) (6,602) (7,571) 111,062 $165,034
A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompa-nying consolidated statements of income for the years ended March 31, 2005 and 2004 is as follows:
Normal effective statutory tax rate ... Dividend income eliminated in consolidation ... Expenses permanently not deductible for income tax purposes ... Income not taxable for income tax purposes ... Valuation allowance ... Effect of tax rate reduction ... Inhabitants taxes—per capita ... Difference incurred by preceding fiscal year’s tax payment... Other—net ... Actual effective tax rate ...
2005 39.7%
2.4 1.4 (1.8) (0.1)
0.9 (2.0)
0.3 40.8%
2004 40.9% 18.6
5.5 (19.7) (13.0) 2.4 3.2 (8.4) (0.1) 29.4% The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2005 and 2004 are as follows:
9. RESEARCH AND DEVELOPMENT COSTS
10. LEASES
The Group leases certain machinery, computer equipment, furniture and fixtures and other assets.
Total lease expense payments under finance leases that do not transfer ownership of the leased property to the lessee included in cost of sales and selling and administrative expenses for the years ended March 31, 2005 and 2004 were ¥321 million ($2,989 thousand) and ¥404 million, respectively.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance lease, depreciation expense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended March 31, 2005 and 2004 was as follows:
Acquisition cost... Accumulated depreciation ... Net leased property...
2004 2005
Millions of Yen Machinery
and Equipment
¥ 234 153 ¥ 81
Total
¥1,066 507 ¥ 559
Furniture and Fixtures and
Other
¥ 927 428 ¥ 499
Machinery and Equipment
¥ 139 79 ¥ 60
Furniture and Fixtures and
Other
¥1,076 656 ¥ 420
Total
¥1,310 809 ¥ 501
Acquisition cost... Accumulated depreciation ... Net leased property...
Thousands of U.S. Dollars
2005
Total
$9,926 4,721 $5,205
Furniture and Fixtures and
Other
$8,632 3,985 $4,647
Machinery and Equipment
$1,294 736 $ 558
Due within one year ... Due after one year ... Total ...
Millions of Yen
2005 ¥238
346 ¥584
2004 ¥266
247 ¥513
Thousands of U.S. Dollars
2005 $2,216
3,222 $5,438 Obligations under finance leases:
Depreciation expense ... Interest expense...
Millions of Yen
2005 ¥305
8
2004 ¥389
10
Thousands of U.S. Dollars
2005 $2,840
74 Depreciation expense and interest expense under finance leases:
Due within one year ... Due after one year ... Total ...
Millions of Yen
2005 ¥ 45
143 ¥188
2004 ¥ 50
16 ¥ 66
Thousands of U.S. Dollars
2005 $ 419
1,332 $1,751 The minimum rental commitments under noncancelable operating leases at March 31, 2005 and 2004 were as follows:
11. DERIVATIVES
The Group enters into foreign currency forward contracts to hedge foreign exchange risk for import and export transac-tions in the normal course of business as of March 31, 2005 and 2004.
The Group enters into foreign currency forward contracts associated with trade receivables, trade payables and signing agreements denominated in foreign currencies; and there-fore, the Group does not hold or issue derivatives for trading purposes.
Foreign currency forward contracts are subject to foreign exchange risk. Because the counterparties to those foreign currency forward contracts are limited to major international
banks, the Group does not anticipate any losses arising from credit risk.
Foreign currency forward contracts entered into by the Group have been in accordance with internal rules and each foreign currency forward contracts transaction is periodically reported to and approved by the executive officer in charge.
All the amounts of foreign currency forward contracts entered into by the Group are assigned to associated assets or liabilities and are reflected on the balance sheet at year end; and therefore, they are not subject to the disclosure of market value information at March 31, 2005 and 2004.
Trade notes discounted ... Trade notes endorsed... Guarantees and similar items of bank loans...
Millions of Yen
¥ 3 142 2
Thousands of U.S. Dollars
$ 28 1,322 19
12. CONTINGENT LIABILITIES
At March 31, 2005, the Group had the following contingent liabilities:
Year Ended March 31, 2005
Basic EPS—Net income available to common shareholders... Effect of dilutive securities—Stock acquisition rights ... Diluted EPS—Net income for computation ...
Year Ended March 31, 2004
Basic EPS—Net income available to common shareholders... Effect of dilutive securities—Stock acquisition rights ... Diluted EPS—Net income for computation ...
EPS Thousands
of Shares Weighted-average
Shares
104,905 4,870 109,779
104,989 1,570 106,559
Millions of Yen
Net Income
¥6,290
¥6,290
¥1,700
¥1,700
Yen
¥59.96
¥57.30
¥16.19
¥15.95
U.S. Dollars
$0.56
$0.53
Year-end cash dividends, ¥4 ($0.04) per share ...
Millions of Yen
¥419
Thousands of U.S. Dollars
$3,902
14. SUBSEQUENT EVENT
The following appropriations of retained earnings at March 31, 2005 were approved at the Company’s Board of Directors meeting held on May 24, 2005:
