Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2006 Performance Briefing ]Consolidated Results

Mr. Seiji Enami Director Corporate Officer General Manager Finance & Accounting Department

Mr. Seiji Enami
Director
Corporate Officer
General Manager
Finance & Accounting Department

Good afternoon. I would like to give you some more information about our consolidated results and financial position.

Please turn to page 13 of the tanshin, which is the consolidated income statement. The income statement lists a restructuring cost of 6.8 billion yen, not the 15.7 billion yen that Mr. Sawabe told you earlier. The reason is that the restructuring cost in the income statement represents only expenses associated with the closing of our recording media factory in Europe. When we announced this closing last March, we budgeted 8.0 billion yen for this action. Since about 1.0 billion yen of this amount will be recorded in the current fiscal year, this factory closing is proceeding largely as planned.

Operating income was up by only 700 million yen. However, operating income in the prior fiscal year included a gain of 6.2 billion yen from the transfer of the substitutional portion of Employees' Pension Fund (EPF) liabilities to the government. Restructuring expenses increased 10.0 billion yen and we amortized 1.5 billion yen of goodwill resulting from our acquisition of the Lambda Power Division. The yen's depreciation had a positive effect of 7.7 billion yen on operating income. After taking all these items into consideration, our operating income was 18.4 billion yen higher than one year ago. Fiscal 2006's operating income therefore shows that we significantly improved our operations.

Please note that the small amount for interest expense was about 800 million yen less than the approximately 1 billion yen recorded in the prior fiscal year. This decline is the result of the additional taxes of about 12 billion yen that we were assessed last year under Japan's transfer pricing tax system. A delinquent payment fee, which corresponds to interest on the amount due, was included in interest expenses in the prior fiscal year. This was responsible for the 800 million yen decline.

Please turn to the consolidated balance sheet on page 14. As you can see, total assets increased 115.5 billion yen to 923.5 billion yen. The yen depreciated about 10 yen to the U.S. dollar, falling from 107.39 yen at the end of March 2005 to 117.47 yen at the end of March 2006. During this same period, the euro exchange rate fell from 138.87 yen to 142.81 yen, a decline of about 4 yen. Overall, the 115.5 billion yen increase includes an increase of 38.3 billion yen caused by foreign exchange rate movements.

Cash and cash equivalents decreased 12.5 billion yen to 239.0 billion yen. This was due in part to the 32.9 billion yen in payments for the acquisition of the Lambda Power Division and the Hong Kong- based battery company. Capital expenditures were substantial, exceeding depreciation by 15.4 billion yen. Cash was also used to fund a 16.9 billion yen increase in trade receivables and dividend payments of 10.6 billion yen. Cash inflows came from earnings of 44.1 billion yen, a foreign exchange translation contribution of 10.7 billion yen and other items. But the net result was a 12.5 billion yen decrease in cash and cash equivalents.

I want you to pay particular attention to the relationship between certain balance sheet and cash flow items. In the cash flow statement, our acquisitions of new subsidiaries last year are combined into a single 32.9 billion yen figure in the investing activities section. Note that this figure includes the trade receivables and inventories of the companies that we acquired as of the purchase date. Therefore, the cash flow statement shows only increases in these items at these companies that occurred between the purchase date and the end of the fiscal year. But since the balance sheet includes the entire amount of receivables, inventories and other items for these companies, there are some discrepancies in balance sheet and cash flow figures.

On the balance sheet, inventories increased about 14.0 billion yen to 89.0 billion yen. But inventories were effectively flat because this increase is entirely due to the Lambda Power Division and Amperex Technology Limited (ATL) acquisitions and to the yen's depreciation. Net trade receivables rose 41.1 billion yen. But our fourth-quarter sales in the past fiscal year were about 56.0 billion yen higher than one year earlier. Trade receivables represented about three months of sales for the second consecutive year. In this sense, we don't believe that trade receivables were worse. One more noteworthy point is the increase in long-term and short-term debt. This reflects the acquisitions in the past fiscal year.

Please turn back to page one. I would now like to discuss sales growth and sales composition by product category, as we do every year.

In the electronic materials and components segment, the electronic materials sector accounted for 22.7% of total sales as sales rose 3.4% year on year. Capacitor sales were up 1.2% and accounted for 67% of sales in this sector. Ferrite and magnet sales increased 8.4% and accounted for the remaining 33%. In the electronic devices sector, which accounted for 19.5% of total sales, sales were up 32.9%. Sales of inductive devices were up 18.6% and were 42% of sector sales. Sales of high-frequency components were down 7.2% and accounted for 7% of sector sales. And sales of power supplies & other products , a category that includes the recently acquired power supply business, increased 57.5% and accounted for 51% of sector sales.

In the recording devices sector, which was 39.7% of total sales, sales increased 34.7%. Sales of HDD heads, which were 95% of sector sales, were up 38.5% and sales of other heads, which account for the remaining 5%, were down 13%. In the other electronic components sector, which accounts for 4.6% of total sales, there was an increase of 87.0% in sales. This reflects the inclusion of 10 months of sales from the battery business.

The recording media segment, which is 13.5% of total sales, posted a 4.6% decrease in sales. Audiotape sales are 6% of segment sales and decreased 11.6%. Videotape sales are 20% of segment sales and fell 23.5%. Sales of optical media, which are 50% of segment sales, increased 7.0%. Sales of other products (including data storage tapes), which are 24% of segment sales, were down 4.6%. However, steady growth continued in our LTO-standard tape-based data storage media for computers as sales rose 27.8%. The sales decline in this category was the result of our decision to terminate several unprofitable businesses, including our software and recording equipment operations.

I would like to end with a brief comment on our forecasts for the current fiscal year. Please note that these figures are based on an exchange rate of 110 yen to the U.S. dollar and on projected restructuring expenses of 4.2 billion yen.

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