more · 2011-05-09 · total shareholders’ equity ..... ¥33,733 ¥30,737 ¥28,071 $281,108 total...
TRANSCRIPT
More Ahead
AFC
Railway Signals
Traffic Information
Information Systems
THE NIPPON SIGNAL CO., LTD.A N N U A L R E P O R T 2 0 0 3
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To sustain business growth even in today’s
harsh business environment, characterized by
intensifying market competition and drastic
changes to the market structure and social
structure, the Nippon Signal Group is recreating
itself as a knowledge creation company. To that
end, we are transforming our profit structure
through structural reform and realignment while
aggressively working to secure competitive
advantages and open up new markets by devel-
oping new technologies and new products.
During the fiscal year under review (the year ended March 31, 2003),
despite the appearance in some sectors of the Japanese economy of signs
of bottoming out or turnaround, the economy remained sluggish owing to
heightened uncertainty surrounding the tense international situation—
notably the war in Iraq and the issue of North Korea—slumping stock mar-
kets, and continuing high unemployment levels. In these circumstances,
trading conditions for the Nippon Signal Group grew harsher as capital
investment, particularly by major corporations, dulled following a temporary
increase, and the decline in public-sector investment of the previous period
continued.
The Company pursued the development of new technologies and new
products with the aim of securing new orders and opening up new mar-
kets. At the same time, we engaged in aggressive marketing activities,
including overseas expansion with a focus on Asian markets. As part of the
restructuring of production systems, we moved ahead with measures to
attain improvements in productivity and efficiency, such as completion of
the ongoing relocation program for our main production facilities.
As a result of these developments, the Group recorded consolidated net
sales of ¥85,890 million (US$716 million), an increase of 1.3% year on
year. Consolidated operating income was ¥3,325 million (US$28 million),
up 32.5%, and consolidated net income was ¥3,364 million (US$28
million, up, 189.3%.
The Group will continue to work to establish a solid business infrastruc-
ture, pushing ahead with further new product development and new mar-
ket opening initiatives as well as radical reform of the operating structure. In
our activities to combat environmental problems, in December 2002 each
business site and plant obtained certification under the ISO14001 interna-
tional standard for environmental protection. We will continue to expand
and enhance our environmental protection activities, including the intro-
duction of environmentally friendly products and green procurement of
materials.
We ask for the continued support and encouragement of our share-
holders and investors for the endeavors of the Nippon Signal Group.
July 1, 2003
Kazuyoshi Nishimura
President and Chief Executive Officer
Profile
In December 2003, Nippon Signal Co.,
Ltd. celebrated the 75th anniversary of its
founding. In keeping with the spirit of our
corporate philosophy “Safety and
Reliability,” and our reputation as a tech-
nology company, over the years we have
provided technologies that contribute to
the realization of a more comfortable
society. Today these technologies include
the railway control systems that support
high-speed, high-precision rail transporta-
tion schedules grounded in safety, wide-
area traffic control systems, station oper-
ating automation systems, parking facility
management systems, and various card
systems. While seeking continued devel-
opment and growth in the years to come,
we are striving to establish a new corpo-
rate profile as a knowledge creation com-
pany, and focusing on the development
of new businesses and new technologies
to complement our existing businesses.
Contents
1 Consolidated Financial Highlights
2 Interview with the President
6 Special Report 2003
12 Review of Operations
16 Consolidated Financial Review
18 Consolidated Balance Sheets
20 Consolidated Statements of Operations
21 Consolidated Statements of Shareholders’ Equity
22 Consolidated Statements of Cash Flows
23 Notes to Consolidated Financial Statements
33 Report of the Independent Public Accountants
34 Board of Directors and Statutory Auditors
35 Corporate Data
36 Organization
37 Product Outline
To Our Shareholders
1
Consolidated Financial HighlightsThe Nippon Signal Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2003, 2002 and 2001
Thousands ofMillions of yen U.S. dollars
For the fiscal year 2003 2002 2001 2003
Net sales ............................................................................................ ¥85,890 ¥84,803 ¥92,068 $715,750 Operating income ........................................................................... 3,325 2,510 4,236 27,708 Income (loss) before income taxes ........................................ 6,752 2,955 (8,468) 56,266 Net income (loss) .......................................................................... 3,364 1,163 (5,050) 28,033 Per share (in yen and U.S. dollars):
Net income (loss) ..................................................................... ¥52.86 ¥18.63 ¥(80.87) $0.44 Cash dividends applicable to the year .............................. 7.50 5.00 7.50 0.06
At fiscal year-end
Total shareholders’ equity ........................................................... ¥33,733 ¥30,737 ¥28,071 $281,108 Total assets ....................................................................................... 99,293 97,098 97,981 827,442
Notes: 1. U.S. dollar amounts represent translation of Japanese yen, for convenience only, at the rate of ¥120 to US$1, the approximate exchange rate at March 31, 2003.
2. All dollar amounts expressed in this report refer to U.S. dollars.
0
100,000
92,0
68
84,8
03
85,8
90
0
5,000
4,23
6
2,51
0
3,32
5
0
40,000
28,0
71 30,7
37 33,7
33Net Sales
Millions of yen
’01 ’02 ’03
Operating Income
Millions of yen
’01 ’02 ’03
Total Shareholders’ Equity
Millions of yen
’01 ’02 ’03
2
Interview with the PresidentIn the fiscal year ended March 31, 2003, Nippon Signalposted increased net sales and profits. Does this mean
that the Company achieved good results despite aharsh business environment because of steady
progress with structural reforms?
Although net sales increased only slightly year on year, Iwas pleased that profits rose sharply. A major contributingfactor was the favorable performance of the railway signalbusiness. Although the year-on-year improvement appearsexceptional after the extremely poor results of the previousterm, I do attribute the turnaround to the realization of thestructural reform we have implemented.
Specifically, relocating the previously dispersed RailwaySignal Systems Division from Utsunomiya to Yono andthen to Kuki and consolidating its operations in a singlelocation, a move implemented to drastically reform theproduction structure, has begun to yield results. Substantialimprovement in the cost ratio of the railway signal busi-ness led to tremendous improvement in profits overall.Net sales increased about 7% from the previous fiscalterm, and business efficiency increased 4 percentagepoints as well. The strong business performance even in a harsh market environment is attributable to the
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Aiming to Rapidly EstablishNew Businesses and Become a CompanyThat Makes an Impact in the Market
Kazuyoshi NishimuraPresident and Chief Executive Officer
The Nippon Signal Group aims to transform itselfinto a “knowledge creation company” and is steadilyimplementing structural reform to that end. Thismanagement effort is gradually beginning to bearfruit. President and CEO Kazuyoshi Nishimura dis-cusses future business development and complianceactivities necessary to attain further growth.
tremendous impact the steady course of structural reformhad on profits. Of course, another major reason was thefavorable market demand situation: that is, a number ofmajor projects happened to come through at the sametime.
Still, I don’t think we can afford to be satisfied with thisperformance. The railway signal business is NipponSignal’s core business, and we must increase profitability inthis sector. A number of issues remain, and I believe that ifwe resolve them we can transform this business into aneven more competitive operation.
The Company was subjected to administrative actionfor selling activities in the traffic information systems
business found to be in violation of the Anti-MonopolyLaw. How do you plan to ensure renewed compliance
with the law?
I feel deeply apologetic that we caused our shareholdersand stakeholders anxiety in this matter. I feel that we wereunable to raise people’s consciousness concerning compli-ance, that we were overly lenient. This incident willinevitably have a tremendous effect not only on publictrust in the Company, but also on business results in the
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coming fiscal year. To ensure that an incident of this kindnever occurs again, we have launched an internal compli-ance committee. The policy goes beyond merely settingup a committee: it is to have the committee function as amanagement activity in which executive officers play a piv-otal role and that is incorporated in day-to-day activities.Then, as employees charged with the responsibility of run-ning a business, we will engage in training covering variousbusiness situations and seek to infuse the Company with aspirit of compliance with the law. I have sent an urgentmessage to all employees and expressed my thoughts inthe company newsletter, trying once again to raise con-sciousness concerning compliance matters. I think that inthe coming years we must demonstrate to the public overtime that we will comply with the law.
The harsh business environment is expected to continue. How do you see things developing
in the year ending March 31, 2004?
At this time, we forecast net sales of ¥85,000 million(US$708 million), ordinary income of ¥3,400 million(US$28 million), and net income of ¥1,600 million(US$13 million). Fully aware of our responsibility to society
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as a business corporation, we aim to achieve these figures.One area of concern is that we anticipate a decline in netsales from the Automatic Fare Collection (AFC) business. Ithink the decrease will be about ¥4,000 million (US$33million) year on year. The reason is the probable negativeeffect of restrained purchasing of ticket vending machinesprior to the issuance of new banknotes in 2004. In theAFC sector, systematization by means of integrated circuit(IC) cards will progress in the coming years, and publictransportation operators such as railway companies andbus companies will have to bear capital expenditures. Forthis reason, in the present circumstances investment issomewhat restrained. We intend to compensate for thedecline with revenues from the railway signal business,mounting an all-out sales effort centered on the Taiwanhigh-speed railway, the Tsukuba Express, and the KyushuShinkansen.
In an age when markets are expanding on a globalscale, the key to prevailing in the marketplace for
Nippon Signal is aggressive overseas expansion. Whatsort of policies will you implement in this regard?
In the railway signal business, for instance, in the comingyears we cannot expect many new railway projects in the
domestic market. The impact of thedeclining birthrate is great, and althoughthere will be no precipitous decrease, themarket offers limited potential. On theother hand, the future will bring railwaydevelopment in overseas markets, espe-cially in Asia where the equivalent of¥200,000 million (US$1,667 million) to¥300,000 million (US$2,500 million) is
spent on railway construction each year. We anticipate thatrailway development demand will be great in China andIndia, large countries whose populations exceed one bil-lion. Nippon Signal intends to independently enter intoalliances with trading companies and develop our businessthrough alliances with other companies. The sheer size ofdemand attracts heavy electric machinery and comprehen-sive manufacturers to this market, and it will be impossibleto prevail without increasing competitiveness. BecauseJapan’s railway system is highly regarded by authorities inthe field for top-flight technology second to none, this isunquestionably an advantage. However, at times somecountries and regions are likely not to require of railwaysthe high density, high level of implementation, and sophis-tication that are needed in Japan. Requirements differ for arailway on which three trains run per hour and a railwaywhere trains run every three minutes. I think that, finally, itis important to engage in development suited to therequirements of the country and the terrain.
Another point about overseas business is that I don’tthink it’s necessary to insist on direct trading. I believe it’sbetter to adopt the approach of transferring the expertiseand technologies that we have developed over the years.
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The corporate profile that Nippon Signal aims to achieve inthe 21st century is that of a “knowledge creation compa-ny.” We will not only manufacture and market things butalso provide technologies and expertise for adaptation anduse according to the requirements of the country or ter-rain. In return, we will receive royalties on our patents. Thisis what I mean by a “knowledge creation business.” I thinkthat from now on it will be better to develop superior tech-nologies and have them widely applied than to competeon cost.
Speaking of business in Asia, Nippon Signal becamethe first Japanese manufacturer to be involved with the
Beijing subway’s AFC system. This represents a greatcompetitive advantage for future projects in theChinese market. Does the Chinese market hold
promise for the future?
Some have called the 21st century the age of Asian ascen-dance. No doubt various projects will be undertaken. Inthat sense, I think that for Nippon Signal to have been incharge of the first AFC system for the No. 13 Line of theBeijing subway system was a major achievement. Demandfor urban transit is increasing rapidly in China, especially inBeijing, where subway construction is underway to relievetraffic congestion and prepare for the Beijing Olympics in2008. Needless to say, we must compete with manufac-turers from all over the world there. In these circum-stances, Nippon Signal has undertaken anticipatory invest-ment and poured effort into research and development. Itis because of such investment and effort that our technol-ogy and quality have been recognized and we haveachieved results. We can expect this to be a great advan-tage in the future. In addition to that, the fact that evenduring the outbreak of severe acute respiratory syndrome(SARS) we maintained our local presence, proceededenthusiastically, and earned high praise from the Chineseauthorities will work greatly to our advantage in obtainingorders. We will make the most of this competitive advan-tage and do business in the Chinese market, whateverhappens.
You have set forth the goal of becoming early in the21st century a company with net sales of ¥100 billion(US$833 million). To that end, the establishment of
new businesses will be important. Tell us what specificinitiatives you have in mind.
Up to now, Nippon Signal has relied on the budgets of thenational government and local governments. However,from now on few railways are likely to be constructed inJapan. If we do not create markets for ourselves on thebasis of the business expertise we have acquired to date,we have no future. In other words, we must become acompany that can stand tall in the market. To that end, wemust hasten to establish new businesses. Becoming a
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company with sales of ¥100 billion (US$833 million) is anobjective for obtaining recognition and support from capitalmarkets, but achieving this objective is also important inrelation to employment. The Group now has about 3,400employees altogether. Going back to the tenure of formerpresident Osanori Miyaji (now the Company’s chairman),we have not reduced our workforce. However, there is alimit to our ability to sustain the current workforce size withthe rates of business growth we have experienced to date.We need the power to achieve an increase of about 30%in net sales from new businesses and to add about¥20,000 million (US$167 million) in additional sales. Untilnow, the first half to second half sales ratio has been outof balance: we have regarded ratios of even 3 to 7 or 3.5to 6.5 as par for the course. However, to achieve net salesof ¥100 billion (US$833 million) and solidify our businessfoundation, we must take the initiative in creating marketsto effectively utilize management resources in the first half.To that end, I want to develop into a company that gener-ates net sales of ¥400 million (US$3 million) each day.Just as new technologies and new product developmentare necessary for this, so too is reform of internal systems,namely wages and working conditions.
Although we now use merit-based pay, seniority-basedpay remains as well. In the future, I want to change to awage system that conforms more closely to work results,and I think a review of working days is also necessary. Inconnection with that, we will conduct reviews and imple-ment reforms in the areas of organizational structure andmanagement. Recently, the motivation of young employ-ees has been especially high, and these people activelysubmit reports for the promotion of management reform
and organizational realignment. Theycreated the management reform sys-tem. I want to respond to that enthusi-asm as far as possible and encouragethem. We are in the process of review-ing the management plan and willdraw up the 03 Medium-TermManagement Plan, a program for thecoming three years, as well as CS80, a
plan aimed at the 80th anniversary of the Company’sfounding five years from now.
You are putting a great deal of effort into the introduc-tion of scientific methods and other means of improv-
ing the quality of work and products, aren’t you?
I believe that from now on business process quality inevery aspect of operations will decide the fate of compa-nies. In Japan, people have taken the attitude that prob-lems can be settled with only an apology, but in the global marketplace, including Asia, careless mistakes areabsolutely unforgivable. For instance, if a mistake occurswith a product, this indicates that mistakes have takenplace in sections not directly involved with the productand, in turn, with management. A point I have been
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persistently making with the employees recently is thatcause and effect differ. We tend to automatically connectcause and effect. However, at times the cause may lieelsewhere or there may not be a single cause but rather a combination of various factors. Without unraveling thosefactors, you can’t get to the bottom of the true cause and can’t prevent recurrence of errors. Because this issomething that can’t be put profi-ciently into practice just by thinkingabout it, we have introduced a scien-tific method named NMAIC (NipponSignal, Measure, Analyze, Improve,Control), a technique unique toNippon Signal that incorporates SixSigma techniques, and are working to improve the quality of businessprocess and products. We also intend to address qualityproblems as the highest-priority item in the second production system restructuring program.
Radio frequency identification (RFI) and other newtechnologies promise to serve as a pillar to supportnew businesses. RFI is an extremely promising tech-
nology with great potential. What are the prospects forthese businesses?
RFI is a technology for automatic verification by means ofwireless communication. RFI leverages the wireless tech-nologies we have developed through our involvement withautomatic passenger gates and railway control systems.There are three types of identification technologies, andNippon Signal has developed machines that can simulta-neously recognize two of them: the type Nippon Signaluses for railway ticket gates and the type that is the international standard used for documents such as resi-dent registers and insurance certificates. We developedmachinery that can simultaneously recognize both theidentification method used for railways and the internation-al standard, and in July 2003 set up an independent business. I think it is a business we can expect to expandtremendously. RFI is planned for use in baggage manage-ment at Narita Airport, and because it is a highly versatiletechnology I anticipate that it will be utilized in a widerange of fields.
We also have a business unit called MicroElectromechanical Systems (MEMS). The business of thisoperation is silicon micro-optical scanner devices that con-tain non-contact swing mirrors (the product name is EcoScan®). These compact, high-speed power-saving devicescan be used for shape recognition, such as recognition ofthe human body. For this reason, we expect them to beutilized in many fields, most notably security, and I wouldlike to pursue tie-ups with various companies. We willmove ahead with the establishment of new businesses,focusing on RFI and MEMS.
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5
6
Special Report 2003
The transformationinto a “knowledgecreation company”through new tech-nologies. > >
Full-scale development of over-seas operations of the Signaland Electronics Information andControl System businesses.
7
> >>
Tunnel reader/writer(Non-contact integrated circuit [IC] tag
physical distribution system)
CYC-LOCpayment system
1. New Product Market Introductions
> Development of a High-Speed Physical Distribution
System Employing RFID Technology
Nippon Signal previously developed a non-contact integ-
rated circuit (IC) tag physical distribution system that
comprises tunnel-type reader/writers and uses radio
frequency identification (RFID) system technology. Now
we have added a new product to the line: high-speed
conveyance tunnel-type reader/writers. These reader/
writers are capable of identifying tags on high-speed belt
conveyors with conveyance speed of 3.6 meters per
second and of distinguishing the alignment direction
of tags in the tunnel. They also prevent the leakage of
electromagnetic waves from openings in the tunnel,
eliminating potential effects on the human body or
peripheral equipment.
In addition to this product, we are developing a shelf-
type reader/writer that is shaped like a shelf. Incorporating
a panel antenna in the shelf makes it possible to easily
manage baggage placed on the shelf. This product will be
particularly effective for managing medical products and
chemical products, high-value commodities that require
meticulous care. It will make possible centralized control
at every stage of commodity flow, from shipping at the
warehouse to arrival at the retail store, inventory control,
and sales management, thus realizing efficient physical
distribution.
Combining a multi-layer tunnel reader/writer that can
identify 100 IC tags arranged in multiple layers at intervals
of about 2 millimeters with a shelf reader/writer will result
in an even more efficient commodity control and distribu-
tion system that can be expected to be applicable to a
great many distribution situations.
> Introduction of the CYC-LOC Bicycle Parking Lot
Management System
To cope with the problem of illegally parked bicycles in
urban areas and in the vicinity of train stations and an
increase in the number of environmentally conscious
bicycle users, Nippon Signal has developed and put on the
market CYC-LOC, a 24-hour, fully automated, by-the-hour
bicycle parking lot system. With the CYC-LOC system, bicy-
cles are individually locked to vertical racks. The user mere-
ly places her bicycle on the rack; the lock is automatically
activated, making possible time management by means of
the centralized payment method. When leaving the park-
ing lot, the user inputs the number of the rack used to
park the bicycle into a machine. The parking fee
is calculated, and after the fee is paid the lock opens to
release the bicycle.
In recent years, municipalities have been pressed to
find a solution to the problem of a steady increase in the
number of illegally parked bicycles. By aggressively increas-
ing sales of CYC-LOC (Bicycle Parking Lot Management
System) and BIKE-LOC (Motorcycle Parking Lot
Management System), the Company desires to contribute
to creating a comfortable living environment in our cities.
2. Expansion of Overseas Operations
> Nippon Signal Establishes Nippon-Allis Signal Co.,
Ltd., a Joint Venture Company in Taiwan
As a measure to bolster its business operations overseas,
on April 4, 2002 Nippon Signal established Nippon-Allis
Signal Co., Ltd., a joint venture with Taiwanese electric
products manufacturer Allis Electric Co., Ltd. This move has
made it possible for the Company to engage in marketing
activities that are aggressive while at the same time finely
BIKE-LOC (Motorcycle ParkingLot Management System)
CYC-LOC (Bicycle Parking LotManagement System)
Presentation at the time thatNippon-Allis Signal Co., Ltd.
was founded
>
> >
>
>
>>
tuned to local requirements. The Company’s specific
objectives for entering into the joint venture were to put in
place management systems and product maintenance sys-
tems with strong roots in the Taiwanese market by means
of local labor that is more cost competitive than labor in
Japan and locally based activities. We will also collaborate
with Nippon-Allis Signal in parts procurement and produc-
tion method improvements, sharply reduce product costs,
and boost market competitiveness. In this way, we will
strive to augment competitive advantage in the Taiwanese
market.
The Japanese railway signals market is mature, and
from the standpoint of management strategy the Company
has made overseas business development as a means of
business expansion an important task. In the coming years
Nippon-Allis Signal Co., Ltd. will play an important role as
an overseas market base for the railway signals business
and as a vehicle to strengthen competitiveness and
expand markets overseas. As a response to globalization,
Nippon Signal will implement a medium-term manage-
ment strategy measure of aggressively engaging in over-
seas projects and developing into a company that can
compete on the world stage.
> Participation in the Iranian LRT Signal Project
Nippon Signal, in collaboration with Iranian signal manufac-
turer Maharan, will participate in a light rail transit (LRT)
signal project of Mashhad Urban Railway Corp. (MURCO).
The city of Mashhad is situated about 1,000 kilometers
east of Tehran, and is Iran’s second-largest city after the
capital. The LRT signal project involves a plan for auto-
mated operation of a railway about 20 kilometers in length
(about half underground) with a total of 21 stations by
means of automatic train operation (ATO). The Company
will be responsible for automatic train control (ATC) on-
board systems, ATO on-board systems, and ATO wayside
systems. The value of the order exceeds ¥1,000 million
(US$8 million). The Company has conducted field tests
using prototypes since the summer of 2003, and plans to
sequentially deliver and install systems from the spring of
2004 onward.
In winning the order for the Mashhad LRT signal project,
the Company faced fierce price competition from China.
Nevertheless, we were able to obtain the order by collabo-
rating with local signal manufacturer Maharan. A contribut-
ing factor to the success was Nippon Signal’s overseas
business strategy of providing technological assistance and
transferring technology to local manufacturers: we have
switched from the previous full export method of supply to
a strategy of taking maximum advantage of the capabilities
9
of local manufacturers to provide low-cost, high-quality
products.
Over the years, the Company has successfully delivered
many products in Iran. Our main customer has been
Iranian Railways, the national railway company. Since 1959
when Nippon Signal first delivered signal devices on the
Iranian Railways line between Tehran and Khorramshahr,
the Company has continued to successfully complete
numerous signal projects, including the delivery of signal
devices for the northwest and southeast lines and work at
the Mobarakeh Steel Complex and the Iran National
Railways Yazd Signal Training Center. As a result, the
Company enjoys an excellent reputation with Iranian
Railways and has enjoyed a near monopoly in the railway
signals market in Iran. LRT projects are being planned for
many cities in Iran, and the Company plans to use its suc-
cess in obtaining the order for this project as a springboard
to participate not only in the LRT market, but also in other
sectors of the railway signal market in Iran. In the coming
years Nippon Signal will step up its technological assis-
tance and technology transfer activities to expand its busi-
ness beyond Iran into neighboring countries in the Middle
East.
> Operating Alliance to Obtain Orders for New Traffic
Systems in Overseas Markets
Nippon Signal has agreed with Ishikawajima-Harima Heavy
Industries Co., Ltd. and its affiliate Niigata Transys Co., Ltd.
to cooperate in the tendering, production, construction,
and inspection of signal safety systems, automatic opera-
tion systems, traffic control systems, and communication
systems for a new traffic system in overseas markets.
On April 30, 2003, the three companies entered into an
operating alliance agreement. The principal objective for
the alliance is to reinforce systems in order to obtain
orders for the new traffic system known as “People
Mover.” Tremendous demand for the new system is
expected, primarily at major airports overseas. Realizing
synergy by cooperating in business areas at which each
of the partners excels will make it possible for the three
companies to increase their combined technological
competitiveness and obtain joint orders for new traffic
system projects.
Aviation demand in the United States and the Asian
region is expected to increase sharply in the coming years.
This has led to a spate of plans for large-scale airport con-
struction and expansion projects around the world, and
increased demand for the new traffic system as a means
of facilitating movement within airport terminals and
access to airports is expected.
> >>
>>
>
>
>>
>
11
JQA-EM2910 Plants and Factories
Kuki Plant Outdoor testing area Anechoic chamber
In recent years, chronic traffic congestion and environ-
mental problems brought on by rapid population increases
and higher numbers of automobiles have plagued many
large cities overseas. For this reason, concurrent with
modal shift (the conversion from automobile transport to
rail, ship, and other mass transport methods) new urban
traffic systems are under consideration in many countries.
The new traffic system offers numerous benefits and is
attracting attention as a strong candidate for installation.
The Company’s policy is to take advantage of the operat-
ing alliance to establish a broader cooperative framework
while working to expand orders in overseas markets for the
new traffic system as well as additional railway projects.
3. Environmental Protection Measures and the
Reconstruction of Production Systems
> ISO14001 Certification Obtained at Main Plants and
Factory
In keeping with our environmental policy of providing envi-
ronmentally friendly products and services, the Company
has for some time convened an Environmental
Management Systems Promotion Committee and engaged
in activities to protect and restore the natural environment.
One of these activities has involved acquiring certification
under the ISO14001 international standard for environ-
mental management systems. During the year under
review, the Company acquired certification for three impor-
tant business sites in Japan: the Kuki Plant (Saitama
Prefecture), the Utsunomiya Plant (Tochigi Prefecture),
and the Ageo Plant (Saitama Prefecture).
In acquiring ISO14001 certification at these facilities,
Nippon Signal is mounting a company-wide effort to
develop environmentally friendly products to contribute to
the creation of a global environment in which people can
live safely and comfortably. The Company listens to the
opinions of customers and the residents of the communi-
ties in which we operate and seeks to coexist and develop
harmoniously with local communities. Each employee
does his or her utmost to enhance environmental protec-
tion activities such as environmentally friendly new product
development and materials procurement.
> The Kuki Plant Goes into Full-Scale Operation as a
Knowledge Creation Center
The Kuki Plant went into full-scale operation in July 2002.
Nippon Signal has positioned the facility as the main plant
in its production system reconstruction program and its
core knowledge-intensive facility. Featuring an office envi-
ronment that promotes the creation of new value, the
plant plays a pivotal role in research, development, design
and production.
The Company has installed an ID security management
system that uses non-contact integrated circuit cards at
every building of the Kuki Plant and has constructed a local
area network (LAN)-based high-speed communication net-
work. The plant features barrier-free facilities and a com-
fortable office environment that enables employees to
freely pursue ideas and makes it possible for each depart-
ment to take full advantage of its capabilities. To ensure
harmony with the natural environment, we have employed
environmental technologies at every turn.
A center of knowledge production activities that organi-
cally fuses leading-edge technologies, a verdant environ-
ment, and state-of-the-art research, development, design,
and production systems, the Kuki Plant is engaged in the
creation of core technologies, new businesses, and new
products.
12
Signal Division
Review of Operations
> The keynote was aggressive business development through the introduction of new products and technologies at a time of intensifying competition.
> Consolidated net sales increased by 3.9% year on year, while operating income surged 61.3%.
0
50,000
41,3
00 44,7
29
46,4
54
’01 ’02 ’03
Net Sales (Signal Division)
Millions of yen
ATC monitoring rack
Automatic Train Control System (ATC) monitoring rack
Okinawa Monorail
In the railway signal business, amid intensified competition
owing to market entry on the part of heavy electric
machinery manufacturers, the Signal Division sought to
secure orders and expand the business by introducing new
technologies and products. Notable examples were the
installation of a new model digital automatic train control
(ATC) system on new railway lines and updates to existing
facilities and the installation of train direction equipment
that uses microwaves and other wireless technologies. In
the domestic market, we were involved in supplying all sig-
nal facilities for the Yui-rail, the popular name for the high-
profile Okinawa Monorail. We aggressively moved forward
with the supply of equipment in overseas markets as well:
projects included the topical high-speed railway in Taiwan
and the San Francisco subway system.
In regard to traffic information systems, we engaged in
marketing activities aimed at increasing sales of light-
emitting diode (LED) traffic signals for vehicles, which offer
improved visibility, lower energy consumption, and longer
service life than conventional bulb lamps, and expanding
the market for train control center data terminals. However,
intensified competition, lower public-sector investment
and other factors led to a harsher than expected business
environment.
In these circumstances, consolidated net sales for the
Signal Division increased 3.9% year on year, to ¥46,454
million (US$387 million), and consolidated operating
income rose sharply by 61.3%, to ¥2,960 million (US$25
million).
> Outlook for the Fiscal Year Ending March 31, 2004Although harsh business conditions are likely to continue
in the railway signal sector on account of curtailment of
capital investment and the winding up of major projects,
the Signal Division will move forward with proposals for
new products that offer greater reliability in terms of both
safety and quality and thus have the potential to open up
new markets. At the same time, we will engage in steady,
proven marketing activities such as the cultivation of
demand for updates of existing facilities.
In the traffic information systems sector, in addition to
expanding existing markets through the introduction of
new technologies and new products, notably LED traffic
signals for pedestrians, we will create new markets by
entering new business sectors such as the parking lot
information guidance and car sharing system (a system
for solving traffic problems through the use of a single
automobile by multiple users).
For the Signal Division in the coming fiscal year, we
forecast consolidated net sales of ¥47,000 million
(US$392 million) and consolidated operating income of
¥3,300 million (US$28 million), as of May 20, 2003.
13
LED traffic signal lights (for pedestrians)
LED traffic signal lights (for vehicles)
Traffic signal controller
14
Electronics Information and> Effort was focused on promoting overseas business
and developing and introducing new products.
> Consolidated net sales decreased 1.6% year on year, and operating income fell 14.8%.
0
60,000
50,7
68
40,0
74
39,4
36
’01 ’02 ’03
Net Sales (Electronics Informatioand Control System Division)
Millions of yen
PARK-LOC® (right) and the CPL260B central parking payment system
BIKE-LOC (left) and a parking payment system
LED passenger information board
In regard to Automatic Fare Collection (AFC), a business
centered on station operation automation devices, the
Electronics Information and Control System Division
engaged in overseas business development with a focus
on Asian markets. The Company became the first
Japanese manufacturer to supply a station operation sys-
tem, including automatic wicket machines, for the Beijing
subway system. We also engaged in aggressive marketing
activities aimed at expanding existing markets and product
lines, such as the launch of a new line of environmentally
friendly, energy-conserving vending machines.
As for control systems, which include parking systems,
card systems, and LED display systems, we added a new
facet to the parking lot business by developing BIKE-LOC
(Motorcycle Parking Lot Management System) and CYC-
LOC (Bicycle Parking Lot Management System), products
that contribute to a reduction in illegal parking of motorcy-
cles and bicycles. These new products complemented our
existing parking facility-related devices such as PARK-LOC®,
card equipment, and LED display systems. We introduced
various new products such as a new line of passenger
information display systems that utilize plasma displays
incorporating a miniaturized Visible Magnetic Card (VIS-
MAC). We also obtained orders and booked sales for the
maintenance of computers and peripheral equipment.
However, a reduction in parking lot utilization rates
attendant on market saturation and intensified price
competition brought a further slowdown in capital
investment.
In this business environment, the Electronics
Information and Control System Division posted consoli-
dated net sales of ¥39,436 million (US$329 million),
down 1.6% year on year, and operating income of
¥3,062 million (US$26 million), a drop of 14.8%.
> Outlook for the Fiscal Year Ending March 31, 2004Although a cyclical slow period for facilities updates is
expected to bring extremely harsh business conditions for
the AFC business, which centers on station operation
automation devices, we will make efforts to secure orders,
mainly from the installation of automatic passenger gates
for non-contact IC card systems introduced in the Kansai
region and preparations for the new banknotes to be intro-
duced in fiscal 2004. In the control systems business,
which includes parking systems, card systems, and LED
display systems, we will continue to move ahead aggres-
sively with market expansion efforts necessary to develop
the business overseas, focusing on card-operated parking
system equipment.
For the Electronics Information and Control System
Division in the coming fiscal year, we forecast consolidated
net sales of ¥38,000 million (US$317 million) and operat-
ing income of ¥2,600 million (US$22 million), as of May
20, 2003.
15
Control System DivisionAX-7 automatic fare adjustment machine
GX-7 automatic gate
SX-7 automatic ticketvending machine
Non-contact automatic IC card gate system
16
Operating ResultsFor the fiscal year under review, Nippon
Signal and its consolidated subsidiaries
recorded net sales of ¥85,890 million
(US$716 million), a rise of 1.3% in
comparison with the prior year. Cost of
sales likewise expanded 1.3%, to
¥67,688 million (US$564 million). As a
percentage of net sales, cost of sales
remained at 78.8%, the same as in the
previous year. Gross profit was up 1.3%,
to ¥18,202 million (US$152 million),
and the gross margin remained at
21.2%.
Notwithstanding the expansion in net
sales, the Company and its consolidated
subsidiaries succeeded in cutting selling,
general and administrative (SG&A)
expenses 3.7%, to ¥14,877 million
(US$124 million). SG&A expenses as a
percentage of net sales improved to
17.3%, from 18.2% a year earlier.
Research and development expenses, a
component of SG&A expenses, declined
13.9%, to ¥2,260 million (US$19
million). Operating income expanded
32.5%, to ¥3,325 million (US$28
million), and the operating margin rose
to 3.9%, from 3.0% the previous year.
Other income exceeded other
expenses by ¥3,427 million (US$29
million), compared with net other
income of ¥445 million a year earlier.
The improvement was primarily the result
of a gain of ¥3,487 million (US$29
million) on sales and disposals of
property, plant and equipment, net.
As a result of the above, income
before income taxes rose to ¥6,752
million (US$56 million), up 128.5%.
After current income taxes of ¥2,959
million (US$25 million), deferred income
taxes of ¥209 million (US$2 million), and
minority interests of ¥220 million (US$2
million), Nippon Signal and its
consolidated subsidiaries recorded net
Consolidated Financial Review
0
100,000
50,7
68
40,0
74
39,4
36
41,3
00
44,7
29
46,4
54
92,0
68
84,8
03
85,8
90
’01 ’02 ’03
Net Sales
Millions of yen
Signal Division
Electronics Information and Control System Division
0
4,000—5
,050
1,163
3,36
4
’01 ’02 ’03
Net Income (Loss)
Millions of yen
income of ¥3,364 million (US$28
million), 189.3% higher than a year
earlier. The net profit margin rose to
3.9%, from 1.4%. Return on equity
advanced to 10.4%, from 4.0%, and
return on assets advanced to 3.4%,
from 1.2%.
Net income per share totaled ¥52.86
(US$0.44), up 183.7%. For the fiscal
year under review, the Company raised
the cash dividend per share applicable to
the year by ¥2.50 (US$0.02), to ¥7.50
(US$0.06).
Financial Position� Total Assets At the fiscal year-end, total assets were
up 2.3%, to ¥99,293 million (US$827
million). Total current assets rose 5.1%,
to ¥67,992 million (US$567 million),
primarily as the result of a 22.4%
increase in notes and accounts
receivable, to ¥39,426 million (US$329
million). Inventories dropped 19.5%, to
¥16,180 million (US$135 million). Total
current assets rose to 68.5% of total
assets, from 66.6% a year earlier.
Working capital expanded 28.2%, to
¥31,400 million (US$262 million). The
current ratio was 1.86 times, compared
with 1.61 times a year earlier.
Property, plant and equipment, less
accumulated depreciation, totaled
¥17,682 million (US$147 million), an
increase of just 0.8%, and comprised
17.8% of total assets, down from
18.1% the year before.
Investments and other assets
declined 7.4%, to ¥12,594 million
(US$105 million), mainly reflecting
decreases in investment securities and
deferred tax assets, and represented
12.7% of total assets, down from
14.0% the prior year. The asset turnover
ratio was 0.87 times, the same as a year
earlier.
17
� Total Liabilities and TotalShareholders’ Equity Total liabilities declined1.6%, to ¥62,538
million (US$521 million). Total current
liabilities were down 8.9%, to ¥36,592
million (US$305 million), mainly
reflecting decreases in short-term bank
loans and the current portion of long-
term debt, which counterbalanced
increases in notes and accounts payable,
advances received, accrued expenses
and income taxes payable. Total current
liabilities represented 58.5% of total
liabilities, down from 63.2% the prior
year.
Long-term debt expanded 31.7%, to
¥11,780 million (US$98 million), and
represented 18.8% of total liabilities, up
from 14.1% the previous year. The
liability for employees’ severance and
retirement benefits decreased 1.9% to
¥13,497 million (US$112 million), and
declined to 21.6% of total liabilities, from
21.7% a year earlier. The debt-equity
ratio improved to 57.9%, from 82.0%
the prior year. The Company issued no
new shares during the fiscal year under
review.
Total shareholders’ equity expanded
9.7%, to ¥33,733 million (US$281
million), reflecting the increase in
retained earnings, with shareholders’
equity per share rising to ¥540.18
(US$4.50), from ¥492.20. The equity
ratio improved to 34.0%, from 31.7%.
Cash FlowsNippon Signal and its consolidated
subsidiaries recorded net cash provided
by operating activities of ¥4,765 million
(US$40 million), compared with net cash
of ¥1,440 million used the previous year.
The major components of net cash
provided were the income before
0
60
7.50
5.00
7.50
—80.
87
18.6
3
52.8
6
’01 ’02 ’03
Net Income (Loss) per Share/Cash Dividends per Share
Yen
Cash dividends per share
Net income (loss) per share
0
100,000
97,9
81
97,0
98
99,2
93
’01 ’02 ’03
Total Assets
Millions of yen
income taxes of ¥6,752 million (US$56
million), a decrease in inventories of
¥3,732 million (US$31 million), an
increase in advances received of ¥2,189
million (US$18 million), depreciation
and amortization of ¥2,004 million
(US$17 million), and an increase in
notes and accounts payable of ¥1,624
million (US$14 million). The main
components of net cash used during the
fiscal year under review were an
increase in notes and accounts
receivable of ¥7,378 million (US$61
million) and a net gain on sales and
disposals of property, plant and
equipment of ¥3,487 million (US$29
million).
Net cash used in investing activities
declined 81.9%, to ¥287 million (US$2
million), as purchase of property, plant
and equipment of ¥3,603 million
(US$30 million) and purchase of
marketable and investment securities of
¥1,848 million (US$15 million) were
offset by proceeds of ¥4,101 million
(US$34 million) from sales of property,
plant and equipment.
Net cash used in financing activities
totaled ¥5,885 million (US$49 million),
compared with net cash of ¥357 million
provided the prior year, as repayment of
long-term debt of ¥5,027 million
(US$42 million) and a net decrease in
short-term bank loans of ¥4,315 million
(US$36 million) counterbalanced
proceeds of ¥3,600 million (US$30
million) from long-term debt.
At the year-end, the balance of cash
and cash equivalents was ¥9,065 million
(US$76 million), down 12.0% from the
prior year.
18
Consolidated Balance SheetsThe Nippon Signal Co., Ltd. and Consolidated SubsidiariesMarch 31, 2003 and 2002
Thousands ofMillions of yen U.S. dollars (Note 1)
ASSETS 2003 2002 2003
Current assets:Cash and time deposits (Note 12) ......................................................... ¥ 8,444 ¥ 9,246 $ 70,367Marketable securities (Notes 3 and 12) ................................................ 1,580 1,651 13,167 Notes and accounts receivable ................................................................. 39,426 32,215 328,550 Allowance for doubtful accounts .............................................................. (186) (251) (1,550)Inventories (Note 4) ....................................................................................... 16,180 20,108 134,833 Deferred tax assets (Note 6) ..................................................................... 2,126 1,225 17,717 Other current assets ...................................................................................... 422 486 3,516
Total current assets .................................................................................. 67,992 64,680 566,600
Property, plant and equipment (Note 5):Land ..................................................................................................................... 8,037 8,323 66,975 Buildings and structures ............................................................................... 10,942 9,915 91,183 Machinery and equipment .......................................................................... 15,591 15,716 129,925 Construction in progress .............................................................................. 23 1,271 192
34,593 35,225 288,275 Accumulated depreciation............................................................................ (16,911) (17,675) (140,925)
17,682 17,550 147,350
Intangible assets ........................................................................................ 1,025 1,265 8,542
Investments and other assets:Investment securities (Notes 3 and 5) .................................................. 7,240 7,499 60,333 Lease deposits ................................................................................................ 803 839 6,692 Other investments ......................................................................................... 938 913 7,817 Deferred tax assets (Note 6) ..................................................................... 3,365 4,007 28,042 Other assets ..................................................................................................... 248 345 2,066
12,594 13,603 104,950
¥ 99,293 ¥ 97,098 $ 827,442
See accompanying notes.
19
Thousands ofMillions of yen U.S. dollars (Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY 2003 2002 2003
Current liabilities:Short-term bank loans (Note 5) ............................................................... ¥ 6,976 ¥11,275 $ 58,133 Current portion of long-term debt (Note 5) ......................................... 762 4,989 6,350 Notes and accounts payable ...................................................................... 16,682 15,007 139,017 Advances received ......................................................................................... 3,374 1,185 28,117 Accrued expenses .......................................................................................... 2,508 1,848 20,900 Income taxes payable (Note 6) ................................................................ 2,663 523 22,192Accrued employees’ bonuses .................................................................... 2,535 2,665 21,125Other current liabilities .................................................................................. 1,092 2,691 9,099
Total current liabilities .............................................................................. 36,592 40,183 304,933
Long-term debt (Note 5) ........................................................................ 11,780 8,942 98,167 Employees’ severance and
retirement benefits (Note 8) .......................................................... 13,497 13,765 112,475 Directors’ retirement benefits ............................................................ 593 617 4,942Consolidation difference ....................................................................... 76 62 634 Minority interests ....................................................................................... 3,022 2,792 25,183
Contingent liabilities (Note 9)
Shareholders’ equity (Note 7):Common stock:
Authorized—200,000,000 sharesIssued and outstanding—62,448,052 shares.................................. 6,846 6,846 57,050
Additional paid-in capital .............................................................................. 5,303 5,303 44,191 Retained earnings ........................................................................................... 19,746 16,364 164,550 Net unrealized holding gains on securities ........................................... 1,844 2,225 15,367 Treasury stock, at cost ................................................................................... (6) (1) (50)
Total shareholders’ equity ...................................................................... 33,733 30,737 281,108
¥99,293 ¥97,098 $827,442
20
Consolidated Statements of OperationsThe Nippon Signal Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2003, 2002 and 2001
Thousands ofMillions of yen U.S. dollars (Note 1)
2003 2002 2001 2003
Net sales (Note 13) .................................................................... ¥85,890 ¥84,803 ¥92,068 $715,750 Cost of sales (Notes 8 and 14) ............................................. 67,688 66,842 72,505 564,067
Gross profit .................................................................................. 18,202 17,961 19,563 151,683 Selling, general and administrative
expenses (Notes 8 and 14) ......................................... 14,877 15,451 15,327 123,975
Operating income (Note 13) .............................................. 3,325 2,510 4,236 27,708
Other income (expenses):Interest and dividend income .................................................... 75 77 104 625 Interest expense .............................................................................. (312) (331) (408) (2,600)Gain on sales of marketable and
investment securities ............................................................... — 823 — —Life insurance dividend.................................................................. 328 270 339 2,733 Gain (loss) on sales and disposals of
property, plant and equipment, net ................................... 3,487 265 (99) 29,058 Loss on disposals of inventories ............................................... (244) (263) (289) (2,033)Loss on devaluation of investment securities ...................... (41) (251) (153) (342)Amortization of consolidation difference ............................... 39 34 34 325 Gain on securities contributed to
employees’ retirement benefit trust ................................. — — 2,584 —Net transition obligation of employees’
severance and retirement benefits ..................................... — — (14,935) —Other, net .......................................................................................... 95 (179) 119 792
3,427 445 (12,704) 28,558
Income (loss) before income taxes .................................. 6,752 2,955 (8,468) 56,266 Income taxes (Note 6):
Current .......................................................................................... 2,959 974 2,012 24,658 Prior years’ tax adjustment .................................................... — 263 – —Deferred ....................................................................................... 209 222 (5,404) 1,742
3,168 1,459 (3,392) 26,400
3,584 1,496 (5,076) 29,866
Minority interests ........................................................................ (220) (333) 26 (1,833)
Net income (loss) ....................................................................... ¥ 3,364 ¥ 1,163 ¥ (5,050) $ 28,033
Yen U.S. dollars (Note 1)
Amounts per share of common stock:Net income (loss) .......................................................................... ¥ 52.86 ¥ 18.63 ¥ (80.87) $0.44 Cash dividends applicable to the year .................................... 7.50 5.00 7.50 0.06
See accompanying notes.
21
Consolidated Statements of Shareholders’ EquityThe Nippon Signal Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2003, 2002 and 2001
Thousands Millions of yenNumber of Net unrealizedshares of Common Additional Retained holding gains Treasury
common stock stock paid-in capital earnings on securities stock
Balance at March 31, 2000......................................... 62,448 ¥6,846 ¥ 5,303 ¥ 21,274 ¥ – ¥ (1)Net loss .............................................................................. – – – (5,050) – –Cash dividends paid ...................................................... – – – (235) – –Bonuses to directors ...................................................... – – – (67) – –Decrease of treasury stock .......................................... – – – – – 1
Balance at March 31, 2001.................................... 62,448 6,846 5,303 15,922 – (0)
Net income ....................................................................... – – – 1,163 – –Cash dividends paid ...................................................... – – – (702) – –Bonuses to directors ...................................................... – – – (19) – –Adoption of new accounting requirement
under accounting standard for financial instruments (Note 2) ............................. – – – – 2,225 –
Increase of treasury stock ............................................ – – – – – (1)
Balance at March 31, 2002 .................................. 62,448 6,846 5,303 16,364 2,225 (1)
Net income ....................................................................... – – – 3,364 – –Increase due to changes in the scope of
consolidated subsidiaries ....................................... – – – 127 – –Cash dividends paid ...................................................... – – – (78) – –Bonuses to directors ...................................................... – – – (31) – –Net unrealized holding losses on securities ......... – – – – (381) –Increase of treasury stock ............................................ – – – – (5)
Balance at March 31, 2003 .................................. 62,448 ¥6,846 ¥5,303 ¥19,746 ¥1,844 ¥ (6)
Thousands of U.S. dollars (Note 1)
Balance at March 31, 2002 ....................................................................... $57,050 $44,191 $136,367 $18,542 $ (8)Net income ....................................................................................................... – – 28,033 – –Increase due to changes in the scope of
consolidated subsidiaries ....................................................................... – – 1,058 – –Cash dividends paid ...................................................................................... – – (650) – –Bonuses to directors ...................................................................................... – – (258) – –Net unrealized holding losses on securities ......................................... – – – (3,175) –Increase of treasury stock ............................................................................ – – – – (42)
Balance at March 31, 2003 .................................................................. $57,050 $44,191 $164,550 $15,367 $(50)
See accompanying notes.
22
Consolidated Statements of Cash FlowsThe Nippon Signal Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2003, 2002 and 2001
Thousands ofMillions of yen U.S. dollars (Note 1)
2003 2002 2001 2003
Cash flows from operating activities:Income (loss) before income taxes ........................................ ¥ 6,752 ¥ 2,955 ¥ (8,468) $56,266Adjustments to reconcile income (loss) before
income taxes to net cash provided by (used in)operating activities:
Depreciation and amortization ....................................... 2,004 1,989 1,815 16,700Interest and dividend income ......................................... (75) (77) (104) (625)Interest expenses ................................................................ 312 331 408 2,600Decrease (increase) in notes and
accounts receivable ....................................................... (7,378) 420 1,746 (61,483)Decrease (increase) in inventories ............................... 3,732 1,409 (1,298) 31,100Compensation income from
property expropriation .................................................. (288) (519) — (2,400)Increase (decrease) in notes and accounts payable...... 1,624 (3,421) 950 13,533Increase (decrease) in employees’ severance
and retirement benefits ............................................... (369) (877) 14,100 (3,075)Gain on securities contributed to employees’
retirement benefit trust ................................................ — — (2,584) —Gain on sales of marketable and
investment securities .................................................... — (823) — —Loss (gain) on sales and disposals of
property, plant and equipment, net ........................ (3,487) (265) 99 (29,058)Increase (decrease) in advances received ................ 2,189 (693) 708 18,242Other, net ............................................................................... 826 302 466 6,884
Subtotal .............................................................................................. 5,842 731 7,838 48,684Interest and dividends received ................................................ 76 75 104 633Interest paid ...................................................................................... (327) (349) (392) (2,725)Income taxes paid .......................................................................... (826) (1,897) (2,372) (6,883)
Net cash provided by (used in) operating activities ......................................................... 4,765 (1,440) 5,178 39,709
Cash flows from investing activities:Deposit for time deposits ............................................................ (138) (326) (159) (1,150)Proceeds from withdrawal of time deposits ......................... 195 411 133 1,625Purchase of property, plant and equipment ......................... (3,603) (2,010) (1,980) (30,025)Proceeds from sales of property, plant
and equipment .......................................................................... 4,101 5 14 34,175Proceeds from sales of intangible assets ............................... 82 359 — 683Receipt of compensation for property expropriation ......... 223 519 — 1,858Purchase of marketable and investment securities ........... (1,848) (1,115) (43) (15,400)Proceeds from sales of marketable and
investment securities ............................................................... 795 839 — 6,625Other, net .......................................................................................... (94) (272) (59) (783)
Net cash used in investing activities ............................. (287) (1,590) (2,094) (2,392)
Cash flows from financing activities:Proceeds from long-term debt .................................................. 3,600 594 4,200 30,000Repayment of long-term debt ................................................... (5,027) (992) (4,583) (41,892)Net increase (decrease) in short-term bank loans ............ (4,315) 1,500 147 (35,958)Cash dividends paid ...................................................................... (80) (700) (235) (667)Cash dividends paid for minority shareholders ................... (58) (44) (44) (483)Other, net .......................................................................................... (5) (1) 0 (42)
Net cash provided by (used in) financing activities .......................................................... (5,885) 357 (515) (49,042)
Net increase (decrease) in cash and cash equivalents ........................................................................ (1,407) (2,673) 2,569 (11,725)
Cash and cash equivalents at beginning of year (Note 12) ........................................... 10,301 12,974 10,405 85,842
Increase in cash and cash equivalents fromnewly consolidated subsidiaries .......................................... 171 — — 1,425
Cash and cash equivalents at end of year (Note 12) ...... ¥ 9,065 ¥10,301 ¥12,974 $75,542
See accompanying notes.
The Nippon Signal Co., Ltd. (the “Company”) and its consolidated subsidiaries (the “Companies”) maintaintheir official accounting records in Japanese yen, and in accordance with the provisions set forth in theJapanese Commercial Code and accounting principles and practices generally accepted in Japan (“JapaneseGAAP”). Certain accounting principles and practices generally accepted in Japan are different fromInternational Accounting Standards and standards in other countries in certain respects as to application anddisclosure requirements. Accordingly, the accompanying consolidated financial statements are intended foruse by those who are informed about Japanese accounting principles and practices.
The accompanying consolidated financial statements have been restructured and translated into English(with some expanded descriptions and the inclusion of consolidated statements of shareholders’ equity) fromthe consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filedwith the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities andExchange Law. Some supplementary information included in the statutory Japanese language consolidatedfinancial statements, but not required for fair presentation, is not presented in the accompanying consolidatedfinancial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March 31, 2003, which was ¥120 to U.S.$1. Theconvenience translations should not be construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into U.S. dollars at this or any other rate ofexchange.
ConsolidationThe consolidated financial statements include the accounts of the Company and its significant subsidiaries.Intercompany accounts and transactions have been eliminated.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including theportion attributable to minority shareholders, are evaluated using the fair value at the time the Companyacquired control of the respective subsidiaries.
The consolidation difference between the cost of an investment and equity in its net assets at the date ofacquisition is being amortized over five years with minor exceptions.
Equity methodInvestments in unconsolidated subsidiaries and affiliates are stated at cost since they are consideredimmaterial in the aggregate. Earnings of these companies are recorded in the Company’s book only to theextent that cash dividends are received.
Statements of cash flowsIn preparing the consolidated statements of cash flows, cash on hand, readily-available deposits and short-term highly liquid investments with maturities of not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
SecuritiesPrior to April 1, 2000, securities of the Companies were stated at moving-average cost.
Effective April 1, 2000, the Companies adopted the new Japanese accounting standard for financialinstruments (“Opinion Concerning Establishment of Accounting Standard for Financial Instruments” issued bythe Business Accounting Deliberation Council on January 22, 1999).
Upon applying new accounting standard, all companies are required to examine the intent of holding eachsecurity and classify those securities as (a) securities held for trading purposes (hereafter, “trading securities”),(b) debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equitysecurities issued by subsidiaries and affiliates, and (d) for all other securities that are not classified in any ofthe above categories (hereafter, “available-for-sale securities”).
Based on the examination of the intent of holding each security upon application of the new accountingstandard on April 1, 2000, trading securities as well as held-to-maturity debt securities and available-for-salesecurities maturing within one year from the balance sheet date were included in current assets, and othersecurities were included in investments and other assets. As a result, at March 31, 2001, securities in currentassets decreased by ¥16 million and investment securities increased by the same amount compared withwhat would have been reported under the previous accounting policy.
The Companies had no trading securities. Held-to-maturity debt securities are stated at amortized cost.Equity securities issued by subsidiaries and affiliates which are not consolidated or accounted for using theequity method are stated at moving-average cost.
Effective April 1, 2001, the Companies applied a new accounting requirement for available-for-salesecurities with available fair market values under the accounting standard for financial instruments which wasadopted in the previous year.
Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gainsand unrealized losses on these securities are reported, net of applicable income taxes, as a separatecomponent of shareholders’ equity. Realized gains and losses on sale of such securities are computed usingmoving-average cost.
23
Notes to Consolidated Financial StatementsThe Nippon Signal Co., Ltd. and Consolidated Subsidiaries
2SUMMARY OFSIGNIFICANTACCOUNTING
POLICIES
1BASIS OF
CONSOLIDATEDFINANCIAL
STATEMENTS
24
As a result of applying the new accounting requirement, at March 31, 2002, the Companies recorded netunrealized holding gains on securities amounting to ¥2,225 million, deferred tax liabilities amounting to¥1,608 million, and deduction of ¥3 million from minority interests in the balance sheet.
InventoriesInventories are stated at cost, being determined principally by the following methods:
• Finished goods, semi-finished goods and raw materials—Moving average method• Goods in process and uncompleted contracts—Specific identification method per each order• Supplies—Mainly last purchase price method
DepreciationBuildings, structures, machinery and equipment are carried at cost. Depreciation is computed primarily usingthe declining-balance method. Buildings acquired after March 31, 1998 are depreciated using the straight-linemethod.
Finance leasesFinance leases which do not transfer ownership to lessees are accounted for in the same manner asoperating leases (“Non-capitalized finance leases”).
Allowance for doubtful accountsEffective from the year ended March 31, 2001, the Companies adopted a new accounting standard forfinancial instruments and provides an allowance for doubtful accounts in an amount sufficient to coverpossible losses on collection by estimating individually uncollectible amounts and applying a percentagebased on collection experience in the past to the remaining accounts. Previously, the Company provided theallowance using formula provided by the Corporate Tax Law as to the allowance for the remaining accounts.
Accrued employees’ bonusesThe Companies follow the general Japanese practice of paying bonuses to employees in June and December.At March 31, 2003 and 2002, the Companies accrued the estimated amounts of employees’ bonuses to bepaid in the subsequent period.
Bonuses to directors and statutory auditors, which are subject to shareholders’ approval at the annualshareholders’ meeting under the Commercial Code of Japan, are accounted for as an appropriation ofretained earnings.
Employees’ severance and retirement benefitsThe Companies provide two types of post-retirement benefit plans, unfunded lump-sum payment plans andfunded non-contributory pension plans, under which all eligible employees are entitled to benefits based onthe level of wages and salaries at the time of retirement or termination, length of service and certain otherfactors.
At March 31, 2000, the Companies accrued liabilities for lump-sum severance and retirement paymentsequal to 40% of the amount required had all eligible employees voluntarily terminated their employment atthe balance sheet date. The Companies recognized pension expense when, and to the extent, paymentswere made to the pension plans.
Effective April 1, 2000, the Companies adopted the new accounting standard, “Opinion on SettingAccounting Standard for Employees’ Severance and Pension Benefits”, issued by the Business AccountingDeliberation Council on June 16, 1998.
Under the new accounting standard, the liabilities and expenses for severance and retirement benefits aredetermined based on the amounts actuarially calculated using certain assumptions.
The Companies provided allowance for employees’ severance and retirement benefits at March 31, 2001based on the estimated amounts of projected benefit obligation and the fair value of the plan assets at thatdate.
The excess of the projected benefit obligation over the total of the fair value of pension assets as of April 1,2000 and the liabilities for severance and retirement benefits recorded as of April 1, 2000 (the “net transitionobligation”) amounted to ¥14,935 million, and the entire amount of which was recognized as expenses inthe year ended March 31, 2001. Gain on contribution to employees’ retirement benefit trust amounting to¥2,584 million was also recorded in the year ended March 31, 2001. Actuarial gains and losses arerecognized in expenses using the declining-balance method over the average of the estimated remainingservice lives (mainly 10 years) commencing with the following period.
As a result of the adoption of the new accounting standard, in the year ended March 31, 2001, severanceand retirement benefit expenses decreased by ¥811 million, operating income increased by ¥645 million andincome before income taxes decreased by ¥11,706 million compared with what would have been recordedunder the previous accounting standard.
Directors’ retirement benefitsThe retirement benefits for directors are stated at 100% of the amount which would be required if theyretired at the balance sheet date.
25
Translation of foreign currenciesShort-term receivables and payables denominated in foreign currencies are translated into Japanese yen atthe year-end rates. Prior to April 1, 2000, long-term receivables and payables denominated in foreigncurrencies were translated at historical rates.
Effective April 1, 2000, the Companies adopted the revised accounting standard for foreign currencytranslation, “Opinion Concerning Revision of Accounting Standard for Foreign Currency Translation”, issued bythe Business Accounting Deliberation Council on October 22, 1999. Under the revised accounting standard,long-term receivables and payables denominated in foreign currencies are also translated into Japanese yenat the year-end rates.
There was no effect on net income resulting from adopting the revised accounting standard.
Income taxesThe Companies provide tax effects of temporary differences between the carrying amounts and the tax basisof assets and liabilities. The asset and liability approach is used to recognize deferred tax assets and liabilitiesfor the expected future tax consequences of temporary differences.
Software costsThe Companies include software in intangible assets and depreciate it using the straight-line method over theestimated useful lives (five years).
Derivative transaction and hedge accountingThe new accounting standard for financial instruments, effective from the year ended March 31, 2001,requires companies to state derivative financial instruments at fair value and to recognize changes in the fairvalue as gains or losses unless derivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Companiesdefer recognition of gains or losses resulting from changes in fair value of derivative financial instruments untilthe related losses or gains on the hedged items are recognized.
However, if interest rate swap contracts are used as hedge and meet certain hedging criteria, the netamount to be paid or received under the interest rate swap contract is added to or deducted from the intereston the assets or liabilities for which the swap contract was executed.
Amounts per share of common stockComputations of net income (loss) per share of common stock are based on the weighted average numberof shares issued and outstanding during each period.
Diluted net income (loss) per share is not presented since the Company had no securities with dilutiveeffect at March 31, 2003, 2002 and 2001.
Cash dividends per share presented in the consolidated statements of operations represent the cashdividends declared applicable to each respective year, including dividends paid after the end of the year.
Effective April 1, 2002, the Companies adopted the new accounting standard for earnings per share andrelated guidance (Accounting Standards Board Statement No. 2, “Accounting Standard for Earnings Per Share”and Financial Standards Implementation Guidance No. 4, “Implementation Guidance for Accounting Standardfor Earnings Per Share”, issued by the Accounting Standards Board of Japan on September 25, 2002). Theeffect on earnings per share of the adoption of the new accounting standard was not material.
Treasury stock and reversal of statutory reservesEffective April 1, 2002, the Companies adopted the new accounting standard for treasury stock and reversalof statutory reserves (Accounting Standards Board Statement No. 1, “Accounting Standard for Treasury Stockand Reversal of Statutory Reserves”, issued by the Accounting Standards Board of Japan on February 21,2002). The adoption of the new accounting standard had no impact on the financial statements.
ReclassificationsCertain prior year amounts have been reclassified to conform to the 2003 presentation. These changes hadno impact on previously reported results of operations or shareholders’ equity.
26
(1) The following tables summarize acquisition costs, and book values of securities with fair value as of March31, 2003 and 2002:
(a) Available-for-sale securities
March 31, 2003 Millions of yenAcquisition
cost Book value Difference
Securities with book values exceeding acquisition costs:Equity securities ....................................................................................... ¥1,773 ¥4,959 ¥3,186Bonds .......................................................................................................... 300 303 3
¥2,073 ¥5,262 ¥3,189Other securities:
Equity securities ....................................................................................... ¥ 679 ¥ 552 ¥ (127)¥ 679 ¥ 552 ¥ (127)
Thousands of U.S. dollarsAcquisition
cost Book value Difference
Securities with book values exceeding acquisition costs:Equity securities ....................................................................................... $14,775 $41,325 $26,550Bonds .......................................................................................................... 2,500 2,525 25
$17,275 $43,850 $26,575Other securities:
Equity securities ....................................................................................... $ 5,658 $ 4,600 $ (1,058)$ 5,658 $ 4,600 $ (1,058)
March 31, 2002 Millions of yenAcquisition
cost Book value Difference
Securities with book values exceeding acquisition costs:Equity securities ....................................................................................... ¥1,909 ¥5,805 ¥3,896
¥1,909 ¥5,805 ¥3,896Other securities:
Equity securities ....................................................................................... ¥ 576 ¥ 518 ¥ (58)Bonds .......................................................................................................... 498 490 (8)
¥1,074 ¥1,008 ¥ (66)
(2) The following tables summarize book values of securities with no available fair values as of March 31,2003 and 2002:
(a) Held-to-maturity debt securitiesThousands of
Millions of yen U.S. dollars
2003 2002 2003Bonds .......................................................................................... ¥ 200 ¥ 200 $ 1,667Commercial paper .................................................................. 1,299 999 10,825
¥1,499 ¥1,199 $12,492
(b) Available-for-sale securitiesThousands of
Millions of yen U.S. dollars
2003 2002 2003Non-listed equity securities .................................................. ¥ 723 ¥ 493 $ 6,025Preferred subscription certificate ........................................ 300 – 2,500Free financial fund .................................................................. 200 100 1,667Medium-term government bond fund ............................. 81 261 675
¥1,304 ¥ 854 $10,867
3SECURITIES
27
(3) Available-for-sale securities with maturities and held-to-maturity debt securities as of March 31, 2003 areas follows:
Millions of yenWithin one Over one year but Over five years but
year within five years within ten years Over ten years
Bonds .......................................................................... ¥ – ¥303 ¥200 ¥ –Commercial paper .................................................. 1,299 – – –
¥1,299 ¥303 ¥200 ¥ –
Thousands of U.S. dollarsWithin one Over one year but Over five years but
year within five years within ten years Over ten years
Bonds .......................................................................... $ – $2,525 $1,667 $ –Commercial paper .................................................. 10,825 – – –
$10,825 $2,525 $1,667 $ –
Inventories at March 31, 2003 and 2002 consisted of the following:
Thousands of Millions of yen U.S. dollars
2003 2002 2003Finished goods ......................................................................... ¥ 2,829 ¥ 4,355 $ 23,575Semi-finished goods ............................................................... 1,164 1,791 9,700Raw materials ........................................................................... 1,430 1,429 11,917Goods in process .................................................................... 8,602 9,310 71,683Uncompleted contracts ......................................................... 1,346 2,402 11,217Supplies ...................................................................................... 809 821 6,741
¥16,180 ¥20,108 $134,833
Short-term bank loans outstanding bore interest at annual rates of 0.55% to 1.60% and 0.57% to 1.63% atMarch 31, 2003 and 2002, respectively.
Long-term debt at March 31, 2003 and 2002 consisted of the following:Thousands of
Millions of yen U.S. dollars
2003 2002 2003Secured loans from banks due through 2014
with interest rates ranging from 1.5% to 2.7% at March 31, 2003 ................................................ ¥ 4,792 ¥ 5,728 $ 39,933
Unsecured loans from banks and insurancecompanies due through 2007 with interestrates ranging from 1.2% to 2.2% atMarch 31, 2003 ................................................................. 7,750 8,203 64,584
12,542 13,931 104,517Less current portion .............................................................. (762) (4,989) (6,350)
¥11,780 ¥ 8,942 $ 98,167
The aggregate annual maturities of long-term debt at March 31, 2003 are as follows:
Year ending March 31 Thousands of Millions of yen U.S. dollars
2004 ............................................................................................................................. ¥ 762 $ 6,3502005 ............................................................................................................................ 1,620 13,5002006 ............................................................................................................................ 4,393 36,6082007 ............................................................................................................................ 393 3,2752008 ............................................................................................................................ 3,993 33,2752009 and thereafter ................................................................................................ 1,381 11,509
¥12,542 $104,517
4INVENTORIES
5SHORT-TERMBANK LOANS
AND LONG-TERM
DEBT
28
At March 31, 2003, the following assets were pledged as collateral for short-term bank loans of ¥550million ($4,583 thousand) and long-term debt discussed above:
Thousands of Millions of yen U.S. dollars
Land ............................................................................................................................. ¥6,434 $53,617Buildings and structures ........................................................................................ 3,504 29,200Investment securities ............................................................................................. 72 600
The aggregate statutory income tax rate used for calculation of deferred tax assets and liabilities was 42.0%for the years ended March 31, 2002 and 2001. Effective for years commencing on April 1, 2004 or later,according to the revised local tax law, income tax rates for enterprise taxes will be reduced as a result ofintroducing the assessment by estimation on the basis of the size of business. Based on the change ofincome tax rates, for calculation of deferred tax assets and liabilities, the Companies used the aggregatestatutory income tax rates of 42.0% and 40.0% for current items and non-current items, respectively, atMarch 31, 2003.
As a result of the change in the aggregate statutory income tax rates, deferred tax assets decreased by ¥90million ($750 thousand), provision for deferred income taxes increased by ¥151 million ($1,258 thousand)and net unrealized holding gains on securities increased by ¥61 million ($508 thousand) compared withwhat would have been recorded under the previous local tax law.
The following table summarizes the significant differences between the statutory tax rates and theCompanies’ effective tax rates for financial statement purposes for the years ended March 31, 2003 and2002:
2003 2002Statutory tax rate ...................................................................................................... 42.0% 42.0%Non-taxable income including dividends ........................................................ (0.8) (2.0)Non-deductible expenses including entertainment ..................................... 1.6 4.2Per capita inhabitants taxes ................................................................................. 1.6 3.7Adjustment on deferred tax assets due to change
of income tax rate .............................................................................................. 2.2 –Other ............................................................................................................................ 0.3 1.5Effective tax rate ....................................................................................................... 46.9% 49.4%
Significant components of deferred tax assets and liabilities of the Companies as of March 31, 2003 and 2002 are as follows:
Thousands of Millions of yen U.S. dollars
2003 2002 2003Deferred tax assets:
Allowance for doubtful accounts .................................... ¥ 59 ¥ 38 $ 492Depreciation ...................................................... .................... 422 432 3,517Bonuses accrued ................................................ ................. 978 723 8,150Employees’ severance and retirement benefits......... 6,504 6,723 54,200Directors’ retirement benefits .......................................... 242 259 2,017Non-deductible inventory losses .................................... 776 346 6,467Enterprise taxes .................................................................... 235 43 1,958Other ........................................................................................ 199 182 1,659
Total deferred tax assets ......................................................... 9,415 8,746 78,460
Deferred tax liabilities:Tax deferment for capital gain on property ................ (1,349) (321) (11,242)Retirement benefits trust .................................................. (1,334) (1,569) (11,117)Net unrealized holding gains on securities ................. (1,236) (1,616) (10,300)Other ........................................................................................ (5) (8) (42)
Total deferred tax liabilities .................................................... (3,924) (3,514) (32,701)Net deferred tax assets ........................................................... ¥ 5,491 ¥ 5,232 $ 45,759
6INCOME TAXES
29
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to beaccounted for as capital, although a company may, by resolution of its Board of Directors, account for anamount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which isincluded in capital surplus.
Effective October 1, 2001, the Commercial Code provided that an amount equal to at least 10% of cashdividends and other cash appropriations shall be appropriated and set aside as a legal earnings reserve untilthe total amount of legal earnings reserve and additional paid-in capital equals 25% of common stock. Thetotal amount of legal earnings reserve and additional paid-in capital of the Company has been reached to25% of common stock, and therefore the Company is not required to provide legal earnings reserve anymore. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit byresolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors. Oncondition that the total amount of legal earnings reserve and additional paid-in capital remains being equal toor exceeding 25% of common stock, they are available for distribution by the resolution of shareholders’meeting. Legal earnings reserve is included in retained earnings in the accompanying financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Commercial Code.
As explained in Note 2, effective April 1, 2000, the Companies adopted the new accounting standard foremployees’ severance and retirement benefits, under which the liabilities and expenses for severance andretirement benefits are determined based on the amounts obtained by actuarial calculations.
The liabilities for employees’ severance and retirement benefits included in the consolidated balancesheets as of March 31, 2003 and 2002 consisted of the following:
Thousands of Millions of yen U.S. dollars
2003 2002 2003Projected benefit obligation:
Projected benefit obligation ............................................. ¥ 32,204 ¥ 31,583 $268,367Less unrecognized actuarial differences ...................... (6,653) (4,343) (55,442)Less fair value of pension assets ................................... (12,054) (13,475) (100,450)
Liabilities for severance and retirement benefits ........... ¥ 13,497 ¥ 13,765 $112,475
Included in the consolidated statements of operations for the years ended March 31, 2003 and 2002 areemployees’ severance and retirement benefit expenses comprised of the following:
Thousands ofMillions of yen U.S. dollars
2003 2002 2003Severance and retirement benefit expense:
Service costs - benefits earned during the year ........ ¥1,707 ¥1,530 $14,225Interest cost on projected benefit obligation ............. 860 982 7,167Expected return on plan assets ...................................... (207) (235) (1,725)Amortization of actuarial differences ............................ 864 280 7,200
Severance and retirement benefit expense ..................... ¥3,224 ¥2,557 $26,867
The discount rates used by the Companies for the years ended March 31, 2003 and 2002 are mainly2.5% and 3.0%, respectively. The rates of expected return on plan assets used by the Companies for theyears ended March 31, 2003 and 2002 are mainly 2.0%. The estimated amount of all retirement benefits tobe paid at the future retirement date is allocated equally to each service year using the estimated number oftotal service years. Actuarial gains or losses are recognized in the statements of operations using the declining-balance method over 10 years. Net transition obligation was fully recognized as expenses in the year endedMarch 31, 2001.
At March 31, 2003, the Company and its consolidated subsidiaries were contingently liable under guaranteesfor bank borrowings of employees etc. in the amount of ¥936 million ($7,800 thousand).
7SHAREHOLDERS’
EQUITY
8EMPLOYEES’
SEVERANCE ANDRETIREMENT
BENEFITS
9CONTINGENT
LIABILITIES
30
Certain information for non-capitalized finance leases was as follows:(1) A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value at
March 31, 2003 and 2002:
March 31, 2003 Millions of yenAcquisition Accumulated Net book
cost depreciation value
Machinery and equipment ........................................................................... ¥1,747 ¥958 ¥789Other .................................................................................................................... 4 3 1
¥1,751 ¥961 ¥790
Thousands of U.S. dollars Acquisition Accumulated Net book
cost depreciation value
Machinery and equipment ........................................................................ $14,559 $7,984 $6,575Other ................................................................................................................. 33 25 8
$14,592 $8,009 $6,583
March 31, 2002 Millions of yenAcquisition Accumulated Net book
cost depreciation value
Machinery and equipment . ....................................................................... ¥1,984 ¥1,195 ¥789Other ................................................................................................................. 9 7 2
¥1,993 ¥1,202 ¥791
(2) Lease obligations under such leases, including finance charges, at March 31, 2003 were as follows:
Thousands of Millions of yen U.S. dollars
Payments due within one year ........................................................................... ¥ 335 $2,792Payments due after one year .............................................................................. 476 3,967
¥ 811 $6,759
(3) Lease payments under such leases for the years ended March 31, 2003 and 2002 were ¥490 million($4,083 thousand) and ¥554 million, respectively.
In addition, lease obligations under operating leases, including finance charges, at March 31, 2003were as follows:
Thousands of Millions of yen U.S. dollars
Payments due within one year . .......................................................................... ¥ 5 $ 42Payments due after one year .............................................................................. 8 67
¥13 $109
The Companies use interest rate swaps as derivative financial instruments only for the purpose of fixinginterest expense with respect to long-term debt with variable interest rates. The Companies apply hedgeaccounting to derivative transaction effective from the year ended March 31, 2001.
The following summarizes hedging derivative financial instruments used by the Companies and itemshedged:
Hedging instruments ............. Interest rate swap contractHedged items .......................... Long-term debt
There was no derivative transaction for which hedge accounting has not been applied in the year endedMarch 31, 2003 and 2002.
10INFORMATION
ON LEASETRANSACTIONS
11DERIVATIVEFINANCIAL
INSTRUMENTSAND HEDGINGTRANSACTIONS
31
Reconciliations of cash and time deposits shown in the consolidated balance sheets and cash and cashequivalents shown in the consolidated statements of cash flows as of March 31, 2003 and 2002 are asfollows:
Thousands ofMillions of yen U.S. dollars
2003 2002 2003Cash and time deposits .......................................................... ¥8,444 ¥ 9,246 $70,367Add: Marketable securities ..................................................... 1,580 1,651 13,167Less: Time deposits with
maturities exceeding three months .............................. (260) (306) (2,167)Less: Bonds with maturities exceeding
three months ........................................................................ (699) (290) (5,825)Cash and cash equivalents . ................................................... ¥9,065 ¥10,301 $75,542
The Companies are primarily engaged in the manufacture and sale of products in two major segments:Signal division—Railway signals, Traffic systemsElectronics information and control system division—
Automatic fare collection, Automatic control systems and miscellaneous systemsInformation by industry segments for the years ended March 31, 2003, 2002 and 2001, is summarized as follows:
Millions of yenElectronics information Elimination
Signal and control system ordivision division Total Corporate Consolidated
Year ended March 31, 2003:Net sales:Customers ...................................................... ¥46,454 ¥39,436 ¥85,890 ¥ – ¥85,890Cost and expenses ....................................... 43,494 36,374 79,868 2,697 82,565Operating income ........................................ ¥ 2,960 ¥ 3,062 ¥ 6,022 ¥ (2,697) ¥ 3,325Identifiable assets.......................................... ¥57,930 ¥31,489 ¥89,419 ¥ 9,874 ¥99,293Depreciation and amortization ................ 1,233 630 1,863 141 2,004Capital expenditures..................................... 2,152 473 2,625 16 2,641
Year ended March 31, 2002:Net sales:Customers ...................................................... ¥44,729 ¥40,074 ¥84,803 ¥ – ¥84,803Cost and expenses ....................................... 42,894 36,479 79,373 2,920 82,293Operating income ........................................ ¥ 1,835 ¥ 3,595 ¥ 5,430 ¥ (2,920) ¥ 2,510Identifiable assets ........................................ ¥48,935 ¥28,447 ¥77,382 ¥19,716 ¥97,098Depreciation and amortization ................ 1,124 730 1,854 135 1,989Capital expenditures ................................... 1,217 839 2,056 1,834 3,890
Year ended March 31, 2001:Net sales:Customers ...................................................... ¥41,300 ¥50,768 ¥92,068 ¥ – ¥92,068Cost and expenses ...................................... 41,273 43,510 84,783 3,049 87,832Operating income ........................................ ¥ 27 ¥ 7,258 ¥ 7,285 ¥ (3,049) ¥ 4,236Identifiable assets ........................................ ¥47,330 ¥31,383 ¥78,713 ¥19,268 ¥97,981Depreciation and amortization ................ 1,047 739 1,786 29 1,815Capital expenditures ................................... 902 697 1,599 499 2,098
12CASH AND
CASHEQUIVALENTS
13SEGMENT
INFORMATION
32
Thousands of U.S. dollars Electronics information Elimination
Signal and control system ordivision division Total Corporate Consolidated
Year ended March 31, 2003:Net sales:Customers ...................................................... $387,117 $328,633 $715,750 $ — $715,750Cost and expenses ...................................... 362,450 303,117 665,567 22,475 688,042Operating income ........................................ $ 24,667 $ 25,516 $ 50,183 $ (22,475) $ 27,708Identifiable assets ........................................ $482,750 $262,408 $745,158 $ 82,284 $827,442Depreciation and amortization ................ 10,275 5,250 15,525 1,175 16,700Capital expenditures ................................... 17,933 3,942 21,875 133 22,008
Corporate assets are principally cash and time deposits, marketable securities and investment securities,and are related with management departments of the Company.
Information by geographic areas is not shown since the Company has no overseas consolidatedsubsidiaries.
Overseas sales of the Companies for the years ended March 31, 2003, 2002 and 2001 accounted for lessthan 10% of consolidated net sales.
Research and development expenses of the Companies for the years ended March 31, 2003 and 2002 were¥2,260 million ($18,833 thousand) and ¥2,626 million, respectively and are included in selling, general andadministrative expenses or manufacturing costs.
On June 26, 2003, the shareholders of the Company approved payments of year-end cash dividends of¥7.50 ($0.06) per share aggregating ¥468 million ($3,900 thousand).
14RESEARCH ANDDEVELOPMENT
EXPENSES
15SUBSEQUENT
EVENT
33
Report of the Independent Public Accountants
To the Shareholders and Board of Directors of
The Nippon Signal Co., Ltd.:
We have audited the accompanying consolidated balance sheets of The Nippon Signal Co., Ltd. and subsidiaries
as of March 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity
and cash flows for each of the three years in the period ended March 31, 2003, expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of The Nippon Signal Co., Ltd. and subsidiaries as of March 31, 2003 and 2002,
and the consolidated results of their operations and their cash flows for each of the three years in the period
ended March 31, 2003, in conformity with accounting principles generally accepted in Japan as described in
Note 1 to the consolidated financial statements.
Without qualifying our opinion, we draw attention to the following.
As discussed in Note 2 to the consolidated financial statements, The Nippon Signal Co., Ltd. and domestic
subsidiaries prospectively adopted the new Japanese accounting standards for financial instruments, employees’
severance and retirement benefits and foreign currency translation, effective April 1, 2000, and prospectively
adopted the new Japanese accounting requirement under the accounting standard for financial instruments for
available-for-sale securities with available fair market values, effective April 1, 2001.
The consolidated financial statements as of and for the year ended March 31, 2003 have been translated into
United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our
opinion, the consolidated financial statements expressed in Japanese yen have been translated into United
States dollars on the basis set forth in Note 1 to the consolidated financial statements.
Tokyo, Japan
June 26, 2003
34
Board of Directors and Statutory AuditorsAs of July 1, 2003
Chairman
Osanori Miyaji
President and ChiefExecutive Officer
Kazuyoshi Nishimura
Senior Managing Directorand Chief FinancialOfficer
Keiji Kasai
Director and SeniorExecutive Officer
Masaru Wakao
Director
Takashi Kobayashi
Corporate Auditor
Eiichi Toyama
Corporate Auditor
Tetsuji Yamate
Corporate Auditor
Tokio Ikehara
Corporate Auditor
Keiichiro Sue
Deputy Chief Executive Officer
Yoshio Sasajima
Senior Executive Officers
Yasuji Koike Mitsunobu Kirita Toshikazu Mawatari Takahito Nagasawa Takehiko Hoshino
Executive Officers
Yohei Furuhata Kunio Ando Nariyuki Ohashi Kouichi Saotome
Masaru Suzuki Sougorou Morita Shouji Kawada
35
THE NIPPON SIGNAL CO., LTD.
Date of Establishment
December 15, 1928
Number of Employees
1,582
Paid-in Capital
¥6,846 million
Number of Shares of Common Stock Issued
62,448,052
Number of Stockholders
8,256
Securities Traded
Tokyo Stock Exchange
Osaka Securities Exchange
Transfer Agent and Registrar
The Mizuho Trust & Banking Co., Ltd.
The Mizuho Investors Securities Co., Ltd.
Independent Certified Public Accountant
ASAHI & Co.
Head Office
47F, Sunshine 60, 1-1, Higashi-Ikebukuro, 3-chome, Toshima-ku,Tokyo 170-6047, Japan
Tel: (03) 5954-4600
Fax: (03) 5954-4610
Osaka Branch
2-4, Komatsubara-cho, Kita-ku, Osaka, Osaka 530-0018, Japan
Tel: (06) 6312-3851
Kuki Plant
1836-1, Ooya, Aza, Ezura, Ooaza, Kuki, Saitama 346-8524, Japan
Tel: (0480) 28-3000
Utsunomiya Plant
11-2, Hiraide Kogyo Danchi, Utsunomiya, Tochigi 321-8651, Japan
Tel: (028) 660-3000
Corporate DataAs of March 31, 2003
SUBSIDIARIES
Consolidated Subsidiaries
� Manufacturing
The Nisshin Electrics Construction Co., Ltd.
Nisshin Industry Co., Ltd.
Tochigi Nisshin Electronics Co., Ltd.
Nisshin Software Engineering Co., Ltd.
Yamagata Nisshin Electronics Co., Ltd.
� Servicing
Nisshin Electronics Service Co., Ltd.
Sapporo Nisshin Electronics Co., Ltd.
Fukuoka Nisshin Electronics Co., Ltd.
Mie Nisshin Electronics Co., Ltd.
Sendai Nisshin Electronics Co., Ltd.
Non-Consolidated Subsidiaries
� Manufacturing
Nisshin Tokki Co., Ltd.
Asahi Electronics Co., Ltd.
� Servicing
Nisshin Enterprise Co., Ltd.
Nisshin TECHNO Service Co., Ltd.
Nisshin Technical Management Service Co., Ltd.
Nisshin Lease Co., Ltd.
IPOS NET INC.
Circuit Technology Inc.
Yokohama Techno Engineering Service Co., Ltd.
Nippon-Allis Signal Co., Ltd.
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Organization As of July 1, 2003
President
Business PlanningCommittee
ExecutiveCommittee
Board of Directors
Corporate Strategy Dept.
Business Planning & Development Dept.
Internal Inspection Dept.
General Affairs Dept.
Personnel Dept.
Finance & Accounting Dept.
Management Information Systems Dept.
Business Management Center
Research & Development Center
Visionary Business Center
Railway Signal Development Dept.
Railway Signal Systems Division
Traffic Information Systems Division
Automatic Fare Collection Systems Division
Information Systems Division
Kuki Plant
Utsunomiya Plant
Osaka Branch Office
Hokkaido Branch Office
Tohoku Branch Office
Kitakanto Branch Office
Chubu Branch Office
Kyushu Branch Office
Beijing Office
Board of CorporateAuditors
Corporate Auditors
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Product OutlineAs of July 1, 2003
1. Railway Signaling Systems
Integrated Traffic Control byComputer (ITC)
Centralized Traffic Control System(CTC)
Automatic Program Route ControlSystem (PRC)
Automatic Train Control System(ATC)
Automatic Train Operation System(ATO)
Automatic Train Stop System (ATS)
Train Detection Equipment
Transponder
Maintenance Management System
Relay Interlocking Equipment
Train Information Processing System
Electronic Interlocking Equipment
Electronic Block System
Railway Crossing Monitor System
Train Navigation System (TNS)
Other Signal Equipment
2. Traffic Control Systems
Universal Traffic ManagementSystem (UTMS21)
Centralized Area Traffic ControlSystem
Local Controllers
Traffic Signal-Integrated Street Lights
Ultrasonic Vehicle Detector
Vehicle-Type Classifying Detector
Image Processing Vehicle Detector
Road Traffic Information System
Traffic Information Board
Traffic Flow Data Counter
3. Automatic Fare CollectionSystems
Automatic Gate
Automatic Ticket Vending Machine
Automatic Fare Adjustment Machine
Data Processing Equipment
Station Controller
Coupon Vending Machine
Automatic Coupon Vending Machine
Automatic Prepaid Card VendingMachine
Centralized Card Encoder
Ticket Issuing Machine for StationStaff
Centralized Monitoring Equipment
4. Integrated Airport PassengerSystems
Boarding Pass Printer
Boarding Pass Reader
5. RFID Item Management System
6. Parking Control Systems
Parking Fee Collection System (ISP)
PARK-LOC® System (P/L)
Parking Management and ControlSystem
Intelligent PARK-LOC® (IPL)
Centralized Monitoring System
Parking Management SupportSystem
Bicycle Parking Lot ManagementSupport System
Information Port System (IPOS)
7. Electronics Information andControl Equipment
(1) Card Systems
Visible Magnetic Card (VISMAC)
Point Card System
Contact-Less IC Card
Various Card Writers and Readers
(2) Entry/Exit Control Systems
Security Gate System
Security Control System for Buildings
Automatic Card Vending Machine
(3) Information Display Systems
LED Display System
Passenger Information System
8. Special Equipment
Various Control Systems
Various System Testing Sets
Various Equipment for the DefenseAgency
9. Airport Safety Systems
10. Parking Meter and ParkingTicket Systems
11. Parking Information Systems
12. Synthetic Resin Products
Brake Shoe
Various Other Synthetic ResinProducts
13. Related Construction,Planning and Supervision
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47F, Sunshine 60, 1-1, Higashi-Ikebukuro, 3-chome, Toshima-ku, Tokyo 170-6047, JapanTel: (03) 5954-4600 Fax: (03) 5954-4610 URL: http://www.signal.co.jp
Printed in Japan
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