ANNUAL REPORT 2003 For the year ended March 31, 2003
AKEBONO BRAKE INDUSTRY CO., LTD. Profile Akebono Brake Industry Co., Ltd. (hereafter "Akebono"), has been progressively developing brake friction materials and related products ever since it first began manufacturing woven linings for drum brakes and clutch facings in 1929. We currently supply products on an original equipment manufacturing (OEM) basis to almost all Japanese automakers. Akebono has a dominant market share in Japan, and its product range spans items for automobiles, motorbikes, rolling stock, forklifts and agricultural equipment. In recent years, our efforts have been directed at building a framework to become a global supplier of friction materials in Japan, North America and Europe, by applying our core technology "Friction and Vibration, their Control and Analysis," which we developed as an expert in brakes. As a global company, we are demonstrating our presence through the speedy supply of high-quality products that are satisfying automakers' needs worldwide, and the development of environmental conservation technologies aimed at preserving a better global environment for future generations.
Corporate Policies
●Customer Needs First ●Technology Realignment ●Establishing a Tri-polar Network
Corporate Mission
Through Friction and Vibration, their Control and Analysis, We are determined to Protect, Grow and Support Every Individual Life. ※Tentative translation from original Japanese.
Akebono's Declaration for the 21st Century Contents Akebono's Declaration for the 21st Century was made as a guide to clarify ■Financial Highlights 02 the Akebono Group's orientation and direction for the 21st century. ■To Our Shareholders and Investors 03 ■Interview with CEO 05 ■Operating Status by Region 09 We will continue to create value long into the 21st century, pursuing our ■Environmental Conservation Activities 13 "Corporate Mission." ■Financial Section We hereby affirm that we will endeavor to: Five-year Summary 14 1. Recognize the real value of what we create and provide Management Discussion and Analysis 15 2. Assure our own indispensability by continuously creating new value Consolidated Balance Sheets 19 3. Accomplish our tasks with speed and the courage of one's own convictions Consolidated Statements of Operations 21 without fear of failure Consolidated Statements of Cash Flows 22 4. Achieve our aspirations through the pride of each and every individual. Consolidated Statements of Shareholders' Equity 23 Notes to Consolidated Financial Statements 24 Independent Auditor's Report 29 ■Directors and Officers 30 ■Investor Information 31
Forward-looking Statements Current plans, projections, strategies and business performance and other statements reported herein which are not based on historic facts represent forecasts made under Akebono's assumptions and views, based on information available at the time of preparing this Annual Report. These statements are therefore exposed to risks and uncertainties, including but not limited to those associated with the economic climate surrounding Akebono's business domain, trends in market competition, exchange rate, tax system and various institutions. Please note that the actual business performance may differ significantly from Akebono's forecasts, due to various factors. Financial Highlights
AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2003 and 2002
Millions of yen Thousands of US dollars 20032002 2003
Fiscal year Net sales ￥126,595 ￥126,655 $1,054,958 Operating income 8,453 5,560 70,442 Net income (loss) (6,318) 99 (52,650) Operating cash flow 8,035 12,276 66,958
Year-end Total assets 143,226 141,230 1,193,550 Shareholders' equity 14,502 21,111 120,850 Interest-bearing liabilities 63,855 71,977 532,125
Yen US dollars Per share data Net income (loss) ￥(67.25) ￥1.05 ＄(0.56) Cash dividends 1.00 1.00 0.01
Note: Yen amounts have been translated into US dollars, for convenience only, at ¥120 = $1, the approximate exchange rate on March 31, 2003.
Net sales / Ratio of operating income to sales 1999 1.0 120,679
2000 3.6 121,080
2001 4.6 126,450
2002 4.4 126,655 Net sales (Millions of yen) 2003 6.7 126,595 Ratio of operating income to sales (%)
Net income (loss) / Net income per share (loss) 1999 (60.98) (5,713)
2000 (9.84) (924)
2001 (14.54) (1,367)
2002 1.05 99 Net income (Millions of yen) 2003 (67.25) (6,318) Net income per share (%)
Total assets / Shareholders' equity 1999 137,542 16,999 133,728 2000 15,495
2001 129,536 14,490 141,230 2002 21,111 Total assets (Millions of yen) 2003 143,226 Shareholders' equity (%) 14,502
ANNUAL REPORT 2003 02 To Our Shareholders and Investors First Year of Three-year Management Plan "Forward 30" Unfolds Smoothly
03 ANNUAL REPORT 2003 Akebono Posts Record-high Operating Income, Ridding Ourselves of the "Negative Legacy" due to Effects of Business Streamlining, etc. Resolutely and Working on Improvements in Our Financial Constitution for the Future Akebono is currently pushing ahead with its three-year medium-term management plan "Forward 30" effective April 2002, in pursuit of Akebono posted record-high operating income but faced a fulfilling its long-term goal of securing a 30% share of the global OEM consolidated net loss amounting to 6,318 million yen for the year market for disc brake pads, dubbed "Global 30." ended March 2003, having written off a massive unrealized loss on its In the first year of "Forward 30" (the year ended March 2003), the real estate business as an extraordinary loss. economic climate in Japan was harsh: despite some improvements in The real estate business had extended welfare facilities to employees corporate earnings, personal consumption slumped due to the impact since the establishment of a subsidiary in 1969. In the subsequent of widespread deflation, falling stock prices, uncertainty in years, however, it suffered a massive unrealized loss due to its failure employment and decreasing income. to take prompt action against non-performing assets, which swelled In the automotive industry, domestic production exceeded the 10 following the burst of Japan's economic bubble. Our original plan million mark for the first time in two years, totaling 10.32 million units, was to deal with this problem after fulfilling the aforementioned a year-on-year increase of 5.3%. This was attributable to the medium-term management plan "Forward 30." However, we relatively solid performance of exports of finished vehicles targeting acknowledged that the drive to globalize our business could not be North America and Asia and sales of small cars in Japan, both of financed from a long-term perspective, without considering the impact which increased. Meanwhile, the business environment is of the real estate business on Akebono's rating and stock price, and undergoing dramatic changes, as exemplified by the acceleration of the means to finance dividend payments. Based on the judgment corporate restructuring across group boundaries, and the pursuit of that Akebono's business performance (operating income) in the year environmentally friendly technological innovations. ended March 2003 was not a one-off condition, we decided to write The parts industry is no different from the automotive sector in terms off the loss within the current fiscal year (ending March 2004) by of globalization, diminishing borders and falling prices. Competition ourselves, rather than waiting idly until accounting for the impairment to survive the major shakeup remains fierce. of assets becomes mandatory in two years time. We firmly believe In such a climate, Akebono's non-consolidated net sales amounted to that improvements in our financial constitution made by ridding 98,277 million yen, up 3,451 million yen from the previous year. ourselves of such "negative legacy" will help Akebono globalize its Consolidated net sales totaled 126,595 million yen, which was more business significantly in the future. or less the same as in the previous year. This was attributable to We will continue executing the three-year medium-term management adjustments made to the accounting period of its North American plan "Forward 30" steadily, in an effort to boost our competitiveness consolidated subsidiary Akebono Corporation (North America), based on a global scale. on which only nine months' data was included in the consolidated We look forward to your kind understanding and further support. closing of accounts. On the income side, Akebono's consolidated operating income was a record-high 8,453 million yen, up 2,893 million yen from the previous year, owing to the strong performance of North American operations, the large volume of contracts targeting North America, the spin-off of plants in Japan, the execution of integrated production, the revision of personnel and remuneration schemes, the reduction of costs and other radical endeavors. Hisataka Nobumoto President, CEO & Chairman of the Board
ANNUAL REPORT 2003 04 Interview with CEO
Please explain Akebono's efforts in concrete terms.
Promotion of the Cost Revolution, Involving Radical Innovation of Operational Procedures Among the numerous measures featured in "Forward 30," the cost revolution may be regarded as the lifeline in global competition. The plan involves the radical innovation of operational procedures, including the conventional domestically-oriented comprehensive revision of designs and patterns of thinking and behavior may drawings from a new perspective, generate profits in the short run but which goes far beyond cost reduction What is the positioning of the cannot be expected to achieve growth sought by conventional improvement medium-term management or advancement in the long run. Put activities. For example, the R&D differently, the 30% target can be plan "Forward 30?" department is about to accomplish dramatic fulfilled only when the presence of the cost reduction, through its efforts in Akebono brand is established in the standardizing and integrating friction Building the Foundations for a global market. materials and the shapes of the friction Global Akebono "Forward 30" is a three-year medium- surface, and even "sharing" the disc Akebono's current medium/long-term term management plan launched in goal, dubbed "Global 30," is to secure a April 2002 based on such a view. The 30% share of the global OEM market for plan features various measures, disc brake pads. We set the 30% target including the cost revolution and the primarily for the purpose of changing professionalization of human resources, our employees' mindsets and spurring all of which are vital to the achievement them to fight in the global market, not to of the "Global 30" goal. Accordingly, mention the aim of increasing sales and the three-year period until March profits through expanded market share. 2005 is regarded as the warming-up/ As competition among companies preparation stage, for Akebono to build is likely to intensify in the future, a solid status within the global market.
Roadmap to Managerial Reform
2000 2001 2002 2003 2004 2005
Radical reform of operations to "Forward 30" reinforce management foundations "Global 30" "Akebono 2nd Creation 21" (The three-year plan to fulfill the "Global 30" goal)
Corporate Business Strategies Strategies Action guidelines based on achievements under "Akebono 2nd Creation 21" Established a goal, dubbed "Global 30," to secure a 30% share of the global OEM market for disc brake pads Aim to reinforce the corporate constitution through their synergy effects. Financial Strategies
05 ANNUAL REPORT 2003 brakes themselves, pressed by the accomplishments are given enhanced Acceleration of Reform Based on the increasing need among vehicle makers, rewards. New Headquarters' Infrastructure including those in the truck industry, to In some cases, such merit-based share brake parts. Another example is remuneration schemes may drive The construction of our new headquarters, the manufacturing department, which is individuals to chase figures shortsightedly the Akebono Crystal Wing (ACW), was reforming processes on the whole while to the extent that its rationality is completed at the end of November tackling various areas including the undermined on a company-wide scale. 2001, in the Ai-City complex in Hanyu revision of processes, the reduction of To avert this, we have exercised City, Saitama Prefecture. ACW has become parts, and the streamlining of logistics. ingenuity in making each individual an extremely sound "infrastructure" for Of note, the cost revolution rests on the employee develop a professional reforming operational procedures and selection and concentration of items mindset, and making their activities shifting employees' attitudes. We now manufactured in Japan since April help fulfill the "Forward 30" plan steadily have a speedy, close-knit communication 2001, and the strategic realignment of as a collective whole; for example, environment, having centralized the plants thereunder (including the spin-off target figures of a team are rated highly sales, development and procurement of four plants to date), based on which for tasks based on teamwork, whereas functions and the administrative efforts have been made to clarify the groundbreaking ideas are rated highly functions (such as personnel and responsibility of management and raise for tasks in which individual creativity is general affairs), which had previously employees' awareness of costs. the key. While the specific effects are been disparate geographically. We yet to be seen, there has been a boost intend to consciously take advantage of Adoption of a Performance-based in morale among employees, following ACW's merits in pursuing efficiency, Salary System and the the expansion of the scheme's scope to based on the utilization of information Professionalization of Human include general office employees technology, and build a framework for Resources as well. more creative operations, in an effort to On the other hand, we are also working further refine the Akebono brand. on introducing a new salary system linked to business performance, in order to make these activities truly fruitful and help Akebono become globally competitive. This is inextricably linked to the professionalization of human resources, which is also one of the measures featured in "Forward 30." Under the new system, Akebono's massive goal, which is to establish a global presence, is translated into targets for individual departments and employees, and those who have made greater value-added
ANNUAL REPORT 2003 06 Interview with CEO
What are the directions of Akebono's business in domestic and overseas markets?
Implementing Profit-improving Measures Tailored to Country/Region In the Japanese market, Akebono plans to clarify the positioning of products as, for example, "high value-added timing of which is yet to be decided. products" or "daily commodities," and On the other hand, universal value rests secure profits steadily by building an primarily on quality, unsurprisingly. I optimal cost structure according to their believe quality should be given top What exactly is the value of positioning, based on the view that it is priority, considering that Akebono is a the Akebono brand? unlikely for the Japanese market as a manufacturer of brakes, which are whole to experience dramatic growth. integral to the safety of automobiles. As for overseas markets, especially Actually, the level of quality we offer North America and Europe, we will proudly is one of the highest in the enhance and expand our business by New Value based on Core world, as exemplified by our European extending, to our overseas arms, Technology and Quality subsidiary, which became the first the operational procedures and the Broadly speaking, there are two Japanese company with ISO/TS16949 aspects. Firstly, Akebono strives to be certification on the continent (refer to a developer and provider of new value, p.11). Environmentally friendly constantly and continuously, based on products, which we are advocating as its core technology "Friction and items of new value, are expected to Vibration, their Control and Analysis." gain recognition as items of universal Secondly, Akebono endeavors to be a value in the near future, even though provider of universal value continuously. there may be no consensus among Continuous development and provision automakers at present. of new value involves, for example, the In any case, we believe the value of the development of brake friction materials Akebono brand rests on demonstrating that help conserve the global environment, its competitive stance in such a as well as new businesses, including manner, as a commitment to customers the sensor business which takes and the community. advantage of vibration analysis technology. Creating new value is also about providing products and services to China and other growth markets, the
07 ANNUAL REPORT 2003 broad expertise we have gained in including a landslide detection system, Japan through the cost revolution and which measures slight movements in the other initiatives. We also plan to direct Earth's surface and below for signs of landslides, and a loose tile detector, the savings from cost-cutting efforts in What are the trends in the new Japan towards business investment which accurately identifies loose tiles in required for tapping overseas markets. sensor business? the outer walls of buildings. In North America, Akebono's policy is Although the sensor business still to focus on the global expansion of accounts for a small proportion of aftermarket business, which is one of Akebono's sales, it is growing steadily. the measures featured in the "Forward Core Business of the Future In the year ending March 2003, sales 30" plan, in addition to OEM business. Our sensor business is derived from generated by the sensor business In relation to this, we started doing vibration analysis technology, which is increased dramatically to 1,617 million business with the National Auto Parts an element of our core technology yen, up 66.2% from the previous year. Association (NAPA) this fiscal year "Friction and Vibration, their Control and Its potential to become a core business (refer to p.10), and began fully Analysis." in the future is enormous, owing to its operating a new plant, Amtec Brake L.L.C. Akebono's technology plays a part in wide scope of applications and target In Europe, Akebono will launch a new some of the latest models equipped with markets. business, supplying Adam Opel in the vehicle-to-vehicle distance control year ending March 2004 (refer to p.11). functions. Our combined sensor (which Armed with environmentally friendly combines an accelerometer with an "green" materials, one of the factors that angular rate sensor) is also attracting a initially convinced Opel to select great deal of attention as a product Akebono's products, we will make indispensable for supporting intelligent further efforts to tap the European vehicle systems. market, where we have had limited Our efforts extend beyond the business achievements previously. automotive sector, however. We are With regard to Asia and the Middle also working on the development and East, we established a new sales arm marketing of products targeting civil in Singapore, called Akebono engineering and construction industries, Corporation Asia Pte. Ltd. (refer to p.12), with which we plan to further expand our operations, focusing on the aftermarket business.
ANNUAL REPORT 2003 08 Operating Status by Region
Akebono has been actively meeting the needs of the increasingly globalized automotive industry since it made inroads into North America in 1980. Currently, we have development, production and sales functions in our tripolar global network spanning North America, Europe and Asia. We will promote changes in employees' mindsets to become a global player as advocated in our medium-term management plan "Forward 30," based on our wealth of experience in marketing and product development worldwide, in an effort to establish a greater presence in the global market.
09 ANNUAL REPORT 2003 Akebono Corporation（ North America） Ambrake Corporation Amtec Brake L.L.C. ARC Brake L.L.C. Amak Brake L.L.C.
Business Profile in the North American Market Akebono's operations in the world's largest motorist nation date back to 1980, when Akebono America Inc., was established as its sales and marketing arm. In 1986, we established Ambrake Corporation, a joint venture originally with General Motors, which is now our flagship plant in the North American market. In 1994, we founded our second plant, Amak Brake L.L.C., a joint venture with Itochu Corporation. In 1989, we established Akebono Brake System Engineering Center Inc., an R&D center, with which we developed an integrated supply structure spanning development, production and sales in the North American region. In the subsequent years, Akebono has steadily expanded its market share, through sales to General Motors, Ford and local Japanese automakers. In 1998, Akebono established Akebono Corporation (North America), an umbrella company of the Akebono Corporation（ North America） group for the North American region, in an effort to further strengthen management foundations.
Amak Brake L.L.C. Ambrake Corporation
Akebono starts doing business with DaimlerChrysler Expansion of aftermarket business through product supply to NAPA In 2002, Akebono, already supplying products to General Motors and Ford, started doing business with DaimlerChrysler. We now supply front The National Auto Parts Association (NAPA) is a division of the Genuine disc brakes for the Jeep Grand Cherokee, a design that has been highly Parts Company (GPC), which is one of the five leading groups of appreciated for its enhanced braking performance based on distributors and retailers of automotive supplies in the United States. improvements against judder (where the pedal suffers unpleasant It deals in auto parts, and has 82 mega-distribution centers and vibration during braking), and for successfully commencing the supply approximately 12,000 outlets called "NAPA Shops" in the U.S., Canada of products within just nine months of the development stage. Now that and Mexico. NAPA's net sales account for 52% of GPC's total sales, Akebono's brakes are adopted in such a highly-popular flagship sports and it has a 4.5% share in the North American market for retail utility vehicle in the United States, our sales are expected to expand automotive parts. further in the region. Akebono sells "Ceramix" (the finest product in the lineup of Akebono disc brake pads, which are available in six grades) through NAPA's massive distribution network. We currently produce and deliver 100,000 units per month from Amtec Brake L.L.C., our fourth plant in North America. Our future plan is to broaden the product grades and expand our business further.
ANNUAL REPORT 2003 10 Business Profile in the European Market Akebono scheduled to start doing business with Opel in fiscal 2003 Akebono's activities in Europe started in 1985, with the establishment of Akebono Europe S.A., on the outskirts of Akebono supplies brakes for Audi and Volkswagen vehicles exported to the North American and Japanese markets, and the improvements we Paris. In 1995, we opened an R&D center called the Centre de have made in the quality of brakes have been well received. In fiscal Recherche Europe«en Akebono (CREA), on the premises of 2003, Akebono will launch its first OEM business targeting the European Akebono Europe S.A., aimed at launching full-fledged market, involving the supply of friction materials to Opel. Contributing operations in the European continent. CREA launched the factors to the business include the excellent reputation of our environmentally friendly "green" materials and our track record. We development of friction materials for brakes, tailored to meet the expect the demand for such "green" materials to increase further, in line needs of European nations. with the introduction of tougher environmental regulations in the In 1998, we founded Akebono Arras S.A., a friction materials European market. Akebono is committed to further alleviating the plant, in Arras in the north of France. In 1999, it started environmental burden and expanding its business in Europe. supplying OEM products for vehicles exported to the Japanese and North American markets by leading European automakers An industry leader in acquiring ISO/TS16949 certification Audi and Volkswagen, having won recognition for its advanced As a manufacturer of brakes, which are integral to the safety of technology and quality. automobiles, Akebono is making group-wide efforts to improve quality, In fiscal 2003, Akebono plans to start doing business with Opel. such as acquiring ISO certification, and as a result of such efforts, Akebono's reputation as a global supplier is on the rise in Europe. Akebono Europe S.A., and Akebono Arras S.A., have become the first Japanese auto-parts firms in Europe with ISO/TS16949 certification. ISO/TS16949 is a new ISO standard set forth as the evolved version of QS-9000 in North America, and certifies Akebono's high quality control capabilities.
Akebono Arras S.A.
Akebono Europe S.A.
Akebono Arras S.A. Akebono Europe S.A.
11 ANNUAL REPORT 2003 ●1 Akebono Brake Industry Co., Ltd., Ai-City (Headquarters) ●Akebono2 Brake Industry Co., Ltd. (Head Office) ●Akebono3 Brake Yamagata Manufacturing Co., Ltd. ●Akebono4 Brake Iwaki Manufacturing Co., Ltd. ●Akebono5 Brake Fukushima Manufacturing Co., Ltd. ●Akebono6 Brake Miharu Manufacturing Co., Ltd. ●Akebono7 Brake Iwatsuki Manufacturing Co., Ltd. ●Akebono8 Brake Tatebayashi Manufacturing Co., Ltd. ●Alocs9 Corporation ●Akebono10 Engineering Co., Ltd. ●Akebono11 Research & Development Centre Ltd. ●Sanyo12 Hydraulic Industry Co., Ltd. ●Sanyo13 Brake Industry Co., Ltd. 3 ●Akebono14 Tec Corporation ●Akebono15 Management Service Co., Ltd. 4 5 6 14 ●NeoStreet16 Co., Ltd. 8 Akebono Corporation Asia Pte.Ltd. 1 7 9 10 11
2 15 16 PT. Tri Dharma Wisesa
12 13
Business Profile in Japanese and Asian Markets Establishment of Akebono Corporation Asia Pte. Ltd., a new sales arm in Singapore Akebono has a dominant share in the OEM market for disc brake pads in Japan, which is one of the most advanced In April 2003, Akebono established Akebono Corporation Asia Pte. Ltd., a new sales arm in Singapore. Akebono Corporation Asia Pte. Ltd., automotive nations in the world. Further, we share our serves as the hub in the Asian market for aftermarket products, which Japanese technology, expertise and other intellectual property are increasingly in demand, and is expanding its activity area spanning with North America, Europe and Asia, which helps local the ASEAN region, India and even Middle Eastern countries. automotive industries make progress. We have nine plants in Japan, which may be regarded as the centerpiece of Akebono, including Akebono Brake Yamagata Manufacturing Co., Ltd., our flagship plant for friction materials. In the ASEAN region, we are engaged in locally-oriented activities in countries with high growth potential led by our Indonesian affiliate and including technology licensing to
Malaysia, the Philippines, Taiwan, Australia and India. Akebono Brake Industry Co., Ltd. Akebono Brake Yamagata Akebono Brake Fukushima Ai-City (Headquarters) Manufacturing Co., Ltd. Manufacturing Co., Ltd.
Akebono Brake Miharu Akebono Brake Iwatsuki Akebono Brake Tatebayashi Manufacturing Co., Ltd. Manufacturing Co., Ltd. Manufacturing Co., Ltd.
ANNUAL REPORT 2003 12 Environmental Conservation Activities
A Continual Provider of New Value Contributing to the Community and Environment in the 21st Century
Akebono actively promotes environmental management on a group-wide scale based on the view that the protection of each and every individual "life," one of its top-priority management issues, includes conservation of the global environment. We are working on the development of technologies and products that will help alleviate the environmental burden, in an effort to pass on a better global environment to future generations with the cooperation of people in various fields, led by those in the automotive industry.
Basic Mission for the Environment Basic Policy for the Environment
Based on Akebono's Corporate Mission and its 1) We will actively make efforts giving due consideration to safety and Declaration for the 21st Century, we continue to environmental conservation from the product development/design stages, offer new value that will contribute to the community and promote the development of technologies and products with minimal and the environment in the 21st century. We will environmental impact. endeavor to conserve the environment on a global 2) Each and every employee will endeavor to reduce the burden on the scale as a citizen of the Earth, and strive to develop environment continuously, so as to build a sustainable society, including a safe and affluent society in harmony with the energy saving, resource saving, waste reduction and the promotion of recycling. environment, both voluntarily and continuously. 3) We will observe laws, regulations, treaties and other rules relating to the environment, both domestically and internationally, and establish criteria for self-management in an effort to improve our level of environmental management. 4) We will actively disclose information so that our environmental conservation efforts will be broadly understood, and endeavor to create a better living environment in cooperation with the local community.
Major Efforts in the Past Major Achievements in Fiscal 2002 Akebono has terminated the use of materials suspected of being Two Japanese Plants (Iwatsuki and Miharu) Completely Eliminate even minutely harmful, and has developed new products based on Waste Disposal at Landfills substitute materials, in consideration of the impact of products on the Volume of Industrial Waste in Landfills In recent years, companies 6.3 environment. For example, in October 1979, we became the first (Thousand tons/Year) have acknowledged that
company in Japan to have successfully commercialized asbestos- 4.9 waste reduction and recycling free, semi-metallic friction materials. By 1987, we eradicated the use 3.7 3.7 are two of the key issues in of asbestos in all friction materials handled by Akebono, including 2.6 environmental conservation, clutch facings, disc brake pads and drum brake linings. By March 2.3 1.7 partly because of the shortage 2000, we cut the domestic production of asbestos products to zero, 1.1 of space remaining at landfills. 0.6 and by March 2001, slashed the domestic sales of such products to 0.0 Akebono is striving to achieve 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 zero. In conjunction with such environmental consideration given to "zero emissions," and has products, by the end of 2000, we abolished the use of managed to terminate the disposal of industrial waste at landfills dichloromethane, which had completely at two plants in Japan, namely, Iwatsuki and Miharu. been used for degreasing and cleaning products, at six facilities in Japan. We are also Akebono Acquires ISO14001 Certification for All Plants in Japan giving environmental Since acquiring ISO14001 certification for Miharu plant in March consideration to the production 1999, Akebono had acquired ISO14001 certification for seven plants stage. We are moving ahead in Japan by the end of fiscal 2001, namely, Miharu, Fukushima, with the plan to cut the use of Yamagata, Tatebayashi, Sanyo Brake, Nihon Kizai and Iwatsuki. We environmentally burdensome completed our quest to acquire ISO14001 certification for all plants in substances such as sexivalent Japan, following the certification of Ai-City (including chrome, in addition to the Hanyu Plant), Akebono Engineering Co., Ltd., already-banned mercury, lead Akebono Brake Iwaki Manufacturing Co., and cadmium, so as to comply Ltd., and Sanyo Hydraulic Industry Co., Ltd., with laws and regulations on in fiscal 2002. Our future efforts will be substances used in automobiles directed at acquiring ISO14001 certification in Europe and Japan. for all consolidated companies, including overseas subsidiaries and affiliates.
13 ANNUAL REPORT 2003 Consolidated Five-year Summary AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES Years ended March 31 Thousands of Millions of yen US dollars 1999 2000 2001 2002 2003 2003
Net sales ¥ 120,679 ¥ 121,080 ¥ 126,450 ¥ 126,655 ¥ 126,595 $ 1,054,958 Net income (loss) (5,713) (924) (1,367) 99 (6,318) (52,650) Shareholders' equity 16,999 15,495 14,490 21,111 14,502 120,850 Total assets 137,542 133,728 129,536 141,230 143,226 1,193,550
Yen US dollars Per share data
Net income (loss) ¥(60.98) ¥(9.84) ¥(14.54) ¥1.05 ¥(67.25) $(0.56) Cash dividends － 3.00 2.00 1.00 1.00 0.01
Note: Yen amounts have been translated into US dollars, for convenience only, at ¥120 = $1, the approximate exchange rate on March 31, 2003.
Non-consolidated Five-year Summary AKEBONO BRAKE INDUSTRY CO., LTD. Years ended March 31 Thousands of Millions of yen US dollars 1999 2000 2001 2002 2003 2003
Net sales ¥ 93,779 ¥ 95,443 ¥ 98,418 ¥ 94,826 ¥ 98,277 $ 818,975 Net income (loss) (4,386) 474 227 384 (7,413) (61,775) Shareholders' equity 19,447 19,983 19,833 24,903 17,838 148,650 Total assets 100,059 105,930 106,543 123,723 127,534 1,062,783
Yen US dollars Per share data
Net income (loss) ¥(46.81) ¥5.05 ¥2.41 ¥4.08 ¥(78.83) $(0.66) Cash dividends － 3.00 2.00 1.00 1.00 0.01
Note: Yen amounts have been translated into US dollars, for convenience only, at ¥120 = $1, the approximate exchange rate on March 31, 2003.
ANNUAL REPORT 2003 14 Management Discussion and Analysis
Business Environment and Operating Overview In fiscal 2002 (ended March 2003), the economic climate in Japan was harsh despite Trends in domestic automotive production some improvements in corporate earnings, as personal consumption slumped due to the impact of widespread deflation, falling stock prices, uncertainty in employment 1999 990 and decreasing income. In the automotive industry, domestic production exceeded the 10 million mark for the first time in two years, totaling 10.32 million units, a year-on-year increase of 5.3%. 2000 993 This was attributable to the relatively solid performance of exports of finished cars targeting North America and Asia and sales of small cars in Japan, both of which 2001 1,004 increased. Meanwhile, the business environment is undergoing dramatic changes, as exemplified by the acceleration of corporate restructuring across group 2002 981 boundaries, and the pursuit of environmentally friendly technological innovations. The parts industry is no different from the automotive sector in terms of globalization, diminishing borders and falling prices. Competition to survive the major shakeup 2003 1,032 remains fierce. In such a climate, Akebono proceeded with building a framework to fulfill its long-term (Ten thousand units) goal of securing a 30% share of the global OEM market for disc brake pads, dubbed "Global 30," in the first year of its medium-term management plan "Forward 30." Specifically, we completed the process of spinning off domestic plants, implemented integrated production, revised the remuneration scheme and reduced costs, in an effort to enhance the competitiveness of our business.
Overview of Business Performance
Net Sales Net sales Consolidated net sales totaled 126,595 million yen, which was more or less the same as in the previous year, due to adjustments to the accounting period of Akebono 1999 120,679 Corporation (North America), based on which only nine months of its data were taken into account. For reference, if 12 months' data on net sales generated in North 2000 121,080 America had been taken into account, consolidated net sales would have increased substantially, to 138 billion yen. 2001 126,450 Cost of Sales and Selling, General and Administrative Expenses Cost of sales amounted to 101,641 million yen, down 3,074 million yen from the 2002 126,655 previous year. This was attributable to the impact of the aforementioned adjustments to the accounting period of Akebono Corporation (North America), as well as the 2003 126,595 completed spin-off of domestic plants, the implementation of integrated production, the revision of remuneration schemes, cost-cutting activities and other (Millions of yen) accomplishments made under "Forward 30." Consequently, gross profit on sales totaled 24,954 million yen, up 3,014 million yen. Selling, general and administrative expenses totaled 16,501 million yen, more or less the same as in fiscal 2001. However, operating income was a record-high 8,453 Operating income / Ratio of operating income to sales million yen, a year-on-year increase of 2,893 million yen, due to the substantial decrease in the cost of sales. In conjunction with this, the ratio of operating income to 1999 1.0 1,172 sales rose to 6.7% from 4.4% in the previous year. 2000 3.6 4,403
Other Income and Expenses In fiscal 2002, the third year since the introduction of new accounting standards for 2001 4.6 5,850 retirement benefits, we declared 2,546 million yen as a loss, based on the policy of amortizing over five years the transitional obligation amounting to 12,732 million yen, 2002 4.4 5,560 which arose in conjunction with the revision of regulations on accounting standards for retirement benefits. We also declared a loss associated with the heavy unrealized loss on the real estate business in fiscal 2002. 2003 6.7 8,453 Specifically, we declared 10,467 million yen as "loss on liquidation of subsidiaries," Operating income (Millions of yen) 1,655 million yen as "loss on disposal of property, plant and equipment," and 1,936 Ratio of operating income to sales (%) million yen as "loss on sale and devaluation of investment securities." (* Refer to Note 12.) Akebono's real estate business had extended welfare facilities to employees since the establishment of its subsidiary Akebono Kosan Co., Ltd., in 1969. In the subsequent years, however, it suffered a massive unrealized loss due to its failure to take prompt action against non-performing assets, which swelled following the burst of Japan's economic bubble. Our original plan was to deal with this problem after fulfilling the medium-term management plan "Forward 30". However, we decided to write off the loss in the current fiscal year, rather than waiting idly until accounting for the
15 ANNUAL REPORT 2003 impairment of assets becomes mandatory in two years time. The decision was based Net income (loss) on our judgment that Akebono's business performance (operating income) in fiscal 2002 was not a one-off condition, and the need to finance the globalization of our 1999 （5,713） business from a long-term perspective, in consideration of the impact of the real estate business on Akebono's rating and stock price and the means to finance 2000 （924） dividend payments.
2001 （1,367） Net Income As a consequence, consolidated net loss for fiscal 2002 amounted to 6,318 million yen. 2002 99 Improvements in our financial constitution by ridding ourselves of the "negative legacy" mentioned earlier will provide a strong foundation for Akebono in its quest to globalize its business. We intend to continue proceeding with our three year medium- 2003 （6,318） term management plan "Forward 30," in an effort to boost our competitiveness to survive competition on a global scale. (Millions of yen)
Trends by Segment
Trends by Product Sales of one of Akebono's flagship products, disc brakes, totaled 34,654 million yen, up 2,458 million yen from the previous year, owing to solid exports to North America and steady local demand. Sales of disc brake pads amounted to 38,107 million yen, down 2,504 million yen from fiscal 2002. This was primarily attributable to the price drop in aftermarket products. Aftermarket products can be broadly divided into three categories: genuine OES products; second brand genuine OES products; and original supplier brand products. The shift from genuine OES products to second brand genuine OES products had the effect of reducing the unit sales price. Sales of sensors rose dramatically, due to an increase in contracts for combined sensors used for vehicle control.
Sales by product (Millions of yen) 2002 2003 Change
Disc brakes 32,196 34,654 +2,458 Drum brakes 17,057 17,956 +899 Disc brake pads 40,611 38,107 -2,504 Other auto parts 21,931 18,358 -3,573 Industrial machinery 5,104 5,643 +539 Rolling stock 3,430 3,489 +59 Sensors 973 1,617 +644 Other 5,353 6,771 +1,418 Total 126,655 126,595 -60
Trends by Geographical Location In Japan, operating income increased by 3,653 million yen from the previous year, as a result of the increase in sales due to the strong performance of OEM products, in addition to the cost revolution, the introduction of a new salary system and other accomplishments made under "Forward 30." In North America, sales decreased compared to the previous year, due to adjustments to the accounting period of Akebono Corporation (North America), based on which the consolidated closing of accounts reflected only nine months' data (from April through December). Sales would have increased, however, if 12 months' data had been taken into account. Operating income decreased by 1,115 million yen from the previous year due to the financial burden associated with the inauguration of Amtec Brake L.L.C., and the said adjustments to the accounting period.
ANNUAL REPORT 2003 16 Management Discussion and Analysis
Having started doing business with DaimlerChrysler in North America, we now have Breakdown of sales by target market in business relations with all of the Big Three automakers. We enjoy an excellent automotive industry (Millions of yen) reputation for our technology and quality, and we plan to continue enhancing our OEM business in the future. Our aftermarket business was also boosted in its quest towards globalization; for example, we started supplying products to the National Auto Parts Association (NAPA) in fiscal 2002. European operations were still in the red, but posted higher sales and profits due to Aftermarket the increase in contracts for OEM products and aftermarket brake pads with the help 33,005 of group-wide support. In February 2003, Akebono made an additional investment of 30 million Euros in Akebono Arras S.A., to strengthen the financial condition of the OEM subsidiary in anticipation of equipment requirements for new disc brake pad 82,248 production for Opel. In April 2003, we established Akebono Corporation Asia Pte. Ltd., a new sales arm in Singapore. It is regarded as the hub in charge of expanding aftermarket business in Asia (excluding Japan) and is expected to help increase profits from this year onwards. 2002
Net sales and operating income North Consolidated by region (Millions of yen) Japan Europe Adjustments America total Aftermarket Sales to customers 96,051 30,054 550 126,655 30,632 Transfer between geographic areas 2,513 1,477 956 （4,946） － 2002 Total revenue 98,564 31,531 1,506 （4,946） 126,655 OEM 83,616 Operating income 3,418 3,019 （632） （245） 5,560 Sales to customers 99,186 26,652 757 126,595 Transfer between geographic areas 2,085 616 2,078 （4,779） － 2003 Total revenue 101,271 27,268 2,835 （4,779） 126,595 2003 Operating income 7,071 1,904 （510） （12） 8,453
Financial Status Total assets at the year-end increased by 1,996 million yen year-on-year, to 143,226 Total assets / Turnover of total assets million yen. In the assets section, current assets decreased by 7,069 million yen from the previous 1999 0.90 137,542 year, to 50,028 million yen, largely due to the increase in cash and cash equivalents, notes and accounts receivable-trade attributable to decreases in notes discounted, and 2000 0.89 133,728 the increase in deferred income taxes associated with the withdrawal from the real estate business. We also reduced inventories by streamlining efforts in production and 2001 0.96 129,536 sales processes. Plant, property and equipment decreased 4,436 million yen to 73.9 billion yen, not only 2002 141,230 due to the cutback in machinery associated with the spin-off of domestic plants and the 0.94 consolidation of products, but also because of the reduction in construction in progress. Investments and other assets amounted to 19,298 million yen, more or less equivalent 2003 0.89 143,226 to the previous year, due to the increase in deferred income taxes, which offset the loss Total assets (Millions of yen) on the devaluation of investment securities. Turnover of total assets (Times)
Turnover period of inventories / Turnover period of receivables
1999 1.78 2.65
2000 1.33 2.82
2001 1.15 2.61
2002 1.46 2.37
2003 1.00 2.31
Turnover period of inventories (Months) Turnover period of receivables (Months)
17 ANNUAL REPORT 2003 In the liabilities section, current liabilities totaled 64,607 million yen, down 5,744 million Current ratio yen from the previous fiscal year, primarily due to repayments of short-term bank loans. The closing balance of short-term bank loans amounted to 19,029 million yen, a year- 1999 94.9 on-year decrease of 11,621 million yen. Long-term liabilities amounted to 62,428 million yen, a decrease of 14,315 million yen 2000 82.6 from fiscal 2001, mainly attributable to the increase in long-term debt. During fiscal 2002, we issued new unsecured bonds to the amount of 6,668 million yen. As a result of the decrease in current liabilities owing to the dramatic cutback of short- 2001 68.1 term bank loans, the current ratio rose to 77.4%, from 61.1% at the previous year-end. The quick ratio also improved to 51.0%, from 42.2%, especially due to the increase in 2002 61.1 cash and cash equivalents. The balance of interest-bearing liabilities for fiscal 2002 amounted to 63,855 million yen, 2003 77.4 a decrease of 8,122 million yen from the previous closing balance of 71,977 million yen. Akebono plans to make continuous efforts in ensuring the liquidity of assets, especially (%) in reducing interest-bearing liabilities. Shareholders' equity decreased by 6,609 million yen from the previous fiscal year to 14,502 million yen, primarily due to the dramatic reduction in the consolidated surplus Balance of interest-bearing liabilities / D/E ratio associated with the declaration of net loss. As a result, shareholders' equity ratio decreased from 14.9% to 10.1% at the year-end. 1999 495 84,229
2000 504 78,075
2001 480 69,573
2002 341 71,977
2003 440 63,855
Balance of interest-bearing liabilities (Millions of yen) D/E ratio (%)
Cash Flows
Akebono endeavored to generate funds not only by reducing stock but also by slashing Cash flows equipment investment and selling investment securities. As a result, the closing （429） balance of cash and cash equivalents at the end of fiscal 2002 stood at 6,393 million 1999 （9,253） yen, a year-on-year increase of 1,151 million yen. Free cash flow in the fiscal year was 13,522 4,003 million yen, up 2,715 million yen from the previous year, which helped pay back 12,319 2000 （8,642） interest-bearing liabilities, increase our investment capacity and improve our balance sheet. （7,790） 9,229 2001 （4,568） Cash Flows from Operating Activities （7,118） Net cash provided by operating activities totaled 8,035 million yen, despite having 12,276 2002（10,988） declared a net loss of 6,318 million yen, due to the loss on liquidation of subsidiaries to （669） the amount of 10,467 million yen and depreciation and amortization to the amount of 8,035 7,077 million yen, both of which have no impact on cash flows. 2003 （4,032） （2,756） Operating cash flows (Millions of yen) Investing cash flows (Millions of yen) Cash Flows from Investing Activities Financing cash flows (Millions of yen) Net cash used in investing activities totaled 4,032 million yen, due to the additions to property, plant and equipment to the amount of 6,447 million yen, additions to intangible assets associated with information technology investment to the amount of 1,160 million yen, and the proceeds from the sale of assets to the amount of 3,024 Capital investment / Depreciation million yen. 1999 10,672 7,015 9,770 Cash Flows from Financing Activities 2000 Net cash used in financing activities totaled 2,756 million yen, as proceeds from the 8,059 issuance of long-term debt amounted to 18,019 million yen, while the decrease due to 7,849 2001 repayments of long-term debt and short-term borrowings amounted to 10,622 million 7,916 yen and 11,549 million yen, respectively. 14,004 2002 7,565 6,447 2003 7,077
Capital investment (Millions of yen) Depreciation (Millions of yen)
ANNUAL REPORT 2003 18 Consolidated Balance Sheets AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES As of March 31, 2003 and 2002
Thousands of Millions of yen US dollars (Note 1) ASSETS 2003 2002 2003
Current assets: Cash and cash equivalents ¥ 6,393 ¥ 5,242 $ 53,275 Time deposits 27 18 225
Receivables: Notes and accounts receivable, trade 25,016 23,625 208,467 Unconsolidated subsidiaries and affiliates 2,103 1,402 17,525 Other 1,776 1,481 14,800 28,895 26,508 240,792
Less allowance for doubtful accounts （9） （5） （75） 28,886 26,503 240,717
Inventories (Note 3) 8,372 8,611 69,767 Deferred income taxes (Note 7) 4,545 964 37,875 Other current assets 1,805 1,621 15,041 50,028 42,959 416,900
Property, plant and equipment (Note 5): Land 23,473 23,589 195,608 Buildings and structures 44,294 44,303 369,117 Machinery, equipment and tools 100,510 108,716 837,583 Construction in progress 3,283 6,546 27,358 171,560 183,154 1,429,666
Less accumulated depreciation （97,660） （104,818） （813,833） 73,900 78,336 615,833
Investments and other assets: Investment securities (Note 4) 4,244 5,662 35,367 Investments in and advances to unconsolidated subsidiaries and affiliates 4,951 5,091 41,258 Research and development costs 140 241 1,167 Deferred income taxes (Note 7) 6,958 5,134 57,983 Other 3,005 3,807 25,042 19,298 19,935 160,817
Total assets ¥143,226 ¥141,230 $1,193,550
See notes to consolidated financial statements.
19 ANNUAL REPORT 2003 Thousands of Millions of yen US dollars (Note 1) LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002 2003
Current liabilities: Short-term bank loans (Note 5) ¥ 19,029 ¥ 30,650 $ 158,575 Current portion of long-term debt (Note 5) 7,486 9,505 62,383
Payables: Notes and accounts payable, trade 17,086 17,910 142,384 Notes payable, construction 66 1,174 550 Unconsolidated subsidiaries and affiliates 1,717 1,869 14,308 Other 317 1,163 2,642 19,186 22,116 159,884
Accrued expenses 5,287 5,888 44,059 Accrued income taxes (Note 7) 1,300 763 10,833 Allowance for loss on liquidation of subsidiaries 10,717 － 89,308 Other current liabilities 1,602 1,429 13,350 64,607 70,351 538,392
Long-term liabilities: Long-term debt (Note 5) 37,340 27,686 311,167 Accrued severance benefits (Note 6) 15,022 11,859 125,183 Deferred income taxes (Note 7) 5,667 5,600 47,225 Other long-term liabilities 4,399 2,968 36,658 62,428 48,113 520,233
Minority interests in consolidated subsidiaries 1,689 1,655 14,075
Shareholders' equity (Notes 8 and 9): Common stock: Authorized - 320,000,000 shares Issued - 94,019,118 shares 9,038 9,038 75,317 Additional paid-in capital 7,612 7,612 63,433 Deficit （8,924） （2,424） （74,367） Accumulated other comprehensive income 6,799 6,887 56,659 14,525 21,113 121,042
Less common stock held in treasury （23） （2） （192） 14,502 21,111 120,850 Commitments and contingencies (Note 13)
Total liabilities and shareholders' equity ¥143,226 ¥141,230 $1,193,550
ANNUAL REPORT 2003 20 Consolidated Statements of Operations AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2003 and 2002
Thousands of Millions of yen US dollars (Note 1) 2003 2002 2003
Net sales ¥126,595 ¥126,655 $1,054,958
Costs and expenses: Cost of sales 101,641 104,715 847,008 Selling, general and administrative expenses 16,501 16,380 137,508 118,142 121,095 984,516
Operating income 8,453 5,560 70,442
Equity in earnings of affiliates （1,217） （993） （10,141）
Other expenses (income): Interest and dividend income （134） （76） （1,117） Interest expenses 1,385 1,371 11,542 Other, net (Note 12) 17,440 4,296 145,333 18,691 5,591 155,758
Income (loss) before income taxes （9,021） 962 （75,175）
Income taxes (Note 7): Current 1,771 1,514 14,758 Deferred （5,133） （1,295） （42,775） （3,362） 219 （28,017）
Income (loss) before minority interests （5,659） 743 （47,158）
Minority interests in consolidated subsidiaries 659 644 5,492
Net income (loss) ¥（6,318） ¥ 99 $ （52,650）
Per share data Yen US dollars (Note 1) Net income (loss) ¥（67.25） ¥1.05 $（0.56） Cash dividends 1.00 1.00 0.01
See notes to consolidated financial statements.
21 ANNUAL REPORT 2003 Consolidated Statements of Cash Flows AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2003 and 2002
Thousands of Millions of yen US dollars (Note 1) 2003 2002 2003
Cash flows from operating activities: Net income (loss) ¥（6,318） ¥ 99 $ （52,650） Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,077 7,565 58,975 Loss on sale and disposal of property, plant and equipment 1,646 162 13,717 Provision for doubtful accounts （91） （2） （758） Loss on sale and devaluation of investment securities 1,885 390 15,708 Loss on devaluation and disposal of inventories 412 103 3,433 Net periodic retirement benefit costs 3,162 2,842 26,350 Equity in earning of affiliates （1,217） （993） （10,142） Minority interests 34 （1,074） 283 Deferred income taxes （5,228） （1,295） （43,567） Loss on liquidation of subsidiaries 10,467 － 87,225 Changes in assets and liabilities Receivables （2,543） 3,685 （21,192） Inventories （439） 1,146 （3,658） Payables （433） （1,352） （3,608） Accrued expenses 253 764 2,109 Accrued income taxes （557） 72 （4,642） Other （75） 164 （625） Net cash provided by operating activities 8,035 12,276 66,958
Cash flows from investing activities: Additions to property, plant and equipment （6,447） （14,004） （53,725） Proceeds from sale of property, plant and equipment 3,024 4,731 25,200 Additions to intangible assets （1,160） （1,445） （9,667） Payment for purchase of investment securities （79） （315） （658） Proceeds from sale of investment securities 469 10 3,908 Increase in other assets 161 35 1,342 Net cash used in investing activities （4,032） （10,988） （33,600）
Cash flows from financing activities: Proceeds from issuance of long-term debt 18,019 9,040 150,158 Repayments of long-term debt （10,622） （12,805） （88,516） Increase (decrease) in short-term borrowings （11,549） 3,644 （96,241） Increase in capital lease obligations 2,761 1,164 23,008 Decrease in capital lease obligations （1,204） （1,997） （10,033） Increase in other long-term debt 30 380 250 Dividends paid （191） （95） （1,592） Net cash used in financing activities （2,756） （669） （22,966）
Effect of exchange rate changes on cash （96） 22 （800） Net increase in cash and cash equivalents 1,151 641 9,592 Cash and cash equivalents at the beginning of the year 5,242 4,574 43,683 Adjustment due to increase of consolidated subsidiaries － 27 － Cash and cash equivalents at the end of the year ¥ 6,393 ¥ 5,242 $ 53,275
Supplemental disclosure of cash flows information: Cash paid during the year for- Interest ¥ 1,417 ¥ 1,343 $ 11,808 Income taxes 1,400 1,759 11,667
See notes to consolidated finanical statements.
ANNUAL REPORT 2003 22 Consolidated Statements of Shareholders' Equity AKEBONO BRAKE INDUSTRY CO., LTD., AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2003 and 2002
Millions of yen Accumulated Total Number of Common Additional Deficit other comprehensive Treasury shareholders' common stock stock paid-in capital income (loss) stock at cost equity
Balance at March 31, 2001 94,010,069 ¥9,037 ¥7,611 ¥（2,423） ¥ 265 ¥ 0 ¥14,490 Comprehensive income Net income 99 99 Other comprehensive income, net of tax Revaluation excess of land 7,144 7,144 Unrealized loss on available-for-sale securities （956） （956） Foreign currency translation adjustments 434 434 Total comprehensive income 6,721 Adjustment due to increase in consolidated subsidiaries （6） （6） Cash dividends （94） （94） Treasury stock purchased, net （2） （2） Stock issued under stock option plan 9,049 1 1 2 Balance at March 31, 2002 94,019,118 ¥9,038 ¥7,612 ¥（2,424） ¥6,887 ¥（2） ¥21,111 Comprehensive income Net loss （6,318） （6,318） Other comprehensive income, net of tax Revaluation excess of land 6 98 104 Unrealized gain on available-for-sale securities 492 492 Foreign currency translation adjustments （678） （678） Total comprehensive income （6,400） Cash dividends （188） （188） Treasury stock purchased, net （21） （21） Balance at March 31, 2003 94,019,118 ¥9,038 ¥7,612 ¥（8,924） ¥6,799 ¥（23） ¥14,502
Thousands of US dollars (Note 1) Accumulated Total Number of Common Additional Deficit other comprehensive Treasury shareholders' common stock stock paid-in capital income (loss) stock at cost equity
Balance at March 31, 2001 94,010,069 $75,308 $63,425 $（20,192） $ 2,209 $0$120,750 Comprehensive income Net income 825 825 Other comprehensive income, net of tax Revaluation excess of land 59,533 59,533 Unrealized loss on available-for-sale securities （7,967） （7,967） Foreign currency translation adjustments 3,617 3,617 Total comprehensive income 56,008 Adjustment due to increase in consolidated subsidiaries （50） （50） Cash dividends （783） （783） Treasury stock purchased, net （17） （17） Stock issued under stock option plan 9,049 9 8 17 Balance at March 31, 2002 94,019,118 $75,317 $63,433 $（20,200） $57,392 $（17） $175,925 Comprehensive income Net loss （52,650） （52,650） Other comprehensive income, net of tax Revaluation excess of land 50 817 867 Unrealized gain on available-for-sale securities 4,100 4,100 Foreign currency translation adjustments （5,650） （5,650） Total comprehensive income （53,333） Cash dividends （1,567） （1,567） Treasury stock purchased, net （175） （175） Balance at March 31, 2003 94,019,118 $75,317 $63,433 $（74,367） $56,659 $（192） $120,850
See notes to consolidated financial statements.
23 ANNUAL REPORT 2003 Notes to Consolidated Financial Statements
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been accounting principles and practices in Japan but is presented herein prepared in accordance with the provisions set forth in the Japanese as additional information. The United States dollar amounts included Securities and Exchange Law and its related accounting regulations herein are given solely for convenience and are stated, as matter of and in conformity with generally accepted accounting principles and arithmetical computation only, at the rate of ¥120=$1, the approximate practices in Japan. In preparing the consolidated financial statements, exchange rate at March 31, 2003. The translation should not be certain reclassifications have been made to the financial statements construed as representations that the Japanese yen amounts have issued in Japan in order to present them in a form which is more been, could have been or could in the future be converted into United familiar to readers outside Japan. In addition, the accompanying notes States dollars. include information which is not required under generally accepted
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation (f) Property, plant and equipment The accompanying consolidated financial statements include the Depreciation in the Company and its consolidated domestic accounts of AKEBONO BRAKE INDUSTRY CO., LTD. (the subsidiaries is computed on the declining balance method over the "Company") and its majority-owned subsidiaries (collectively the estimated useful lives of assets except buildings acquired since April "Companies"). 1, 1998 for which the straight line method is adopted. Depreciation in Intercompany transactions and accounts have been eliminated. its consolidated foreign subsidiaries is computed primarily on the Investments in 20%-50% owned affiliates were accounted for by the straight line method over the estimated useful lives of the respective equity method, in principle. assets. (b) Foreign currency translation (g) Research and development costs All asset and liability accounts of foreign subsidiaries and affiliates are Research and development costs are charged to income as incurred. translated into Japanese yen at appropriate year-end current (h) Accrued severance benefits exchange rates and all income and expense accounts are translated Accrued severance benefits are accounted for based on the projected at average rates of exchange during the year. The resulting benefit obligations and plan assets at the balance sheet date and the translation adjustments are accumulated and reported as part of other Companies amortize the unrecognized past service costs of comprehensive income. Foreign currency receivables and payables of retirement benefits over the period of five years. the Companies are translated into yen at the rate in effect at the balance sheet date and the resulting translation gains and losses are (i) Income taxes credited or charged to income for the year. Income taxes are provided for amounts currently payable for each year. The Companies adopt the asset and liability method of (c) Cash and cash equivalents accounting for income taxes and the tax effect of temporary In reporting cash flows, the Company considers cash and time differences is recognized. deposits with maturities of three months or less to be cash and cash equivalents. Such time deposits may be withdrawn on demand (j) Interest rate contracts without diminution of principal. The Company enters into interest rate swap agreements to manage interest rate risk on a portion of its long-term debt. The differential (d) Inventories paid or received under these agreements are recognized and included Finished goods and work in process are stated at cost, which is in interest expense or income as interest rates change and determined by the average cost method for finished goods and the recognized currently. first-in, first-out method for work in process. Materials and supplies are stated at the most recent purchase prices. Real estate held for development and sale is stated at cost. (e) Investments Investment securities are stated at fair value. Unrealized gains or losses on investment securities are directly charged to shareholders' equity at net of tax. Impairment losses on investment securities are recognized and charged to income currently.
3. INVENTORIES Inventories at March 31, 2003 and 2002 were as follows:
Thousands of Millions of yen US dollars 2003 2002 2003 Finished goods ¥5,030 ¥4,844 $41,917 Work in process 587 672 4,892 Materials and supplies 1,270 1,610 10,583 Real estate held for development and sale 1,485 1,485 12,375 ¥8,372 ¥8,611 $69,767
4. INVESTMENT SECURITIES The carrying amounts and aggregate fair value of investment securities at March 31, 2003 and 2002 were as follows:
Thousands of Millions of yen US dollars 2003 2002 2003 Available-for-sale securities: Cost ¥4,784 ¥ 7,059 $39,867 Unrealized gains 344 195 2,866 Unrealized losses （987） （1,696） （8,225） Fair value ¥4,141 ¥ 5,558 $34,508
ANNUAL REPORT 2003 24 Notes to Consolidated Financial Statements
5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT The weighted average annual interest rates applicable to the short-term bank loans at March 31, 2003 and 2002 were 1.3% and 1.4% respectively. Long-term debt at March 31, 2003 and 2002 consisted of the following:
Thousands of Millions of yen US dollars 2003 2002 2003 1.00% unsecured convertible bonds, convertible into common stock at ¥605.60 per share, due in 2005 ¥ 8,631 ¥ 8,631 $ 71,925 2.52% unsecured bonds, due in 2003 1,000 1,000 8,333 0.00% unsecured convertible bonds, convertible into common stock at ¥249 per share, due in 2002 － 3,881 － 1.80% unsecured bonds, due in 2004 6,000 6,000 50,000 0.25%-0.59% unsecured bonds, due in 2005 2,468 － 20,567 0.38%-0.40% unsecured bonds, due in 2006 2,000 － 16,667 0.46%-0.75% unsecured bonds, due in 2007 1,200 － 10,000 0.49% unsecured bonds, due in 2008 1,000 － 8,333 0.52%-7.75% loans principally from banks, due serially through 2009 21,627 16,689 180,225 2.70% payable to trust company, due serially through 2013 900 990 7,500 44,826 37,191 373,550
Less current portion 7,486 9,505 62,383 ¥37,340 ¥27,686 $311,167 At March 31, 2003 and 2002, property plant and equipment which has a carrying amount of ¥25,542 million ($212,850 thousand) and ¥26,466 million, respectively, were pledged as collateral for short-term bank loans, long-term debt and other obligations guaranteed.
6. RETIREMENT AND PENSION PLANS Under most circumstances, employees terminating their employment are entitled to lump-sum severance payment based on the rate of pay at termination, years of service and certain other factors. In addition to the aforementioned lump-sum severance payments, most employees are covered by the Company's non-contributory pension plan. The liability for employees' retirement benefits at March 31, 2003 and 2002 consisted of the following:
Thousands of Millions of yen US dollars 2003 2002 2003 Projected benefit obligations ¥ 56,730 ¥ 45,590 $ 472,750 Fair value of plan assets （16,580） （19,311） （138,167） 40,150 26,279 334,583 Unrecognized transitional obligation （5,092） （7,638） （42,433） Unrecognized actuarial loss （20,094） （6,859） （167,450） Unrecognized prior service cost 58 77 483 ¥ 15,022 ¥ 11,859 $ 125,183
The components of net periodic benefit costs for the year ended March 31, 2003 and 2002 were as follows:
Thousands of Millions of yen US dollars 2003 2002 2003 Service cost ¥1,581 ¥ 1,725 $13,175 Interest cost 1,834 1,689 15,283 Expected return on plan assets （894） （1,003） （7,450） Amortization of transitional obligation 2,546 2,546 21,217 Recognized actuarial loss 481 287 4,008 Amortization of prior service cost （19） （19） （158） ¥5,529 ¥ 5,225 $46,075
Assumption used for the years ended March 31, 2003 and 2002 are set forth as follows: 2003 2002 Discount rate 2.50% 4.00% Expected rate of return on plan assets 3.50%-4.95% 4.00%-5.45% Recognition period at actuarial gain/loss 15years 15years Amortization period of transitional obligation 5years 5years Amortization period of prior service cost 5years 5years
25 ANNUAL REPORT 2003 7. INCOME TAXES Japanese taxes on income applicable to the Companies would and liabilities, operating loss and tax credit carryforwards. normally result in an aggregate tax rate of approximately 40.9% Deferred tax assets and liabilities are measured using enacted for the years ended March 31, 2003 and 2002. Deferred tax tax rates expected to apply to taxable income in the years in assets and liabilities are recognized for all temporary differences which those temporary differences are expected to be recovered between the financial statements and income tax basis of assets or settled.
The differences between the statutory tax rate and effective income tax rate at March 31, 2002 and 2001 were reconciled as follows: 2003 2002 Statutory tax rate 40.9% 40.9% Increase (decrease) in taxes resulting from: Inter-company profits and dividends eliminated for which no tax effect was recognized （1.7） 55.5 Subsidiaries' current operating losses without tax benefits （0.7） 24.2 Foreign tax credits （1.2） （69.6） Permanently non-deductible expenses （1.0） 9.3 Effect of change in statutory tax rate in Japan （1.4） － Foreign earnings taxed at different rates 1.8 （10.8） Prior years taxes refunded 2.0 － Utilization of subsidiary's tax loss carryforwards － （35.8） Other （1.4） 9.0 Effective income tax rate 37.3% 22.7%
Significant components of the deferred tax assets and liabilities at March 31, 2002 and 2001 were as follows:
Thousands of Millions of yen US dollars 2003 2002 2003 Deferred tax assets: Inventories ¥ 78 ¥ 102 $ 650 Accrued expenses 744 488 6,200 Operating loss carryforwards 413 339 3,442 Foreign tax credit carryforwards － 328 － Accrued severance benefits 4,974 3,746 41,450 Unrealized loss on securities 259 613 2,158 Allowance for loss on liquidation of subsidiaries 4,150 － 34,583 Other 885 482 7,375 11,503 6,098 95,858 Deferred tax liabilities: Allowance for doubtful accounts － 39 － Capitalized interest 509 521 4,242 Land revaluation 4,828 4,938 40,233 Other 330 102 2,750 5,667 5,600 47,225 Net deferred tax assets ¥ 5,836 ¥ 498 $48,633
Note: Above deferred tax assets and liabilities included in the consolidated balance sheets at March 31, 2003 and 2002 were as follows:
Thousands of Millions of yen US dollars 2003 2002 2003 Current assets Deferred income taxes ¥ 4,545 ¥ 964 $ 37,875 Investments and other assets Deferred income taxes 6,958 5,134 57,983 Long-term liabilities Deferred income taxes （5,667） （5,600） （47,225） Net deferred tax assets ¥ 5,836 ¥ 498 $ 48,633
ANNUAL REPORT 2003 26 Notes to Consolidated Financial Statements
8. COMMON STOCK Under the Japanese Commercial Code, the entire amount of the of the new shares as additional paid-in capital. The portion of issue price is required to be accounted for as capital stock additional paid-in capital over 25% of stated capital could be paid although a company may by resolution of its Board of Directors to shareholders by resolution of a shareholders' meeting. account for an amount not exceeding one-half of the issue price
9. SHAREHOLDERS' EQUITY The Japanese Commercial Code provides that an amount equal to the fiscal year to which the dividend is applicable. In addition, to at least 10% of cash dividends and directors' and statutory semi-annual dividends may be paid upon resolution of the Board auditors' bonuses paid with respect to each fiscal year be of Directors, subject to limitation imposed by the Japanese appropriated as a legal reserve until total of additional paid-in Commercial Code. The computation of net income (loss) per capital and this reserve equal 25% of stated capital. Dividends share is based on the weighted average number of shares of are approved by the shareholders at a meeting held subsequent common stock outstanding during each year.
10. LEASING ARRANGEMENTS The Companies lease machinery and other facilities under non-cancelable agreements. Future minimum rental payments are as follows:
Thousands of Year ending March 31 Millions of yen US dollars 2004 ¥4,363 $36,358 2005 4,300 35,833 2006 4,219 35,158 2007 3,290 27,416 later years 2,175 18,125
Rental expenses charged to income for the years ended March 31, 2003 and 2002 were ¥4,092 million ($34,100 thousand) and ¥4,004 million, respectively.
11. RESEARCH AND DEVELOPMENT COSTS Research and development costs (including cost related to improvements to existing products) charged to income for the years ended March 31, 2003 and 2002 were ¥8,691 million ($72,425 thousand) and ¥9,570 million, respectively.
12. OTHER EXPENSES (INCOME): OTHER, NET Other expenses (income): Other, net for the years ended March 31, 2003 and 2002 consisted of the following:
Thousands of Millions of yen US dollars 2003 2002 2003 Gain on sale of property, plant and equipment ¥（9） ¥ （37） $ （75） Loss on disposal of property, plant and equipment 1,655 199 13,792 Loss on disposal of inventories 412 104 3,433 Loss on sale and devaluation of investment securities 1,936 390 16,133 Gain on sale of plant to affiliates （134） （150） （1,117） Retirement benefits to directors and statutory auditors 102 282 850 Amortization of transitional obligation of retirement and pension plan 2,546 2,546 21,217 Depreciation of equipment leased to subsidiaries and others 5 126 42 Amortization of research and development costs and other assets 136 152 1,133 Compensation for assurance of products 501 378 4,175 Provision for doubtful accounts 140 6 1,167 Exchange gain （77） （63） （642） Loss on liquidation of subsidiaries 10,467 － 87,225 Other, net （240） 363 （2,000） ¥17,440 ¥4,296 $145,333
13. COMMITMENTS AND CONTINGENCIES Contingent liabilities at March 31, 2003 for guarantees for bank loans and lease obligations amounted to ¥9,773 million ($81,442 thousand). Commitments for capital expenditures outstanding at March 31, 2003 were in the approximate amount of ¥51 million ($425 thousand).
27 ANNUAL REPORT 2003 14. REPORTING SEGMENTS Information about the Companies' operations in different geographic areas for the two years ended March 31, 2003 and 2002 was as follows:
Millions of yen Japan North America Adjustments Consolidated 2003 Sales to customers ¥ 99,943 ¥26,652 ¥－ ¥126,595 Transfer between geographic areas 4,163 616 （4,779） － Total revenue 104,106 27,268 （4,779） 126,595 Operating income 6,561 1,904 （12） 8,453 Identifiable assets ¥115,182 ¥23,558 ¥ 4,486 ¥143,226
2002 Sales to customers ¥ 96,601 ¥30,054 ¥－ ¥126,655 Transfer between geographic areas 3,469 1,477 （4,946） － Total revenue 100,070 31,531 （4,946） 126,655 Operating income 2,786 3,019 （245） 5,560 Identifiable assets ¥115,471 ¥21,500 ¥ 4,259 ¥141,230
Thousands of US dollars Japan North America Adjustments Consolidated 2003 Sales to customers $832,858 $222,100 $ － $1,054,958 Transfer between geographic areas 34,692 5,133 （39,825） － Total revenue 867,550 227,233 （39,825） 1,054,958 Operating income 54,675 15,867 （100） 70,442 Identifiable assets $959,850 $196,317 $ 37,383 $1,193,550
2002 Sales to customers $805,008 $250,450 $ － $1,055,458 Transfer between geographic areas 28,909 12,308 （41,217） － Total revenue 833,917 262,758 （41,217） 1,055,458 Operating income 23,217 25,158 （2,042） 46,333 Identifiable assets $962,258 $179,167 $ 35,492 $1,176,917
ANNUAL REPORT 2003 28 Independent Auditors' Report
To the Board of Directors AKEBONO BRAKE INDUSTRY CO., LTD.
We have audited the accompanying consolidated balance sheets of AKEBONO BRAKE INDUSTRY CO., LTD., and its consolidated subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years then ended, all 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 generally accepted auditing standards in Japan and included such tests of the accounting records and such other procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of AKEBONO BRAKE INDUSTRY CO., LTD., and its consolidated subsidiaries as of March 31, 2003 and 2002 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles in Japan.
The United States dollar amounts shown in the consolidated financial statements have been translated solely for convenience. We have reviewed this translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into US dollars on the basis described in Note 1.
June 20, 2003 Tokyo, Japan
29 ANNUAL REPORT 2003 Directors and Officers
President, CEO and Chairman Representative Director & Representative Director & of the Board Member of the Board Member of the Board Hisataka Nobumoto Hidemitsu Kuwano Shunichi Fujioka
Executive Vice President & Executive Vice President & Vice President & Vice President & Member of the Board Member of the Board Member of the Board Member of the Board Tsuyoshi Kashiwagi Shunji Yokoo Hiroki Sato Tadashi Kubota
Executive Officers Auditors Senior Managing Executive Officer Yoshihiro Ishigaki Statutory Auditor Yoshihiko Yamamoto Senior Managing Executive Officer Sachiyuki Ishige Statutory Auditor Masatsugu Miyazawa Senior Managing Executive Officer Kazuhiko Goto Statutory Auditor Hirotaka Tominaga Senior Managing Executive Officer Toshimitsu Nishigaki Statutory Auditor Hidenori Matsumoto Senior Managing Executive Officer Noboru Noguchi Senior Managing Executive Officer Yukio Iwata Managing Executive Officer Yoichi Iwata Advisors Managing Executive Officer Satoshi Utsugi Executive Advisor Jay W. Chai Managing Executive Officer Takeshi Saito Technical Advisor Toshihiko Kimura Managing Executive Officer Akiyo Ishida Executive Officer Shinkichi Kadota Executive Officer Toshimitsu Seo Executive Officer Seiji Onoda Executive Officer Mitsuo Sato Executive Officer Masahiro Miyamoto Executive Officer Yoshiharu Aizawa Executive Officer Kiyoshi Dejima (As of June 20, 2003)
ANNUAL REPORT 2003 30 Investor Information
Trade Name Akebono Brake Industry Co., Ltd.
Address Global Head Office 19-5 Nihonbashi Koamicho, Chuo-ku, Tokyo 103-8534, Japan TEL: 03-3668-5171 FAX: 03-5695-7391
Ai-City (Headquarters) 5-4-71 Higashi, Hanyu City, Saitama Prefecture 348-8508, Japan TEL: 048-560-1500 FAX: 048-560-2880
Established January 27, 1929
Paid-in Capital 9,038 million yen
Stock Listing First Section of Tokyo Stock Exchange
Common Stock Authorized: 320,000,000 shares Issued: 94,019,118 shares
Number of Employees (Consolidated) 4,554
Transfer Agent and Registrar Corporate Agency Department of UFJ Trust Bank Limited 10-11, Higashisuna 7-chome, Koto-ku, Tokyo 137-8081, Japan
Annual General Meeting of Shareholders The annual general meeting of shareholders of the company is normally held in June every year.
Principal Shareholders Toyota Motor Corporation Robert Bosch Corporation Delphi Automotive Systems Isuzu Motors Limited Mizuho Corporate Bank, Ltd. Aisin Seiki Co., Ltd. Bridgestone Corporation Kayaba Industry Co., Ltd. Employee Shareholders Association The Yasuda Mutual Life Insurance Company
Contact [email protected] (As of March 31, 2003)
31 ANNUAL REPORT 2003
http://www.akebono-brake.co.jp/
AKEBONO BRAKE INDUSTRY CO., LTD. Printed in Japan on recycled paper.