oki AR_E_0727.indd
Transcription
oki AR_E_0727.indd
Annual Report 2007 (For the year ended March 31, 2007) OKI, Achieving Global Prominence by Realizing an e-Society The OKI Group celebrated its 125th anniversary in November 2006. To commemorate this milestone event and to bring about wider brand recognition, the Group standardized its brand name to “OKI.” Also, with its new brand statement, “Open up your dreams,” OKI strives to achieve the e-society wherein all of our stakeholders will realize their hopes and dreams. Stepping boldly onto the world stage, the OKI Group is targeting a 50% overseas sales ratio in the fiscal year ending March 2011, representing a significant leap from the 36% achieved the fiscal year ended March 2007. In the focus region of China, OKI is targeting a net sales ratio of 10%. OKI's Semiconductor and Printer businesses are already positioned fully in the global market spotlight. In addition, OKI aims to take bold strides forward in Info-Telecom System business for overseas development—with the key phrase “info-telecom converged technologies” and “mechatronics” to characterize its strengths and provide technologies and products that meet regional needs worldwide. By focusing on the improvement of regional structures rather than on Japan-centered operations, OKI continues to make advances in its overseas business: advances that will lead to the prompt formulation of a line of regional business processes including marketing, development, production and sales. To Our Shareholders Performance in the Fiscal Year Ended March 31, 2007 The domestic and world economies both progressed steadily toward recovery in the fiscal year ended March 31, 2007. Within the OKI Group, sales in the financial system business increased owing to healthier capital investment within the financial market, while sales of color LED* non-impact printers also improved in line with market growth. On the whole, however, OKI’s businesses faced a challenging operating environment. Major factors impacting OKI’s businesses were sluggish investment in fixed-line network systems by telecommunication carriers, weakened sales of driver LSIs due to prolonged inventory adjustment of LCD* panels, and OKI’s insufficient cost reduction against declining sale prices due to intensified competition in all fields. As a result, while net sales in this period grew 5.6% year on year to 718.8 billion yen, OKI recorded an operating loss of 5.4 billion yen, representing a 16.0 billion yen decline from 10.6 billion yen in operating income in the previous fiscal year. Net loss totaled 36.4 billion yen, accounting for a 41.5 billion fall from 5.1 billion yen in net income in the previous fiscal year, including the effect of the reversal of deferred tax assets. OKI places a high priority on the stable return of profits to shareholders. Regrettably, owing to a slowed performance in the fiscal year under review, we ask for your understanding in our decision to suspend dividend payments for the fiscal year ended March 2007. * LED: Light Emitting Diode * LCD: Liquid Crystal Display 3 Annual Report 2007 Revamp of Business Structure and V-Shape Recovery in the Fiscal Year Ending March 31, 2008 OKI incurred these results as we are currently facing a significant turning point in our businesses deployment. OKI’s capabilities in business promotion and product competitiveness fall short of what is needed to succeed when looking at the pace of change in the business environment, typified by accelerated globalization, saturated domestic markets and customers’ ongoing pursuit of investment efficiency. In response to this situation, we implemented a full reexamination of our group activities at the end of the previous fiscal year. As a result, we are dedicated to generating rocksolid competitiveness by pursuing the following principal strategies. 1. Accelerate Business Selection and Concentration This strategy involves reexamining all Group businesses along with efforts to drive low profitability businesses toward higher profits. Businesses deemed unable to make this shift will be reviewed for possible consolidation, spun off or sold. Already approximately 10% of all our business units have been earmarked for consolidation or partial consolidation. In the fiscal year ending March 2008, we plan to implement further reductions in the order of 10%. Meanwhile, we will make efforts to concentrate management resources on businesses with high-growth potential. We have already newly established five companies, including both in-house and in-house venture companies, aiming for the expansion of businesses with mobility. In addition, OKI has resolved to implement a human resource shift affecting 1,700 employees. 2. Initiate Transformation toward a More Efficient Management Style With the aim of conducting business in a timely manner, we have built an organizational structure to clarify the distinction of policy planning, implementation and execution management duties. Looking to improve the speed and flexibility of business execution, we have reduced the number of indirect planning departments, shifted a number of employees to direct departments and have begun flattening the organizational structure. These changes will help to simplify the dissemination of information and decision-making processes. Also, as we aimed to accelerate market-oriented business development, we reorganized our Info-Telecom System segment according to the business characteristics and fields of our three business groups: finance, telecom and information systems. 3. Develop Strong Businesses Based on Strong Products By integrating, uniting and harmonizing our essential resources—people, goods, businesses, technologies and products—together in an appropriate manner, we will work toward rebuilding our competitiveness with a differentiated uniqueness that only OKI is capable of. We will also enthusiastically push for the creation of global alliances and partnerships. The provision of Ubiquitous Services is at the core of the Info-Telecom Systems Group’s operations, while nextgeneration networks (NGNs) are considered its main area of Ubiquitous Services. Its strengths in info-telecom converged technology and mechatronic technology contribute to the generation of differentiated technologies and products and consequently further business development. Furthermore, by accelerating its selection and concentration activities, strengthening its competitiveness of hardware products, expanding its software and service businesses through the creation of a global software development structure and augmenting overseas businesses with a newly established dedicated division, OKI is diligently working to boost sales and profitability. In the Semiconductor Business Group, OKI is working to reinvent itself and depart from the current business framework founded solely on the semiconductor business. We will innovatively combine semiconductor technologies with other OKI Group technologies to create and expand the business of high-value-added electronic functional modules (e-functional modules). In addition, OKI is looking to boost profitability in the large LCD driver business and further focus on system LSIs with differentiated technologies, including its ultra low-power consumption technologies. Our Printer Business Group is fortifying sales channels in the SMB* market in anticipation of gaining key status in the global market, in the future. At present, OKI is endeavoring to raise earning power by creating a well-balanced product lineup of the printers the SMB market most demands: multifunctional mid- to high-end color LED non-impact printers. At the same time, OKI will seek to make inroads into emerging markets, extending its reach beyond Europe, the Americas and Japan, while also pursing sustained earnings in its dot impact printer category. In addition to these three strategies, OKI will implement urgent measures, including the constriction of fixed costs in the fiscal year ending March 2008. OKI aims to attain two numerical targets: 750.0 billion yen in net sales and at least 8.0 billion yen in operating income. * SMB: Small & Medium Business World Recognition as Global Enterprise The diffusion of Internet and broadband networks are significantly changing the times in which we live. People are now able to easily and securely access a vast range of Ubiquitous Services, which OKI advocates, in the styles they most desire—either as information, products, or services—whenever and wherever with whatever they want. Transcending time and space constraints, breaking boundaries among countries, regions, and cultures, providing individuals with the freedom to safely and securely partake in a variety of activities is the product of a rapidly advancing network society, a society that OKI has long championed—the e-Society. We aspire to be a globally recognized key player in this e-Society and to achieve sustained growth. To this end, we are working to actualize an e-Society able to fulfill the hopes and aspirations of people around the world as stipulated by our brand statement, “Open up your dreams.” Furthermore, OKI is targeting global business expansion quantified by a 50% overseas sales ratio, up from 36%, by 2010. As a trusted partner to all our stakeholders around the world, OKI will continue to build on the comprehensive wisdom of its Group employees. In conclusion, I would like to thank our shareholders for their steadfast support and understanding. July 2007 Katsumasa Shinozuka President and Chief Executive Officer Oki Electric Industry Co., Ltd. 4 Interview with the President Q1. Operating conditions in the fiscal year ended March 2007 were particularly difficult. What are your views on the factors that contributed to this? Shinozuka: Changes in the operating environment that occurred during the year were more profound than we had predicted. As a result, unfortunately, we weren’t fully prepared to face the difficulties they presented. There were three main transitions that took place during the year: accelerated globalization, domestic market saturation and stronger demand among customers for increased investment efficiency. The IT industry, within which OKI develops business, is undergoing rapid expansion as a globally competitive environment in line with the evolution of ubiquitous services and broadband networks. Within this competitive global environment, the actions customers took in pursuit of management efficiency were noteworthy. The pace of these changes far exceeded our expectations. OKI’s response, I must admit, failed to match to our potential. While our customers, our customers’ customers and competitors all continue to advance toward globalization, the principle cause of OKI’s performance slump stems from a gap between these environmental changes and OKI’s business operation capabilities to access and offer products to the market. On the other hand, we will concentrate management resources on businesses that are highly profitable now as well as those that we have earmarked for future growth. Simply consolidating businesses doesn’t guarantee future growth; it is essential that we develop distinct businesses. We have already established a total of five in-house and in-house venture companies, and designated them as our growth businesses for the fiscal year ending March 2008. Also, in response to market fluctuations, we are working to rapidly expand these businesses. Q3. There is a possibility that the short-term measures of the current fiscal year, such as the reduction of fixed costs and curbing capital investment and R&D expenses, may lead to a decline in competitive strength. How do you plan to balance measures to bolster competitiveness over the medium to long term? Shinozuka: We don’t intend to reduce fixed costs and curb investment haphazardly. Within our accelerated selection and concentration scheme, we will make a clear distinction between strong and weak business investments. Furthermore, our approach to cutting costs includes limiting inefficient and needless investments. Instead we’re taking proactive measures to focus management resources on strong products and businesses as well as businesses in which we anticipate growth. If we narrow down our targets further, we’ll then be able to realize a stronger OKI over the medium to long term. Q4. Q2. In reference to OKI’s efforts toward “promoting strong business development based on strong products,” how do you think OKI compares to other companies? Shinozuka: We have made our decisions. Businesses with operating income ratios of 3% or below will be carefully monitored for future growth potential, while businesses lacking profit potential will be considered for consolidation, spun off or sold, with customers’ understanding. Shinozuka: I am particularly proud of our Info-Telecom Systems segment, which was among the first in the industry to converge information and telecommunications technologies. It is also where we have long cultivated the mechatronics technology we use in our ATM systems. Our info-telecom converged technologies are embedded within industry-leading VoIP* and IP telephony systems as well as in our CTstage® CTI* system, which boasts the leading market share in the contact center market in Japan. These technologies prove that we already possess significant strengths in the technological You have designated an “accelerated selection and concentration” scheme as one of OKI’s policies to revamp the business structure for the fiscal year ending March 2008. Are businesses for selection already being determined? By revamping business structures to build stronger businesses, we are aiming for a V-shape recovery. 5 Annual Report 2007 fields essential for expanding NGNs and Ubiquitous Services. As regards mechatronics, with about 40% of all operating ATMs in Japan being supplied by OKI, our share of the market is second to none. Mechatronic devices are essential in utilizing Ubiquitous Services. In the Semiconductor segment, we have been focusing on the development of a uniquely OKI semiconductor business, targeting personal and mobile fields. For example, we are focusing on technologies such as the Silicon-on-Sapphire manufacturing process, the most attractive feature of which is its ultra low-power consumption, as well as power-saving, high-voltage process and high-density packaging technologies that are essential to personal and mobile device structures. OKI will innovatively combine its semiconductor technologies with other technologies within the Group, for instance by synthesizing wireless communications and printed circuit board technologies. To this end, we have built a policy around efforts to create and expand a new e-functional module business. Our ability to bring such a variety of technologies together is one of OKI’s unique strengths. In the Printer segment, our LED print-head and mechatronics technologies, which contribute to superior compactness, high-speed and high-resolution, are among the greatest of OKI’s strengths. OKI is ranked among the top companies in the world in terms of color printer sales. At the same time, we are one of the two major dot printer companies and boast a large share of the market. Not only does OKI boast a host of unique world-class technologies, it also maintains a high level of competitiveness in terms of both product and business capabilities. * VoIP: Voice over Internet Protocol * CTI: Computer Telephony Integration Q5. You have defined one of OKI’s targets for 2010 as an overseas sales ratio of 50%. Please explain what this means and what kinds of specific developments this entails. Shinozuka: Amid accelerating globalization, OKI must increase its successes in the global market, which is why we are targeting an increase in our overseas sales ratio, from 36% to 50%. Expanding sales and strengthening profitability will allow us to gain worldwide recognition as a global corporation. On a business segment basis, approximately half of total semiconductor sales are generated overseas; over 80% of total printer sales are from overseas; while info-telecom systems overseas sales still only account for just a few percent. OKI’s road to recovery and the next leap forward depends on the global ground it gains in info-telecom systems. I consider there to be two key aspects in advancing toward global development. The first is to localize and customize strong products with global growth potential to meet the needs of particular regions. For example, full-scale expansion of our ATM business in China has continued apace thanks to our collaborative efforts with partners in the region and the creation of customized models to meet regional needs. We are now working to expand our leading IP-based key telephone systems for SMB offices throughout China, Europe and the Pacific region. The second is to forge and maintain partnerships. Undertaking business expansion in isolation has its limitations. Local companies have the best understanding of a region’s particular characteristics and establishing partnerships with prominent corporations in each of our target regions will allow us to tailor our business activities—from marketing, technology and product development to sales and maintenance—in each of these regions. As we work to fully incorporate regional characteristics into our products and operations, we will be doing our utmost to maintain the partnerships we have established and moving inexorably closer to becoming a truly global enterprise. Q6. In conclusion, please tell us what efforts OKI is making to maximize shareholder value. Shinozuka: Dividend payments to shareholders are of paramount importance. Regrettably, we suspended dividend payments for the fiscal year ended March 2007 due to waning performance. Resuming payments are a management priority and we continue to exert every effort to raise OKI’s corporate value. What’s important for OKI is to aggressively expand its businesses globally and produce results. In order to anticipate changes in the business environment, which will be accelerating in their frequency, OKI is implementing measures to bring about results in a new era. These measures will be driven by OKI’s technological development. OKI aims to realize a new age in Ubiquitous Services, readily providing them in the styles people most desire—either as information, products, or services—whenever, wherever, with whatever they want. Leveraging OKI’s DNA as a manufacturer, we will develop products and technologies far in advance of other companies on a worldwide scale to bring about a recovery in performance results. 6 Financial Business Offering solutions meeting the needs of financial institutions through competent mechatronics technologies and financial system know-how Using its years of accumulated know-how and experience, OKI has erected two business pillars to support the financial market: one includes ATMs, bank branch systems and backyard solutions that form the basis of OKI’s financial business; the other consists of new financial businesses, such as e-finance systems that utilize Internet technologies. OKI has responded to the wide-ranging demands of financial institutions by providing enhanced security functions, industry-leading systems that support new services, and increased operational efficiency, for which it has earned the steadfast trust of the industry. In the Japanese ATM market, in which OKI holds the largest share on an operating basis, the Group is working to further deploy its latest ATM-BankIT™, an industry-leader that features IC-card and biometric identification functions. OKI has also introduced small-sized, highly secure ATMs that boast low operating costs, making them suitable for convenience stores and other similar locations. f i le 1: Koji Shibaike System Engineer Marketing & Sales Division, Systems Hardware Company Oki Electric Industry Co., Ltd. Japan Develop user-centered ATMs The ATMs installed at supermarkets and convenience stores are no longer used merely as cash dispensers. They now provide a range of new services and functions made possible by mobile terminal links. The rapid growth in the Chinese market is providing further proof of the enormous potential that ATMs possess. I was personally involved in the development of a product to display user-centered messages and campaign ads on the ATM screen while the user waits for cash to be dispensed. Apart from later being able to apply this know-how to other projects, I can’t help but feel proud every time I walk by one of these impressive ATMs. Still, I realize that there’s a lot of work to be done. I’m eager to participate in the development of ATMs that offer true convenience to a variety of users, such as people with disabilities. 7 Annual Report 2007 OKI has added compact, space-saving ATMs to its lineup specifically made for the Chinese market, where sales efforts are well under way and OKI aims to be able to provide ATMs to both large- and small-scale stores. Similarly, OKI has successfully begun to expand in South Korea. Making the most of business alliances, OKI is working toward global market expansion based on the joint development of ATMs, cash processing machines and other financial systems. In its new financial businesses, OKI is actively promoting service-oriented business such as networkbased settlement, ATM operation outsourcing and bank branch video surveillance to augment its previous efforts in establishing contact centers and providing network-based settlement systems. Financial Business Group operations contribute to providing ubiquitous financial services, accessible to users anytime and anywhere. Group 2. New factory in China begins ATM production 1. Space-saving ATM21SX for Chinese market Launched in China to target financial institutions and convenience stores, the ATM21SX is 30% more compact than OKI’s previous ATM models. As the smallest ATM model on the market, it responds to the needs of large-scale stores but is also ideal for installation in small- and medium-scale stores, which often suffer from space limitations. In line with increased demand brought about by market infrastructure improvements in China, OKI is aiming to sell 10,000 units by 2010. ATM21SX Oki Electric Industry (Shenzhen) Co., Ltd., which manufactures ATMs, printers and other equipment, transferred its operations to a new facility, starting production in January 2007. The new facility, which has twice the floor space and triple the production capacity of its predecessor, is expected to reach a production capacity of 30,000 units, including ATMs and main elements, per year to meet expanding demand in China for ATM systems. New facility opening ceremony 3. OKI and Nautilus Hyosung, Inc. sign agreement OKI and Nautilus Hyosung, Inc., which holds the largest share of the South Korean ATM market, entered into an agreement to jointly supply financial systems throughout the world. Utilizing their combined strengths in the financial field, they will together develop, manufacture and market ATMs and cash processing machines in the South Korean, Chinese and other overseas markets. 5. 4. Spacious design from OKI’s Bank Branch Solutions Consultation Service Responding to diversified customer needs while simultaneously offering customers a sense of security is one strategic issue financial institutions must address. OKI’s Bank Branch Solutions Consultation Service does just this. Based on a wealth of experience and know-how , OKI is offering financial institutions high value-added bank branch solutions that feature spaciously designed interiors equipped with advanced information processing systems. With a focus on providing attractive customer-centered service environments and interior layouts, OKI’s consultation services ranges from complete branch concept planning, to system structure planning and total interior design. Responding to i-appli Banking with bank correspondence service OKI has launched a service that facilitates correspondence between NTT DoCoMo, Inc.’s i-appli Banking*1and mobile banking*2 services operated by financial institutions. Thanks to this development, providing quickly installed low-cost mobile banking systems that support i-appli Banking services has become possible. Mizuho Bank, Ltd. stands out as the first to adopt this service. *1 i-appli Banking: One of several i-appli services offered by NTT DoCoMo, Inc., i-Appli Banking allows customers easy access to their bank account information at a maximum of two financial institutions. *2 Mobile banking: A mobile phone service that offers users access to their bank account balances and other account information. i-appli Banking (computergenerated image) Bank Branch Solutions Consultation Service Contract signing press conference with Nautilus Hyosung, Inc. 8 Telecom Business Generating more attractive products through advanced NGN system development Every telecom carrier is now able to offer a variety of new integrated services. Typical of these are the “quadrupleplay services”—an amalgamation of voice, video, data and wireless applications—made possible by NGN, which combine fixed and mobile networks over broadband IP networks. As a necessary part of the services it offers, OKI has positioned the field of application platforms as a focus area, where it is concentrating on developing broadband application servers, communication servers, as well as fixed communication and mobile phone-integrated FMC* systems. In line with these efforts, OKI merged its businesses for telecom carriers and business for enterprise networks to create the Telecom Business Group. By so doing, OKI created a business structure able to provide service infrastructures that leverage the technologies of both businesses. Also, with the aim of entering the mobile business market, OKI is making concerted efforts to strengthen alliances with its global business partners, including Aruba f i le 2: Ma Weidong President OKI Software Technology Co., Ltd. China Spread OKI brand benefits It’s been seven years now since OKI Software Technology Co., Ltd. was established and I was appointed president. We have devoted our time and effort as a team to maintaining a high-level of cost competitiveness and initiating high-quality developments as OKI’s telecom software development base in China. Our hardworking efforts have served to improve the software development process along with mutual understanding with our Japanese counterparts and resulted in OKI Software Technology being awarded as one of the well-respected companies in Jiangsu Province. As a business support base, we will exert every effort to spread the benefits of the OKI brand and promptly and accurately meet customer needs to expand sales in China and other Asian markets. 9 Annual Report 2007 Networks Inc., a proven innovator in the U.S. network security field, and Huawei Technologies Co., Ltd. in China, OKI’s collaborative partner in a mobile WiMAX* wireless technology business targeting the Japanese market. In response to ongoing expansion in demand for broadband access networks, which link carriers and subscribers, and broadband home networks, the OKI Group is dedicating resources to the active development of homeuse broadband routers and optical access equipment. Furthermore, in its quest for greater corporate sales in overseas markets, OKI is developing full-scale key telephone systems that support IP telephony and mobile functions, while undertaking aggressive business phone sales activities across the world, including in China and India. * FMC: Fixed Mobile Convergence * Mobile WiMax: Mobile Worldwide Interoperability for Microwave Access; standard specification for mobile telecommunications technology that provides wireless broadband access Group 2. 5. CTstage® 5i: The latest word in contact center systems 1. Enhanced CenterStage® series for NGNs NGNs built by telecom carriers offer a variety of simultaneous services using voice, video and data. Targeting enhanced NGN functioning, OKI has worked to enhance its communication server series for telecom carriers. OKI’s newly available state-of-the-art CenterStage NX5000 series allows both fixed and mobile phone services to be built into the same IP network, while the CenterStage NX3200 is the industry’s first session border controller capable of linking telecom carriers. Responding to needs for more sophisticated contact center systems, OKI has introduced the CTstage 5i, an enhanced version of the earlier CTstage that holds the No. 1 share of the Japanese market. Integrating technologies accumulated over many years, OKI offers this highly reliable system—which boasts seamless expandability and route diversion security during any momentary failures—to flexibly respond to changes in customers’ future business environments. 4. Marketing of new IPstage® MX/SX goes global CTstage 5i 3. Bolstering global alliances CenterStage NX3200 Smarter surveillance systems with VisualCast ® VBOX-S/500 digital video recorder Targeting increasing full-scale NGN development, OKI is working on further strengthening its alliances with leading companies in the industry. Specifically, OKI and Aruba Networks Inc. in the United States have agreed to collaborate and share development aims in the network security field. Together they will work on new advances in network security solutions, systems integration methods, as well as on global marketing strategies. OKI and Nortel Networks in Japan have initiated the joint development of next-generation optical transmission devices for NGNs in Japan. Furthermore, OKI has teamed up with Huawei Technologies Co., Ltd. in China, which develops wireless products such as mobile WiMAX and third-generation mobile phones for the global market, in the development of a mobile WiMAX wireless technology business targeting the Japanese market. In response to expanding IP networks and designed for offices with 100 people or less, OKI has launched IPstage MX and IPstage SX key telephone systems that support full-scale IP telephony and mobile functioning. The IPstage series accommodate dual wireless LAN terminals, which can be used as extensions within wireless LAN areas and as external lines when away from the LAN. Also, it accommodates SIP*1 soft phone functions, the first telephone system of its kind in Japan. Sales are already under way in China, with OKI planning gradual expansion targeting Asian and Pacific regions. OKI has released the VisualCast VBOX-S/500 digital video recorder for network applications, which can connect up to 16 surveillance cameras including network-compatible cameras. In addition to digital recording functions and network functions for concentrated surveillance at monitoring centers, the VisualCast VBOXS/500 responds to increasing needs for security with functions for automatic, motion-triggered detection of suspicious behavior, helping call attention to possible threats. Featuring the incorporation of an array of automated functions, this product has brought to fruition highly intelligent remote video surveillance management. VisualCast VBOX-S/500 *1 SIP: Session Initiation Protocol; a major protocol used in VoIP technology VoIP wireless LAN access point MWINS BR2102 IPstage MX 10 oki AR_E_final 0930シール修正.indd 10 07.10.1 11:47:23 AM Information System Providing advanced solutions by info-telecom converged technologies in accord with market needs The Information System Business Group operates in and develops products destined for two distinct markets. In the public sector market, the emphasis is on large-scale projects serving national and local government agencies; in the private sector market, OKI offers differentiated technological solutions developed through the integration of mechatronics and info-telecom converged technologies. OKI’s public sector-focused operations encompass three areas of business: government solutions based on optimized planning solutions; public disaster-prevention networks that rely on advanced technologies; and the ITS* business that includes sophisticated traffic and transportation technologies such as ETC* and VICS* systems. In providing government solutions, OKI leverages its proven track record in network administration to provide shared administrative systems. OKI also supports government administrative processes through the introduction of optimal IT systems based on the Japanese government’s Enterprise Architecture framework. In the public disaster prevention network field, OKI promotes the development of advanced solutions based on digital wireless systems. The ITS business is one of OKI’s focus businesses for which OKI established an internal venture company by making full use of a solid track record in DSRC* technologies. In the private sector, OKI makes full use of its mechatronics capabilities to offer market-leading systems—covering ticket reservation and issuing systems as well as automated check-in machines—to the travel and transportation industry. OKI also provides systems that converges information and telecom technologies, such as added-value solutions for existing ticketing systems and IP network-based video surveillance systems. For other industries also, OKI maintains efforts to furnish customers with wide-ranging solutions, including application servers that link companies’ existing mission-critical systems with IP telephony and video distribution systems. * ITS: Intelligence Transport System * ETC: Electronic Toll Collection * VICS: Vehicle Information Communications System * DSRC: Dedicated Short Range Communication f i le 3: Yaeko Makimoto Marketing & Sales Enterprise Solutions Division, System Solutions Company Oki Electric Industry Co., Ltd. Japan Propose optimal solutions with honesty, tenacity and smiles As a member of the info-telecom solutions marketing team, I am in charge of ATMs, contact centers and network devices for the railway market. In order to offer proposals to suit the needs of each customer, I must carefully control everything from research and liaising with related departments to managing risk control. Although it’s quite a tough job, when our proposal is adopted and the system is finally put into operation, I am filled with satisfaction. In an environment where railway stations are undergoing increasing change due to the introduction of web-based ticket reservation and on-line payment systems, I hope to continue to promote OKI’s truly cutting-edge products and technologies—with honesty, tenacity and smiles. 11 Annual Report 2007 Business Group 2. Real-time earthquake disaster prevention system 1. Easy-to-operate wireless disasterprevention system with multiple functions OKI’s disaster-prevention system for municipalities offers two-way communication between parent and mobile stations, meteorological data collection and provision of written information. The system also features high-speed data transmission, compatibility with other systems of its type, a diverse range of functions and ease of operation. Utilizing urgent earthquake reports from the Japan Meteorological Agency and early P-wave tremor detection capabilities, OKI’s real-time earthquake disaster prevention system provides advance warning before a major S-wave quake arrives. The system cuts off the supply of dangerous gas and chemical substances, automatically deactivates security systems, and helps to minimize the outbreak of secondary disasters. OKI is now promoting sales of these systems to semiconductor factories and other manufacturing facilities that handle hazardous materials. Real-time earthquake disaster prevention system 4. USCOS™: Recycling-type cash deposit and withdrawal equipment OKI’s USCOS is a machine for the retail industry to operate on a recycling principle, whereby bills and coins that have been deposited are recycled for withdrawals, with high-security comparable with ATMs. OKI expanded its lineup, launching a series that enables the linking of multiple machines within a single retail location. Applicable for use in any setting, from small- to large-size retail stores, stations, travel agencies and other locations where large amounts of cash are exchanged, the USCOS contributes to greater efficiency in cash management operations. 5. Face Sensing Engine™ (FSE): Face image processing middleware FSE is a face recognition software that was developed to enable smooth image processing in mobile phones, digital cameras, mobile game consoles and other mobile devices, which compared to computers have significantly lower builtin processing capabilities. Domestic and foreign mobile phone and digital camera makers have already begun to adopt the technology. In addition, fiscal year ending March 2008 marked the beginning of a variety of service developments for face recognition-equipped mobile phones as well as of development planning aimed at robots, digital home appliances and surveillance systems. 3. ITS solutions contribute to enhanced, secure traffic systems Municipality disaster prevention system OKI’s advanced ITS solutions provide a wide array of solutions to improve and optimize systems. These include automated ETC systems (see photo) based on DSRC technologies, VICS systems that provides realtime traffic information on car navigation, as well as highway information terminals that advise drivers of nearby service stations and provide other essential information. FSE-embedded digital camera (computer-generated image) USCOS ETC 12 Semiconductor Bu Shifting from sole focus on semiconductors to expand e-functional module business Leading the industry in late 1990s, OKI shifted the direction of its semiconductor business from the general-purpose DRAM* to system LSIs* and logic LSIs, hedging high investment risks associated with DRAMs, which were inevitably exposed to fluctuating market conditions. Since taking this decisive step, OKI has concentrated its management resources on the growing personal and mobile markets. The LSIs used for mobile phones, information appliances and other personal and mobile devices require certain characteristics, such as compact designs, and longer battery lives. OKI is rolling out such LSIs based on its differentiated technologies of power-saving, high voltage processes and high-density mounting, indispensable to personal and mobile devices. In line with these development efforts, OKI has separated its design and development functions from production functions to form two internal companies, as well as strengthened strategic alliances with world-leading fabricators. This is OKI’s unique “fab-free” business model that allows the choice to be made between in-house or partner fabricators according to the characteristics of each project. This model has contributed to progress in our quest toward a stable profit structure. In order to enhance its earnings power, OKI will pursue cost reductions in the large TFT* driver business while shifting its business focus to the large LCD TV market. Also, OKI will adjust its emphasis to application-specific LSIs, micro devices and foundry businesses, where OKI boasts differentiated technologies, while achieving cost reductions in its entire semiconductor business. Through these initiatives, OKI is striving to further solidify its business foundation. Accelerating toward future growth, OKI is working to depart from the current business framework founded solely upon the semiconductor business. The Semiconductor Business Group’s long-established expertise in the personal and mobile market will be coupled with other business groups’ unique technologies, such as communication systems, information security and power control domains. Buoyed by this renewed business framework, OKI will create and expand the business of high-value-added e-functional modules. * DRAM: Dynamic Random Access Memory * LSI: Large-Scale Integration * TFT: Thin-Film Transistor f i le 4: Pattanan Hangam Corporate Officer Oki (Thailand) Co., Ltd. Thailand Nurture employees into future OKI leaders I am working at the office in Ayutthaya, Thailand, and am involved in the administration of various divisions including purchasing, material planning, inventory, production control as well as semiconductor import and export. We manufacture high-quality semiconductors at low cost, thereby creating more customer satisfaction. For us to become a company with outstanding management capable of providing such semiconductors, each employee needs to remain highly motivated and develop a keen work awareness. OKI’s semiconductors have an excellent reputation for technological superiority and excellent quality in the global market. In a spirit of teamwork, we are making efforts to proactively nurture employees into future OKI leaders in the Asian region. 13 Annual Report 2007 siness Group 2. World-first UV sensor IC using thin-film SOI 1. Real-time clock IC with world’s lowest current consumption OKI has succeeded in developing the ML9073/ML9074 real-time clock IC, achieving the world’s lowest current consumption at just 0.15 µA. The ICs are based on OKI’s specialty SOI*1-CMOS*2 technology: conventional silicon wafers are substituted with SOI wafers that have embedded insulators; and CMOS are formed on the SOI wafers. This technology possesses excellent electronic properties, and significantly contributes to the improvement of energy-savings in the power-off functions of mobile devices and audio-video equipment. Also, the ICs help improve the life of batteries on these devices by 150% compared with conventional ICs. Their compact size enables further miniaturization of battery equipment and condensers. *1 SOI: Silicon-on-Insulator *2 CMOS: Complimentary Metal Oxide Semiconductor ML9074 OKI has commercialized the ML8511 ultra-violet (UV) sensor IC using thin-film SOI. While conventional UV sensors use compound semiconductors, OKI is the first company in the world to have succeeded in using thin-film SOI in UV sensors. Enabling an analog voltage output function proportional to UV light intensity on a single chip, the new IC does not require an optical cut filter, which allows manufacturers to develop compact and highly mobile UV devices at low cost. In addition to conventional applications such as accessory-type devices to measure the amount of UV in daylight, OKI plans to expand sales of the ICs to home appliance applications. 4. Industry-first ITScompatible in-vehicle single-chip transmitter/ receiver LSI The ML9636 is a new single-chip IC product that handles data transmission and reception and integrates RF*4 and MODEM*5 circuits, both of which are essential for wireless communications in DSRC, a communications technology utilized in ITS systems. The use of the single-chip eliminates the need to design RF circuits on baseband LSIs and the mounting of digital to analog converters, thereby contributing to shorter development cycles for DSRC systems. *4 RF: Radio Frequency *5 MODEM: Modulator-Demodulator ML9636 ML8511 3. World’s smallest audio DAC LSI equipped with stereo speaker amplifier In July 2007, OKI commenced sample shipments of its ML2611 audio LSI with stereo playbackcapable DAC*3, 3-D surround functionality and speaker amplifier all incorporated in a single chip. Achieving all these functions in the world’s smallest package size of 3.0 mm x 3.2 mm among 16-bit audio DACs, the new audio LSI is packed with sophisticated technologies that allow for authentic reproduction of low frequency sound on audio equipment. *3 DAC: Digital to Analog Converter 5. High performance driver LSI for full highdefinition LCD TVs As larger full high-definition LCD TVs grow in popularity, users are seeking better color reproduction on their LCD TVs. To respond to this demand, OKI developed three new large TFT driver LSIs—being released successively—best suited for full high-definition LCD TV applications. Characterized by two-fold high-speed drives and reduced heat generation by 35% compared to other driver LSIs, the new driver LSIs are highly advanced and capable of displaying one billion colors based on a 10-bit multi gray-scale. Looking ahead, OKI will enhance the lineup of its high-value-added products and expand its market share for driver LSIs. 6. 10 Gbps optical transmission receiver module The widespread distribution of image and video data via the Internet is leading to increased adoption of optical receiver-transmitters compatible with 10 Gbps large-capacity transmission over long or middle distances in urban settings. OKI has developed two 10 Gbps ROSA*6 receiver modules. Eyeing the future prevalence of the 10 Gbps optical transmission standard, OKI has commenced the sale of sample modules on a global scale. For the fiscal year ending March 2008, OKI expects the number of the two modules sold to reach 60,000. *6 ROSA: Receiver Optical Sub Assembly; an optical receiver device optimized for mounting on compact transceivers. 10 Gbps ROSA module ML2611 10-bit TFT driver 14 Printer Business Expanding mid- and high-range color LED printers into the SMB market by maximizing OKI technologies Operating under the business brand of OKI Printing Solutions, the Printer Business Group provides monochrome and color LED* non-impact printers for business use, MFPs*, and dot-impact printers to over 120 nations and regions worldwide. OKI’s LED printers demonstrate size advantage, superior speed and resolution performance compared to laser-method printers thanks to its proprietary Single Pass Color ® technology that utilizes a LED light source. Also, compatible with various paper sizes and media, OKI’s printers score highly in performance evaluation in the marketplace. The growth of OKI’s printer business is dependent on expansion in sales and earnings. This means that OKI must enhance the competitive advantages of its color nonimpact LED non-impact printer products. Accordingly, OKI is accelerating efforts to instigate a shift to mid- and high- range models that offer high added value and a multitude of functions. These efforts will be reflected in its sales activities, whereby OKI will work to fortify sales channels within the SMB market, which shows a need for mid- and high-range models. OKI will also make inroads into emerging markets such as South America, Southeast Asia and China, in addition to the United States, Europe and Japan, as it seeks further growth. In terms of product development, OKI released a new LED print-head that is half the size of conventional types and contributes to more compact, lower cost printers. In order to maintain price competitiveness, OKI has incorporated one-spin development processes, which use simulation technologies to help reduce the number of reworks and therefore the costs involved in the design stage, and to enable products to be brought rapidly to market. In addition to bringing about cost reductions in the dotimpact printer business, OKI is responding to emergingmarket demand for low-cost printer models as it aims to heighten earnings stability. * LED: Light-Emitting Diode * MFP: Multi-Function Printer f i le 5: Rainer Sauer CEO and Chairman OKI Printing Solutions EMEA UK Ensuring OKI Printing Solutions remains industry-leading brand As the CEO and Chairman of OKI Printing Solutions EMEA, I am responsible for sales, customer service and marketing of printers in Europe, the Middle East and Africa. Amid extremely severe competition, I believe that our strengths lie in implementing attractive and useful programs for sales channel companies and providing efficient printing solutions to enhance end users’ business efficiencies. This is equally important to our principal strategy: to offer high-quality products and cutting-edge technologies. Through these endeavors, A3 color printer sales rose in the fourth quarter of the fiscal year ended March 2007, securing the top market share* in 10 countries in the EMEA region. We will continue our efforts to make sure that OKI Printing Solutions remains an industry-leading brand. * Based on research from IDC 15 Annual Report 2007 Group 3. Production begins at new printer plant in China 1. C8000 Series: compact A3-size color LED printer The compact A3-size C8000 Series is the latest addition to the top of OKI’s C Series color LED printer models for business use that were developed around the design concept of “Smart and Tough.” The C8800dn responds to business-users’ increasing security needs and meets international evaluation standards with its embedded data security kit, which encrypts printing data stored on the printer’s hard disk. The C8800-P meets the specialized needs of the retail industry and small-retail outlets that use POP*1 advertisement creation applications for instore displays. *1 POP: Point of Purchase 2. Oki Electric Industry (Shenzhen) Co. Ltd., which manufactures printers and ATMs, began production at its newly constructed manufacturing site in January 2007. With production now under way, the company is expected to reach an annual production capacity of 600,000 units, tripling its previous production volume of color LED and dot-impact printers. Supplying printers to over 120 countries, OKI has positioned this company as an important hub in support of its global development strategy. Solutions Center established in Brazil OKI Printing Solutions Center was established in Sao Paulo, Brazil, the first within the South American region; operations commenced in February 2007. Aiming to accelerate the development of user-based solutions, the center provides the full gamut of printing solutions through specialists able to pinpoint specific user needs. OKI plans to penetrate other growth-region markets around the world, as represented by the BRIC*2 markets. *2 BRIC: Brazil, Russia, India, China C8800 Solutions Center opening ceremony Printer production line at new plant 4. 5. Newly developed halfsize LED print-head OKI’s Epi Film Bonding technology (see page 17 for details), which bonds thin dissimilar materials, has resulted in the development of a new LED print-head for non-impact printers. Thinned LED array chips, serving as exposure light sources, are bonded with driver IC chips, resulting in an LED head half the size of conventional LED print-heads. This feature contributes to significant reductions in the number of chips used, requires less wire bonding and increases cost efficiency thanks to reductions in production processes and materials. Delivering MICROLINE 1190 to BRIC markets The MICROLINE 1190 is an entry-level yet fast, compact dot-impact printer that meets low-end printer market needs in Asia, particularly in China, Central and South America, Eastern Europe and the Middle East. Thanks to collaborative sales activities conducted with one of China’s leading IT companies, Digital China Holdings Ltd., OKI plans to raise sales of dot-impact printers to 300,000 units in the fiscal year ending March 2008. New LED print-head MICROLINE 1190 16 Research and Devel Giving More to Society through Advanced Technologies Ubiquitous Services—able to satisfy user demands to obtain information, products, and services wherever, whenever and with whatever—continue to expand as the e-Society evolves. OKI supports the development of this e-Society by pushing the boundaries of R&D in six specific areas to provide leading Ubiquitous Services. Six Areas of Technological Development in Provision of Ubiquitous Services 1. Ubiquitous Networks: Technology that provides individuals with freedom of activity, anytime and anywhere. OKI engages in the development of technologies for NGNs, industry-leading IP networks, and advanced wireless and sensor networks. 2. Network Dependability: Technology that provides individuals the secure use of safe, authentic services, such as biometric identification systems and security technology for network-based settlement. 3. Rich Media: Technology that allows individuals to precisely obtain the desired services and data, in the right format, including technology that smoothly delivers video images and integrates telecommunications and broadcasting. 4. Customer Concierge: Technology that offers individuals services to meet their precise needs, including administrative applications and electronic ticketing systems as well as ITS developments for the private sector. 5. Smart Mechatronics: Advanced infrastructures for using ubiquitous services based on OKI’s well-developed mechatronics know-how, such as ATM systems and printers. 6. Ubiquitous Devices: Technology that makes ubiquitous infrastructures possible. OKI utilizes semiconductor and component technology capabilities gained by concentrating on the development of personal and mobile devices. OKI maximizes efficiency in its R&D efforts by delegating basic research functions to its Corporate Research and Development Center and entrusting product development to the development departments of each in-house company. To create advanced technologies, commercialize products flexibly and rapidly, and link basic research with product development, OKI has established the Business Incubation Division within the Systems Network Group under the Info-telecom Systems segment. By promoting Group-wide project cooperation, OKI is accelerating the creation of new technologies and businesses. Research at the level of elemental technology development is promoted through business-academia collaborations. World’s First Mass Producer of Thin-Film Bonding Technology for Dissimilar Materials OKI has become the first in the world to successfully develop and commercialize Epi Film Bonding (EFB) technology, which is able to bond thinned materials on top of dissimilar materials without the use of adhesives by taking advantage of the phenomenon known as intermolecular bonding force. EFB can be safely peeled from surfaces without causing blemishes, bonded to different raw materials, and integrated into semiconductor processes. This technology dispenses with the need for wire bonding that was previously necessary for dissimilar materials and has reduced the number of chips used in electronic devices. EFB technology endows increasingly dense, multi-layered semiconductors with faster speeds and lower power consumption, which opens up many possibilities in developing a variety of IC devices. OKI has applied its proprietary EFB technology to create a new type of LED print-head for printers. Thinned LED array chips and driver IC chips that have been integrated using intermolecular bonding force are, as a single unit, half the size of conventional LED print-heads. EFB technology also contributes to lowering fabrication and material costs, thereby improving cost efficiency. These heads debuted in the C3400n, a compact, high-speed color LED printer, and will be featured in subsequent OKI color and monochrome LED printers. By developing this technology, OKI plans to develop ultra small print-heads and heads with 1200dpi or more to enable higher resolution printing. OKI will use this technology to further its research into smaller, lower cost ICs that consume less power as well as to realize developments such as ultra-compact LED displays. Recognizing this technology’s potential, OKI has launched a Group-wide research unit to investigate adapting this technology in other fields. Thinned LED and driver IC integrated with EFB technology Conventional LED print-head New LED print-head 17 Annual Report 2007 opment 1. 3. Japan’s First Iris-Pattern Recognition System for CameraEquipped Mobile Phones Introduced The variety of new mobile phone-supported services, such as payment services, is growing in step with increasing mobile phone functionality. These trends have brought about an increasing need for higher levels of mobile phone security to ensure both the security of the services offered and guard against abuse of personal information in the event of mobile phone loss or theft. In response to these rapidly changing needs, OKI has become the first company in Japan to develop iris-pattern recognition technology for camera-equipped mobile phones. The great complexity and randomness inherent in human iris patterns permits highly precise identity authentication. Thanks to its use of newly developed algorithms and compact programs, OKI was able to integrate iris pattern recognition technology into standard mobile phone cameras and eliminate the need for the infrared cameras that were previously used. Based on this development, OKI is endeavoring to apply this technology to cameraequipped PDAs*1 and other products to provide greater levels of security World’s First Isolator-Free Optical Transmitter Module Developed for Practical Use Utilizing gain-coupled DFB*2 laser technologies, which reduce noise deterioration, OKI was able to develop the industry’s first practical-use isolator-free optical transmitter module. This new development dispenses with the need for the optical isolators previously used in optical transmitter modules for longdistance transmissions. The newly developed gain-coupled DFB laser boasts several favorable characteristics such as production cost that is relatively the same as that for previous DFB lasers, little degradation of reception sensitivity and superior light-reflecting properties. These have in turn eliminated the need for high-cost isolators within the module component and helped to bring low-cost, compact transmission module development to fruition. Taking this technology further, OKI will continue to advance the development of products fitted with compact, low-cost, optical transmission components with its proprietary silicone lens technology. *1 PDA: Personal Digital Assistant *2 DFB: Distributed Feedback laser Gain-coupled DFB laser Iris-pattern recognition on mobile phone 2. Advanced eSound™ and eVideo Technologies OKI’s eSound is an advanced VoIP technology that offers much improved voice and sound quality. With a frequency range from 300 Hz to 3.4 kHz that far surpasses conventional phone voice data transmission, eSound gives users a feeling akin to voice quality of speaking face to face. To offer this same high-quality sound to users of conventional phone services, OKI recently added My eSound™. This technology improved sound quality by using low sound voice data to create and modify high sound voice data that is filtered out by conventional phones. OKI’s eVideo technology enables compressed transmission of video images—ranging from narrow-transmission-band mobile terminal videos to high-definition, high-quality images—over IP networks. While compliant with international standards with regard to video encoding methods, OKI is working to integrate proprietary high-speed, high-quality technologies with IP network technologies to bring about high-quality image and video transmission. In addition to building these two technologies into its own IP communication devices, OKI also provides them as software engines to telecom carriers and device vendors. 4. MAILPIA® New Mobile Phone Service MAILPIA is a notification system that alerts users of content updates to their favorite Web sites via an e-mail sent either to their mobile phone or personal computer. Signing up for MAILPIA updates couldn’t be simpler; users just register any Web site, blog URL or related keyword of their choice via the MAILPIA Web site. Making registration even easier for those who use mobile phones to access Web sites—usually intended for personal computer Web browsing—OKI has launched a mobile-browser-supported service site that cuts down on access and download time, making mobile access to MAILPIA seamless and simple. OKI will continue to promote the use of its MAILPIA mobile service site as one approach to developing its Web content service business. MAILPIA 18 OKI’s Social Respo Corporate Governance The OKI Group recognizes that its greatest management priority is to respond to the trust placed in it by all its stakeholders—including customers, shareholders and investors, business partners, local communities, and employees—by continuously working to improve corporate value. With this in mind, the Group makes concerted efforts to reinforce its corporate governance based on three fundamental concepts: the enhancement of management fairness and transparency; the clarification of decision-making processes; and the achievement of thorough compliance. Governance Structure OKI maintains a corporate auditor system and allocates the supervision and auditing of business execution functions to its Board of Directors and Board of Auditors. To enhance management efficiency, OKI has introduced an executive officer system to make more distinct the separation of management and business execution functions. OKI’s Board of Directors comprises 10 directors, including one external director. The Board of Directors normally meets once a month to make decisions on fundamental management policies and other important issues, as well as to supervise business execution functions. The appointment of an external director is judged to be essential in strengthening the supervisory function over the business execution functions of the Board General Meeting of Shareholders Board of Auditors Internal Auditors External Auditors Board of Directors Internal Directors External Directors Management Advisory Committee Compensation Committee Accounting Auditors Management Committee CSR Committee Compliance Committee Internal Auditing Division Corporate (Head Office Function) Information Security Committee Companies (Business Division) Disclosure Committee of Directors and in accurately pinpointing business environment and management issues. OKI’s Management Committee, which consists of executive officers at the senior vice president level or higher as well as corporate auditors, normally meets once a week to make decisions on important issues relating to the execution of the Group’s operations and to receive vital reports concerning each of its divisional operations. The Board of Auditors comprises three standing auditors, one of whom serves concurrently as one of two external auditors. Their duties include attending Board of Directors’ meetings and other important meetings, verifying the contents of reports received by directors and other executives, as well as auditing the business execution functions of directors by examining the status of company operations and finances. Auditors liaise closely with the Internal Auditing Division to accurately ascertain the overall status of company operations as well as to carry out audits of the executive function. External corporate auditors are appointed with the view that they are able to accurately audit directors’ execution of their business functions. Committee Organization OKI has established several dedicated committees to strengthen its corporate governance functions. Details regarding their activities follow. The Management Advisory Committee provides advice to senior management to enhance management transparency and soundness. Its members include external persons deemed to possess the expert knowledge necessary to facilitate these objectives. The Compensation Committee ensures transparency in the criteria and mechanisms used to set the remuneration of directors, executive officers and management officials. The Compliance Committee, headed by the Chief Compliance Officer, has been established with the company-wide authority to propose fundamental compliance policies. The Disclosure Committee ensures that disclosure to stakeholders is accurate and timely. In the fiscal year ending March 31, 2008, OKI added two new committees to its governance structure. A newly established CSR Committee will engage in the deliberation of basic policies related to the Group’s CSR activities, while an Information Security Committee will ensure thorough implementation of information security measures. Subsidiaries and Affiliates Accounting Auditors (Board of) Auditors OKI’s Corporate Governance Structure 19 Annual Report 2007 Establishment of Internal Control System Selection/dismissal Collaboration Audit Supervision (As of June 11, 2007) Japan’s new Corporation Law came into effect in May 2006. In line with this new law, OKI announced in that same month a decision reached by its Board of Directors for the formulation of a Basic Policy for the Establishment of an Internal Control System. OKI will move forward with efforts to strengthen its corporate governance in conformity with this Basic Policy. nsibility Corporate Social Responsibility (CSR) The OKI Group engages in a comprehensive range of CSR activities and goes to great lengths to ensure the robust development of its corporate activities. It does so not only in compliance with relevant laws, regulations and accepted standards, but also based on its corporate philosophy: “The people of OKI, true to the company’s enterprising spirit, are committed to creating superior network solutions and providing excellent information and communications services globally to meet the diversified needs of communities worldwide in the information age.” * For further information regarding OKI’S CSR activities, please visit our website at http://www.oki.com/en/csr/. Enhancing CSR Promotion Structure In April 2007, OKI integrated its CSR Promotion and Compliance and Business Ethics Divisions to establish an enhanced CSR Promotion Division. OKI recognizes thorough compliance as the fundamental aim of CSR and directs the basis of its efforts toward continuous improvement of the Group’s CSR and compliance promotion structure. ® Privacy Mark Certification Granted Having fulfilled the JISQ15001:2006 “Personal information protection management systems—Requirement,” OKI was granted Privacy Mark certification by the Japan Information Processing Development Corporation on April 3, 2007. In line with certification requirements, OKI reinforced Group-wide personal information protection and handling systems, bolstered its internal audit structure, undertook relevant staff training, thoroughly implemented personal information storage rules, and introduced entry and exit systems at all of its offices. With the ultimate goal of providing its customers with a sense of security, OKI will continue its efforts to appropriately manage personal and confidential information and maintain a high-level of information security. Contributing to Society OKI Supports Elementary School Project in China In the fiscal year ending March 2007, the OKI Group participated in a special project in China that was organized by Foster Parents Plan Japan. The second project of its kind, a ceremony was held on June 8, 2006 to commemorate the completion of renovations to existing structures and the building of a new two-story schoolhouse in the village of Fu Jia Pan, Shanxi Province. In November 2001, OKI contributed to its first special Foster Parents Plan Japansponsored project, which on that occasion was in the village of Chun Hua County, also in Shanxi Province, as part of events marking OKI’s 120th anniversary. Emperor Showa Memorial Award for Promotion of Blood Donation Presented At a national convention held on July 13, 2006 under the sponsorship of Japan’s Ministry of Health, Labour and Welfare, the Japan Red Cross Society and Gunma Prefecture, OKI was presented with the Emperor Showa Memorial Award for the Promotion of Blood Donation. OKI began Group-wide blood donations in 1964, becoming the first company in Japan to take part in such activities, and today over 2,000 of its employees now give blood each year. OKI’s efforts have also involved the donation of a special cooler-equipped vehicle for safe blood transport as well as providing for enhancements to the Japan Red Cross Society website—a gift funded by “OKI Volunteer Fund,” a Group-wide fund-raiser with matching gift donations provided by the Company. Selected for the dedication it has demonstrated by these activities, OKI is the proud recipient Presentation of the Emperor of this award. Showa Memorial Award for the Promotion of Blood Donation Environmental Conservation Ministry of Environment Approves Group’s Waste Treatment Scheme The OKI Group’s environmental philosophy calls for the realization of a better global environment for the next generation and is put into action by providing products that contribute to an e-Society. This philosophy involves OKI contributing to environmental conservation through its products; by conducting conservation activities as an integral part of its business affairs; and by supporting the activities of society at large. Exemplifying these efforts, OKI was granted “Certified Cross-jurisdictional Waste Treatment Manufacturer Scheme” approval by the Ministry of the Environment in June 2006. Large-area industrial waste certification systems endeavor to enhance recycling activities in the overall disposal of used products. OKI sought out and commissioned the services of eight new companies for intermediate industrial waste treatment, aiming to enhance its used-product recovery system and realize eco-friendly recycling methods. Large-Area Industrial Waste Certifi cate of Approval Fu Jia Pan Village Elementary School 20 Management Kazuo Tanaka, Katsumasa Shinozuka and Naoki Sato (from left) Board of Directors and Executive Officers Auditors President and Chief Executive Officer Senior Vice Presidents Standing Auditors Katsumasa Shinozuka *1 Masataka Sase Takahisa Inagawa General Manager, Global Environment Division Senior Managing Directors and Executive Vice Presidents Masao Miyashita President, System Solutions Company Kazuo Tanaka *1 Chief Financial Officer Chief Compliance Officer Naoki Sato *1 Managing Directors and Senior Vice Presidents Harushige Sugimoto Chief Technology Officer Hideichi Kawasaki General Manager, Marketing Promotion Division Hironori Kitabayashi Chairman, Semiconductor Business Group Keiichi Fukumura General Manager, CSR Promotion Division Masayoshi Matsushita Chief Information Officer Directors Executive Officers Yutaka Asai Yoshikatsu Shiraishi Hiroyuki Katagiri *4 Auditor Ieji Yoshioka *4 General Manager, Global Business Development Division Shigeru Yamamoto President, Financial Solutions Company Hiroshi Enomoto General Manager, Business Management and Promotion Division Kichiro Akino President, Network Systems Company Kazuhiro Iritani General Manager, Kansai Regional Office Masasuke Kishi EVP *3, Network Systems Company Hideto Morizono President, Manufacturing Service Company Sei Yano General Manager, Corporate Strategy Planning Office Mikihiko Maeno President and CEO, Oki Data Corporation Minoru Morio *2 *1 *2 *3 *4 Representative Directors External Director Executive Vice President External Auditors (As of June 29, 2007) 21 Annual Report 2007 Financial Section Contents Six-Year Summary..............................................................23 Financial Review.................................................................24 Consolidated Balance Sheets..........................................29 Consolidated Statements of Operations........................31 Consolidated Statements of Cash Flows .......................32 Consolidated Statements of Changes in Net Assets...33 Notes to Consolidated Financial Statements................35 Report of Independent Auditors.......................................48 22 Six-Year Summary Oki Electric Industry Co., Ltd. and consolidated subsidiaries Years ended March 31 Thousands of U.S. dollars (Note 1) Millions of yen 2007 2006 2005 2004 2003 2002 2007 $6,091,245 For the year: Net sales ¥718,767 ¥680,526 ¥688,542 ¥654,214 ¥585,473 ¥604,572 Cost of sales 560,817 514,483 504,340 484,455 445,709 490,257 4,752,686 Gross profit 157,949 166,043 184,202 169,759 139,763 114,314 1,338,550 Operating (loss) income (5,410) 10,593 27,220 21,606 1,368 (27,247) (45,847) (10,720) (133) (8,920) (19,410) (4,602) (29,643) (90,847) (Loss) income before income taxes, minority interests and equity in (losses) earnings of affiliates (16,130) 10,460 18,299 2,195 (3,233) (56,890) (136,694) Net (loss) income (36,446) 5,058 11,174 1,328 (6,560) (34,077) (308,864) ¥379,135 ¥374,278 ¥379,374 ¥382,369 ¥368,582 Other (expenses) income, net At the year end: (Note 2) Total current assets Total investments and long-term receivables Property, plant and equipment, net ¥405,161 $3,433,567 58,025 71,052 61,492 58,615 42,796 49,254 491,737 129,696 125,223 126,470 119,662 136,355 163,844 1,099,118 Other assets 35,515 43,244 44,996 51,333 60,659 69,039 300,974 Total assets 628,398 618,655 607,237 608,986 622,180 650,721 5,325,406 Total current liabilities 318,996 295,865 313,828 311,557 307,489 305,877 2,703,355 Total long-term liabilities 193,428 182,770 163,369 181,645 208,272 231,322 1,639,220 Total net assets 115,973 140,019 130,040 115,782 106,418 113,520 982,822 Common stock 76,940 67,882 67,877 67,862 67,862 67,862 652,033 U.S. dollars (Note 1) Yen Per share amounts: Net (loss) income per share Cash dividends per share Number of shareholders Number of employees ¥ (56.27) 2.17 ¥ (10.72) ¥ (55.66) — ¥ 8.27 3.00 ¥ 18.27 3.00 ¥ — — — 121,000 111,379 99,735 100,778 115,215 107,165 21,380 21,175 20,410 20,960 22,520 23,597 $ (0.47) — Ratios (%): (Note 2) Return on equity (30.0)% 3.9% 9.5% 1.3% (6.3)% Return on assets (5.8) 0.8 1.8 0.2 (1.0) (26.6)% (4.9) Shareholders’ equity 17.4 21.6 20.4 18.1 16.2 16.6 Note 1: The U.S. dollar amounts in this annual report are translated from yen, for convenience only, at ¥118=US$1.00, the approximate exchange rate prevailing on March 31, 2007. Note 2: Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets in the balance sheet and the related implementation guidance. In this connection the six-year summary has been restated to conform to the presentation and disclosure of the consolidated financial statements for the year ended March 31, 2007. 23 Annual Report 2007 Financial Review Annual Report for Oki Electric Industry Co., Ltd. and its Consolidated Subsidiaries SCOPE OF CONSOLIDATION SEGMENT INFORMATION In the fiscal year ended March 31, 2007, 17 companies, including 11 equity-method subsidiaries, were newly included in the Group’s scope of consolidation, while two other equity-method affiliates remained unchanged from the previous fiscal year. In addition, one company was excluded due to a merger executed by OKI Electric Co., Ltd. (“OKI” or “the Company”) for a total of 100 Group companies. Info-Telecom Systems In this segment, business for telecommunication carriers experienced especially tough conditions. Sales in fixed-line network systems decreased, affected by the decline of investment in IP networks and conventional fixed-line communication systems by telecommunication carriers coupled with delayed development of new products. In addition, the full-scale introduction of next-generation networks (NGNs), which were not expected to launch until either the fiscal 2008 or thereafter, contributed to the OKI Group’s performance. In financial sector market, both ATMs for the South Korean and Chinese markets, and ATMs with enhanced security features were robust. Sales of branch terminals in post offices also increased. In the public sector market, sales of wireless disaster prevention systems for integration into communities were favorable. In the private sector market, sales decreased, mainly in systems for logistics and distribution industries. As such, the OKI Group increased investment in the establishment of sales channels to expand the sales of IP telephony to private companies. As a result, consolidated segment sales, excluding inter-segment sales, increased 4.3% compared with the previous fiscal year to ¥352.7 billion. Reflecting such factors as price cuts due to harsh competition and insufficient cost reduction efforts, an operating loss of ¥1.5 billion was posted, compared with operating income of ¥10.9 billion in the previous fiscal year. OVERVIEW OF THE FISCAL YEAR ENDED MARCH 31, 2007 Net Sales and Operating Income In the fiscal year under review, the Japanese economy remained on a generally steady course, supported by an improvement in corporate earnings and an increase in capital investment. The global economy also enjoyed steady ongoing growth. The Company’s businesses, however, were challenged by harsh operating conditions. On one hand, sales of financial system business increased owing to a recovery of investment by financial institutions, and sales of color non-impact printers (NIPs) also grew, driven by market expansion. However, a slowdown in investment in fixed-line network systems by telecommunication carriers and weakened sales of driver LSIs due to prolonged inventory reduction of LCD panels put pressure on sales and income. Additionally, cost reduction efforts were not sufficient to offset sales declines due to intensifying competition in a variety of product fields. As a result, the OKI Group reported consolidated net sales of ¥718.8 billion, up 5.6% compared with the previous fiscal year. Consolidated operating loss was ¥5.4 billion against operating income of ¥10.6 billion in the previous fiscal year. Net Sales Operating Income Billions of yen Billions of yen 373.1 338.0 352.7 15.8 Net Sales 10.9 Billions of yen 800 688.5 680.5 718.8 ‒1.5 (Info-Telecom Systems ) 600 400 200 0 2005 2006 2007 Operating Income Billions of yen 30 27.2 Semiconductors In the semiconductor segment, sales of driver LSIs decreased in accordance with prolonged inventory reductions by LED panel manufacturers. Sales of system LSIs for specified customers also declined. On the other hand, P2ROMs for the amusement market and foundry businesses—employing such unique technology as a high-voltage process—were favorable in the fiscal year under review. As a result, consolidated sales in this segment, not including inter-segment sales, decreased 3.5% year on year to ¥145.5 billion. Operating income declined by ¥2.3 billion to ¥0.7 billion. 15 10.6 0 Net Sales Operating Income Billions of yen Billions of yen 12.0 ‒5.4 150.7 -15 2005 2006 150.7 145.5 3.0 2007 0.7 (Semiconductors) 24 Printers In the printer segment, sales of business-use color NIPs increased and was significantly impacted by depreciation of the Japanese yen. In this market, however, intense price competition continued among manufacturers aiming to increase their market share. Based on the aforementioned, consolidated sales, excluding intersegment sales, climbed 16.6% year on year to ¥187.1 billion. Operating income, on the other hand, declined ¥2.4 billion from ¥4.1 billion in the previous fiscal year to ¥1.7 billion. This was attributed mainly to delays in a shift to mid- and high-range printer models with higher profit rates. Net Sales Operating Income Billions of yen Billions of yen 137.7 187.1 160.5 Asia Sales in Asia, excluding inter-segment sales, increased 25.8% to ¥44.6 billion due to favorable expansion of sales in ATMs and printers, especially in the Chinese market. Operating income fell ¥0.8 billion to ¥0.7 billion from ¥1.5 billion in the previous fiscal year. NET INCOME On account of an ¥16.0 billion, year on year, increase in operating loss and the realization of ¥17.8 billion in deferred tax assets, net loss totaled ¥36.4 billion, a drop of ¥41.5 billion from ¥5.1 billion in net income recorded in the previous fiscal year. In line with this increase in net loss, net loss per share was ¥56.27 compared to ¥8.27 as net income per share in the previous fiscal year. FINANCIAL POSITION 7.8 4.1 1.7 (Printers ) GEOGRAPHIC SEGMENT INFORMATION Japan In the domestic market, despite the downturn of investment in fixedline systems by telecommunication carriers, sales of financial institution system equipment increased owing to an investment recovery in the financial industry and expansion in the printer market. As a result, sales, excluding inter-segment sales, grew 1.9% year on year to ¥503.9 billion. Delays in business cost reductions by enterprises, and the sales decrease in the telecommunication carrier and semiconductor businesses exerted a negative influence on operating income, which fell ¥17.0 billion from ¥20.6 billion to ¥3.6 billion. North America The printer business was robust, although sales in semiconductors declined. Sales decreased 0.5% to ¥65.3 billion. The OKI Group posted an operating loss of ¥0.2 billion, a decrease of ¥1.3 billion, year on year. Europe Sales in Europe, not including inter-segment sales, climbed 23.7% to ¥104.9 billion, owing to significant sales increases in the printer and semiconductor businesses. The OKI Group recorded operating income of ¥2.0 billion, an improvement of ¥3.9 billion from an operating loss of ¥1.9 billion in the previous fiscal year. Assets, Liabilities and Shareholders’ Equity Compared with the previous fiscal year-end, total assets increased ¥9.7 billion. Main factors were increases of ¥11.4 billion in cash and cash equivalents, ¥14.0 billion in note and accounts receivable and ¥4.5 billion in property, plant and equipment. On the other hand, investments in securities and deferred tax assets decreased ¥12.0 billion and ¥17.8 billion, respectively. In total liabilities and net assets, retained earnings decreased ¥39.0 billion. Common stock and additional paid-in capital increased ¥18.0 billion, owing to partial exercise of convertible bonds and a ¥16.5 billion increase in interest-bearing debt. CASH FLOWS In the fiscal year under review, net cash provided by operating activities increased ¥1.1 billion to ¥16.1 billion from ¥15.0 billion in the previous fiscal year, mainly due to an improvement in working capital. Net cash used in investing activities narrowed ¥6.3 billion to ¥34.9 billion from ¥28.6 billion in the previous fiscal year. This was attributed to a drop in gain on sale of investments in securities. Free cash flows, which are the total of cash flows from operating and investing activities, were negative, totaling ¥18.8 billion, a ¥5.2 billion downturn from the previous fiscal year. Net cash provided by financing activities amounted to ¥28.1 billion. This was due to issuance of convertible bonds and long-term debt against the redemption of bonds and the repayment of long-term debt. Net Income / Return on Equity [ROE] Cash Flows Billions of yen Billions of yen 20 100 11.2 9.5% 5.1 59.3 3.9% 0 50 28.1 16.1 15.0 ‒20 0.8 0 ‒30.0% ‒26.9 ‒36.4 ‒40 2005 Net Income 25 Annual Report 2007 2006 2007 ‒50 ‒41.5 2005 ‒28.6 2006 ‒34.9 2007 ROE (%) Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities As a result of these cash flow movements, cash and cash equivalents as of March 31, 2007 were ¥49.8 billion. This represents a yearon-year increase of ¥11.4 billion compared with the previous fiscal year-end total of ¥38.4 billion. CAPITAL EXPENDITURES, DEPRECIATION AND RESEARCH AND DEVELOPMENT EXPENSES As a result of expanded investment toward strengthening semiconductor production, capital expenditures as a whole increased by ¥4.2 billion to ¥37.7 billion. Depreciation of property, plant and equipment increased by ¥0.6 billion to ¥ 27.3 billion. Research and development expenses also grew by ¥1.7 billion to ¥21.3 billion. OUTLOOK FOR THE YEAR ENDING MARCH 31, 2008 The Japanese economy is exhibiting clearer signs of a recovery, supported by improvements in the corporate sector. Despite this favorable outlook, however, the OKI Group remains cautious about a rapidly changing operating environment typified by increasingly hurried globalization, domestic market saturation, and the fervent pursuit of investment efficiency by customers. Within this environment, the OKI Group is exerting efforts to raise the earning capacity of its Info-Telecom Systems segment. To this end, it plans to consolidate low-profit businesses, strengthen Company competitiveness, expand its software service business by creating a global software development structure, and grow overseas businesses by newly establishing a dedicated overseas structure. In businesses targeting the information market, the Group is looking to bolster its earnings power through the thorough promotion of cost reduction measures relating to mainstay products such as home-use subscriber devices and IP-PBX for companies. In the finance business market, OKI aims to further strengthen overseas ATM business development with a keen focus on markets in China and South Korea. It will base these efforts on its strengths in mechatronics technologies. Furthermore, in regard to public-sector information systems, OKI will liquidate underperforming businesses as well as reevaluate its cost structure in order to strengthen its earnings capabilities. 40 As a result of these efforts, OKI is forecasting a ¥12.3 billion increase in sales in the Info-Telecom Systems segment, to ¥365.0 billion, year on year. Likewise, we anticipate operating income to improve by ¥5.0 billion to ¥3.5 billion. With a focus on boosting profitability in the Semiconductor segment, OKI will work to reduce fixed and fluctuating costs, as well as to implement an optimal shift of human resources. Specifically, OKI will pursue cost reductions in the large TFT driver business while using differentiated technologies to take the lead in this competitive market. Furthermore, with an emphasis on system LSIs and ASICs, OKI will shift its business focus to the development of high-addedvalue businesses supported by an amalgamation of Group strengths, while at the same time working to consolidate underperforming businesses. Through these efforts, we foresee a ¥4.5 billion increase in Semiconductor segment sales, year on year, to ¥150.0 billion. Operating income is expected to amount to ¥5.0 billion, an increase of ¥4.3 billion. In the Printer segment, which is dominated by color NIPs, OKI is accelerating efforts to instigate a shift away from low-end printer models to mid- and high-range models targeting business development in the SMB market. In addition to bringing about cost reductions in the dot-impact printer business, OKI will seek to bolster its sales capabilities by introducing new printers to China, where market expansion is anticipated. As a result, Printer segment sales are anticipated to rise by ¥7.9 billion to ¥195.0 billion, with a ¥3.3 billion increase in operating income to ¥5.0 billion. In other segments, the OKI Group is anticipating sales of ¥40.0 billion and operating income of ¥3.5 billion. As a result, consolidated net sales for the fiscal year ending March 31, 2008 are expected to reach ¥750.0 billion. Operating income is forecast at ¥8.0 billion, with net income of ¥1.0 billion. Forecasts for the fiscal year ending March 31, 2008 are based on exchange rates of ¥115 to U.S.$1.00 and ¥150 to one euro. Capital Expenditures / Depreciation R&D Expenses / R&D Expenses to Net Sales Billions of yen Billions of yen 30 37.7 37.8 3.2% 33.5 22.0 30 26.6 25.5 27.3 21.3 19.6 20 3.0% 20 10 2.9% 10 0 2005 2006 Capital Expenditures 2007 Depreciation 0 2005 R&D Expenses 2006 2007 R&D Expenses to Net Sales (%) 26 Performance Forecasts for the Fiscal Year Ending March 31, 2008 (Billions of yen unless otherwise stated) Net Sales Operating Income Net Income Net Income per Share (Yen) ¥750.0 ¥8.0 ¥1.0 ¥1.46 BUSINESS AND OTHER RISKS The following items are business and other risks recognized by the OKI Group and its consolidated subsidiaries as those that may significantly influence investors’ judgment. OKI is aware of the potential impact these risks may have if any were to occur and is implementing measures to avoid such occurrence, as well as to minimize the weight of their impact should they occur. (1) Political and Economic Trends Demand for the OKI Group’s products is subject to political and economic trends in the individual countries and regions in which they are sold. Accordingly, economic recession and the resulting contraction in demand in the OKI Group’s principal operating markets of Japan, North America, Europe and Asia may impact its business performance and financial position. (2) Sudden Technological Innovation The OKI Group’s principal business segments comprising Info-Telecom Systems, Semiconductors and Printers are subject to rapid technological innovation. Accordingly, the OKI Group strives to preserve its competitive advantage through new technology and product research and development. In the event, however, the OKI Group is unable to keep pace with new innovations in technology and products, is burdened with obsolete products, and is unable to deliver products and services that appeal to customers, its performance and financial position may be affected. (3) Market Trends 1 The product and geographical markets in which the OKI Group operates are subject to frequent entry by new participants and persistent competition. In an effort to secure competitive advantage, the OKI Group strives to enhance product development and reduce costs. In the event the OKI Group is unable to implement effective product development and cost rationalization measures and fails to maintain and secure sufficient market share, business performance and financial position may be affected. 2 The performance of the Info-Telecom Systems segment is subject to a variety of factors including: (1) changes in investment trends by financial institutions due to revisions of financial regulation, poor performance and other factors; (2) changes in investment trends by telecommunication carriers owing to amendments to telecommunication regulations, shifts in business strategy and other factors, and; (3) a significant decline in public-sector investment due to national and local government policies. 3 The semiconductor market in which the OKI Group operates is characterized by turbulent fluctuations. While the OKI Group makes every effort to establish and develop a business structure that is resilient to movements in the market, in the event of a substantial unforeseen drop in demand or price deterioration, the Semiconductor segment’s performance may be affected. 27 Annual Report 2007 4 The printer market, a core component of the OKI Group’s field of operations, is experiencing intense price competition, particularly in color printers. In an effort to secure a strong market position and profitability, the OKI Group is endeavoring to develop new products and reduce costs. Despite these efforts, continued downward revisions to product prices may impact the Printer segment’s performance. (4) Raw Material and Component Procurement The OKI Group procures a variety of raw materials and components in support of its manufacturing activities. The ability to ensure timely product shipment, avoid delays in product delivery and minimize opportunity loss is dependent upon the stable supply of raw materials, components, specialized parts and alternative components. The OKI Group’s performance and financial position may therefore be affected in the event stable supply cannot be maintained. The OKI Group is reliant upon the direct and indirect supply of crude oil and materials, such as metals, as a part of its manufacturing activities. A sharp rise in the price of these and other key materials may impact the OKI Group’s performance and financial position. (5) Product Defects and Delays in Delivery Despite every effort to maintain quality assurance, the OKI Group is unable to eliminate all possibility of product and service defects. In the event of a product or service defect, the OKI Group may be liable for damages. In addition, any incidence of defect may impact the OKI Group’s reputation and standing and contribute to a drop in demand. In either case, the OKI Group’s performance and financial position may be affected. While the OKI Group adopts complete and thorough measures to ensure the timely delivery of its products and services, unforeseen incidents in design, material procurement and production control may lead to a delay in shipment. In this case, the OKI Group may become liable for the payment of damages. (6) Success or Failure of Strategic Alliances The OKI Group is aggressively engaged with other companies in strategic alliances in research and development, manufacturing, sales and other activities. While the OKI Group only enters into and maintains such alliances with the utmost caution, there may in theory be instances where the OKI Group is not able to obtain the desired cooperation from the strategic partner in business strategy, production and technical development, funds procurement or other activity, or where the alliance does not yield satisfactory results. The OKI Group’s performance and financial condition may be adversely affected by such an event. (7) Overseas Business Activities The OKI Group is engaged in business activities across a variety of countries and regions. Accordingly, it is subject to a number of risks specific to overseas business activities, including country risk and foreign currency fluctuation risk. In the implementation of its business, the OKI Group takes all necessary care to avoid and minimize risks. In particular the OKI Group enters into forward currency and currency swap contracts to minimize the risk of short-term movements in foreign currencies. Notwithstanding the aforementioned, a sharp appreciation of the yen against the United States dollar and the euro may affect the OKI Group’s performance and financial position. The OKI Group operates production sites in Thailand and China. The OKI Group’s performance and financial position may therefore be affected in the event of economic recession, movements in local currency exchange rates and unforeseen circumstances in either of these countries. (8) Patents and Intellectual Property The OKI Group strives to protect its patents and to secure new patents with the aim of differentiating the OKI Group from its competitors. Failure to do so may impact the performance of relevant businesses. The OKI Group is also active in developing new products and securing the right to use other companies’ patents. In the event the OKI Group is unable to secure patents or rights, or secures patents or rights under unfavorable terms and conditions, its performance and financial position may be affected. The OKI Group endeavors to comply with patents held by third parties. It is not, however, in a position to completely guarantee the OKI Group will not violate intellectual property rights held by another party. In the event the OKI Group is involved in a claim relating to the violation of intellectual property rights, it is likely to incur legal and other expenses. In the event the OKI Group is found to have breached intellectual property rights held by another party, then it is likely to incur damages. In either event, the performance and financial position of the OKI Group may be affected. (9) Statutory and Regulatory Compliance The OKI Group is subject to statutory and regulatory requirements, business and investment application and approval, export restrictions relating to national security and other factors, import regulations including customs and taxation and a variety of government ordinances in each of the countries and regions in which it operates. The OKI Group is also subject to statutory and regulatory requirements relating to commerce, antitrust, patents and intellectual property rights, taxation, foreign currency, the environment and recycling. In the event the OKI Group is unable to comply with any of the aforementioned, the possibility exists its activities would be restricted or suspended. Accordingly, the aforementioned and other statutory and regulatory requirements may impact the OKI Group’s performance and financial position. (10) Natural and Other Disaster The OKI Group conducts periodic inspections and implements a variety of accident, disaster and fire prevention measures to minimize stoppages of its production line. There is, however, no complete guarantee that accidents, disasters and fire that would impact the production line can be prevented. In particular, stoppages to the OKI Group’s semiconductor production lines located in Hachioji (Tokyo), Miyazaki Prefecture, Miyagi Prefecture and Thailand due to earthquake, wide and flood damage or power blackout may affect the OKI Group’s performance and financial position. (11) Information Management Although the OKI Group implements defense measures to protect its internal systems against computer viruses and the leakage of information, the Group cannot guarantee complete protection from system failure and information leakage attributable to human error, new virus strains and other like causes. The Group, therefore, faces the risk of cumulative losses should there be a breech in the information management structure. (12) Procurement and Training of Human Resources The ability to secure and foster high-quality human resources is a key factor in ensuring further growth as a stable earnings company. Accordingly, the OKI Group strives to recruit capable employees at every level, including new graduates and mid-career employees. In an effort to foster quality human resources, the OKI Group also conducts on-the-job training, education and a variety of training activities. In the event the OKI Group is unable to secure and foster high-quality human resources or a number of key employees leave the OKI Group, future growth may be affected. (13) Interest-Rate Fluctuations Although the OKI Group has been reducing its interest-bearing debt, it is still susceptible to changes in interest rates. The OKI Group utilizes interest-rate swaps and other instruments to manage the risks of interest-rate fluctuations. However, there is a possibility that interest charges may suffer an increase associated with a rise in interest rates and that the increased cost of raising capital would adversely affect the Company’s ability to raise working capital. (14) Changes to Accounting Standards The Company makes consolidated and non-consolidated financial statements in accordance with accounting standards generally recognized as fair and accurate. Should changes to accounting standards occur, there is a possibility that the OKI Group’s performance and financial position may be adversely affected. (15) Debt Recovery While the Company constantly appraises the financial situation of its customers and makes provision for bad debts after the Balance Sheet date, a sudden deterioration in the financial condition of a major customer could exert a negative influence on the OKI Group’s performance. (16) Impairment Loss on Fixed Assets In the event that it becomes necessary for the OKI Group to record an impairment loss on fixed assets such as tangible and intangible fixed assets, investment and other assets, and assets under finance leases, the Group’s performance and financial position may be adversely affected. (17) Deferred Tax Assets The OKI Group amortizes deferred assets against retained losses carried forward and temporary differences as appropriate. In the event the OKI Group is unable to liquidate deferred tax assets due to the decline in taxable income brought on by fluctuations in its business results, the OKI Group’s performance may be affected. (18) Retirement Benefit Obligations The OKI Group provides for retirement benefit obligations based on a discount rate established using actuarial calculations. Accordingly, a significant change in the discount rate and other preconditions and assumptions that lead to an increase in the retirement benefit obligation may impact the OKI Group’s performance and financial position. 28 Consolidated Balance Sheets Oki Electric Industry Co., Ltd. and consolidated subsidiaries As of March 31, 2007 and 2006 Thousands of U.S. dollars (Note 2) Millions of yen ASSETS 2007 2006 ¥ 49,800 ¥ 38,419 101 500 2007 Current assets: Cash and cash equivalents Marketable securities (Note 3) $ 422,033 855 Notes and accounts receivable: Unconsolidated subsidiaries and affiliates Other Less: Allowance for doubtful receivables Inventories (Note 4) Other current assets (Note 8) 6,807 11,787 57,686 173,815 153,699 1,473,008 (1,904) 167,513 (1,842) 166,899 (16,135) 1,419,601 9,028 9,671 76,508 405,161 379,135 3,433,567 Investments in and advances to unconsolidated subsidiaries and affiliates (Note 5) 11,717 15,643 99,296 Other investments in securities (Note 3) 47,360 57,900 401,355 Total current assets Investments and long-term receivables: Other long-term receivables Less: Allowance for doubtful receivables Total investments and long-term receivables 1,660 3,089 14,067 (2,712) (5,581) (22,983) 58,025 71,052 491,737 Property, plant and equipment (Notes 6 and 10): 15,760 15,940 133,559 Buildings Land 128,139 124,515 1,085,923 Machinery and equipment 495,944 482,365 4,202,915 837 431 7,093 640,681 623,253 5,429,500 (510,985) (498,030) (4,330,381) 129,696 125,223 1,099,118 35,515 43,244 300,974 ¥ 628,398 ¥ 618,655 $ 5,325,406 Construction in progress Less: Accumulated depreciation Property, plant and equipment, net Other assets (Note 8) Total assets 29 Annual Report 2007 Thousands of U.S. dollars (Note 2) Millions of yen LIABILITIES 2007 2006 2007 ¥ 98,643 ¥ 79,412 $ 835,957 43,666 56,665 370,050 Current liabilities: Short-term borrowings (Note 6) Current portion of long-term debt (Note 6) Notes and accounts payable: Unconsolidated subsidiaries and affiliates Other Accrued income taxes Other accrued expenses 5,506 6,370 46,661 107,832 98,130 913,830 1,749 1,182 14,822 47,339 44,350 401,177 Other current liabilities (Note 8) 14,259 9,752 120,838 Total current liabilities 318,996 295,865 2,703,355 142,530 132,229 1,207,881 45,658 42,897 386,932 5,239 7,644 44,398 Total long-term liabilities 193,428 182,770 1,639,220 Total liabilities 512,425 478,636 4,342,584 76,940 67,882 652,033 46,744 37,801 396,135 (22,375) 16,580 (189,618) Long-term liabilities: Long-term debt (Note 6) Retirement benefits (Note 7) Other long-term liabilities (Note 8) NET ASSETS Shareholders’ equity (Notes 9 and 18): Common stock: Authorized—2,400,000,000 shares Issued—684,256,778 shares in 2007 and 612,371,797 shares in 2006 Additional paid-in capital (Accumulated deficit) retained earnings Less: Treasury stock, at cost: 1,069,266 shares in 2007 and 915,526 shares in 2006 Total shareholders’ equity (320) (280) (2,711) 100,989 121,984 855,838 14,377 19,113 121,838 Valuation, translation adjustments and other: Net unrealized holding gain on other securities Loss on deferred hedges Translation adjustments Total valuation, translation adjustments and other Warrants Minority interests in consolidated subsidiaries Total net assets (368) (204) (3,118) (5,595) (7,210) (47,415) 8,412 11,698 71,288 32 — 271 6,538 6,335 55,406 115,973 140,019 982,822 ¥628,398 ¥618,655 $5,325,406 Contingent liabilities (Note 17) Total liabilities and net assets The accompanying notes are an integral part of these statements. 30 Consolidated Statements of Operations Oki Electric Industry Co., Ltd. and consolidated subsidiaries Years ended March 31, 2007, 2006 and 2005 Thousands of U.S. dollars (Note 2) Millions of yen Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating (loss) income 2007 2006 2005 2007 ¥718,767 ¥680,526 ¥688,542 $6,091,245 560,817 514,483 504,340 4,752,686 157,949 166,043 184,202 1,338,550 163,359 1,384,398 155,449 156,982 (5,410) 10,593 27,220 (45,847) (6,820) (6,171) (6,724) (57,796) 1,500 1,837 1,323 12,711 — 1,403 561 — 3,362 8,043 3,037 28,491 (2,130) — (1,193) (18,050) (785) 1,045 (1,300) (6,652) Other (expenses) income: Interest expense Interest and dividend income Foreign exchange gain, net Gain on sale of investments in securities Write-downs of investments in unconsolidated subsidiaries and other investments in securities (Loss) gain on sale and disposition of property, plant and equipment Loss on impairment of fixed assets (Note 12) — (2,973) — Loss on natural disaster (Note 13) — (856) — (1,442) (2,363) (7,491) Special retirement payments (884) — — Loss on business restructuring (Note 14) (2,335) — — (19,788) Other, net (2,626) (1,019) (2,261) (22,254) (10,720) (133) (8,920) (90,847) (16,130) 10,460 18,299 (136,694) (Loss) income before income taxes, minority interests and equity in (losses) earnings of affiliates Income taxes (Note 8): Current Deferred 2,152 1,579 2,695 18,237 17,813 3,773 4,377 150,957 19,966 5,352 7,072 169,203 (36,096) 5,107 11,226 (305,898) (274) (211) (297) (2,322) (75) 161 245 (635) 5,058 ¥ 11,174 $ (308,864) (Loss) income before minority interests and equity in (losses) earnings of affiliates Minority interests in earnings of consolidated subsidiaries Equity in (losses) earnings of affiliates Net (loss) income (Note 18) The accompanying notes are an integral part of these statements. 31 Annual Report 2007 ¥ (36,446) ¥ Consolidated Statements of Cash Flows Oki Electric Industry Co., Ltd. and consolidated subsidiaries Years ended March 31, 2007, 2006 and 2005 Thousands of U.S. dollars (Note 2) Millions of yen 2007 2006 2005 2007 ¥ 5,058 ¥ 11,174 34,957 34,691 34,245 — 2,973 — — 2,821 2,651 4,490 23,906 Cash flows from operating activities: Net (loss) income ¥(36,446) $(308,864) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization Loss on impairment of fixed assets Provision for retirement benefits, net of payments Write-downs of investments in unconsolidated subsidiaries and other investments in securities Gain on sale of investments in securities Loss (gain) on sale and disposition of property, plant and equipment 2,130 (3,362) 296,245 — 1,193 18,050 (8,043) (3,037) (28,491) 785 (1,045) 1,300 6,652 Deferred income taxes 17,813 3,773 4,377 150,957 Other, net (1,779) (802) 1,025 (15,076) (7,379) (1,371) 13,620 (62,533) 2,686 (15,536) (9,014) 22,762 Changes in operating assets and liabilities: Notes and accounts receivable Inventories Notes and accounts payable (95) (5,276) 7,056 Accrued income taxes 798 (1,138) 923 6,762 19,830 Other accrued expenses Other assets and liabilities Net cash provided by operating activities (805) 2,340 (633) 1,135 833 (334) (9,167) 7,059 16,105 14,965 59,323 136,483 Cash flows from investing activities: Decrease in time deposits and marketable securities Increase in investments and other long-term receivables Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment 30 89 (8,862) 500 (1,911) (7,280) (75,101) (26,729) (29,153) (33,926) (226,516) 2,808 1,895 5,474 646 4,237 Payment for purchases of businesses (455) (328) (2,292) (3,855) Net cash used in investing activities (34,900) (28,555) (41,514) (295,762) Cash flows from financing activities: Increase (decrease) in short-term borrowings 15,765 (999) (6,843) 133,601 Issuance of long-term debt 39,648 70,692 19,182 336,000 (56,826) (67,540) (59,071) (481,576) — 19,942 254,135 (1,817) (1) 1,371 438 (98) 11,618 28,130 774 (26,890) 238,389 Repayment of long-term debt Issuance of bonds 29,988 Cash dividends paid (1,817) Other, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents (15,398) 947 714 417 8,025 Net increase (decrease) in cash and cash equivalents 10,283 (12,102) (8,664) 87,144 Cash and cash equivalents at beginning of the year 38,419 49,411 58,075 325,584 1,090 1,110 — 9,237 Cash and cash equivalents of initially consolidated subsidiaries at beginning of the year Increase in cash and cash equivalents upon merger of an unconsolidated subsidiary with a consolidated subsidiary Cash and cash equivalents at end of the year 7 — — 59 ¥ 49,800 ¥ 38,419 ¥ 49,411 $ 422,033 ¥ 6,993 ¥ 5,928 ¥ 7,123 $ 59,262 1,353 2,717 1,771 11,466 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest Income taxes The accompanying notes are an integral part of these statements. 32 Consolidated Statements of Changes in Net Assets Oki Electric Industry Co., Ltd. and consolidated subsidiaries Years ended March 31, 2007, 2006 and 2005 Shareholders’ equity Balance at March 31, 2004 Issuance of new shares of common stock Net income Purchases of treasury stock Transfer from additional paid-in capital to (accumulated deficit) retained earnings Decrease due to exclusion of subsidiaries from consolidation Other, net Net changes during the year Balance at March 31, 2005 Issuance of new shares of common stock Distributions of retained earnings Net income Purchases of treasury stock Increase at beginning of the year due to initial consolidation of subsidiaries Decrease in unfunded retirement benefit obligation with respect to foreign subsidiaries Other, net Net changes during the year Balance at March 31, 2006 Issuance of new shares of common stock Distributions of retained earnings Net loss Purchases of treasury stock Decrease at beginning of the year due to initial consolidation of subsidiaries Increase at beginning of the year due to initial consolidation of subsidiaries accounted for by the equity method Decrease at beginning of the year due to initial consolidation of subsidiaries accounted for by the equity method Increase in unfunded retirement benefit obligation with respect to foreign subsidiaries Other, net Net changes during the year Balance at March 31, 2007 Numbers of shares issued (Thousands) Common stock Additional paid-in capital 612,221 114 ¥ 67,862 15 ¥ 71,150 15 (Accumulated deficit) retained earnings Treasury stock, at cost Total shareholders’ equity ¥ (29,685) ¥ (141) ¥ 109,185 30 11,174 (75) 11,174 (75) 114 612,335 36 15 67,877 4 (33,369) 33,369 (4) (33,353) 37,797 4 44,539 14,854 — (4) (75) (217) (1,834) 5,058 (62) 36 612,371 71,884 4 67,882 9,057 4 37,801 8,942 308 308 (1,805) (1,805) 1,726 16,580 (62) (280) (1,834) (36,446) (40) (23) 166 166 (1,140) 322 9,057 ¥ 76,940 8,942 ¥ 46,744 1,672 121,984 18,000 (1,834) (36,446) (40) (23) (1,140) 71,884 684,256 11,125 120,311 9 (1,834) 5,058 (62) (38,955) ¥ (22,375) 322 (40) ¥ (320) (20,995) ¥ 100,989 Shareholders’ equity Balance at March 31, 2006 Issuance of new shares of common stock Distributions of retained earnings Net loss Purchases of treasury stock Decrease at beginning of the year due to initial consolidation of subsidiaries Increase at beginning of the year due to initial consolidation of subsidiaries accounted for by the equity method Decrease at beginning of the year due to initial consolidation of subsidiaries accounted for by the equity method Increase in unfunded retirement benefit obligation with respect to foreign subsidiaries Other, net Net changes during the year Balance at March 31, 2007 The accompanying notes are an integral part of these statements. 33 Annual Report 2007 Numbers of shares issued (Thousands) Common stock Additional paid-in capital 612,371 71,884 $575,271 76,754 $320,347 75,779 (Accumulated deficit) retained earnings Treasury stock, at cost Total shareholders’ equity $ 140,508 $(2,372) $1,033,762 152,542 (15,542) (308,864) (338) (15,542) (308,864) (338) (194) 71,884 684,256 76,754 $652,033 75,779 $396,135 (194) 1,406 1,406 (9,661) (9,661) 2,728 2,728 (330,127) $(189,618) (338) $(2,711) (177,923) $ 855,838 Valuation, translation adjustments and other Net Total unrealized valuation, holding gain Loss on translation on other deferred Translation adjustments securities hedges adjustments and other ¥ 10,932 1,508 1,508 12,441 ¥ (455) (321) (321) (776) ¥ (9,619) 1,694 1,694 (7,925) ¥ 857 2,881 2,881 3,739 Warrants Minority interests in consolidated subsidiaries ¥ — ¥ 5,739 — — — 249 249 5,989 Total net assets Millions of yen ¥ 115,782 30 11,174 (75) — (4) 3,131 14,257 130,040 9 (1,834) 5,058 (62) 308 6,671 6,671 19,113 572 572 (204) 714 714 (7,210) 7,959 7,959 11,698 — — — 346 346 6,335 (1,805) 8,306 9,979 140,019 18,000 (1,834) (36,446) (40) (23) 166 (1,140) (4,735) (4,735) ¥ 14,377 (164) (164) ¥ (368) 1,614 1,614 ¥ (5,595) (3,285) (3,285) ¥ 8,412 Valuation, translation adjustments and other Net Total unrealized valuation, holding gain Loss on translation on other deferred Translation adjustments securities hedges adjustments and other $161,974 $(1,728) $(61,101) $ 99,135 32 32 ¥ 32 Warrants $ — 202 202 ¥ 6,538 322 (3,050) (24,046) ¥ 115,973 Minority interests in consolidated Total net subsidiaries assets Thousands of U.S. dollars (Note 2) $53,686 $1,186,601 152,542 (15,542) (308,864) (338) (194) 1,406 (9,661) (40,127) (40,127) $121,838 (1,389) (1,389) $(3,118) 13,677 13,677 $(47,415) (27,838) (27,838) $ 71,288 271 271 $271 1,711 1,711 $55,406 2,728 (25,847) (203,779) $ 982,822 34 Notes to Consolidated Financial Statements Oki Electric Industry Co., Ltd. and consolidated subsidiaries March 31, 2007 1. SIGNI FI C A NT ACCOUNT ING P OLIC I ES (a) Basis of presentation Oki Electric Industry Co., Ltd. (the “Company”) and its domestic consolidated subsidiaries (collectively and including its overseas subsidiaries, the “Group”) maintain their books of account in accordance with accounting standards generally accepted in Japan, and its overseas subsidiaries maintain their books of account in conformity with those of their respective countries of domicile. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and have been compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. As permitted, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and in U.S. dollars) do not necessarily agree with the sum of the individual amounts. Certain amounts from prior years have been reclassified to conform to the current year’s presentation. The accompanying consolidated statements of cash flows, which have not been prepared under the same requirements as those specified in the Japanese accounting standard for cash flows, are presented in a format similar to that required under accounting standards generally accepted in the United States, and the concept and format are almost identical to those required under the Japanese standard. (b) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates The accompanying consolidated financial statements include the accounts of the Company and all significant subsidiaries over which substantial control is exerted either through majority ownership of voting stock and/or by other means. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in certain unconsolidated subsidiaries and significant affiliates are accounted for by the equity method. Other investments in unconsolidated subsidiaries and affiliates are stated at cost or less. Where there has been a permanent decline in the value of such investments, the Company has written them down to reflect the impairment. (c) Foreign currency transactions (1) The Company translates the revenue and expense accounts of the overseas consolidated subsidiaries at the average rates of exchange in effect during the year. The balance sheet accounts, except for the components of shareholders’ equity, are translated into yen at the rates of exchange in effect at the balance sheet date. The components of shareholders’ equity are translated at their historical exchange rates. Differences arising from translation where two exchange rates have been used are presented under translation adjustments as a component of net assets. (2) Current and noncurrent monetary assets and liabilities denominated in foreign currencies of the Company and its domestic consolidated subsidiaries are translated into yen at the exchange rates in effect at the balance sheet date, except for those hedged by forward foreign exchange contracts which are translated at the contracted rates. All revenues and expenses are translated at the average rate for the month prior to the transaction. 35 Annual Report 2007 Gains and losses arising from foreign exchange differences are credited or charged to income in the year in which they are made or incurred, except for those arising from forward foreign exchange contracts pertaining to long-term debt which are deferred and amortized over the periods of the respective contracts. (d) Cash equivalents All highly liquid investments, generally with a maturity of three months or less when purchased, which are readily convertible into known amounts of cash and are so near maturity that they represent only an insignificant risk of any change in value attributable to changes in interest rates, are considered cash equivalents. (e) Securities Held-to-maturity securities are either amortized or accumulated to face value. Other securities with quoted market prices are carried at market value. The difference between the acquisition cost and the carrying value of other securities, including unrealized gain and loss, net of the applicable income taxes, is recognized as a component of net assets and is reflected as “Net unrealized holding gain on other securities.” The cost of other securities sold is computed by the moving average method. Other securities without quoted market prices are stated at cost based on the moving average method. (f) Inventories Inventories are principally stated at cost determined by the following methods: Finished goods - Moving average method Work in process - Specific identification method Raw materials and supplies - Last purchase price method (g) Property, plant and equipment, and depreciation Property, plant and equipment is recorded at cost. Depreciation of property, plant and equipment is principally computed by the declining balance method over the estimated useful lives of the respective assets. However, buildings (excluding leasehold improvements) acquired after April 1, 1998 by the Company and its domestic consolidated subsidiaries are depreciated by the straight-line method over their respective estimated useful lives. Significant renewals and betterments are capitalized at cost. Maintenance and repairs are charged to income. (h) Intangible assets and amortization Intangible assets, including capitalized computer software costs, are amortized by the straight-line method over their respective estimated useful lives. (i) Leases Noncancelable leases are primarily accounted for as operating leases (regardless of whether such leases are classified as operating or finance leases), except that leases which stipulate the transfer of ownership of the leased property to the lessee are accounted for as finance leases. (j) Retirement benefits The Group has retirement benefit plans covering substantially all its employees. An allowance for retirement benefits has been provided for employees’ retirement benefits based on an estimate of the projected retirement benefit obligation and the pension fund assets. The transition difference arising from the initial adoption of the accounting standard for retirement benefits is being amortized over a period of 15 years except for certain domestic consolidated subsidiaries which charged it to income when it was recognized or certain overseas consolidated subsidiaries which charged it directly to retained earnings. Actuarial gains and losses and prior service cost are amortized by the straight-line method over periods of 13 to 14 years and 14 years, respectively, which are within the estimated average remaining years of service of the participants in the plans. The amortization of such gains and losses is recognized in the year subsequent to the year in which they arise except for certain overseas subsidiaries which charged or credited it directly to retained earnings. Certain consolidated subsidiaries also provide an allowance for retirement benefits for directors at the amount which would be required to be paid if all directors retired at the balance sheet date based on the Group’s internal regulations. (k) Income taxes Deferred income taxes are recognized by the asset and liability method under which deferred tax assets and liabilities are determined based on the difference between financial reporting and the tax bases of the assets and liabilities, and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (l) Hedge accounting Forward foreign exchange contracts are accounted for by deferral hedge accounting which requires that unrealized gains or losses be deferred as assets or liabilities. Forward foreign exchange contracts which meet certain criteria are accounted for by the allocation method which is utilized to hedge against risks arising from fluctuation in foreign currency exchange rates. Interest-rate swaps which meet the required criteria are accounted for by a special method (as stipulated in the accounting standard) as if the interest rates applied to the interest-rate swaps had originally applied to the underlying borrowings. Swap contracts are utilized to hedge market risks which may arise in the future with respect to short-term and long-term loans with variable interest rates. The Group has developed hedging policies to control various aspects of derivatives transactions, including levels of authorization and transaction volume. Based on these policies, the Group hedges risks arising from fluctuation in foreign currency exchange rates and interest rates. During the period from the inception of a hedge position to the assessment of its effectiveness, the Group reviews the effectiveness of all its hedging policies in order to monitor and control the cumulative cash flows and to respond to any changes in the market. (m) Changes in Methods of Accounting (1) Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets in the balance sheet and the related implementation guid- (2) (3) (4) (5) ance. In addition, effective the year ended March 31, 2007, the Company is required to prepare consolidated statements of changes in net assets instead of consolidated statements of shareholders’ equity. In this connection the previously reported consolidated balance sheet as of March 31, 2006 and the consolidated statements of shareholders’ equity for the years ended March 31, 2006 and 2005 have been restated to conform to the presentation and disclosure of the consolidated financial statements for the year ended March 31, 2007. Total shareholders’ equity under the previous method of presentation amounted to ¥109,771 million ($930,264 thousand) for the year ended March 31, 2007. Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for business combinations and the related implementation guidance. Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for share-based payments and the related implementation guidance. The effect of the adoption of this new standard was to increase operating loss, loss before income taxes, minority interests and equity in losses of affiliates by ¥32 million ($ 275 thousand) for the year ended March 31, 2007 over the amounts which would have been recorded under the previous method. In August 2002, the Business Accounting Council of Japan issued “Opinion Concerning Establishment of Accounting Standards for Impairment of Fixed Assets,” and in October 2003 the Accounting Standards Board of Japan (ASBJ) issued Financial Accounting Standards Implementation Guidance No. 6, “Implementation Guidance for Accounting Standards for Impairment of Fixed Assets.” These new pronouncements went into effect for fiscal years beginning on or after April 1, 2005. This standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Companies are required to recognize an impairment loss in their statement of income if certain indicators of asset impairment exist and if the book value of the fixed asset exceeds the undiscounted sum of its future cash flows. The effect of the adoption of this standard was to decrease income before income taxes, minority interests and equity in earnings of affiliates by ¥2,973 million for the year ended March 31, 2006. Certain overseas consolidated subsidiaries have adopted the new accounting standards for retirement benefits in their respective countries effective the year ended March 31, 2006. The adoptions of the new accounting standards had no significant impact on net income. However, because under these new accounting standards, the transition differences arising from the initial adoption of these new accounting standards and the actuarial differences were deducted directly from retained earnings, retained earnings decreased by ¥1,805 million. 2. U. S. D OLL A R A MOUNT S The translation of yen amounts into U.S. dollar amounts is included solely for convenience and has been made, as a matter of arithmetic computation only, at ¥118 = U.S.$1.00, the approximate exchange rate prevailing on March 31, 2007. This translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate. 36 3. S ECURI T I ES Securities with quoted market prices at March 31, 2007 and 2006 are summarized as follows: Held-to-maturity securities with quoted market prices Millions of yen Thousands of U.S. dollars 2007 Amount recorded in balance sheet 2006 Quoted market price Difference ¥— ¥— 2007 Amount recorded in balance sheet Quoted market price Difference ¥ 500 ¥ 500 ¥0 Amount recorded in balance sheet Quoted market price Difference $— $— Held-to-maturity securities whose market value exceeds amounts recorded in balance sheet: Debt securities Held-to-maturity securities whose market value does not exceed amounts recorded in balance sheet: Total ¥— $— — — — — — — — — — ¥— ¥— ¥— ¥ 500 ¥ 500 ¥0 $— $— $— Other securities with quoted market prices Millions of yen Thousands of U.S. dollars 2007 2006 2007 Acquisition costs Amount recorded in balance sheet Difference ¥12,434 ¥36,333 ¥23,898 ¥12,868 ¥45,157 ¥32,288 397 507 110 499 553 53 3,364 4,296 932 12,832 36,841 24,008 13,367 45,710 32,342 108,745 312,211 203,457 1,189 1,034 (154) 302 238 (64) 10,076 8,762 102 101 (0) — — — 864 855 (0) 1,291 1,136 (155) 302 238 (64) 10,940 9,627 (1,313) ¥14,123 ¥37,977 ¥13,670 ¥45,948 ¥32,278 Acquisition costs Amount recorded in balance sheet Difference Amount recorded in balance sheet Difference Acquisition costs Other securities whose market value recorded in balance sheet exceeds their acquisition costs: Equity securities Other Subtotal $105,372 $307,906 $202,525 Other securities whose market value recorded in balance sheet does not exceed their acquisition costs: Equity securities Other Subtotal Total ¥23,853 $119,686 $321,838 (1,305) $202,144 Other securities without quoted market prices at March 31, 2007 and 2006 are summarized as follows: Thousands of U.S. dollars Millions of yen Amount recorded in the balance sheet 2007 2006 2007 Held-to-maturity bonds: Local bond ¥ 0 ¥ — $ 0 ¥ 100 ¥ 100 $ 847 Other investments in securities: Medium-term government bond fund Free financial fund Money management fund Local bond Unlisted equity securities Investment in a limited liability joint business partnership 37 Annual Report 2007 2,803 — 23,754 900 3,701 7,627 0 — 0 8,686 11,046 73,610 460 600 3,898 4. INV ENTORI ES Inventories at March 31, 2007 and 2006 were as follows: Thousands of U.S. dollars Millions of yen 2007 Finished goods 2006 ¥ 52,419 ¥ 53,277 2007 $ 444,228 Work in process 67,257 69,231 569,974 Raw materials and supplies 47,835 44,392 405,381 ¥167,513 ¥166,899 $1,419,601 5. INV ES T M ENT S IN A ND A DVA NC ES TO UNCONSOLIDAT ED SUBSID I A RI ES A ND A FFILI AT ES Investments in and advances to unconsolidated subsidiaries and affiliates at March 31, 2007 and 2006 were as follows: Thousands of U.S. dollars Millions of yen 2007 2006 2007 ¥ 5,226 ¥ 4,788 $44,288 2,234 4,146 18,932 4,242 6,708 35,949 ¥11,703 ¥15,643 $99,177 Investments stated: By equity method At cost or less Advances 6. SHOR T-T ERM BORROW INGS A ND LONG -T ERM D EBT Short-term borrowings at March 31, 2007 and 2006 consisted of the following: Thousands of U.S. dollars Millions of yen 2007 2006 2007 Loans, principally from banks, at weighted-average interest rates of 1.8% and 1.3% at March 31, 2007 and 2006, respectively: Secured Unsecured Commercial paper at weighted-average interest rate of 1.7% at March 31, 2007 ¥ — 91,643 ¥ — 79,412 $ — 776,635 7,000 — 59,322 ¥98,643 ¥79,412 $835,957 38 Long-term debt at March 31, 2007 and 2006 is summarized as follows: Thousands of U.S. dollars Millions of yen 2007 2006 2007 Loans from banks, insurance companies and government agencies, due through 2018: Secured Unsecured ¥ 1,230 ¥ 1,102 $ 10,423 143,466 138,292 1,215,813 144,696 139,394 1,226,237 Zero coupon convertible bonds with stock acquisition rights due 2008 (*1) 20,000 20,000 169,491 Zero coupon convertible bonds with stock acquisition rights due 2011 (*2) 12,000 — 101,694 3.15% bonds due 2006 — 20,000 — 2.65% bonds due 2007 9,500 9,500 80,508 186,196 188,894 1,577,932 (43,666) (56,665) Unsecured convertible bonds: Unsecured bonds in yen: Less: Current portion ¥142,530 ¥132,229 (370,050) $1,207,881 *1 The zero coupon convertible bonds with stock acquisition rights due 2008 (the “Bonds” ) are exercisable during the period from December 10, 2004 to November 12, 2008 (unless the Bonds are previously redeemed or purchased and cancelled) and entitle the bearer to acquire fully-paid and non-assessable shares of common stock of the Company at a conversion price of ¥ 504 ($ 4.3) per share. *2 The zero coupon convertible bonds with stock acquisition rights due 2011 (the “Bonds” ) are exercisable during the period from June 8, 2006 to June 6, 2011 (unless the Bonds are previously redeemed or purchased and cancelled) and entitle the bearer to acquire fully-paid and nonassessable shares of common stock of the Company at a conversion price of ¥ 291 ($ 2.4) per share. The Bonds are subject to certain provisions that permit the conversion price to be adjusted depending on the stock price (¥291 being the lower limit).The conversion price of ¥291 was amended from the initial conversion price of ¥376 and valid after December 25, 2006. At March 31, 2007, current portion of long-term debt and long-term debt of ¥1,230 million ($10,423 thousand) in the aggregate were collateralized by property, plant and equipment amounting to ¥2,154 million ($18,254 thousand). As is customary in Japan, both short-term and long-term bank loans are made under general agreements which provide that collateral and guarantees (or additional collateral or guarantees, as appropriate) with respect to present and future indebtedness be given at the request of the lending bank, and that the bank shall have the right, as the obligations become due or in the event of default, to offset the obligations with any cash deposited with the bank. The aggregate annual maturities of long-term debt subsequent to March 31, 2007 are summarized as follows: Millions of yen Thousands of U.S. dollars 2008 ¥ 43,666 $ 370,050 2009 48,475 410,805 2010 21,257 180,144 2011 48,446 410,559 Year ending March 31, 2012 and thereafter 24,350 206,355 ¥186,196 $1,577,932 The Group has access to substantial sources of funds at numerous banks worldwide. Total unused credit available to the Group at March 31, 2007 was ¥123,557 million ($1,047,093 thousand). 7. R E T I R EM EN T B EN EFI T S The Group has a noncontributory defined benefit pension plan, tax-qualified pension plans, and lump-sum retirement payment plans which cover substantially all employees who terminate their employment with the Group. Certain foreign consolidated subsidiaries have defined benefit and defined contribution pension plans. In addition, eligible employees, upon termination of their employment with the Group, may receive certain additional payments under the plan. The Company and 37 domestic consolidated subsidiaries joined the OKI Pension Fund which was established on January 1, 2005. 39 Annual Report 2007 The following is a summary of the plans. Retirement benefit obligation at March 31, 2007 and 2006: Thousands of U.S. dollars Millions of yen 2007 Projected benefit obligation ¥(166,341) Fair value of plan assets 2006 2007 ¥(168,038) $(1,409,669) 86,335 82,999 731,652 (80,006) (85,039) (678,016) 34,666 38,999 293,779 13,022 17,514 110,355 Unrecognized prior service cost (12,892) (13,989) (109,254) Obligation recognized in the consolidated balance sheets (45,209) (42,515) (383,127) Funded status Transition differences arising from initial adoption of new accounting standard for retirement benefits Unrecognized actuarial loss Prepaid pension cost 9 Allowance for retirement benefits ¥ (45,218) 10 76 ¥ (42,525) $ (383,203) Certain domestic consolidated subsidiaries have adopted a simplified method, as permitted, to calculate their projected benefit obligation. Components of net periodic pension cost for the years ended March 31, 2007, 2006 and 2005: Thousands of U.S. dollars Millions of yen Service cost during the year 2007 2006 2005 2007 ¥ 5,089 ¥ 5,208 ¥ 5,585 $ 43,127 Interest cost on projected benefit obligation 3,427 3,850 4,887 29,042 Expected return on plan assets (1,907) (2,959) (2,657) (16,161) Amortization of obligation at transition 4,333 4,333 4,511 36,720 Amortization of actuarial difference 2,331 3,638 2,753 19,754 Amortization of prior service cost (1,093) (1,097) (274) ¥12,974 ¥14,807 Net periodic pension cost ¥12,180 (9,262) $103,220 (1) Special retirement payments of ¥884 million ($7,491 thousand), ¥1,442 million and ¥1,947 million in the aggregate were paid in addition to the net periodic pension cost presented in the above table for the years ended March 31, 2007, 2006 and 2005, respectively. (2) The allowance for retirement benefits was determined by the simplified method by certain consolidated subsidiaries and their net periodic pension cost has been included in service cost of benefits earned during the year. Assumptions used in the actuarial calculation: Years ended March 31 Discount rate: Expected rates of return: Amortization period for prior service cost: Amortization period for actuarial difference: 2007 2006 2.10% 2.10% 2.30% 4.00% 14 years (amortized by the straight-line method over a period which falls within the average remaining years of service of the participants in the plans, commencing the year subsequent to the period in which the cost was incurred) 13–14 years (amortized by the straight-line method over a period which falls within the average remaining years of service of the participants in the plans, in the year subsequent to the period in which such difference was incurred) except for certain overseas subsidiaries which charge it directly to retained earnings. Amortization period for transition obligation arising 15 years, except for certain consolidated subsidiaries which charge or credit it to from the initial adoption of a new method of accounting: income when incurred, and certain overseas subsidiaries which charge it directly to retained earnings. 40 8. INCOM E TA X ES Deferred tax assets and liabilities at March 31, 2007 and 2006 consisted of the following: Thousands of U.S. dollars Millions of yen 2007 2006 2007 Deferred tax assets: Loss carryforwards Nondeductible accrued bonuses Nondeductible retirement benefits Nondeductible write-downs of inventories Loss on impairment of fixed assets Other ¥ 26,511 ¥ 15,457 5,176 5,715 $ 224,669 43,864 15,189 16,600 128,720 1,811 1,622 15,347 — 1,218 — 8,286 8,402 70,220 Gross deferred tax assets 56,975 49,017 482,838 Less: Valuation allowance (43,498) (17,825) (368,627) Total deferred tax assets 13,476 31,191 114,203 (9,552) (13,292) (80,949) (119) (105) (1,008) (9,672) (13,397) (81,966) Deferred tax liabilities: Net unrealized holding gain on other securities Other Total deferred tax liabilities Net deferred tax assets ¥ 3,804 ¥ 17,793 $ 32,237 Net deferred tax assets are included in the consolidated balance sheets as follows: Thousands of U.S. dollars Millions of yen 2007 Other current assets 2006 2007 ¥ 5,977 ¥ 6,508 $ 50,652 Other assets 153 11,294 1,296 Other current liabilities (21) (4) (177) (2,304) (5) (19,525) Other long-term liabilities Net deferred tax assets ¥ 3,804 ¥17,793 $ 32,237 Income taxes applicable to the Company and its domestic consolidated subsidiaries comprised corporation tax, inhabitants’ taxes and enterprise tax, which, in the aggregate, resulted in a statutory tax rate of approximately 41% for the years ended March 31, 2007, 2006 and 2005. Income taxes of the overseas consolidated subsidiaries are based generally on the tax rates applicable in their respective countries of incorporation. A reconciliation between the statutory tax rate and the effective tax rates as a percentage of income before income taxes for the years ended March 31, 2006 and 2005 is summarized as follows, and the corresponding reconciliation for the year ended March 31, 2007 has been omitted since loss before income taxes, minority interests and equity in earnings of affiliates was recorded. 2007 2006 2005 — 41.0% 41.0% Increase in valuation allowance for deferred tax assets — 10.1 Permanent nondeductible differences such as entertainment expenses — 6.9 2.9 Permanent differences not recognized for tax purposes such as dividends received — (3.5) (1.0) (2.5) Statutory tax rates Additions to (deductions from) income taxes resulting from: 4.0 Differences between the Company's statutory tax rates and — (2.3) Other, net the overseas consolidated subsidiaries’ effective tax rates — (1.8) (6.3) Effective tax rates — 50.4% 38.1% 41 Annual Report 2007 9. SH A R EHOLD ERS’ EQUI T Y The Commercial Code of Japan (the “Code”) provides that an amount equal to at least 10% of the amounts to be disbursed as distributions of earnings be appropriated to the legal reserve until the sum of the reserve and additional paid-in capital equals 25% of the common stock account. The Code also stipulates that, to the extent that the sum of the additional paid-in capital account and the legal reserve exceeds 25% of the common stock account, the amount of any such excess is available for appropriation by resolution of the shareholders. Both the legal reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolution of shareholders or may be capitalized by resolution of the Board of Directors. In accordance with the Code, the Company has provided a legal reserve which is included in retained earnings. The new Corporation Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Code of Japan, went into effect on May 1, 2006. The Law provides that amounts from additional paid-in capital and retained earnings may be distributed to the shareholders at any time by resolution of the shareholders or by the Board of Directors if certain provisions are met subject to the extent of the applicable sources of such distributions. The Law further provides that amounts equal to 10% of such distributions be transferred to the capital reserve included in additional paid-in capital or the legal reserve included in retained earnings based on the applicable sources of such distributions until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Pursuant to a resolution of the Board of Directors at a meeting held on May 23, 2006, the Company issued unsecured convertible bonds with stock acquisition rights (the total amount of the bond issuance was ¥18,000 million). Unsecured convertible bonds with stock acquisition rights which were converted fully to shares of common stock as a result of the exercise of rights held by shareholders during the year ended March 31, 2007. As a result, the common stock and additional paid-in capital increased during the year ended March 31, 2007. 10. D EPR EC I AT ION Depreciation of property, plant and equipment for the years ended March 31, 2007, 2006 and 2005 was as follows: Thousands of U.S. dollars Millions of yen 2007 2006 2005 2007 ¥27,263 ¥26,590 ¥25,549 $231,042 11. R ES E A RC H A ND D E V ELOPM ENT E X P ENS ES Research and development expenses for the years ended March 31, 2007, 2006 and 2005 were as follows: Thousands of U.S. dollars Millions of yen 2007 2006 2005 2007 ¥21,305 ¥19,614 ¥21,987 $180,550 12. LOSS ON IMPA IRM ENT O F FI X ED ASS E T S The Company recognized a loss on impairment of fixed assets for the year ended March 31, 2006. In accordance with the accounting standard for impairment of fixed assets, the Company recognized a loss on impairment of certain fixed assets due to a projected change in their usage, from shared usage within the Company, to the rental of such assets to external third parties. This loss recognition was determined based on the net sale prices of the respective assets. 13. LOSS ON N ATUR A L D ISAS T ERS Due to an earthquake that took place at the coast of Miyagi Prefecture on August 16, 2005, certain production lines of Miyagi Oki Electric Industry Co., Ltd. were suspended and the subsidiary recognized the related loss for the year ended March 31, 2006. 42 14. LOSS ON BUSINESS R EST RUC TURING The Company disposed of a portion of its inventories of maintenance components as a result of the restructuring of the Info-Telecom Systems business. 15. D ERI VAT I V ES A ND H EDGING AC T I V I T I ES The Company and its subsidiaries primarily utilize comprehensive forward foreign exchange and currency swap contracts to hedge their exposure to foreign exchange fluctuation relating to their receivables and payables. The Company and its subsidiaries also utilize interestrate swaps to manage the risks of interest-rate fluctuation and to equalize their financial costs for each fiscal year with regard to shortterm and long-term debt at variable interest rates. As a matter of policy, the Company and its subsidiaries do not speculate in derivatives which are subject to significant market value fluctuation. The Company and its subsidiaries do not anticipate any credit risk resulting from nonperformance by any of the counterparties because all are financial institutions with high credit ratings. The Company and its subsidiaries have established internal rules for entering into and monitoring derivative transactions which prescribe the managers’ duties and the management of these positions as well as a reporting system. Derivatives are controlled on a daily basis by the Financial Section, which has established an internal control system to supervise the procedures and transaction limits, and are confirmed with the respective financial institutions by the Accounting Section. 16. L E AS ES Lease payments relating to finance leases accounted for as operating leases in the accompanying consolidated financial statements amounted to ¥5,137 million ($43,533 thousand), ¥3,633 million and ¥2,415 million for the years ended March 31, 2007, 2006 and 2005, respectively. Leased assets held under finance leases accounted for as operating leases were as follows: Thousands of U.S. dollars Millions of yen 2007 2006 2007 ¥22,308 ¥16,802 $189,050 Other 3,426 1,142 29,033 Less: Accumulated depreciation 9,304 6,749 78,847 ¥16,430 ¥11,195 $139,237 Machinery and equipment Depreciation is computed by applying the straight-line method over the estimated useful lives of the related assets assuming that the Company guarantees a nil residual value at the end of the term of each lease. The following is a schedule of future minimum lease payments under finance leases accounted for as operating leases: Year ending March 31, 2008 2009 and thereafter Millions of yen ¥ 5,213 Thousands of U.S. dollars $ 44,177 11,589 98,211 ¥16,803 $142,398 Minimum rental payments subsequent to March 31, 2007 required under operating leases with noncancelable lease terms in excess of one year are summarized as follows: Year ending March 31, 2008 2009 and thereafter 43 Annual Report 2007 Millions of yen ¥ 957 Thousands of U.S. dollars $ 8,110 382 3,237 ¥1,340 $11,355 17. CONT ING ENT LI A BILI T I ES At March 31, 2007, the Company and its consolidated subsidiaries had the following contingent liabilities: Millions of yen As endorsers of trade notes discounted and endorsed ¥ Thousands of U.S. dollars 2 $ 16 As guarantors of indebtedness of: Unconsolidated subsidiaries and affiliates 976 8,271 2,270 19,237 ¥3,248 $27,525 Other 18. A MOUNT S P ER SH A R E In accordance with the accounting standard for earnings per share, basic net (loss) income per share is computed based on the net (loss) income available for distribution to shareholders of common stock and the weighted-average number of shares of common stock outstanding during each year. Diluted net income per share is computed based on the net income available for distribution to the shareholders and the weighted-average number of shares of common stock outstanding during each year assuming full conversion of the convertible bonds. Diluted net income per share for the year ended March 31, 2007 has not been presented because a net loss was recorded. Net assets per share are based on the number of shares of common stock outstanding at the year end. Yen 2007 U.S. dollars 2006 2005 2007 ¥(56.27) ¥8.27 ¥18.27 $(0.47) — 7.77 17.87 Net (loss) income: Basic Diluted Yen Net assets — U.S. dollars 2007 2006 2007 ¥160.13 ¥218.96 $1.35 19. STOCK OP TION PL ANS At March 31, 2007, the following stock option plans of the Company had been approved by the shareholders: Date of approval by shareholders Grantees June 27, 2002 9 directors and 14 executive officers June 27, 2003 June 29, 2004 8 directors, 9 directors, 15 executive officers 12 executive officers, and 12 management 9 management officials officials and 4 directors of subsidiaries June 29, 2005 June 29, 2006 9 directors, 12 executive officers, 8 management officials and 3 directors of subsidiaries 10 directors, 11 executive officers, 7 management officials and 1 director of a subsidiary Type of shares with warrants granted Common stock Common stock Common stock Common stock Common stock Number of shares with warrants granted 153,000 shares 815,000 shares 452,000 shares 442,000 shares 342,000 shares Option price per warrant Exercise period ¥271 ¥384 ¥458 ¥406 ¥277 July 1, 2004− June 30, 2007 July 1, 2005− June 26, 2013 July 1, 2006− June 28, 2014 July 1, 2007− June 28, 2015 July 1, 2008− June 28, 2016 On June 26, 2007, shareholders of the Company approved a stock option plan under which warrants to purchase shares of the Company’s common stock were to be granted to the Company’s directors, executive officers and to certain management officials as well as to directors of certain subsidiaries in accordance with the Corporation Law of Japan and Item 12 of the Company’s Articles of Incorporation. Under the plan, shares of common stock of up to a maximum of 532,000 were granted. 44 The stock option price is determined by multiplying the highest of the average final price of the Company’s shares of common stock traded on the Tokyo Stock Exchange in the month prior to the date of the granting of the options or the corresponding final share price on the day prior to the granting of the options, or the corresponding final share price on the day prior to the date of the annual general meeting of shareholders by a factor of 1.05. As outlined in the Company’s stock option plan, this exercise price will be adjusted in accordance with a specified formula for stock splits, reverse stock splits or new issuances of shares of common stock issued at less than market price. The stock options will become exercisable during the period from July 1, 2009 to June 25, 2017. 20. SEGM ENT INFORM AT ION Business segments The Group classifies its businesses into Info-Telecom Systems, Semiconductors, Printers and Other. The business segment information for the years ended March 31, 2007, 2006 and 2005 is summarized as follows: Millions of yen Year ended March 31, Sales to third parties 2007 Info-Telecom Semi- Systems conductors Printers Other Total ¥352,728 ¥145,512 ¥187,083 ¥33,442 ¥718,767 2,739 3,736 4,824 29,566 40,866 (40,866) — 355,468 149,248 191,907 63,009 759,633 (40,866) 718,767 Intersegment sales and transfers Total sales Operating expenses 357,008 Corporate and 148,504 ¥ 744 190,157 59,980 1,749 ¥ 3,028 ¥ ¥ eliminations ¥ — Consolidated ¥718,767 755,650 (31,473) 724,177 3,982 ¥ (9,393) ¥ (5,410) Operating (loss) income ¥ (1,539) Total assets ¥240,450 ¥148,885 ¥135,245 ¥37,176 ¥561,757 ¥66,640 ¥628,398 Depreciation ¥ 7,532 ¥ 16,553 ¥ 7,291 ¥ 1,384 ¥ 32,761 ¥ 2,196 ¥ 34,957 Capital expenditures ¥ 10,603 ¥ 20,115 ¥ 8,604 ¥ 2,525 ¥ 41,848 ¥ 1,881 ¥ 43,730 Millions of yen Year ended March 31, Sales to third parties 2006 Info-Telecom Semi- Systems conductors Printers Other Total ¥338,048 ¥150,723 ¥160,483 ¥31,271 ¥680,526 1,950 5,004 4,844 25,279 37,078 (37,078) — 339,998 155,728 165,327 56,551 717,605 (37,078) 680,526 Intersegment sales and transfers Total sales Operating expenses 329,075 Corporate and 152,750 2,977 ¥ ¥ — Consolidated ¥680,526 161,181 53,736 696,744 (26,811) 669,933 4,146 ¥ 2,814 ¥ 20,860 ¥(10,267) ¥ 10,593 Operating income ¥ 10,922 Total assets ¥248,973 ¥145,506 ¥116,895 ¥34,940 ¥546,316 ¥ 72,339 ¥618,655 Depreciation ¥ ¥ 16,700 ¥ ¥ 1,236 ¥ 32,192 ¥ 2,499 ¥ 34,691 Loss on impairment of fixed assets ¥ — ¥ — ¥ — ¥ ¥ — ¥ 2,973 ¥ Capital expenditures ¥ 9,662 ¥ 16,353 ¥ 9,415 ¥ 37,060 ¥ 3,401 ¥ 40,461 7,622 ¥ eliminations 6,632 — ¥ 1,629 2,973 Millions of yen Year ended March 31, Sales to third parties 2005 Info-Telecom Semi- Systems conductors Printers Other Total ¥373,132 ¥150,721 ¥137,710 ¥26,977 ¥688,542 6,714 5,595 1,842 26,047 40,200 (40,200) — 379,847 156,316 139,553 53,024 728,742 (40,200) 688,542 Intersegment sales and transfers Total sales Operating expenses 364,032 144,301 Operating income ¥ 15,814 ¥ 12,014 Total assets ¥241,039 Depreciation ¥ 8,218 Capital expenditures ¥ 9,282 45 Annual Report 2007 Corporate and eliminations ¥ — Consolidated ¥688,542 131,791 50,494 690,621 (29,298) 661,322 7,761 ¥ 2,530 ¥ 38,121 ¥(10,901) ¥ 27,220 ¥150,662 ¥113,396 ¥27,684 ¥532,781 ¥ 74,456 ¥607,237 ¥ 16,758 ¥ 6,210 ¥ 1,130 ¥ 32,317 ¥ 1,927 ¥ 34,245 ¥ 23,027 ¥ 6,977 ¥ 1,376 ¥ 40,663 ¥ 3,886 ¥ 44,550 ¥ Thousands of U.S. dollars Year ended March 31, Sales to third parties 2007 Info-Telecom Semi- Systems conductors $2,989,220 Intersegment sales and transfers Total sales Operating expenses $1,233,152 Corporate and Printers Other $1,585,449 $283,406 Total $6,091,245 eliminations $ — Consolidated $6,091,245 23,211 31,661 40,881 250,559 346,322 (346,322) — 3,012,440 1,264,813 1,626,330 533,974 6,437,567 (346,322) 6,091,245 3,025,491 1,611,500 508,305 14,822 $ 25,661 $ $1,261,737 $1,146,144 $315,050 63,830 $ 140,279 $ 61,788 89,855 $ 170,466 $ 72,915 Operating (loss) income $ (13,042) Total assets $2,037,711 Depreciation $ Capital expenditures $ 1,258,508 $ 6,305 $ 6,403,813 (266,720) 33,745 $ (79,601) $ 6,137,093 $4,760,652 $ 564,745 $5,325,406 $ 11,728 $ 277,635 $ 18,610 $ 296,245 $ 21,398 $ 354,644 $ 15,940 $ 370,593 (45,847) (1) Business segments are divided into categories based on the nature of the products or services rendered and similarities in sales methodology. (2) Eliminations or unallocated amounts of operating expenses consist principally of expenses in the Company’s General and Administrative Department and research and development costs within the Group amounting to ¥ 9,927 million ($84,127 thousand), ¥10,362 million and ¥10,921 million for the years ended March 31, 2007, 2006 and 2005, respectively. (3) Eliminations or unallocated amounts of total assets consist principally of the Company’s surplus funds, funds for long-term investments and assets belonging to the General and Administrative Department amounting to ¥135,221 million ($1,145,940 thousand), ¥142,288 million and ¥162,189 million for the years ended March 31, 2007, 2006,and 2005, respectively. (4) Included in depreciation and capital expenditures are amortization and additions to long-term prepaid expenses, respectively. (5) Effective the year ended March 31, 2007, the Company has adopted a new accounting standard for the presentation of net assets in the balance sheet and the related implementation guidance. In this connection the segment information has been restated to conform to the presentation and disclosure of the consolidated financial statements for the year ended March 31, 2007. (6) Change in segmentation: Effective the year ended March 31, 2006, the Company changed its management organization in accordance with the Group’s mid-term business plan. As presented above, business segment information for the year ended March 31, 2005 has been restated to reflect the revised segmentation. Geographical segments The geographical segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2007, 2006 and 2005 is outlined as follows: Millions of yen Year ended March 31, 2007 Corporate and Japan North America Europe Asia Total ¥503,882 ¥65,330 ¥104,940 ¥ 44,612 ¥718,767 Interarea sales 131,867 419 2,170 102,035 236,492 (236,492) — Total sales 635,750 65,750 107,110 146,648 955,259 (236,492) 718,767 Sales to third parties Operating expenses 632,137 Operating (loss) income ¥ 3,612 Total assets ¥542,988 65,958 ¥ (208) ¥30,747 105,091 ¥ 2,019 ¥ 60,951 145,920 ¥ 727 ¥ 53,266 eliminations ¥ — Consolidated ¥718,767 949,108 (224,931) 724,177 6,151 ¥ (11,561) ¥ (5,410) ¥687,953 ¥ (59,554) ¥628,398 ¥ Millions of yen Year ended March 31, 2006 Corporate and Japan North America Europe Asia Total ¥494,513 ¥65,669 ¥84,867 ¥ 35,475 ¥680,526 Interarea sales 128,245 393 2,397 95,326 226,363 (226,363) — Total sales 622,759 66,063 87,265 130,801 906,889 (226,363) 680,526 Sales to third parties Operating expenses 129,309 eliminations ¥ — Consolidated ¥680,526 602,204 64,934 89,175 885,624 (215,691) 669,933 Operating income (loss) ¥ 20,554 ¥ 1,128 ¥ (1,909) ¥ 1,492 ¥ 21,265 ¥ (10,671) ¥ 10,593 Total assets ¥533,137 ¥35,167 ¥50,374 ¥ 42,695 ¥661,375 ¥ (42,719) ¥618,655 46 Millions of yen Year ended March 31, 2005 Corporate and Japan North America Europe Asia Total ¥513,981 ¥58,445 ¥79,517 ¥ 36,597 ¥688,542 Interarea sales 128,151 431 2,228 80,236 211,048 (211,048) — Total sales 642,133 58,876 81,746 116,833 899,590 (211,048) 688,542 Sales to third parties Operating expenses 606,116 57,951 Operating income ¥ 36,016 ¥ 924 Total assets ¥508,187 ¥24,579 80,870 ¥ 875 Consolidated — ¥688,542 114,410 859,349 (198,027) 661,322 2,423 ¥ 40,240 ¥ (13,020) ¥ 27,220 ¥ 33,803 ¥617,457 ¥ (10,219) ¥607,237 ¥ ¥50,886 eliminations ¥ Thousands of U.S. dollars Year ended March 31, 2007 Corporate and Japan Sales to third parties $4,270,186 North America Europe $553,644 $889,322 Asia Total $ 378,067 $6,091,245 $ eliminations Consolidated — $6,091,245 Interarea sales 1,117,516 3,550 18,389 864,703 2,004,169 (2,004,169) — Total sales 5,387,711 557,203 907,711 1,242,779 8,095,415 (2,004,169) 6,091,245 Operating expenses 5,357,093 Operating (loss) income $ 30,610 Total assets $4,601,593 558,966 890,601 $ (1,762) $ 17,110 $ 1,236,610 $260,567 $516,533 $ 451,406 6,161 8,043,288 $ 52,127 $5,830,110 (1,906,194) $ (97,974) $ (504,694) 6,137,093 $ (45,847) $5,325,406 Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries and sales of the overseas consolidated subsidiaries (other than exports to Japan), totaled ¥259,952 million ($2,202,983 thousand), ¥237,502 million and ¥203,023 million or 36.2%, 34.9% and 29.5% of consolidated net sales for the years ended March 31, 2007, 2006 and 2005, respectively. As presented above, geographical segment information for the year ended March 31, 2005 has been restated to reflect the revised segmentation. 47 Annual Report 2007 Report of Independent Auditors 48 Company Profile Profile (As of March 31, 2007) Company Name: Founded: Company Established: Common Stock: Oki Electric Industry Co., Ltd. 1881 November 1, 1949 76.9 billion Employees: 21,380 (Consolidated) 5,579 (Non-consolidated) Head Office: 7-12, Toranomon 1-chome, Minato-ku, Tokyo 105-8460, Japan Tel: +81-3-3454-2111 URL: http://www.oki.com/ Organization (As of June 1, 2007) Board of Directors President and Chief Executive Officer Corporate Semiconductor Business Group Systems Network Group Financial Business Group Financial Solutions Company Systems Hardware Company NetBusiness Solutions Company Silicon Solutions Company Information System Business Group System Solutions Company Intelligent Transport Systems Solutions Company Silicon Microdevice Company Optical Components Company Postal Solutions Company Telecom Business Group Network Systems Company Media-network Appliance Company IP Systems Company Multimedia Messaging Company Manufacturing Service Company Printer Business Group Ubiquitous Service Platform Company Oki Data Corporation Business Incubation Division OKI Group Business Support Division Broadband Media Company Security and Mobility Company Visual Nexus Company Major Subsidiaries and Affiliates Japan • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Oki Software Co., Ltd. Oki Telecommunication Systems Co., Ltd. Oki Information Systems Co., Ltd. OKICOMTEC Ltd. Oki SystemMate Co., Ltd. Oki Consulting Solutions Co., Ltd. Oki Network Integration Co., Ltd. OKI ACCESS Technologies, Co., Ltd. Japan Business Operations Co., Ltd. Shizuoka Oki Electric Co., Ltd. OKI SEATEC CO., LTD. Nagano Oki Electric Co., Ltd. Oki Network LSI Co., Ltd. Oki Micro Design Co., Ltd. Oki Technocollage Inc. Oki Microelectronics Co., Ltd. Miyazaki Oki Electric Co., Ltd. Miyagi Oki Electric Co., Ltd. Tama Oki Electric Co., Ltd. Oki Environment Technologies Inc. Oki Data Corporation Oki Digital Imaging Corporation Oki Data Systems Co., Ltd. M L Supply Co., Ltd. Oki Customer Adtech Co., Ltd. Oki Micro Engineering Co., Ltd. Oki Power Tech Co., Ltd. Oki Erfolg Co., Ltd. Oki Printed Circuits Co., Ltd. Oki Sensor Device Corporation Oki Communication Systems Co., Ltd. 49 Annual Report 2007 • • • • • • • • Oki Engineering Co., Ltd. Oki Logistics Co., Ltd. Oki Human Network Co., Ltd. OKI ALPHA CREATE, INC. Oki Infotech Co., Ltd. Mobile Techno Corporation Oki Wintech Co., Ltd. Oki Electric Cable Co., Ltd. Americas • Oki America, Inc. • Oki Semiconductor Company • Oki Network Technologies • Oki Data Americas, Inc • Oki Data do Brasil Informatica Ltda. • Oki Data de Mexico, S.A. de C.V. Europe • • • • • • • • • • • • • Oki Europe Ltd. Oki (UK) Ltd. Oki Systems Holding Co., Ltd. Oki Systems (UK) Ltd. Oki Systems (Danmark) a•s Oki Systems (Holland) b.v. Oki Systems (Ireland) Ltd. Oki Systems (Italia) S.p.A. Oki Systems (Norway) A/S Oki Systems (Sweden) AB OKI Systems (Finland) Oy Oki Systemes (France) S.A. Oki Systems (Iberica) S.A.U. • • • • • • • • Oki Systems (Deutschland) GmbH Oki Systems (Polska) Sp.z.o.o. Oki Systems (Magyarorszag) Kft. Oki Systems (Czech & Slovak) s.r.o. Oki Systems ve Yazici Cozumleri LS Oki Electric Europe GmbH Oki (France) sarl Oki Semiconductor (UK) Ltd. Asia • • • • • • • • • • • • • • • • • • • • • • Oki Hong Kong Ltd. Oki Electric Industry (Shenzhen) Co., Ltd. Oki Electric Technology (Kunshan) Co., Ltd. Changzhou OKI-GEG Telecoms Ltd. OKI Software Technology Co., Ltd Oki Trading (Beijing) Co., Ltd. Oki Data Dalian Co., Ltd. Oki Semiconductor Shanghai Co., Ltd. Oki Semiconductor Technology Shanghai Co., Ltd. Oki Electronics (Hong Kong) Ltd. Oki Systems (Hong Kong) Pte. Ltd. Oki Semiconductor Taiwan Inc. Oki Systems Taiwan Co., Ltd. Oki Semiconductor Korea Co., Ltd. Oki Systems Korea Co., Ltd. Oki Semiconductor Singapore Pte. Ltd. Oki Techno Centre (Singapore) Pte. Ltd. Oki Data (Singapore) Pte. Ltd. Oki Systems (Thailand) Ltd. Oki (Thailand) Co., Ltd. Oki Data Manufacturing (Thailand) Co., Ltd. Oki Precision (Thailand) Co., Ltd. Investor Information Number of Shares of Common Stock (As of March 31, 2007) Authorized: 2,400,000 thousand Issued: 684,256 thousand (including 1,021 thousand treasury stock) Number of shareholders (As of March 31, 2007) 121,000 Stock Exchange Listing First section of the Tokyo Stock Exchange First section of the Osaka Stock Exchange Administrative Agent for the Company’s Shareholder Register Mizuho Trust & Banking Co., Ltd. Transfer Agent for the Company’s Shares Stock Transfer Agency Department Mizuho Trust & Banking Co., Ltd. 17-7, Saga 1-chome, Koto-ku, Tokyo 135-8722, Japan Contact for Further Information Investors Relations Business Management and Promotion Division Oki Electric Industry Co., Ltd. 7-12 Toranomon 1-chome, Minato-ku, Tokyo 105-8460, Japan Tel: +81-3-3501-3111 E-mail: [email protected] Common Stock Price Range on the Tokyo Stock Exchange (Years ended March 31) (yen) 600 400 200 0 I II III IV I II III IV I II III IV I II III IV I II III IV 2003 2004 2005 2006 2007 Breakdown of Shares Held by Shareholder Type (As of March 31, 2007) Japanese corporations and others 7.6% Foreign corporation and others 9.6% Annual Report Japanese individual investors 56.2% Japanese financial institutes 26.6% Economy * This annual report contains forward-looking statements concerning the OKI Group's future plans, financial targets, technologies, products, services and performance. These forward-looking statements represent assumptions and beliefs based on data and calculation methods currently available to OKI as of the date of publication, and therefore OKI does not guarantee the accuracy of such statements. Furthermore, the target figures and other expressions in these statements are subject to changes attributable to business risks and uncertainties, which may affect OKI's performance and consequently cause actual results to differ from our forecasts. Society Social Responsibility Report Environment Environmental Report * As part of its efforts to enhance communications with all stakeholders, OKI also publishes corporate social responsibility and environmental reports. * All company and product names included in this annual report are trademarks or registered trademarks of each of companies they represent. 50 This entire brochure was printed in Japan using 100% plant-based soy ink and a waterless printing process on 70% recycled paper.