ANNUAL REPORT

Transcription

1 ANNUAL REPORT

2 C o n t e n t s A Message to Our Shareholders 1 Consolidated Balance Sheets 2 Consolidated Statements of Income 4 Consolidated Statements of Shareholders Equity 5 Consolidated Statements of Cash Flows 6 Notes to the Consolidated Financial Statements 7 Corporate Information 13

3 A MESSAGE TO OUR SHAREHOLDERS Greetings Since its foundation in former imperial capital of Kyoto in April 1979, Towa Corporation has consistently developed proprietary technologies as a company oriented towards research and development. Our primary operations consist of the development, production and marketing of plastic encapsulation systems for semiconductors, lead processing systems, sawing systems, bonding-related systems, precision molds for manufacturing semiconductors and dies for plastic molding, as well as the marketing of fine plastic molded products. We maintain the leading share of the global market for our mainstay semiconductor plastic encapsulation systems, which enjoy an excellent reputation with users. expected to recover around the middle of, reflecting progress in inventory correction after the turn of the year, though market conditions will likely remain difficult until summer. In addition, semiconductor production volume is also expected to rise, given that the manufacturing lines of 300 mm wafers of leading semiconductor companies have been operating at full capacity from the beginning of the current fiscal year. Price conditions are becoming increasingly difficult, as customer needs diversify. But we will be committed to bolstering productivity, reducing costs, and achieving shorter delivery times by steadily implementing our medium-term management plan, which was launched in fiscal year Economy Overview During the fiscal year under review, the Japanese economy enjoyed steady growth, thanks to rising exports and capital investment in addition to a recovery in personal spending and an upturn in the income environment, reflecting a rebound in corporate earnings. In the second half of the year, however, the economy experienced a lull with noticeable corrections, as observed particularly in the production adjustment in electronics components and devices industries, as exports weakened as a driving force. The semiconductor industry had been enjoying a period of robust growth since the second half of 2003, driven by the brisk performance of digital consumer electronics. Semiconductor manufacturers were, however, forced to adjust their production as early as summer 2004 because of a fall in the prices of end products and inventory build-up. Performance In this environment, orders in the first quarter significantly exceeded our forecast, particularly for products to Taiwan and the Southeast Asia. From the second quarter, orders began to decline, impacted by the production adjustment taking place at semiconductor companies. In the meantime, we aggressively moved ahead with restructuring, such as the reconstruction of production and sales systems and the revision of our business management systems. Despite these efforts, we were not able to reduce costs as planned because of the occurrence of unexpected costs, as our shift to a new production system overlapped the production peak season. Another factor was the start-up period for the new Suzhou plant (TOWA (Suzhou) Co., Ltd.), which took longer than expected because of the delay in installation of equipment. Progress in the medium-term management plan at this point is as follows: <Development> We are focusing on developing new products, such as the FDB4000 film die bonding system, the SBS9 sawing system, INJ0 and INJ2000 singulation systems, and the FFT1030 molding system. <Sales system> The sales network directly managed by TOWA, which covers markets around the world, has been completed. <Production system> TOWAM Sdn. Bhd. and TOWA (Suzhou) Co., Ltd. have constructed a system to produce platforms (standard semi-finished products without customer specifications) and significantly shortened the average lead time from order to delivery. <IT> Construction of the automated design/production system in the Mold Business segment and the PDM system in the System Business segment is now complete. <Human resources system> We have been introducing a new compensation program based on employee capabilities and achievements since April. As we pursue these initiatives, we continue to ask for the understanding and support of all shareholders. As a result, net sales reached 24,111 million, rising 6,010 million, or 33.2%, from the previous year. Looking at the bottom line, we achieved net income of 146 million, compared with a net loss of 2,615 million for the previous year and our first time in the black for four years. August 1, Looking Ahead Our sector, the semiconductor industry, has been in a correction phase since the second half of 2004, a reflection of the adjustments taking place in the digital economy. Nonetheless, the market for semiconductors is Toshinobu Banjo President, CEO & COO 1

4 CONSOLIDATED BALANCE SHEETS TOWA CORPORATION AND CONSOLIDATED SUBSIDIARIES March 31, 2004 and ASSETS Current assets: Cash on hand and at banks... (Note 1) ,492 2,960 $ 27,563 Notes and accounts receivable : Trade... 8,507 8,004 74,532 Less: Allowance for doubtful accounts... (7) (6) (56) 8,500 7,998 74,476 Inventories... 2,575 5,951 55,415 Deferred tax assets (Note 10) Other current assets... 1, ,204 Total current assets... 16,173 17, ,816 Property, plant and equipment, at cost (Note 11): Land... 5,268 5,617 52,305 Buildings and structures... 14,785 14, ,899 Machinery and equipment... 9,215 10,056 93,640 Construction in progress Less: Accumulated depreciation... (12,898) (13,744) (127,982) Total property, plant and equipment... 16,372 16, ,439 Other assets: Investment securities (Note 3)... 2,157 2,565 23,885 Deferred income taxes (Note 10) Other ,142 10,634 Total other assets... 3,016 3,737 34,799 Total assets... 35,561 38,344 $357,054 The accompanying notes are an integral part of these financial statements. 2

5 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings (Note 4)... Current portion of long-term debt (Note 4)... Notes and accounts payable... Accrued expenses... Accrued income taxes... Other current liabilities (Note 2 (10))... Total current liabilities... (Note 1) ,323 1,693 4, ,068 14,913 11,412 1,688 2, ,542 17,283 $106,267 15,718 21,222 2, , ,937 Long-term liabilities: Long-term debt (Note 4)... Accrued severance indemnities for employees (Note 5)... Accrued severance indemnities for directors and corporate auditors... Deferred tax liabilities (Note 10)... Total long-term liabilities... Total liabilities... 3, ,767 19,680 3, ,807 22,090 32,005 6,276 5, , ,699 Minority interest ,375 Contingent liabilities (Note 12) Shareholders equity (Note 6) Common stock Authorized: 80,000,000 shares Issued: 20,762,382 shares at 31st March, 2004 and... Additional paid-in capital... Retained earnings... Unrealized gain on other securities... Translation adjustments... Less: Treasury stock at cost... Total shareholders equity... 7,532 10,233 (1,847) 281 (493) (3) 15,703 7,532 7,446 1, (506) (4) 15,999 70,136 69,336 10,113 4,144 (4,712) (37) 148,980 Total liabilities and shareholders equity... 35,561 38,344 $357,054 The accompanying notes are an integral part of these financial statements. 3

6 CONSOLIDATED STATEMENTS OF INCOME TOWA CORPORATION AND CONSOLIDATED SUBSIDIARIES Two years ended March 31, (Note 1) 2004 Net sales... Cost of sales (Note 7)... Gross profit... 18,102 14,064 4,038 24,112 18,909 5,203 $224, ,078 48,449 Selling, general and administrative expenses (Note2(10)and Note 7)... 3,561 4,801 44,706 Operating income ,743 Other income (expenses) Interest and dividend income... Interest expenses... Foreign exchange (losses)... Valuation loss of investment securities... Amortization of excess investment costs over net assets of consolidated subsidiaries acquired... Equity in earnings of affiliates... Provision from prior product warranties (Note 2(10))... Other, net... Total other income (expenses) (183) (110) (14) (28) (241) (23) 105 (28) 40 (119) 261 (2,244) (214) 978 (261) 372 (1,108) Income before income taxes and minority interests ,635 Income taxes (Note 10) Current... Deferred , (27) 754 (251) Income (loss) before minority interests... (2,569) 229 2,132 Minority interests Net Income (loss)... (2,616) 146 $ 1,360 Amount per share of common stock (Note 2(17)): Net Income (loss)... Diluted net income... Cash dividends... (126.00) Yen (Note 1) 7.04 $ 0.0 The accompanying notes are an integral part of these financial statements. 4

7 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY TOWA CORPORATION AND CONSOLIDATED SUBSIDIARIES Two years ended March 31, Number of Additional Unrealized Total shares of Common paid-in Retained gain on other Translation Treasury shareholders common stock stock capital earnings securities adjustments stock equity Balance at March 31, ,762,382 7,532 10, (63) (156) (2) 18,416 Net loss... Cash dividends... Net increase of treasury stock... Net increase of unrealized gain on other securities... Net increase of translation adjustments... Balance at March 31, ,762,382 7,532 10,233 (2,616) (103) (1,847) (337) (493) (1) (3) (2,616) (103) (1) 344 (337) 15,703 Net Income... Net increase of treasury stock... Net increase of unrealized gain on other securities... Net increase of translation adjustments... Reserve from leagal capital surplus... Balance at March 31,... 20,762,382 7,532 (2,787) 7, ,787 1, (13) (506) (1) (4) 146 (1) 164 (13) 15,999 (Note 1 ) Number of Additional Unrealized Total shares of Common paid-in Retained gain on other Translation Treasury shareholders common stock stock capital earnings securities adjustments stock equity Balance at March 31, ,762,382 $70,136 $95,288 $(17,199) $2,617 $(4,591) $(28) $146,223 Net Income... Net increase of treasury stock... Net increase of unrealized gain on other securities... Net increase of translation adjustments... Reserve from leagal capital surplus... Balance at March 31,... 20,762,382 $70,136 (25,952) $69,336 1,360 25,952 $ 10,113 1,527 $4,144 (121) $(4,712) (9) $(37) 1,360 (9) 1,527 (121) $148,980 The accompanying notes are an integral part of these financial statements. 5

8 CONSOLIDATED STATEMENTS OF CASH FLOWS TOWA CORPORATION AND CONSOLIDATED SUBSIDIARIES Two years ended March 31, Cash Flows from Operating Activities: Net income before income taxes and minority interests... Adjustments for: Depreciation... Provision for retirement and severance benefits... Equity in earnings of affiliates... Amortization of excess investment costs over net assets of consolidation subsidiaries acquired... Interest and dividends income... Interest expenses... Foreign exchange losses (gains)... Valuation loss of investment securities... (Increase) decrease in trade notes and accounts receivable... (Increase) decrease in inventories... (Increase) decrease in other current assets... Increase (decrease)in notes and accounts payable... Increase in accrued and other current liabilities... Other, net... Sub-total... Interest and dividends received... Interest paid... Income taxes paid... Income taxes refunded... Net cash provided by (used in) operating activities... (Note 1) ,403 3 (68) 28 (18) (4,194) 725 (1,321) 2, (187) (120) ,426 (105) (28) 241 (23) 476 (3,405) 734 (2,401) (2,299) 33 (240) (65) (2,571) $ 2,635 13,279 (978) (261) 2,244 (214) 4,433 (31,707) 6,835 (22,358) 1,676 3,008 (21,408) 307 (2,235) (605) (23,941) Cash Flows from Investing Activities: Purchase of investment securities... Purchase of property, plant and equipment... Sale of property, plant and equipment... Other, net... Net cash used in investing activities... (6) (1,294) 9 (29) (1,320) (29) (1,670) 106 (291) (1,884) (270) (15,551) 987 (2,710) (17,544) Cash Flows from Financing Activities: Increase (decrease) in short-term borrowings... Proceeds from issuance of long-term debt... Repayments of long-term debt... Advance redemption of convertible bonds... Purchase of treasury stock... Cash dividends... Net cash provided by (used in ) financing activities... (747) 2,700 (1,519) (509) (1) (103) (179) 4,114 1,742 (1,908) (1) 3,947 38,309 16,221 (17,767) (9) 36,754 Effect of exchange rate changes on Cash and Cash Equivalents... Net decrease in Cash and Cash Equivalents... Cash and Cash Equivalents at Beginning of Period... (189) (1,106) 4,586 (12) (520) 3,480 (112) (4,842) 32,405 Cash and Cash Equivalents at End of Period (Note2(3))... 3,480 2,960 $ 27,563 The accompanying notes are an integral part of these financial statements. 6

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS TOWA CORPORATION AND CONSOLIDATED SUBSIDIARIES 1. Basis of presenting Consolidated Financial Statements TOWA CORPORATION (the Company ) and its domestic subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Commercial Code of Japan (the Code ) and the Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan ( JGAAP ), which are different, in certain respects from the application and disclosures and disclosure requirements of International Financial Reporting Standards ( IFRS ). The Company s overseas subsidiaries maintain their accounts and records in conformity with generally accepted accounting principles and practices prevailing in their respective countries of domicile. The accompanying consolidated financial statements of the Company are prepared on the basis of accounting principles generally accepted in Japan as required by the Securities and Exchange Law of Japan. In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form with which is more familiar with readers outside Japan. The consolidated financial statements are not intended to present the consolidated financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in countries and jurisdictions other than Japan. The translation of the Japanese yen amounts into is included solely for the convenience of the reader, using the approximate exchange rate at March 31,, which was to US$1.00. These convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into at this or any other rate of exchange. 2. Summary of Significant Accounting Policies (1) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and affiliates. All significant inter-company transactions, account balances and unrealized profits have been eliminated in consolidation. Where the year-end of a subsidiary is different from that of the Company, necessary adjustments are made where any significant transactions are taken place between such different year-ends. Shown below are the significant subsidiaries and affiliates of the Company. Subsidiaries (All subsidiaries have been consolidated) Name Ownership Country of Incorporation BANDICK CORPORATION TOWATEC CO., Ltd. TOWAM Sdn. Bhd. TOWA Singapore Mfg Pte. Ltd. TOWA Asia-Pacific Pte. Ltd. TOWA Semiconducter Equipment Philippines Corporation (#1) TOWA-Intercon Technology, Inc.(#2) TOWA Europe GmbH (#4) TOWA (Shanghai) Co., Ltd. TOWA (Suzhou) Co., Ltd. TOWA TAIWAN Co., Ltd. % 91 Japan Japan Malaysia Singapore Singapore Philippines The United States of America Germany China China Taiwan Affiliates (All affiliates are accounted for by the equity method) Name Ownership Country of Incorporation TONGJIN SECRON Co., Ltd. TOWA Jipal Technologies Co., Ltd. Scientific and Semiconductor Manufacturing Equipment Recycling Co., Ltd. 50% Korea Korea Taiwan Japan (#1) TOWA Semiconductor Equipment Philippines Corporation was established on April 20, (#2) The company name of Intercon Technology,Inc. was changed to TOWA- Intercon Technology, Inc. on May 1, (#3) TOWA AMERICA, Inc. was liquidated on June 30, (#4) TOWA Europe GmbH was established on July 1, (2) Translation of Foreign Currency Items In accordance with the Japanese accounting standard, every monetary assets and liabilities denominated in foreign currencies are principally translated into Japanese yen at the exchange rate in effect at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the statements of income. With respect to financial statements of overseas subsidiaries, the balance sheet accounts are translated into Japanese yen at the exchange rates in effect at the balance sheet date except for shareholders equity, which are translated at the historical rates. And revenue and expenses are translated at the exchange rate in effect at the balance sheet date. The differences resulting from translation in this manner are included in Translation adjustments which is listed in Shareholders Equity in the accompanying consolidated balance sheets. (3) Cash and Cash Equivalents For the purposes of cash flow statements, cash and cash equivalents comprise cash in hand, deposits held at call with banks, net of overdrafts and all highly liquid investments with maturities of three months or less. Components of cash and cash equivalents as of March 31, 2004 and are as follows: (Note 1) 2004 Cash on hand and at banks... 3,492 2,960 $27,563 Less: Time deposits with deposit term of over three months... (12) Cash and cash equivalent at end of year... 3,480 2,960 $27,563 (4) Securities Securities are classified into four categories. Categorization and valuation for investments in securities are as follows 1. Trading Securities Such securities held for the purpose of generating profits from short-term price movements. Unrealized gain/loss at the end of period resulting from the valuation by applying the fair value at such date is directly debited/credited to income; Such securities are treated in current assets in the balance sheet. 2. Held-to-maturity Debt Securities Debt securities whose maturity dates are predetermined and are to be redeemed at par, acquired with intention to hold to their maturity dates; The difference between the acquisition cost and the amount expected to gain at maturity is amortized or appreciated over the remaining period to maturity date. The amount amortized or appreciated is charged/credited to income for the respective period as interest expense or interest income, as the case may be. Unrealized loss will be required to be charged to income as impairment unless unrealized loss is expected to recover within a reasonable period. 3. Shares in equity of Subsidiaries and Affiliates Those securities are carried at cost unless such investment is regarded impaired. 4. Other Securities: Such securities other than those categorized in 1 to 3 above; Other Securities with market quotation are valued at such market price at the end of period, and those without market quotation are valued at cost. Unrealized gain/loss at the end of period resulting from such valuation is charged to shareholders equity as Unrealized gain/(loss) on Other Securities after netting off the deferred income taxes thereto. 7

10 Unrealized loss will be required to be charged to income as impairment unless unrealized loss is expected to recover within a reasonable period. The moving average method is applied for calculation of the costs of securities. (5) Golf club membership Golf club memberships are carried at cost. Where any impairment in value of investment recognized by considering the price (quoted in newspapers and by dealers) and/or the financial position of the issuer, such amount is charged to income. Further, if the recoverability of the cash deposit from the golf club operating company becomes doubtful, an allowance for credit losses are established in accordance with the new accounting standards for financial instruments. (6) Inventories Inventories are mainly stated at the lower of cost or market, the cost being determined by mainly specific identification method for finished products and work-in-process, by mainly moving-average method for raw materials and by the last purchase cost method for supplies. (7) Allowance for Doubtful Accounts The Company and its domestic subsidiaries have provided the allowance based on the past loan loss experience for a certain reference period. Furthermore, for receivables which are from the debtors with financial difficulty the allowance is provided for estimated unrecoverable amounts individually. Overseas subsidiaries have provided an allowance for doubtful accounts in the estimated amounts of possible bad debts. (8) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation for property, plant and equipment of the Company and its domestic subsidiaries is calculated by applying declining-balance method, except for buildings acquired on and after April 1, 1998 which are applied the straight-line method, over the estimated useful lives. The principal estimated useful lives are as follows: Buildings and structures 2 ~ 50 years Machinery and equipment 2 ~ 10 years Depreciation for those of overseas subsidiaries is computed by the straightline method in accordance with the regulations of respective domicile countries. On August 9, 2002, the Business Accounting Council in Japan issued Accounting Standard for Impairment of Fixed Assets. The 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. An impairment loss shall be recognized in the income statement by reducing the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net selling price and value in use. The standard shall be effective for fiscal years beginning April 1,. However, an earlier adoption is permitted for fiscal years beginning April 1, 2004 and for fiscal years ending between March 31, 2004 and March 31,. The Company has not yet applied this new standard. The management believes that an application of the new standard would have an impact of about 3,000 million ($27,936 thousand) on the Company s consolidated financial statements. (9) Derivatives The Company has entered into foreign exchange agreements and interest rate agreements to hedge the fluctuation of foreign currency and interest rate exposures, and not for speculative purposes. The instruments include foreign currency forward contracts and interest rate swap agreements. These instruments were accounted by the deferral hedge accounting. The Company has accounted for foreign currency forward contracts by the designation accounting, and accounted for interest rate swap agreements by the exception accounting. (10) Product Warranties The Company has accounted for the estimated amounts of maintenance expenses as the product warranties as new accounting method in this fiscal year, which corresponded to the sales based on the prior track record for the outcome of maintenance expenses of the sold products during the period of warranty. The product warranties were accounted for one year from the date of sales at this fiscal year. The new accounting method was adopted to recognize the revenues and the related costs properly in the period of services provided. The product warranties were included in other current liabilities. According to the change of accounting method, a liability accounted for expected warranty costs was 73 million ($679 thousand). The selling, general and administrative expenses charged was 45 million ($419 thousand) and the extraordinary expenses charged was 28 million ($261 thousand) in this fiscal year. As a result, operating income decreased by 45 million ($419 thousand) and income before minority interests decrease by 73 million ($679 thousand) compared with the figure using the previous method. 8 (11) Accrued Severance Indemnities 1) For employees Employees who terminate their service with the Company and its domestic subsidiaries are under most circumstances, entitled to lump-sum severance indemnities determined by reference to current basis rates of pay, length of service and conditions under which the terminations occur. Accrued severance indemnities are provided based on the amount of projected benefit obligation less pension plan assets at fair value at the end of the annual period. 2) For directors and corporate auditors The Company and its domestic subsidiaries provide for lumpsum severance benefits with respect to directors and corporate auditors. While the Company has no legal obligation, it is a customary practice in Japan to make lump-sum payments to a director or a corporate auditor upon retirement. Annual provisions are made in the accounts for the estimated costs of this termination plan, which is not funded. Any amounts payable to officers upon retirement are subject to approval at the shareholders meeting. (12) New share issue expense The Company employs the policy on the expenses incurred relating to new share issues to be charged to income as paid. (13) Research and Development Costs Research and development expenditure is charged to income when incurred. Expenditure relating to computer software developed for internal use is charged to income when incurred, except if it contributes to the generation of income or to future cost savings. Such expenditure is capitalized as an asset is amortized using the straight-line method over its estimated useful life, which is in the 5 years. (14) Leases Finance leases arrangements entered into by the Company and its domestic subsidiaries, other than those, which are deemed to transfer the ownership of the leased assets to lessees, are accounted for by the method similar to that applied to ordinary operating leases. For overseas subsidiaries, property leased under the capital lease arrangement is record as property, plant, equipment and other assets in the accompanying consolidated balance sheets. (15) Income Taxes Income taxes of the Company and its domestic subsidiaries consist of corporate income taxes, local taxes and enterprise taxes. Enterprise taxes are deductible when paid for the computation of other taxes. Deferred income taxes are recognized using the asset and liability approach, whereby deferred tax assets and liabilities were recognized in respect of temporary differences between the tax basis of assets and liabilities and those as reported in the financial statements. The Company also provides for the anticipated tax effect of future remittance of retained earnings from overseas subsidiaries and affiliated companies. The enterprise taxes levied in proportion to added value and capital were recognized as Selling, general and administrative expenses effective this fiscal year. The expenses were 40 million ($372 thousand) for this fiscal year. (16) Appropriation of Retained Earnings Under the Japanese Commercial Code and the Articles of Incorporation of the Company, the appropriation of retained earnings proposed by the Board of Directors is subject to approval by the shareholders at a meeting that must be held within three months of the end of each financial year. The appropriations of retained earnings reflected in the accompanying consolidated financial statements include the results of such appropriations applicable to the immediately preceding financial year as approved at the shareholders meeting, and effected, during the relevant year. Dividends are paid to shareholders on the shareholders register as at the end of each financial year. As is customary practice in Japan, the payment of bonuses to directors and corporate auditors is made out of retained earnings through an appropriation, instead of being charged to the income of the year. The Japanese Commercial Code provides that interim cash distribution may be paid as a part of the annual dividend upon approval by the Board of Directors. The Company pays such interim dividends to its shareholders who are listed on the shareholders register at 30th September. (17) Per Share Information Net income per share and diluted net income per share are computed based on the weighted-average number of shares of common stock outstanding during each year and stock splits are reflected in the calculation of the weighted-average number of shares of common stock. Cash dividend per share is the total of the per-share amounts of interim cash distribution and the year- end cash dividends paid during the respective financial periods.

11 3. Securities (1) The following is a summary of investments in affiliates and other securities at March 31, 2004: Other securities: Market value available: Bonds and debentures... Other securities... Market value not available: Other securities total Investments in affiliates: Market value not available: Total (2) The following is a summary of investments in affiliates and other securities at March 31, Other securities: Market value available: Bonds and debentures... Other securities... Market value not available: Other securities total Investments in affiliates: Market value not available: Total Other securities: Market value available: Bonds and debentures... Other securities... Market value not available: Other securities total... Investments in affiliates: Market value not available: Total Cost 1, , ,300 Cost 1, , ,338 (Note 1) Cost $ 9, $10,476 $ 1,983 $12, Unrealized gains Unrealized gains $6, $6,267 $6,267 Unrealized losses Unrealized gains Unrealized losses Unrealized losses $28 9 $37 $37 Book Value (Estimated fair value) 1, , , Book Value ,157 Book Value (Estimated fair value) 1, , ,007 Book Value 4,016 4,016 6,023 Book Value (Estimated fair value) $15, $16,706 $ 1,983 $18,689 (Note 1) Book Value $37,396 $37,396 $56, Short-term Borrowings and Long-term Debt Short-term borrowings represent loans from banks and an insurance company. The annual average interest rates applicable to short-term borrowings at March 31, 2004 and are 2.3% and 2.3%, respectively. Long-term debt as of March 31, 2004 and consisted of the following: Borrowings from financial institutions... Long-term installment payment for Purchase of machinery and equipment... Less: Portion due within one year , (1,693) 3,438 4, (1,806) 3,419 (Note 1) $45,525 3,129 (16,817) $31,837 The aggregate annual maturity of long-term debt after March 31, are summarized as follows: Years ending March 31, (Note 1) ,670 $15, ,047 9, , and thereafter ,419 $31,837 The Company s assets pledged as collateral for short-term borrowings and long-term debt were as follows: (Note 1) 2004 Principal of debt: Short-term borrowings $ 6,621 Portion due within one year... Long-term borrowings... Assets pledged as collateral: Notes and accounts receivable Land... Buildings ,200 3, ,165 5,112 8, ,556 2, ,739 3,159 8,419 6,509 14,489 $27,619 $ 4,851 44,129 29,416 $78, Accrued Severance Indemnities for employees The following tables set forth the changes in benefit obligation, plan assets and funded status of the Company and its subsidiaries at March 31, 2004and. (Note 1) 2004 Projected benefit obligation at end of year... Fair value of plan assets at end of year... Funded status: Benefit obligation in excess of plan assets... Unrecognized actuarial loss... Accrued pension liability recognized in the Consolidation balance sheets... 1, , $11,900 5,177 6, $ 6,276 Note: Some domestic subsidiaries adopted the alternative method of accounting for retirement benefit allowable for small business entity under the new accounting standards. 9

12 Severance and pension costs of the Company and its subsidiaries included the following components for the year ended March 31, 2004 and. Service cost... Interest cost... Expected return on plan assets... Amortization: Unrecognized projected benefit obligation at the date of adoption... Prior service cost... Actuarial losses... Net periodic benefit cost... Assumption used in the accounting for the defined benefit plans for the year ended March 31, 2004 and are as follows: Method of attributing benefit to periods of service Discount rate Long-term rate of return on fund assets Amortization unrecognized projected benefit obligation at the date of transition Amortization period for actuarial losses (1) (1) Straight line basis 2.0% 0.2% years(decliningbalance basis) (Note 1) $ (9) 121 $1,173 Straight line basis 2.0% 0.2% 15years(decliningbalance basis) The special severance pay 25 million ($233 thousand) were paid and accounted as extraordinary loss except the above retirement benefit expense at last year. 6. Shareholders Equity Under the Japanese Commercial Code the plan for appropriation of retained earnings including year-end cash dividends or disposition of accumulated deficit proposed by the Board of Directors should be approved by the shareholders at the shareholders meeting to be held within three months after the end of each financial year. On the other hand the Directors are allowed to make cash distribution as interim cash dividends and the various rules and restrictions related thereto are stipulated in the Japanese Commercial Code. The Japanese Commercial Code requires that amounts equal to 10% of interim cash dividend and 10% or more of cash dividends and other appropriations of retained earnings paid out with respect to each financial period be set aside in the legal reserve until an aggregate amount of additional paid-in capital and the legal reserve equals 25% of the amount of stated capital. The amount of total additional paid-in capital and legal reserve which exceed 25% of stated capital can be transferred to retained earnings by a resolution of the shareholders, which may be available for dividends. Under the Japanese Commercial Code, the entire amount of the issue price of new shares is required to be accounted for as common stock although a company may, by resolutions of its Board of Directors, account for an amount not exceeding one-half of the issue price of such new shares as additional paid-in capital. 7. Research and Development Costs Research and development costs charged to income for the years ended March 31, 2004 and were 416million and 513 million ($4,777 thousand), respectively. 8. Donation The donation of 1,000 million ($9,312 thousand) was received from the chairperson of the Board of the Directors and accounted as extraordinary income for the year ended March 31, Revaluation loss of fixed assets The contents of revaluation loss of fixed assets 318 million ($2,961 thousand) are equipments and vehicles and accounted as extraordinary loss at this fiscal year. 10. Income Taxes The company is subject to a number of different income taxes, which in the aggregate, result in a statutory tax rate in Japan of approximately 40.9% for the years ended March 31, 2004 and reduced to 39.5% for the years ended of March 31, as the Japanese government enacted a change. The deferred tax assets and deferred tax liabilities at March 31, 2004 and are as follows: Deferred tax assets: Inventory write down... Retirement and severance benefits... Net operating loss carried forward... Revaluation loss of stock of affiliated company... Other, net... Valuation Allowance... Deferred tax liabilities: Special tax purpose provision... Other, net... Net deferred tax assets /(liabilities) Leases The Company and its consolidated subsidiaries and equity method affiliates have been utilizing finance lease arrangements other than those deemed to transfer the ownership of the leased property to the lessee to employ certain machinery and equipment. Total lease payments for such lease arrangements for the year ended March 31, 2004 and are 41million and 26 million ($242 thousand), respectively. Summarized below are the pro forma information on acquisition costs, accumulated depreciation and future minimum lease payments for the property held under such lease as mentioned above: As of March 31, 2004 Acquisition costs... Accumulated Depreciation... Net leased property As of March 31, Acquisition costs... Accumulated Depreciation... Net leased property Acquisition costs... Accumulated Depreciation... Net leased property Machinery And Equipment Machinery And Equipment Machinery And Equipment $ $ , (4,702) 182 (35) (147) (182) 0 Software Software (Note 1) Software $ $ , ,128 (4,791) 198 (23) (224) (247) (49) Other Other Other $ $261 (Note 1) $ 1,388 4,283 28,317 1,965 10,504 (44,613) 1,844 (214) (2,086) (2,300) $ (456) Total Total Total $1, $

13 Future minimum lease payments as of March 31, 2004 and : Due within one year... Due after one year... Total Depreciation is calculated by the straight-line method on the assumption that the term of the lease is useful life of the relevant leased asset and residual value is zero. Depreciation expense, which is not reflected in the accompanying consolidated statements of income, would have been 41 million and 26 million ($242 thousand) for the year ended March 31, 2004 and, respectively. 12. Contingent Liabilities The Companies have no significant contingent liabilities. 13. Segment Information (1) Segment by products Year ended March 31, 2004 I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income... II. Assets Total assets... Depreciation and amortization... Capital expenditure... Year ended March 31, I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income... II. Assets Total assets... Depreciation and amortization... Capital expenditure... I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income (loss)... Semiconductor equipment 16,970 16,970 16, ,172 1,299 1,178 Semiconductor equipment 22,983 22,983 22, ,909 1,327 2,131 $214, , ,491 $ 2, Fine plastic mold 1,132 1,132 1, , Fine plastic mold 1,129 1, , $10,513 10,513 9,293 $ 1,220 Elimination/ Unallocated Assets (28) 28 Elimination/ Unallocated Assets (Note 1) $ $428 Consolidated 24,112 24,112 23, ,344 1,426 2,189 Year ended March 31, (Note 1) Elimination/ Semiconductor equipment Fine plastic mold Unallocated Assets $ $ Consolidated 18,102 18,102 17, ,561 1,403 1,276 Consolidated $224,527 $224,527 $220,784 $ 3,743 (2) Segmented by geographical location of activities Year ended March 31, 2004 I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income... II. Assets Year ended March 31, I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income (loss)... II. Assets I. Sales and operating income Net sales to customers... Inter-segment sales... Cost of sales and Operating expenses... Operating income (loss)... II. Assets (3) Sales by region Japan 13, ,825 13, ,099 Japan 17, ,693 17, ,637 Elimination/ North Unallocated Asia America Assets Consolidated 1, ,373 2, ,777 Asia 1,408 2,909 4,317 4,468 (151) 5,636 North America 5, ,959 5, ,103 3, ,448 3, ,403 Others (1,544) (1,544) (1,566) 22 18,102 18,102 17, (718) 35, Elimination/ Unallocated Assets 24,112 (3,880) (3,880) 24,112 (3,833) (47) 23, (2,086) 38,344 Year ended March 31, (Note 1) Elimination/ Japan Asia North America Others Unallocated Assets Year ended March 31 Japan Overseas Asia North America Other Overseas total Consolidated sales $159,797 4, , ,941 $ 1,816 $13,110 27,093 40,203 41,608 $ (1,405) $285,286 $52,485 $51,620 3,866 55,486 51,723 $ 3,763 $38, ,291 11, ,811 18,102 $ $ 15 $497 4,221 18,337 1, ,891 24,112 Consolidated Consolidated $ $224,527 (36,136) (36,136) $224,527 (35,691) 220,783 $ (445) $ 3,744 $ (19,421) $357,053 (Note 1) $ 39, ,751 10,485 3, ,222 $224,527 II. Assets Total assets... Depreciation and amortization... Capital expenditure... $343,691 $ 12,357 $ 19,844 $13,363 $ 922 $ 540 $ $ $ $357,054 $ 13,279 $ 20,384 11

14 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of TOWA CORPORATION We have audited the accompanying consolidated balance sheets of TOWA CORPORATION and its subsidiaries as of March 31, and 2004, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended, all expressed in Japanese Yen. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TOWA CORPORATION and its subsidiaries as of March 31, and 2004, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan. As described in Note 2(10), effective for the year ended March 31,, TOWA CORPORATION changed its accounting policy for the product warranties. The amounts expressed in, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 1 to the accompanying consolidated financial statements. ChuoAoyama PricewaterhouseCoopers Kyoto, Japan June 29, 12

15 CORPORATE INFORMATION as of June 30, Corporate Data Board of Directors Corporate Name: Headquarters / Factory: TOWA CORPORATION 5 Kamichoshi-cho, Kamitoba, Minami-ku, Kyoto , Japan Established: April 17, 1979 Operations: Paid-in Capital: 7,531,976,627 Common Stock Authorized: 80,000,000 Issued: 20,762,382 Unit for Trading: Develop, design, manufacture, and sell precision molds, manufacturing systems for electronic components, inspection systems for electronic components, precision-molded and assembly products, medical-use equipment, and electronic-communications equipment. Other related business. Chairman Kazuhiko Bandoh President, CEO & COO Toshinobu Banjo Managing Director Yoichi Kawahara Directors Michio Osada Toshio Shintaku Hirokazu Okada Masataka Takehara Mitsuhiko Inaba Tsuyoshi Amakawa Hisao Nishimura Standing Corporate Auditor Hideo Tsuji Stock Listings: Transfer Agents: First Section of the Tokyo Stock Exchange First Section of the Osaka Securities Exchange Mizuho Trust & Banking Co., Ltd. Corporate Auditors Masanori Sugiyama Katsuhiro Umeyama Fiscal Year: From April 1 to March 31 Number of Employees: 437 URL: Subsidiaries and Affiliated Companies: BANDICK CORPORATION TOWATEC Co., Ltd. Scientific and Semiconductor Manufacturing Equipment Recycling Co., Ltd. TOWA Asia-Pacific Pte. Ltd. TOWA Singapore Mfg. Pte. Ltd. TOWAM Sdn. Bhd. TOWA Semiconductor Equipment Philippines Corporation TOWA-Intercon Technology, Inc. TOWA Europe GmbH TOWA (Shanghai) Co., Ltd. TOWA (Suzhou) Co., Ltd. TOWA TAIWAN Co., Ltd. TOWA-Jipal Technologies Co., Ltd. SECRON CO., LTD. TONGJIN Corporation 13

16 5 Kamichoshi-cho, Kamitoba, Minami-ku, Kyoto , Japan Tel: (075) Fax: (075) Printed in Japan