CONTENTS. Cooling. Systems. Power. Systems. Servo Systems

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2 Profile From the wealth of knowledge and experience of developing new technologies from our foundation, Sanyo Denki provides products and technologies to six business area. Information A wide business area ranging from computers and communications equipment, including its peripheral hardware, to information industries and communication services. Medical Business area manufacturing medical and nursing related equipment to contribute to human heath. Industry Business area related to the automation of industrial machine tools and robots. Cooling Systems Power Systems Servo Systems Environment Business area promoting environmental protection and manufacturing equipment to preserve the global equipment. Energy Business area aiming to produce and convert electric power, save energy, and use new energy sources. Home Business area manufacturing equipment for home-automation and better living. CONTENTS Financial Highlights...1 To Our Shareholders...2 Special Feature: Sanyo Denki in Focus Overseas Activities...6 Research & Development...8 Environmental Actions...1 Corporate Governance...12 Highlights of the Year...14 At a Glance...16 Review of Operations...18 Financial Section History...38 Board of Directors/Organization...39 Corporate Data...4 Investor Information...41 Disclaimer Regarding Forecasts and Projections This Annual Report includes forecasts, projections and other predictive statements that represent Sanyo Denki s assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving clients and other factors, and involve risks, variables and uncertainties. The Sanyo Denki Group s actual performance results may differ from those projected in this Annual Report. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.

3 FINANCIAL HIGHLIGHTS (CONSOLIDATED) SANYO DENKI CO., LTD. and consolidated subsidiaries Years ended March 31, 25 and 25 % Change /25 U.S. dollars For the Year Net Sales... 64,527 63, % $549,36 Selling, General and Administrative Expenses... 7,22 6, % 59,776 Operating Income... 3,92 4, % 33,216 Net Income... 2,719 2, % 23,146 At Year-End Total Assets... 61,72 56,62 19.% 525,257 Total Shareholders Equity... 34,652 31, % 294,985 Per Share Amounts Change U.S. dollars Net Income $.38 Cash Dividends Note: U.S. dollar amounts have been converted for convenience only at the rate of =US$1, the rate of exchange on 31 Marchs,. Net Sales & Ratio of Operating Income to Net Sales 8, Net Income Total Shareholders Equity & ROE Total Asset & ROA % % % 7 3, 4, 8 7, 7 7, 6 2,5 35, 7 6, 6 6, 5, 5 4 2, 3, 25, 6 5 5, 4, 5 4 4, 3, 2, ,5 1, 2, 15, 1, , 2, 3 2 1, 5 5, 1 1, Net Sales Ratio of Operating Income to Net Sales Total Shareholders Equity ROE Total Asset ROA SANYO DENKI ANNUAL REPORT 1

4 TO OUR SHAREHOLDERS First of all, I hope you are all well and prosperous. I would like to take the opportunity of the announcement of the Annual Report to say a few words to you. In February, we started operations of the second plant of SANYO DENKI PHILIPPINES, INC. in Subic Bay, which was built to reinforce our production capability. In the fiscal year ended March, there were active movements in our client industries, such as telecommunications equipment, PC servers, liquid crystal manufacturing equipment, injection molding machines, machine tools and robots. In addition, demand for our products increased in overseas markets. Under such circumstances, the Company and affiliated group firms made great efforts toward achieving the goals of the three-year Fourth Mid-Term Management Plan inaugurated in April 25, which is focused on the primary target of securing stable profits unaffected by environmental changes, with securing the amount of orders and lowering the break-even point as the top two priorities. To facilitate the achievement of the said targets, we established local units in Singapore, South Korea and Germany while converting existing branches in Hong Kong and Taiwan into local branches to enhance our overseas sales capabilities, in addition to implementing the strategies we originally formulated. We also established a plant in Shenzhen, China to improve services in the local market. In the fiscal term under review, we developed many new competitive products as described below: 1. Cooling fans with unprecedented performance, including the Endurance Fan Series such as a long-life fan, a waterproof fan and an oil-proof fan, as well as the Large Airflow Fan Series, which is compact and has excellent cooling performance. 2. A maintenance-free uninterruptible power supply (UPS) system that has a ten-year life, and a triple-mode UPS system that automatically responds to the power supply conditions. 3. A motion controller that can handle motion control, robot control and PLC control in one unit. 4. A remarkably advanced servo system that is easy to operate, highly responsive, energy efficient and compact. 5. A stepping motor that is compact, has high torque and high resolution. 2 SANYO DENKI ANNUAL REPORT

5 As a result, consolidated net sales were 64,527 million in the fiscal period under review, up 2.4% from the previous year, while operating income decreased 11.8% to 3,92 million. Net income rose 14.% to 2,719 million. We plan to pay a year-end dividend of 6 per share for the fiscal term under review, following the disbursement of the 4 interim dividend. In the current fiscal year through March 27, we will strengthen the brand value of our products through the development and manufacturing of products with even greater efficiency and quality and the enhancement of our customer service system. We sincerely ask for your continued support. Shigeo Yamamoto CEO / President & COO SANYO DENKI ANNUAL REPORT 3

6 SPECIAL FEATURE SANYO DENKI IN FOCUS Innovation and Sanyo Denki Group initiated our three-year Fourth Mid-Term Management Plan in April 25, which is focused on the primary target of securing stable profits unaffected by environmental changes, with the themes of securing the amount of orders and lowering the break-even point as the top two priorities. In order to achieve our targets, Sanyo Denki Groups made efforts in the following activities. 4 SANYO DENKI ANNUAL REPORT

7 Challenge FOCUS 1 P6 Overseas Activities FOCUS 2 P8 Research & Development FOCUS 3 P1 Environment Actions FOCUS 4 P12 Corporate Governance SANYO DENKI ANNUAL REPORT 5

8 FOCUS 1: OVERSEAS ACTIVITIES Expanding overseas networks North America In this region, we posted sales of 9,277 million in the fiscal year under review, down 1.2% from the previous year. Sales of our cooling system products for PCs and servers were robust. In the current fiscal year, we will exploit new markets with the Endurance Fan Series and high-performance series. In the power systems section, we started overseas sales of UPS systems. In the present term, we will mainly develop the telecommunications market, centering on the highly reliable UPS systems. Sales of servo system products were strong, particularly those for semiconductor manufacturing equipment. We succeeded in selling new stepping motors for factory automation equipment. For the current period, we will continue to cultivate the market for such motors by introducing many new products. Asia Sales from this region, centering on Hong Kong, Taiwan and Shanghai, totaled 14,585 million in the term under review, up 25.4% from a year earlier. Sales of cooling system products were brisk for the Chinese sales base of North America s leading server manufacturer. For the present term, we will develop various markets primarily for low-vibration, low-noise cooling fan products and high-performance cooling systems. As for power systems, we launched UPS equipment aimed at overseas markets. In the current period, we will sell power conditioners for photovoltaic power generation systems, in addition to new UPS products. Sales of servo systems mainly for embroidery machines were strong. In the ongoing fiscal year, we will increase sales of products for printed circuit board processors, centering on new servo motors and servo drivers. Europe In this region, we established Sanyo Denki Germany GmbH in Germany during the year under review, in addition to the existing sales subsidiary Sanyo Denki Europe SA. Partly because of this, sales decreased 4.5% year-on-year to 4,33 million. Sales of cooling systems mainly for use in telecommunications equipment, storage devices and power supplies were strong. In the current fiscal year, we will continuously search for new markets for these products. Sales of servo systems chiefly for textile-related equipment were brisk. In the present term, we will cultivate new customers by establishing new agencies and improving our service system. Overseas Sales 3, 25, 2, 15, 1, 5, Percentage of Net Sales by Region Japan 56.3% Asia 22.6% North America 14.4% Europe 6.7% Others % 6 SANYO DENKI ANNUAL REPORT

9 NORTH AMERICA Detroit Office Techno Service Center New England Office Silicon Valley Office Corporate Office Austin Office Chicago Office Dallas Office Atlanta Office EUROPE EAST ASIA Head Office Head Office Subsidiary Company Affiliated Companies SANYO DENKI ANNUAL REPORT 7

10 FOCUS 2: RESEARCH & DEVELOPMENT During the fiscal year under review, the Group implemented research and development activities under the leadership of Sanyo Denki Co., Ltd., while teaming up the sales section with the design/development section of the research institute, based on the fundamental concept of developing products with which customers can create new values. Three of our business divisions actively carry out R&D activities, aiming to contribute to the development of technologies for protecting the global environment, protecting the health and safety of individuals, utilizing new energy sources, and conserving energy. We adopt a unique design/development group system for our R&D system, built around the Company s Technology Center, so that we can easily form new teams for each product issue, which helps us anticipate market needs and better respond to customer needs. Lead-Free Soldering Facilities Cooling systems Division We developed the following products for the cooling system San Ace series. With the progress of miniaturization and higher performance, antiheat measures have become key issues for the manufacturers of telecommunications equipment, computer devices and other electronics. In addition, these manufacturers demand that cooling fans should have such properties as greater airflow, higher static pressure, reduced noise, lower power consumption and less impact on the environment. Responding to such customer needs, we developed cooling fans that have much more advanced performance using our aerodynamic, motor and circuit design technologies, expanding our product line-ups. We also developed a large centrifugal fan and put it on the market. For our CPU cooler products, we further reduced the amount of noise they produce and developed a product that has higher cooling performance. All these products come equipped with a function to control the rotation speed of the fan, and this can be used to control the amount of noise produced. Regarding longlife fans, which are designed to require less maintenance, we developed a small, long-life fan, thereby increasing our product line-up. In the fiscal year under review, R&D expenditures for the Cooling Systems Division amounted to 154 million. Technology Center 8 SANYO DENKI ANNUAL REPORT

11 Power Systems Division We developed the following products for the power system SANUPS series. In the field of small-capacity uninterruptible power supply (UPS) systems, we commercialized high-efficient, hybrid UPS equipment, and we are now increasing the line-up of hybrid products. We also developed a silent UPS system that is suitable for use in offices where quietness is required, as well as a UPS system that uses an eco-friendly nickel hydrogen battery instead of a lead battery. In the medium-capacity range of UPS systems, we strove to expand the line-up of highefficiency, compact and lightweight nonstop inverter systems. For power conditioners photovoltaic power generation systems, we developed a 1 kva system with the function to independently charge itself and operate, to provide a power supply even in the event of a disaster and it can also be operated at night. With the completion of this system, we now have a full line-up of power conditioners from 1 kva to several 1 kva. For UPS management software, we commercialized SANUPS SOFTWARE and began shipping it along with our UPS systems. In the engine power-generation field, we promoted mass production of emergency power-generation equipment. We have finished developing mass production systems for compact, lightweight, low-noise automobile-mounted engine generators, and are working hard to establish a production system. R&D expenses for the Power Systems Division totaled 362 million in the fiscal year under review. Servo Systems Division We developed the following products for the servo system SANMOTION series. We released 2-phase 42mm-sq..9-degree and 2-phase 6mm-sq..9-degree models of the stepping motor SANMOTION F. Based on these motors, we commercialized a stepping motor with a drive function that helps to reduce the amount of wiring and save space. For SANMOTION F, we commercialized a small DC input driver after significantly improving its performance. For SANMOTION PB, we released a DC input system that has low vibration and noise, which we achieved by improving the sensor resolution. We began developing a new series of small servo motors. We commercialized the servo amplifier SANMOTION R series, having drastically improved its performance in terms of ease of use, responsiveness and energy-saving through the use of a new R&D Expenditure & Ratio of R&D Expenditure to Net Sales 1,5 1, 3 2 Fujiyama Works algorithm. In addition, we introduced the DC servo amplifier SANMOTION T, which uses control elements of SANMOTION R. We worked on the development of a motion controller which is the key part of a servo system, and succeeded in commercializing it as SANMOTION C, a product that can handle motion control, robot control and PLC control in one unit, things that conventional general-use controllers cannot do. R&D costs for the Servo Systems Division were 78 million in the fiscal term under review R&D Expenditure Ratio of R&D Expenditure to Net Sales SANYO DENKI ANNUAL REPORT 9

12 FOCUS 3: ENVIRONMENT ACTIONS We will continue our efforts to improve our environmental preservation activities and work towards the goal of a sustainable society through formulation of voluntary standards and establishment of concrete targets. A notable achievement in this regard was our initiation of the sale of cooling fans and stepping motors in accordance with the RoHS Directive for reducing hazardous chemical substances. Reduction of CO2 Emissions As part of our efforts to prevent global warming, we have initiated an energy-saving campaign through increased efficiency in resource usage and cleaning, since we consider reducing CO2 emissions to be our top-priority task in this area. In reality, our consumption of electric power and the amount of CO2 emissions have increased over the previous term as a result of increased output this term, although the unit cost for output has dropped. CO2 Emission t-co2 15, 1, t-co2/hundred 3 2 Reduction in Hazardous Chemical Substances The toxic chemicals reduction design working group, a subgroup of the Chemical Substance Emission Reduction Subcommittee, and the planning section of the business division work together to deal with the RoHS Directive s measures for a total ban of hazardous chemical substances, which is a high-priority theme in our Company. 5, Other Heavy Fuel Oil A unit: t-co2 Electric Power CO2 Emission per unit of output 1 Most of our cooling fans are RoHS compliant (except some service parts). About 8% of our stepping motors are RoHS compliant. Some models of our servo motors and stepping motor drivers are RoHS compliant. As for servo motor amplifiers and power supplies, we studied and assessed the use of RoHS-compliant parts in RoHS-designated products. (The RoHS Directive is to be applied to designated products by June.) At the request of our customers, we researched substances designated by the Japan Green Procurement Survey Standardization Initiative (JGPSSI) and others. We researched hazardous chemical substances contained in the Company s products according to the Guidelines for Chemical Substance Management. * RoHS Directive (Restriction on the use of certain chemical substances in electrical and electronic equipment): instructions of the European Parliament and the European Counci1 concerning regulations for the use of hazardous substances in electrical and electronic equipment. Relates to six substances (lead, chromium (VI) compounds, cadmium, mercury and two brominated flame-retardants (PBBs and PBDEs)). Zero Emissions The Company participates in the Zero Emission Promotion Committee by Nagano Techno Foundation* Asama Technopolis Regional Center and the Zero Emission Promotion Society, which was inaugurated in April 23, promoting environmental preservation activities in cooperation with local corporations. The Zero Emission Promotion Society holds forums for regional zero emission activities promotion, carries out inspection tours of industrial waste disposal firms to study the processing of waste, and improves communication with such disposal companies. Through these activities the society is studying more efficient ways to dispose of waste. Change in Amount of Discharge of Waste t 4,5 3, 1,5 t/hundred Incineration and Reclamation unit: t Recycled Waste Volume per unit of Net Sales 1 SANYO DENKI ANNUAL REPORT

13 Development of ECO PRODUCTS In the fiscal year under review, we commercialized 14 new types of ECO PRODUCTS. We reduced the carbon dioxide emissions of these products significantly according to the Life Cycle Assessment (LCA) compared with conventional products, which we believe should greatly contribute to the prevention of global warming. The LCA is a method for assessing the effects on the environment of the processes of materials procurement, product manufacture, use of products and disposal of used products. San Ace 4 CRA Type Cooling fan (Size: 4 mm; Thickness: 56 mm; Counter rotation fan) Maximum airflow is 28% more than conventional models, the industry s largest airflow for its size. Power consumption is 4% less than conventional models, for the same airflow. RoHS compliant. San Ace 15 GV Type Cooling fan (Size: 15 mm; Thickness: 5 mm) New size, high-performance fan. Airflow is same as that of a 172 mm fan with a thickness of 51 mm. Resin frame reduces weight by 4%. RoHS compliant. SANUPS E11A (1 kva) Hybrid UPS This hybrid UPS automatically selects the most appropriate power supply operation mode according to the power source. It has an efficiency of 95% with a stable power source. San Ace 12 SG Type Cooling fan (Size: 12 mm; Thickness: 38 mm; Fan) Power consumption is 12% less than conventional models, for the same airflow. Greatest airflow in the industry for its size. RoHS compliant. San Ace 172 GV Type Cooling fan (Diameter: 172 mm; Thickness: 51 mm; Fan) Cooling fan High static pressure fan, maximum static pressure is 66% more than conventional models. Power consumption is 27% less than conventional models, for the same static pressure. RoHS compliant. SANUPS A23C34 (3 kva) ON-LINE UPS The 3 kva model, a new member of the A23C series, boasts the industry s highest efficiency of 91%. It is 4% smaller and its mass is 32% less than conventional models. * Photograph of the SANUPS A23C (1 V). SANMOTION F 2-phase stepping motor (Size: 42 mm;.9 degrees/step) 42 mm sq. stepping motor with basic step angle of.9 degrees. Holding torque is 52% more than conventional models. SANMOTION F complies with the Company s PM drive. RoHS compliant. SANMOTION R AC servo amplifier Electric power is 2% less than the conventional model (SANMOTION Q). Has new functions to provide optimum tuning compared with the conventional model (SANMOTION Q). SANMOTION T DC servo amplifier Using low-loss power circuit, electric power loss is 3% less than conventional models. With power loss reduced notably, the 3 A model realizes fan-less operations. Exterior mass is 5% that of conventional models. SANMOTION F 2-phase stepping motor (Size: 6 mm;.9 degrees/step) 6 mm sq. stepping motor with basic step angle of.9 degrees. Its holding torque is 2.7 times that of conventional models. SANMOTION F complies with the Company s PM drive. RoHS compliant. SANMOTION F (three models), the driver for DC input stepping motors Each of the three models are for: a 2-phase unipolar, connectiontype motor; a 2-phase bipolar, connection-type motor; and a 5-phase stepping motor. The 2-phase motor model features low vibration and reduces speed fluctuations during low speed operations. Exterior mass is 43% less than conventional models, resulting in a reduction of at least 5% in the overall weight. SANYO DENKI ANNUAL REPORT 11

14 FOCUS 4: CORPORATE GOVERNANCE Basic corporate governance philosophies The Company has established an internal control system, through which we will strive to achieve corporate principles through fair and reasonable management, and have every employee fully understand the corporate principles in daily business operations. We will revise the system when necessary. Details of corporate organization and improvement of the internal control system 1) Overview of corporate organization The Board of Directors always ensures that the operations of directors and employees comply with laws, regulations and the Articles of Incorporation of the Company, and it receives reports from the heads of responsible divisions at regular Board of Directors meetings, or when needed. It also makes decisions, gives instructions, and offers guidance, when necessary. The Board of Directors appoints the necessary number of executive officers to realize systematic, appropriate and speedy execution of operations, gives individuals the responsibility and authority they need for their duties, oversees operations, receives reports from the executive officers at Board of Directors meetings, and when needed. It also makes decisions, gives instructions, and offers guidance, when necessary. Corporate Auditors audit the operations of the directors, and checks whether executive officers, and the divisions under their control, are executing operations appropriately pursuant to laws, regulations, the Articles of Incorporation, and in-house rules. The Auditing Department performs audits to check whether operations in all the organizations are being conducted appropriately according to laws, regulations, the Articles of Incorporation, and in-house rules. It also offers guidance if it believes a practice needs to be improved. The Committee of Business Conduct provides employees of the Company and affiliated group companies with thorough education and training on compliance with laws and regulations and corporate code of conduct. The Legal Department fully recognizes laws and regulations that are applicable to businesses of the Company and affiliated group companies, makes all staff aware of such laws and regulations, and improves the Company s compliance structure. The Planning Department checks whether important managerial activities are obtaining the necessary approval before being implemented. 2) Internal audits, audits by Corporate Auditors, and accounting audits The Auditing Department conducts internal audits to prevent illegal acts by the Company and to improve the management quality. These audits are carried out by two staff members. Corporate Auditors fully oversee operations by attending all Board of Directors meetings and the Executive Board meeting, which is held twice a month. The Company appoints Futaba Audit Corporation to conduct accounting audits. Audits are implemented even in the middle of a fiscal year, if necessary, to avoid the concentration of audit operations at the term-end. We are strengthening our audit system by, for example, verifying the consistency between computer-processed data and figures contained in forms. The Auditing Department, Corporate Auditors and the accounting auditor are enhancing their mutual cooperation by exchanging information at various opportunities, including the regular meeting to discuss the annual schedule, earnings reports, and other data. The following are the certified public accountants (CPAs) who implemented accounting audits and the personnel at the time of such audits, including the assistants. CPAs and their accounting firm Yuichi Toyama: Futaba Audit Corporation Masaaki Koizumi: Futaba Audit Corporation 12 SANYO DENKI ANNUAL REPORT

15 Composition of personnel involved in accounting audits 2 CPAs, 1 assistant CPA, and another staff member 3) The corporate organization and internal control system are as follows: Election/dismissal General Meeting of Shareholders Election/dismissal Board of DirectorsDirectors (7) Outside Directors (1) Election/oversight Operational audits Board of Corporate Auditors Corporate Auditors (4) Outside Corporate Auditors (2) Election/ dismissal Representative Directors/President/ Executive Officers(1: Including 4 serving concurrently as Directors) Accounting audits Auditing firm Strengthening of the risk management system The Company s Crisis Management Committee fully recognizes the risks that influence corporate management and strives to improve the Crisis Management Manual. During times of normality, the committee formulates measures to prevent risks from occurring. The Company has also established a system to prepare for any unforeseen situation that might seriously affect corporate management. Overview of personal, capital and transaction relationships or other conflicts of interests between the Company and outside Directors/Corporate Auditors We appoint one lawyer as outside Director and two persons as outside Corporate Auditors, but there are no conflicts of interests between the Company and these personnel. Compensation paid to executives Total annual compensation for Directors: 157 million (including 11 million for outside Directors) Total annual compensation for Corporate Auditors: 39 million (including 1 million for outside Corporate Auditors) Compensation for audit services Compensation for audit services stipulated in Article 2, Paragraph 1 of the Certified Public Accountants Law: 18 million The Company pays no compensation other than that described above. SANYO DENKI ANNUAL REPORT 13

16 HIGHLIGHTS OF THE YEAR Outline of Second Philippine plant On February 8,, SANYO DENKI PHILIPPINES, INC. held a ceremony to mark the completion of its second plant. With the establishment of this second plant, the Group s monthly production capacity in the Philippines as of April 1, was as follows: Fan motor-related products at the Cooling Systems Division: 1.8 million units UPS-related products at the Power Systems Division: 1,5 units Stepping motor-related products at the Servo Systems Division: 5, units Total area: 12,6 m 2 Number of employees: 558 FY25 Trade Shows where the Company exhibited its products Hanover Messe 25 : April 11-15, 25 Techno-Frontier 25 : April 2-22, 25 Flat Panel Display R&D and Manufacturing Technology Expo & Conference 25 : April 2-22, 25 COMPUTEX TAIPEI 25 : May 31-June 4, 25 Assembly Technology Expo 25 : September 27-29, 25 System Control Fair 25 : November 15-18, 25 SPS/IPC/Drives 25 : November 22-24, 25 SEMICON Japan 25 : December 7-9, SANYO DENKI ANNUAL REPORT

17 Expanding Network In the fiscal year under review, we established many bases in North America, Asia, and Europe aiming to expand our business and ensure profits. North America Sanyo Denki America Sanyo Denki America Sanyo Denki America Asia Sanyo Denki (H.K.) Co., Limited Sanyo Denki Taiwan Co., Ltd. Sanyo Denki Singapore Pte. Ltd. Sanyo Denki Korea Co., Ltd. Sanyo Denki Philippines, Inc. Europe Sanyo Denki Germany GmbH. JAPAN Ueda Sapporo Detroit Office Techno Service Center Atlanta Office Office EAST ASIA Head Office Ueda Works Technology Center Sendai Nagoya Utsunomiya Kyushu Hiroshima Kyoto Toyota Osaka Shizuoka Head Office Tokyo EUROPE NORTH AMERICA Detroit Office Techno Service Center New England Office Chicago Office Silicon Valley Office Corporate Office Austin Office Dallas Office Atlanta Office Head Office Branch Sales Office Works R&D Subsidiary Companies Affiliated Companies SANYO DENKI ANNUAL REPORT 15

18 AT A GLANCE Cooling Systems Division The Cooling Systems Division develops, manufactures, and promotes cooling fans, CPU cooling fans and our liquid cooling system. The products are manufactured in Japan, the Philippines, and China, and are sold worldwide through our network of sales offices. MAIN PRODUCTS San Ace AC Cooling Fans San Ace DC Cooling Fans San Ace L Long-Life Fans SAN ACE MC CPU Cooling Fans SAN ACE MC Liquid Liquid Cooling System San Ace WF Oil-Proof Fans San Ace WS/W Splash-Proof Fans San Ace B Blowers Fan San Ace C Centrufugal Power Systems Division Servo Systems Division The Power Systems Division develops, manufactures, and promotes uninterruptible power supply (UPS) systems, engine generators, and photovoltaic power generators. The products are manufactured in Japan and the Philippines and are sold worldwide through our network sales offices. The Servo Systems Division develops, manufactures, and promotes servomotors, servo drives, stepping motors and drives, sensors, and controllers. These products are manufactured in Japan, Indonesia, and the Philippines and are sold worldwide through our network of sales offices. MAIN PRODUCTS SANUPS SANUPS A DOUBLE CONVERSIONS SANUPS E HYBRID UPS SANUPS R High Reliable UPS SANUPS Inverter DC/AC Inverter SANUPS T Network Power Manager SANUPS SOFTWARE Software SANUPS P73E SANUPS P83B Photovoltaic Generation System Power Conditioner Mobile Generator MAIN PRODUCTS SANMOTION C Motion Controller Sensors SANMOTION R AC Servo Amplifier SANMOTION Q AC Servo Systems SANMOTION P AC Servo Systems SANMOTION F Stepping Systems SANMOTION G Synchronous Systems SANMOTION PB Closed loop Stepping Systems SANMOTION T DC Servo Systems Linear Servo Systems 16 SANYO DENKI ANNUAL REPORT

19 Percentage of net sales Percentage of Gross Profit Cooling Systems Division 44.5% 41.5% 37.5% 5.2% Power Systems Division Servo Systems Division 13.9% 12.3% MAJOR USE Cooling devices for electric equipment Telecommunications equipment Industrial machinery Base stations High-end servers Storage devices Personal computers OA equipment Sales 3, 25, 2, 15, 1, 5, MAJOR USE Photovoltaic power systems for public facilities Communication systems Factory automation Network systems Computers Medical facilities Control systems Sales 9, 7,5 6, 4,5 3, 1, MAJOR USE Servo systems and stepping system for equipment Semiconductor manufacturing equipment Robots (assembly robots, welding robots, nursing robots, electric component inserters, etc.) Industrial equipment (printing presses, woodworking equipment, injection molding, etc.) ATMs Ticket vending machines OA equipment Medical equipment Set up of the FA open system Sales 3, 25, 2, 15, 1, 5, SANYO DENKI ANNUAL REPORT 17

20 REVIEW OF OPERATIONS COOLING SYSTEMS DIVISION This division manufactures and sells cooling fans and CPU coolers. Some of these products are also produced by the subsidiaries Sanyo Denki Techno Service Co., Ltd. and Sanyo Denki Philippines, Inc. There was increased use of highperformance products from the cooling fan San Ace series in the server and PC markets. The newly launched Endurance Fan Series earned high marks from customers at home and abroad for its oil-proof properties, and orders for the products in this series increased. In the telecommunications market, orders increased for products that form part of communications infrastructures. As a result, sales at this division were 26,799 million in the fiscal term under review, up 6.8% from the previous year. New Products DC cooling fan San Ace 15 GV Type Industry s first*1 cooling fan of this size Large airflow, high static pressure and low noise Compact and lightweight design *1 As of January 1, DC cooling fan San Ace 4L Industry s first*2 4 mm sq. size fan with a life expectancy of 1, hours *2 As of February 21, 18 SANYO DENKI ANNUAL REPORT

21 POWER SYSTEMS DIVISION This division manufactures and sells uninterruptible power supply systems, engine generators, inverters, converters, power supply monitoring systems, and communication power supplies. Some of these products are also produced by Sanyo Denki Techno Service and Sanyo Denki Philippines. In the fiscal year under review, the semiconductor plant and other plants adopted the new (hybrid) uninterruptible power supply system, the SANUPS E series. Demand for the nonstop inverter supply-type SANUPS A series was also strong, and the product was adopted by computer manufacturers, electric power companies and communications-related companies. Meanwhile, orders for diesel engine generators from Nippon Telegraph and Telephone Corporation (NTT)-related companies and sales of such generators by NTT-related firms were both substantially below the previous year s levels. As a result, sales from this division rose 2.4% year-on-year to 8,987 million. New Products Hybrid UPS SANUPS E11A features energy saving and high reliability SANUPS E11A automatically selects the operation mode that is most appropriate for the power supply, after discerning the state of the power source and the load environment. The model also automatically checks the operating status of the battery on a regular basis, allowing the product to maintain its high reliability over the long term. This power source is most suitable for server rooms, data centers, on-line systems, measurement systems, etc. Nonstop inverter supply-type UPS SANUPS A11G-Ni Maintenance-free for 1 years Compact and lightweight design Continuous, stable power supply SANYO DENKI ANNUAL REPORT 19

22 REVIEW OF OPERATIONS SERVO SYSTEMS DIVISION This division manufactures and sells products such as servo motors, servo amplifiers, stepping motors, stepping drivers, servo sensors, and controllers. Sanyo Denki Techno Service also produces some of these products. Orders continued to hold steady for these products thanks to strong capital investment by the auto industry, as well as firm demand from major customers including manufacturers of liquid crystal production equipment, electric injection-molding machines, substrate processing equipment, and embroidery machines. Due to strong orders, the division began mass-producing AC servo systems for new customers. Meanwhile, orders for products related to semiconductor manufacturing equipment fell short of the initial plan, hurt by weak demand in the first half of the fiscal year under review, although such orders began to pick up in the fourth quarter. As a result, this division posted sales of 28,74 million, down 1.4%. New Products Motion controller SANMOTION C handles motion control, robot control and PLC control in one unit By using SANMOTION C, customers can reduce the overall cost of establishing an FA system and can shorten the development period of their systems, while utilizing various interfaces and highly expandable option modules, which enables the customers to flexibly customize such systems. This controller is the most suitable one for controlling conveyance equipment, robots and general industrial machinery. AC servo amplifier SANMOTION R Easy control High response and smooth control Energy saving 2 SANYO DENKI ANNUAL REPORT

23 FINANCIAL SECTION FINANCIAL SECTION (CONSOLIDATED) (CONSOLIDATED) SANYO DENKI CO., LTD. and consolidated subsidiaries CONTENTS Six-Year Summary...22 Financial Review (Consolidated)...23 Consolidated Balance Sheets...26 Consolidated Statements of Income...28 Consolidated Statements of Shareholders Equity...29 Consolidated Statements of Cash Flows...3 Notes to the Consolidated Financial Statements...31 Report of Independent Auditors...37 SANYO DENKI ANNUAL REPORT 21

24 SIX-YEAR SUMMARY SANYO DENKI CO., LTD. and consolidated subsidiaries Years ended March For the Year: Net Sales 64,527 63,25 49,37 5,473 48,964 59,98 Cost of Sales 53,61 52,132 41,534 43,891 43,898 49,84 Selling, General and Administrative Expenses 7,22 6,47 5,957 6,18 6,37 6,736 Operating Income (Loss) 3,92 4,422 1, (1,241) 3,439 Net Income 2,719 2, ,863 2,756 Net Income per Share (Yen) Cash Dividends per Share (Yen) Total Assets 61,72 56,62 55,565 54,52 55,743 61,381 Total Shareholders Equity 34,652 31,825 29,647 28,986 29,348 27,473 Current Assets 38,879 35,385 34,84 3,437 3,136 36,886 Current Liabilities 23,55 22,458 23,31 21,669 21,317 28,79 Return on Equity (%) Return on Assets (%) Dividend Payout Ratio (%) Interest Coverage (Times) SANYO DENKI ANNUAL REPORT

25 FINANCIAL REVIEW (CONSOLIDATED) SANYO DENKI CO., LTD. and consolidated subsidiaries OVERVIEW During the fiscal year ended March 31,, improvements in both the business and household sectors put the Japanese economy onto a path of autonomous recovery, led largely by private-sector demand. Although business sentiment continued to show a tendency toward gradual improvement, the Bank of Japan s Tankan survey in March revealed a dip in confidence (albeit a slight one) among large corporations and manufacturers, mainly due to a setback in raw material-related industries. In this operating environment, we sought to strengthen our sales networks and technical support by establishing overseas subsidiaries, promoting the themes of securing the amount of orders and lowering the break-even point, the two-point strategy set out in our Fourth Mid- Term Management Plan. As a result, consolidated net sales for the fiscal year under review increased 2.4% in comparison with the previous year, to 64,527 million. Consolidated operating income fell 11.8%, to 3,92 million, while consolidated net income rose 14.%, to 2,719 million. OPERATING RESULTS Sales For the fiscal year ended March 31,, we posted consolidated net sales of 64,527 million, up 2.4% from the previous year. This result was attributable to a rise in the number of our cooling fan products (primarily high-performance models) adopted by server and PC markets, as a result of our efforts to upgrade customer services by establishing new overseas subsidiaries and technical support bases. It was also due to the popularity of the oil-proof capability offered by our Endurance Fan Series both at home and abroad. Thanks to the expansion of the Asian economy largely driven by China, the ratio of exports to Southeast Asia rose to 22.6%, up 4.1 percentage points from 18.5% a year ago. Meanwhile, reflecting the slowdown in the European and U.S. economies, the ratio of exports to North America declined to 14.4%, down.5 percentage point from 14.9% the previous year, and the ratio of exports to Europe also fell.5 percentage point, to 6.7% from 7.2%. Consequently, the ratio of consolidated overseas sales to consolidated net sales stood at 43.7%, rising 3.1 percentage points compared to 4.6% the previous year. In Japan, as capital expenditures picked up for liquid crystal manufacturing equipment and IP communications network equipment, along with automobile-related capital expenditures, demand remained strong for machine tools and welding robots. Operating Income (Expenses) Due primarily to the continuing high price levels of raw materials, the cost of sales increased 2.8% from the SG&A Expenses to Net Sales Ratio % % 15 2 Fixed Ratio & Current Ratio Net Income per Share & Cash Flow per Share Yen Fixed Ratio Current Ratio Net Income per Share Cash Flow per Share SANYO DENKI ANNUAL REPORT 23

26 previous year, to 53,61 million, while the cost of sales ratio stood at 83.1%, up.4 percentage point from 82.7% a year earlier. Selling, general and administrative expenses rose 8.5%, to 7,22 million, mainly because of an increase in packing and transportation expenses as a result of rise in income and spending on advertising to expand markets. As a result of the above, operating income declined 11.8%, to 3,92 million. The operating income decreased to 6.%, down 1. percentage point from 7.% in the previous year. Other Income (Expenses) and Net Income Net income for the fiscal year under review expanded 14.%, to 2,719 million. The increase was mainly attributable to improvement in financial results and increases in non-operating income that primarily resulted from receipts from sales of investment securities and foreign currency transaction gains. SEGMENT OPERATING RESULTS BY GEOGRAPHICAL AREA Domestic Operating in Japan are the Company and its consolidated subsidiary SANYO DENKI Techno Service CO., LTD. Sales to external customers amounted to 43,37 million, up.6% from the previous year, and intersegments sales to 14,611 million, up 8.%, for total sales of 57,919 million, up 2.4%. Operating income was 3,985 million, down 3.4%. North America The Company has three consolidated subsidiaries in North America: AUTOMATION INTELLIGENCE, INC., SANYO DENKI AMERICA, INC. and AVC AMERICA, INC. Sales to external customers amounted to 16,581 million, down 2.1%, and inter-segments sales to 59 million, down 61.8%, for total sales of 16,641 million, down 2.7% from the previous term. Operating income declined 51.7%, to 14 million. Other Areas As for other areas, operating in Europe are SANYO DENKI EUROPE SA. and SANYO DENKI GERMANY GmbH, and operating in Asia are SANYO DENKI PHILIPPINES, INC., SANYO DENKI SHANGHAI CO., LTD., SANYO DENKI (H.K.) CO., LIMITED., SANYO DENKI SINGAPORE PTE. LTD., SANYO DENKI KOREA CO., LTD., SANYO DENKI TAIWAN CO., LTD. and SANYO DENKI Techno Service (Shenzhen) CO., LTD. Sales to external customers amounted to 4,637 million, up 52.7%, and inter-segments sales to 7,526 million, up 1.9%, for total sales of 12,164 million, up 23.8% from the previous year. Operating income decreased 25.7%, to 544 million. Capital Expediture Depreciation Inventory Turnover 3, 3, Times 6 2,5 2,5 5 2, 2, 4 1,5 1,5 3 1, 1, SANYO DENKI ANNUAL REPORT

27 ANALYSIS OF CAPITAL RESOURCES AND LIQUIDITY Cash Flows Net cash provided by operating activities amounted to 4,13 million, due to an increase in funds as a result of operating activities. Major contributors to this increase in cash included 4,286 million in income before income taxes and minority interest and depreciation of 1,78 million. These were partially offset by a decrease in cash due to an increase of 1,327 million in trade receivables. Net cash used in investing activities amounted to 2,38 million, reflecting a decrease in funds as the result of investing activities, and consisted primarily of expenditures of 2,378 million incurred in the purchase of property, plant and equipment such as manufacturing equipment, which was partially offset by receipt of 471 million from sales of investment securities. Net cash provided by financing activities totaled 1 million, reflecting an increase in funds as a result of financing activities. The primary source of cash was 1,4 million in proceeds from long-term debt to finance the construction of additional plants of overseas subsidiaries, which was partially offset by payment of 152 million in short-term debt, repayment of long-term debt of 37 million and 541 million in dividends paid. As a result of the above, cash and cash equivalents amounted to 5,924 million, increasing 1,99 million from the previous fiscal year-end. Financial Position Total assets rose 5,1 million from the previous term-end, to 61,72 million, due to an increase in trade notes and accounts receivable as the result of higher sales achieved and an increase in property, plant and equipment. On the liabilities side, although we increased proceeds from long-term debt in anticipation of a rise in interest rates, total shareholders equity grew 2,827 million, to 34,652 million, supported by a rise in retained earnings. The ratio of shareholders equity remained 56.2%, at the same relatively high level as that of the previous fiscal year-end. Interest-bearing Debts & Interest Coverage 2, Times 7 Free Cash Flow & Cash Flow 6, 15, 5 5, 4, 1, 3 3, 2, 5, 1 1, -1-1, Interest-bearing Debts Interest Coverage Free Cash Flow Cash Flow SANYO DENKI ANNUAL REPORT 25

28 CONSOLIDATED BALANCE SHEETS SANYO DENKI CO., LTD. and consolidated subsidiaries As of March 31, and 25 ASSETS Current Assets: Cash and bank deposits (Note 6)... 5,937 4,42 $ 5,54 Notes and accounts receivable trade... 2,34 18,252 17,545 Inventories... 11,936 11,991 11,68 Other receivables ,464 Deferred tax assets (Note 11) ,299 Others ,596 Less: Allowance for doubtful accounts... (247) (139) (2,12) Total current assets... 38,879 35,385 33, (Note 2) Property, Plant and Equipment, net (Note 8): Land... 4,71 4,645 4,18 Buildings and structures... 6,492 6,811 55,265 Machinery, equipment and vehicles... 3,376 3,247 28,739 Others... 2,84 1,233 17,74 Total property, plant and equipment, net... 16,654 15, ,772 Intangible Fixed Assets ,886 Investments and Other Assets: Investments in securities (Note 7)... 3,72 3,74 31,514 Deferred tax assets (Note 11) Other investments... 1,896 1,736 16,14 Less: Allowance for doubtful accounts... (4) (7) (34) Total investments and other assets... 5,594 5,36 47,62 Total Assets... 61,72 56,62 $525,257 See Notes to Consolidated Finanacial Statements. 26 SANYO DENKI ANNUAL REPORT

29 LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY Current Liabilities: Short-term debts (Notes 8 & 9)... 6,445 6,672 $ 54,865 Notes and accounts payable-trade... 12,25 12,155 13,898 Accrued income taxes (Note 11)... 1, ,526 Other current liabilities... 3,546 3,45 3,186 Total current liabilities... 23,55 22,458 2, (Note 2) Long-term Liabilities: Long-term debts (Notes 8 & 9)... 1, ,666 Deferred tax liabilities-revaluation (Notes 8 & 11) ,78 Deferred tax liabilities-other (Note 11) Reserve for retirement benefits (Note 1) ,1 Other long-term liabilities ,634 Total non-current liabilities... 2,746 1,712 23,376 Minority Interests ,41 Shareholders Equity: Common stock, no par value Authorized 25,, shares, outstanding 63,135,935 shares 25 Authorized 99,, shares, outstanding 63,135,935 shares... 9,526 9,526 81,93 Capital resrve... 11,59 11,59 94,143 Retained earnings... 12,996 1,878 11,632 Revaluation reserve for land, net of tax (Note 8)... 1,62 1,62 9,4 Net unrealized holding gain or losses (Note 7) ,984 Foreign currency translation adjustments (131) 1,464 Treasury stock, at cost Common stock (2,991,18 shares in and 2,947,685 shares in 25 )... (869) (836) (7,397) Total shareholders equity... 34,652 31, ,985 Liablities, Minority Interests and Shareholders Equity... 61,72 56,62 $525,257 SANYO DENKI ANNUAL REPORT 27

30 CONSOLIDATED STATEMENTS OF INCOME SANYO DENKI CO., LTD. and consolidated subsidiaries Years ended March 31, and 25 Net Sales... 64,527 63,25 $549,36 25 (Note 2) Cost of Sales... 53,61 52, ,295 Gross Profit... 1,925 1,893 93,2 Selling, General and Administrative Expenses (Note 13):... 7,22 6,47 59,776 Operating income... 3,92 4,422 33,216 Other Income (Expenses): Interest income and dividend received Gain on sales of securities (Note 7) ,881 Foreign currency translation gain (loss) (2) 5,192 Interest expense... (78) (127) (663) Loss on sales of fixed assets (Note 14)... (3) (5) (25) Loss on disposal of fixed assets (Note 14)... (43) (61) (366) Amortization on emplyees retirement benefit obligations (Note 1)... (244) Loss on liquidation of an affiliate... (123) (1,47) Directors retirement and severance benefits... (348) (7) (2,962) Other, net (145) 451 Income before Income Taxes and Minority Interests... 4,286 3,883 36,485 Income Taxes (Note 11): Current... 1, ,177 Deferred... (7) 1,126 (595) Total income taxes... 1,477 1,415 12,573 Minority Interests Net Income... 2,719 2,386 $23,146 Per Share Data (Note 16): Yen Net income $.37 Cash dividends for the year See Notes to Consolidated Finanacial Statements. 28 SANYO DENKI ANNUAL REPORT

31 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SANYO DENKI CO., LTD. and consolidated subsidiaries Years ended March 31, and 25 Number of shares of common stock Common stock Capital surplus Retained earnings Revaluation reserve for land, net of tax Net unrealized holding gain on other securities Foreign currency translation adjustments Treasury stock, at cost BALANCE APRIL 1, ,135,935 9,526 11,58 9,8 1, (13) (1,119) Net income... 2,386 Cash dividends... (479) Bonus for directors and corporate auditors... (37) Gain on sale of treasury stock... 1 Net change in revaluation reserve for land, net of tax... Net change in net unrealized holding gain on other securities Net change in foreign currency translation adjustments... () Net change in treasury stock BALANCE MARCH 31, ,135,935 9,526 11,59 1,878 1, (13) (836) Net income... 2,719 Cash dividends... (541) Bonus for directors and corporate auditors... (6) Gain on sale of treasury stock... Net change in revaluation reserve for land, net of tax... Net change in net unrealized holding gain on other securities Net change in foreign currency translation adjustments Net change in treasury stock... (33) BALANCE MARCH 31,... 63,135,935 9,526 11,59 12,996 1, (869) (Note 2) Common stock Capital surplus Retained earnings Revaluation reserve for land, net of tax Net unrealized holding gain on other securities Foreign currency translation adjustments Treasury stock, at cost BALANCE MARCH 31, $81,93 $94,143 $92,62 $9,4 $2,247 $(1,16) $(7,116) Net income... 23,146 Cash dividends paid... (4,65) Bonus for directors and statutory auditors... (51) Gain on sale of treasury stock... Net change in revaluation reserve for land, net of tax... Net change in unrealized gain on available-for-sale securities, net of tax... 3,728 Net change in foreign currency translation adjustments... 2,579 Net change in treasury stock... (28) BALANCE MARCH 31,... $81,93 $94,143 $11,632 $9,4 $5,975 $1,472 $(7,397) See Notes to Consolidated Finanacial Statements. SANYO DENKI ANNUAL REPORT 29