Toshiba announces consolidated results for first half of fiscal year to march 2000

Tokyo (PROTEXT) - Toshiba Corporation today announced its consolidated results for April 1 to September 30, 1999, the first half of the current fiscal year to March 31, 2000. 1) General Overview of First Half of Fiscal Year 1999 The economic environment in which Toshiba and its consolidated group companies operate remained tough throughout the period, despite signs of recovery in the domestic economy. The group continued to put into effect extensive restructuring programs and maximized efforts to secure profitability. Compared with the same period a year ago, net sales increased five percent to 2,622,464 million yen (approximately US$24,509 million). Gains were recorded in semiconductors, LCDs, the domestic market for personal computers and cellular phones. The results reported below reflect the inclusion of Toshiba TEC Corporation and its subsidiaries in consolidated reporting for the first time. Net income decreased to minus 48,323 million yen (minus US$452 million), the result of significantly lower than expected prices for 128-megabit DRAM and other memories, declines in profitability in logic and system LSIs, and restructuring costs for semiconductor operations, including realignment of production facilities and decommissioning of aging assets. 2) Breakdown by Industry Segments for First Half of FY1999 Following the introduction of an in-house company system in April 1999, Toshiba Corporation revised its segment information from five segments to six: Information & Communications and Industrial Systems; Digital Media; Power Systems; Electronic Devices & Components; Home Appliances; and Others. All comparisons below refer to the relevant results of sales and operating income for the same period a year ago. Sales Information & Communications and Industrial Systems were up 17 percent to 828,461 million yen US$7,743 million), reflecting the inclusion of Toshiba TEC Corporation and its subsidiaries. However, private sector demand remained sluggish and sales of industrial systems slumped. Digital Media sales rose two percent to 706,000 million yen (US$6,598 million), with increased demand for personal computers in Japan and robust growth in cellular phones making up for a decline in sales of HDD and CD-ROM. In Power Systems, sales remained flat at 253,303 million yen (US$2,367 million), as an increase in domestic sales and in exports of thermal power generating equipment offset a decline in nuclear power related equipment and other systems. Electronic Devices & Components marked an eight percent gain in sales to 684,299 million yen (US$6,396 million) as memories and LCD devices enjoyed considerable sales growth and sales of discrete products increased. In Home Appliances, sales declined six percent to 340,183 million yen (US$3,179 million) and Others declined two percent to 208,000 million yen (US$1,944 million). Operating income Information & Communications and Industrial Systems declined by 160 million yen (US$1.5 million) to minus 2,385 million yen (minus US$22 million). This was due to lower returns from sales of industrial and medical systems and from sales to national and local government offices, and despite the inclusion of the result of Toshiba TEC Corporation and its subsidiaries in the segment. In Digital Media, a profit decline in the international personal computer business and in peripheral products could not be offset by rising profits in the domestic market for personal computers and increased sales of cellular phones, resulting in a 30 percent decrease in operating income to 18,047 million yen (US$168 million) Power Systems declined 59 percent to 2,426 million yen (US$23 million), reflecting a tough overall business environment and worsened results at Toshiba Plant Kensetsu Co., Ltd. Electronic Devices & Components saw a major decline of 35,592 million yen (US$333 million) to minus 64,933 million yen (minus US$607 million), despite improvement in the LCD business. This result reflects lower than expected prices for memories, declines in profitability in system LSIs, and the cost of decommissioning of aging assets. Home Appliances improved its operating income as extensive restructuring efforts strengthened profitability, allowing the segment to record a profit for the first time in eight years. Operating income rose 19,129 million yen (US$179 million) to 1,471 million yen (US$14 million). Others also increased by 33 percent to 15,594 million yen (US$146 million). 3) Projection for FY1999 The Japanese market is expected to continue a gradual recovery, despite such concerns as exchange rate fluctuations. Toshiba Corporation forecasts an increase in total sales, as semiconductors will see improved volumes and price stabilization. Sales of information and communications systems will also make positive contributions. Annual sales for the fiscal year ended March 2000 are forecast at 5,650,000 million yen (US$ 52,804 million). The company anticipates a substantial recovery in profitability in the second half of FY1999, as the semiconductor business returns to the black. However, the large losses incurred in the first half will not be covered by profit generated in the second half. In addition, Toshiba Corp. will reflect a 110,000 million yen (US$1,000 million) expense in its financial results for fiscal year 1999 in connection with the settlement in a class- action lawsuit in the U.S. concerning the floppy disk controller that had been incorporated in the company's portable PCs. A profit of 50,000 million yen (US$467 million) from selling securities will be also reflected in the results for the year. As a result, the company forecasts income before income taxes and minority interests of minus 70,000 million yen (minus US$654 million) and net income of minus 50,000 million yen (minus US$467 million). 4) FY1999 Projection by Industry Segments Projections for FY1999 are shown below, compared against actual results for FY1998. Unit: billion yen Sales Operating Income FY1999 FY1998 FY1999 FY1998 Forecast Actual Forecast Actual Information & Communications and Industrial Systems 1,880 1,720.2 40 45.1 Digital Media 1,450 1,406.5 43 43.0 Power Systems 490 520.6 8 13.9 Electronic Devices & Components 1,520 1,265.8 -40 -69.6 Home Appliances 690 718.7 2 -28.0 Others 420 424.9 28 24.4 Total 6,450 6,056.7 81 28.8 Elimination -800 -755.8 -1 1.7 Consolidated 5,650 5,300.9 80 30.5 Sales For fiscal year 1999 as a whole, Information & Communications and Industrial Systems will see an increase in sales due to positive second half contributions from systems projects in information and communications systems. Sales of Digital Media will be spurred by continued growth in personal computers and cellular phones. Power Systems will see a decline in sales, as its business environment remains severe. Sales of Electronic Devices & Components will rise, led by growth in semiconductors and LCDs. The Home Appliances segment will decline, mainly as a result of a fall in sales of lighting equipmen and air- conditioners. Others will see a slight decline. Operating income Compared with the same period a year earlier, FY1999 will see a decline in Information & Communications and Industrial Systems, while Digital Media will remain flat, Home Appliances will be back in the black, and Other will increase. Power Systems will decrease. Electronic Devices & Components will improve its operating income but remain in the red. The compan assumed an exchange rate of 110 yen to the US$1 for its second- half projection. N.B. The U.S. dollar is valued at 107 yen for the first half results for convenience only. Year 2000 Readiness Disclosure Toshiba Corporation's Response to Y2K 1.Basic stance and action 1) Policy Toshiba is fully aware of the impact on business of the Y2K issue associated with computer systems (hardware, application programs, etc.) and equipment incorporating microprocessors. The Toshiba Group, including subsidiaries and affiliates worldwide, is tackling the problem with the utmost vigor. (2)Organizational structure Concerted efforts to deal with the Y2K issue began in April 1995. October 1998 saw establishment of the Year 2000 Solution Division, a corporate-level organization that reports directly to the president, and the initiation of the corporate Y2K-Project, under the leadership of a senior executive vice president and the deputy leadership of an executive vice president. The Y2K-Project embraces activities in all of Toshiba's operations, including the corporate staff divisions, in-house companies (including factories) and branch offices. Subsidiaries and affiliates in Japan and overseas also have initiated their own Y2K projects, which receive guidance from their supervisory organization in Toshiba. Employee awareness of Y2K-related issues is enhanced by means of in-house publicity and events and the company web site. Progress in Y2K readiness is reported periodically to the board of directors. (3) Current situation All Toshiba products have been checked for Y2K compliance. If any product requires Y2K action, Toshiba notifies customers to that effect, and measures are implemented following discussion with customers. Toshiba provides information on Y2K compliance of mass-produced products on its web site, including notification of products that do not require Y2K measures. Where products require action but it is not possible for Toshiba to identify all the customers, the company provides information by means of newspaper advertisements requesting customers to contact Toshiba. The company also responds to inquiries from customers. Toshiba is inspecting all of its facilities and systems in order to assure that its provision of products and services is not affected. As of September 1999, the company had almost completed replacing or remedying Y2K-affected facilities and systems and conducting Y2K compliance simulations according to the Y2K compliance plans. Plans are already in place to support minor adjustments such as setting dates on equipment, on and after January 1, 2000. The company requested its suppliers to achieve Y2K compliance by September 1999. The company has monitored progress and compliance at its main suppliers through written inquiries and site visits. Connectivity tests between Toshiba's IT systems and those of outside parties with which Toshiba has EDI links were almost completed in September and are expected to be finished by the end of November 1999. Toshiba's budget for Y2K measures is included in the ordinary budget. Sufficient personnel have been secured for Y2K projects. 2.Expenditures on Y2K measures Information systems in Toshiba and Toshiba Group are being reconstructed through use of ERP packages, and Y2K measures are included in the reconstruction. Expenditures exclusively on Y2K measures are expected to total 17.3 billion yen, 14.2 billion yen of which had been expended by September 1999. Expenditure on existing plans that include Y2K measures, such as reconstruction of information systems, is expected to amount to 28.2 billion yen, of which 24.5 billion yen had been expended by September 1999. The expenditures are both necessary and sufficient as Y2K measures. The cost impact of the company's Y2K measures is slight within the context of Toshiba's overall operations, and funding is provided from cash flow from operating activities. Expenditure on Y2K measures covers expenditure on in-house facilities and systems and expenditure on products. Expenditures on plans that include but are not limited to Y2K measures, such as system reconstruction, mainly concern measures for in-house facilities and systems. Expenditures also include the cost of labor required to implement Y2K measures and plans. 3. Contingency plans etc. During the transitional period from the end of 1999 to the beginning of 2000 (Dec. 25, 1999 to Jan. 12, 2000, as well as Feb. 28 to Mar. 1, 2000), Toshiba Corporation will establish a 24-hour-service inquiry hot line to support our customers. Staff working in Y2K- related areas will be on call throughout the transitional period. Toshiba will do its utmost to ensure the Y2K compliance of its facilities and systems by means of simulation tests before 2000, data back up at 1999 year-end, start-up prior to the start of operations in 2000, and other measures. Systems and procedures for recovery of facilities and systems will be established in readiness for unexpected eventualities resulting from oversights or errors in countermeasures. At the same time, alternative operations will be devised by each department, based on evaluation of risks to facilities and systems, including risks to suppliers and parties with which Toshiba has EDI connections. As a risk-management structure, Toshiba will set up a Y2K headquarters, drawing on the staff of its corporate staff division, in-house companies and subsidiaries and affiliates. The Y2K headquarters will take the lead in communications and decision making in the event of any emergency. Contingency plans for each division and Toshiba itself were almost finalized by September 1999, through drawing up manuals, pilot cases and training courses. We are currently making the necessary preparations called for in the contingency plans, and all preparations, including rehearsal of an emergency communications channel, will be completed by the end of this year. 3.Other Toshiba and Toshiba Group are promoting Y2K solutions in terms of both products and facilities and systems, in an effort to ensure that customers are not affected and that there is no serious impact on business activities. However, Y2K problems are multifaceted and a problem may arise that cannot be solved by Toshiba and Toshiba Group alone. Consequently, it is not possible for Toshiba to be certain that its thorough preparations and implementation of measures will preclude Toshiba or the Toshiba Group from being the source of inconvenience to any third party. Toshiba is establishing systems and procedures to enable the accurate assessment of situations and swift judgment and to minimize risks. ots Original Text Service: Toshiba Corporation Internet: http://www.newsaktuell.de Contact: Keisuke Ohmori of Toshiba Corporation, +81-3-3457-2105, or keisuke.oomori@toshiba.co.jp Subscribers please note that material bearing the slug "PROTEXT" is not part of CTK's news service and is not to be published under the "CTK" slug. Protext is a commercial service providing distribution of press releases from clients, who are identified in the text of Protext reports and who bear full responsibility for their contents. PROTEXT