Annual Report 2003 - サカタインクス · 2 SAKATA INX Annual Report 2003 For the fiscal year ended March 2003, SAKATA INX’s consolidated net sales totaled ¥96,987 million,

Annual Report 2003 Year ended March 31, 2003

SAKATA INX CORPORATION’s business theme is

“Creating Visual Communication Technology.”

As such, our technology development efforts are

focused on visualizing valuable information, making it

stand out, and communicating it

in finer images. For that pur-

pose, we target progress in

the printing ink and peripheral business on a daily basis.

Since the foundation of our company in 1896 as a newspaper

ink manufacturer, we have expanded our product line to commercial

printing, packaging, and various kinds of printing inks. We have also

added businesses in the graphic arts industry and information-technology-related fields.

As SAKATA INX Group, our operations are global. Centered on the printing ink

markets in North America, Europe, and Asia, we have established a worldwide network.

Our strength as a company lies in the integrated support services our sales and

technical staffs offer to customers. Companies in the printing industry use a variety of

different equipment covering prepress to press. We have been successful in meeting

their diversified needs by providing sales and technology

support on an individual machine basis. We have staffs of

approximately 100 technicians dedicated to customer support

services. In addition to striving to improve customer services,

they collect feedback for product development.

CONTENTS

2 Message from the Management

4 Medium-term Business Plan

4 SAKATA Harmonic Innovation Plan to 55 (SHIP 55)

5 SAKATA INX’s Business Conditions

6 Innovating Business Structure

7 Strengthening Corporate Structure

8 Research and Development

10 Environmental Activities

12 Topics

13 SAKATA at a Glance

14 Financial Section

14 Six-Year Summary

15 Management’s Discussion and Analysis

18 Consolidated Balance Sheets

20 Consolidated Statements of Income

21 Consolidated Statements of Shareholders’ Equity

22 Consolidated Statements of Cash Flows

24 Notes to Consolidated Financial Statements

39 Independent Auditors’ Report

40 Corporate Data

41 Investor Information

Disclaimer Regarding Forward-Looking StatementsAny statements regarding our future business performances,plans and strategies in this annual report that are not historicalfacts are forward looking statements based on informationavailable to management at the time or on management’sbeliefs, and therefore contain elements of risk and uncertainty.

+Vision=Value

1SAKATA INX Annual Report 2003

We recently implemented a new three-year Medium-term Business Plan covering the period

up to the fiscal year ending March 2006. The plan focuses on innovating our business struc-

ture to achieve sales growth and strengthening our corporate structure to attain profit growth.

We intend to further refine our visual communication technology while targeting business

performance growth guided by our Medium-term Business Plan. Based on a solid business

vision, the plan drives us toward our goal of becoming the third largest ink company globally.

Sustainable Growth

Net Sales

(¥ million)

Operating Income

(¥ million)

Net Income

(¥ million)

99,2

15

103,

093

96,9

87

108,

000

Target

’01(FY) (FY) (FY)’02 ’03 ’06

2,58

8 3,61

5 4,42

3

6,10

0

Target

’01 ’02 ’03 ’06

(459

)

1,12

3

2,77

8

3,10

0

Target

’01 ’02 ’03 ’06

Note: Because SIIX Corp. ceased to be a consolidated subsidiary and began to be accounted for by the equity method in the fiscal year ended March 2001, performance figures for fiscal 2001 have been adjusted to account for SIIX Corp. by theequity method to allow comparison with recent consolidated performance.

VisionCost Reductions Support Substantial Profit GrowthUnder the impact of Japanese sluggish economy, bothshipment amounts and values in the domestic printingink market declined by 1.9% compared with last fiscal year.

Amid these circumstances, we continued to activelydevelop our environmentally friendly inks as a strategicproduct group, aggressively launching new products. In fact, products launched during the past three yearscontributed 45% of total printing ink sales during the fiscalyear under review—a high level. Moreover, customersgave our support services high marks because of ourhighly originated service system that integrates sales andtechnical support to provide accurate and quick services.

Accordingly, our domestic shipment volume of print-ing ink recorded a 3.0% increase, outperforming thegrowth ratio of the industry. Although demand was slackin North America, unit shipment volumes increased inAsia and other regions, resulting in an overall 3.5%growth on a consolidated basis. Nevertheless, a slump indemand for printing equipment in the Japanese marketand the impact of currency translations resulted in a 5.9%decrease in consolidated net sales to ¥96,987 million.

On the other hand, operating income rose 22.3%, to¥4,423 million, thanks to cuts in procurement costs forraw materials and supplies as well as thorough costreductions from revisions of our distribution and produc-tion systems. Boosted by other income, such as a rever-sal of prior service costs of pension plan, net incomejumped 147.3%, to ¥2,778 million.

The effect of translation adjustments on consolidatedperformance during the fiscal year under review was toreduce net sales by ¥3,056 million, operating income by¥152 million, and net income by ¥66 million.

Message from the Management

2 SAKATA INX Annual Report 2003

For the fiscal year ended March 2003, SAKATA INX’s consolidated net salestotaled ¥96,987 million, declining 5.9% from the previous fiscal year. Operatingincome, however, climbed 22.3%, to ¥4,423 million.

The substantial growth in operating income can be attributed to the success ofGroup-wide cost reduction measures. In particular, the cost reduction efforts ofour North American subsidiaries contributed strongly to improved performance.Costs have begun to fall throughout the Group, giving us confidence in achievingprofit growth.

We believe that performance in the fiscal year under review has provided astrong base to support our drive toward the goals of our new Medium-termBusiness Plan, which got under way in April 2003.

Increasing Corporate Value by InnovatingBusiness Structure and StrengtheningCorporate Structure

Further Strengthening Competitiveness to Become the Third GloballyBased on the performance achieved in the fiscal yearunder review, we created a new three-year Medium-termBusiness Plan that will run until March 2006. TermedSAKATA Harmonic Innovation Plan to 55 (SHIP55), theplan got under way in April 2003.

The major performance goals of SHIP55 for thethree-year period are to attain operating income growthof 37.8% based on net sales growth of only 11.4%.These figures use March 2003 performance as a base.

In our core ink business, which accounts for morethan 70% of consolidated net sales, we do not anticipatesignificant growth because the ink industries in Japanand the United States are mature. But, we do see stronggrowth potential for printing ink business in the People’sRepublic of China and Southeast Asian countries andother new products, such as functional coatings, pigmentdispersion for color filters and pigment-based inkjet inks.

In view of this analysis, the overseas development ofprinting ink businesses in China and Southeast Asiancountries and the expanded sales of new products inJapan have been positioned under the theme of“Innovating Business Structure” within SHIP55. Throughthese strategies, we will increase sales. We will expandour share of the printing ink markets in Japan and theUnited States through technology innovation, cost reduc-tions, business efficiency, and environmental manage-ment. All of these initiatives have been positioned underthe theme of “Strengthening Corporate Structure” underthe plan. These strategies will focus on profit growth.

We intend to enter growing areas of the printing inkmarket, striving to position ourselves in global markets in these areas. To supplement our core printing ink business, we plan to develop new products, such as

functional coatings and materials for image forming, intonew business lines to achieve sustainable growth.

Promoting Further Growth in Shareholders’ ValueOur decision-making process is facilitated through regularlyscheduled monthly Board of Director Meeting and theExecutive Committee. In these meetings, managementmakes important business decisions and receives reportson the results or progress of prior decisions.

From April 2003, a Commercial Code revision allowscompanies to substitute the statutory auditor system witha Company having committee system. While we have notimplemented such a system yet, we have established ahighly transparent management structure that contributesto strong corporate governance based on a streamlinedBoard of Directors and including two outside auditorsamong our four corporate auditors.

Our dividend policy seeks to provide returns toshareholders based on the results as well as a stable dividend payment. At the same time, we consider theneed to build internal reserve to fund capital investmentsand other measures that will provide future benefits toshareholders in terms of increased corporate value.

In meeting the challenges ahead, we look forward tothe continued support of our shareholders.

June 2003

Kazumi SuzukiPresident


Strategy

The 55 in SHIP55 stands for the ¥5.5 billion in ordinaryincome that the SAKATA INX Group plans to achieve inthe fiscal year ending March 2006 through solid and har-monious business development under the plan.

Ordinary income is operating income plus nonoperat-ing income from interest and dividends received andother items less nonoperating expenses, such as inter-est. Ordinary income is used as an important indicator ofearning power among Japanese corporations.

Strategically, in our core printing ink business, theplan seeks to expand market shares, and thereby sales,in regions where the industry is maturing, such as Japanand the United States. Combined with thorough costsreductions and the efficient utilization of assets, theseefforts will strengthen our corporate structure. We willaggressively enter the growing markets of China andSoutheast Asian countries, developing new products intonew core businesses, aiming to innovate our businessstructure. Through these two strategies, we plan toachieve sustainable growth for the future.

Medium-term Business Plan


SAKATA Harmonic Innovation Plan to 55 (SHIP55)

(¥ million)’04 ’05 ’06

103,

900

108,

000

100,

200

(FY)

(¥ million)’04 ’05 ’06

5,50

0

6,10

0

5,10

0

(FY)

(¥ million)(FY) ’04 ’05 ’06

2,80

0

3,10

0

2,50

0

Operating Income

Net Sales

Performance Targets of SHIP 55

Net Income

Outline of Medium-term Business Plan

SHIP 55 (SAKATA Harmonic Innovation Plan to 55)

Innovating Business Structure

Develop overseas printing ink business•Establish and expand business base in China•Attain sales of ¥10 billion in Southeast Asia

Increase earning contribution of new products•Gas (oxygen) barrier coatings•Pigment-based inkjet inks•Pigment dispersion for color filters

Strengthening Corporate Structure

Increase profitability of printing ink business•Achieve sustained growth by increasingdegree of customer satisfaction

•Expand sales in North AmericaImprove business efficiency•Attain ROA* of 6%•Reduce interest-bearing debt

Pursue environmental management•Develop environmental friendly products and merchandise

*ROA: Ordinary Income / Average Total Assets X 100

Main Focus on Printing Inks Looking at a breakdown of our consolidated net sales,newspaper, offset, metal decorating, flexographic andgravure ink generated approximately 70% of net sales.Graphic arts materials, such as graphic film and chemi-cals, machinery and equipment for graphic and printingindustries, account for about 20% of net sales.

The remaining 10% of sales comprises electrograph-ic recording materials, pigment-based inkjet inks, pig-ment dispersion for color filters and color film developingand printing services and other businesses. The compo-sition of our net sales has not changed significantly forthe past three years. Our consolidation ratio, at 1.74, isrelatively high in comparison with Japanese companies inink industry.

Business Development Concentrating on AsiaIn the fiscal year ended March 2003, the breakdown ofregional sales was Japan, 62%; North America, 31%;Asia, 4%, and other regions 3%. Because we consolidat-ed our Malaysian subsidiary in the fiscal year endedMarch 2002 and our Indian subsidiary in the fiscal yearunder review, Asia’s sales have increased slightly.

By business, our domestic operations include the news-paper, offset, flexographic and gravure ink businesses,graphic arts materials and equipment business, and others.In Japan, we hold top market shares for newspaper and flex-ographic inks and are the third largest share of gravure ink.

Our U.S. subsidiary, INX International Ink Co., is the thirdlargest player in the ink market in the United States and boaststhe top share of the global metal decorating ink market.

In Asia, we are busy developing our printing ink businessin a broad range of countries, including Indonesia, Malaysia,India, Taiwan, the Philippines, Thailand, and China.

Global Trends in the Printing Ink MarketAccording to our estimates, the size of the global printingink market in the fiscal year under review was 2.9 milliontons. This figure breaks down by region to 1.05 milliontons in North America, 0.92 million tons in Europe, 0.48million tons in Japan, 0.37 million tons in Asia, and 0.08million tons in other regions.

If the Japanese market was to grow at the same rateas Japan’s gross domestic production (GDP), we couldexpect a growth rate of about 1% for the next three years.

In North America, despite the continued slump in offsetprinting inks, the markets for packaging inks, such as flexo-graphic and gravure inks, are expected to grow. For thisreason, we anticipate a slight increase overall in this market.

Similarly, in Europe, we forecast a slight increase. InAsia, however, we are predicting 5% to 7% growth in linewith GDP growth forecasts.


SAKATA INX’s Business Conditions

Business Composition(As of March 31,2003)

Sales by Operational Segment(As of March 31, 2003)

Sales by Geographic Segment(As of March 31, 2003)

Business Sales Printing inks Graphic Other by region arts businesses

Region (¥ million) N O M F G materials

Japan 60,579*North America 30,796*Indonesia 2,017*Malaysia 1,059*India 1,188*Taiwan 864China 337Philippines 674Thailand 193Spain 1,402*U.K. 926*Sales by Operational Segment 68,233 21,018 9,414

Printing inks69.2%

Graphic arts materials21.3%

Other businesses9.5%

Japan61.8%

North America31.4%

Asia4.4%

Others2.4%

Notes: 1. Types of inks: N: Newspaper, O: Offset, M: Metal decorating, F: Flexographic, G: Gravure,

2. Other businesses include new products, film developing and printing services,and information related equipment

3. *Consolidated subsidiaries

Developing New Businesses into Our SecondMain Source of EarningSAKATA INX has printing ink technologies that have beendeveloped over more than 100 years. These include FineDispersing Technology that finely mills and stabilizes pigments; Polymer-Design for resins to add or controlproperties, such as pigment dispersion stability and adhe-sive properties; and Printing/Coating Technology that canmake fine images and special performance thin films.

Using such technologies, we are creating a stream of new products, such as pigment-based inkjet inks andother new electrographic recording materials, pigmentdispersion for color filters, and functional coatings, suchas gas barrier coatings.

We intend to build these new products into our sec-ond main source of earnings.

Aggressive Development of Markets in Chinaand Southeast AsiaChina and other Asian countries represent growth mar-kets for the SAKATA INX Group. Aggressively developingour businesses in these growth markets, we are aiming toachieve Asian sales of ¥10 billion in the fiscal year endingMarch 2006, based on total nonconsolidated sales ofcompanies, and ¥6.2 billion on a consolidated basis.

Specifically, in China we are establishing a businessbase for SAKATA INX Shanghai Co., which is expectedto start operations in 2004. The subsidiary will manufac-ture and sell packaging inks. Combining this subsidiarywith our metal decorating ink manufacturer inGuangzhou, we are aiming to achieve sales of ¥1.4 billionin China in three years time.

In Indonesia, Malaysia, and India, we are forecastinggrowth of 13% per annum on a local currency basis. Inthree years, we anticipate an increase in sales in theseregions to ¥6.2 billion, from ¥4.3 billion in the fiscal yearunder review. In other Asian regions, we are forecastingsales of ¥3.8 billion in three years.

Planning to breakaway from the structure of the print-ing ink businesses of Japan and North America, weintend to develop China and Southeast Asia into newcore markets for the printing ink business.


Innovating Business Structure Targeting sales growth by developing new businesses and aggressively entering markets in China and otherAsian countries.

Expected Contribution ofNew Products to Net Salesin Fiscal 2004

Strategy in Asia (¥ million)

Region Actual sales Targeted sales Growth (%) * Special strategiesMarch 2003 March 2006Indonesia 2,017 3,000 48.7 Increase sales of offset and gravure inks, expand facilitiesMalaysia 1,059 1,300 22.8 Expand exports to neighboring countriesIndia 1,188 1,900 59.9 Expand facilities, acquire new customersChina- Guangzhou 377 600 59.2 Expand sales of metal decorating inkTaiwan 864 900 4.2 Expand sales of offset inkPhilippines 674 900 33.5 Expand sales of gravure inkThailand 193 600 210.9 Expand sales of flexographic and gravure inksChina-Shanghai — 800 — Establish stable production of gravure and flexographic inksTotal 6,372 10,000 57.9Consolidated 4,263 6,200 45.4

Sales Forecast

• Pigment-based inkjet inks¥200 million

• Pigment dispersion for color filters¥200 million

• Functional coatings¥300 million

—Gas (oxygen) barrier coating(Of above amount, ¥100 million)

* Growth is rate of growth over three years and is calculated on a local currency basis.

Positioning Environmentally Friendly Inks asStrategic ProductsIn the Japanese printing ink market, we plan to maintaina growth rate in excess of the market average.Positioning environmentally friendly inks as strategicproducts, we aim to expand their sales, estimating anincrease of ¥1.7 billion in sales of printing inks over thenext three years.

To achieve that goal, we intend to use environmentallyfriendly inks to strategically differentiate products in themarket. We will of course target increased market sharesfor our top market share products, newspaper and flexo-graphic inks. But we will also be aiming to achieve sharegrowth for gravure inks, for which we hold the third high-est market share, and offset inks, for which our marketshare is relatively low.

In North America, we plan to expand integrated marketing of products and technical services as part ofour efforts to improve customer service and to strength-en our sales. Among offset inks, sales of the soybean oil-based Ecopure series are growing favorably, and weintend to redouble our sales efforts.

In the graphic arts materials segment, we arestrengthening our system development capabilities inresponse to the digitalization of prepress functions, aiming to boost sales by ¥3.5 billion in three years time.

Continued Thorough Cost ReductionTo improve profitability, we need to achieve cost reduc-tions in Japan and North America. During the fiscal yearunder review, we began to see some cost benefits fromcost reductions and improvements in production process-es, but we believe there is still room for improvement.

We will work to further strengthen our corporatestructure by always being highly cost conscious in ourprocurement of raw materials and by reducing interest-bearing debt and improving business efficiency, such asthe efficiency of our capital investments.

In other areas, in November 1999, we formed a busi-ness alliance with TOYO INK MFG. CO., LTD and havebeen working together to achieve rationalization of ouroperations. Specific examples of areas that haveachieved results include the reduction of costs in ourjoint logistics system and outsourcing of production inJapan and overseas.

We also are working with TOYO INK in the digital-related field. In July 2003, we relocated ga city Corp.,into which we have integrated both companies’ prepresstechnology support organizations, to a new office.


Strengthening Corporate Structure Based on the key concepts of increasing market share,reducing costs, and responding to environmental concerns, we are planning to improve our profitability.

Growth in Shipments of Printing Inks in Japan

’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’02/4 ’02/5 ’02/6 ’02/7 ’02/8 ’02/9 ’02/10 ’02/11 ’02/12 ’03/2 ’03/3’03/1

9.0

6.0

3.0

0.0

-3.0

-6.0

-9.0

(Growth of combined unit shipments of newspaper, offset, flexographic, and gravure inks)

Sakata unit shipmentsIndustry unit shipments

R&D Organization in Japan and North AmericaOur R&D activities in Japan are carried out at two loca-tions in Tokyo and Osaka. Also INX International Ink Co.has its R&D facility in Chicago. In total, we have approxi-mately 200 researchers in our R&D organization.

In Tokyo, the First R&D Department focuses itsefforts on the development of next-generation paste inks,functional coatings, and new types of image recordingmaterials. Its main product category is newspaper, offset,and other paste inks. In Osaka, the Second R&DDepartment concentrates on the development of next-generation liquid inks, adhesives, functional coat-ings, and new types of image recording and displaymaterials, with its emphasis on packaging inks (flexo-graphic, gravure), and other liquid inks. In the UnitedStates, INX International Ink Co. conducts activities in its main business field of printing inks.

Research and Development


Highly Original R&D Activities UtilizingFine-Dispersing, Polymer-Design, and Printing/Coating TechnologiesNurtured Over the Years

Inkjet inks

Research and Development Center in Chicago R&D Facility in Osaka Plant

Strong Potential of Gas Barrier CoatingsOur R&D strategy is two pronged. We strive to makeprogress in the development of new types of inks, adhe-sives and coatings with high performance and environ-mentally friendly inks. At the same time, based ontechnologies nurtured over the years, we develop newmaterials for image recording as well as highly functionalmaterials for the electronics industry.

Guided by this strategy, we have utilized such tech-nologies as fine dispersing, polymer-design and print-ing/coating technologies to develop breakthroughproducts like pigment-based inkjet ink, pigment disper-sion for color filter, and functional coatings.

Among our developments, gas barrier coating, one of our functional coatings, is attracting a great deal ofattention. The film coated with this product can be madeimpermeable to gases, such as oxygen gas, producingan oxygen barrier film.

Gas barrier film is used widely in flexible packages forfoods to help preserve contents. However, the films cur-rently in use—poly vinylidene chloride (PVDC) or aluminumand silica deposition films—still raise various environmen-tal and cost issues.

Gas barrier film produced by using our gas barriercoating clears both these hurdles with flying colors.

Based on our strategy to develop new products busi-ness into our second core business, we are committed tocontinuing vigorous R&D programs focused on develop-ing epoch-making products.


R&D Expenses Main Characteristics of Gas Barrier Coating

Japanese Market for Gas Barrier Coating Films

PVDC: poly vinylidene chloridePVA: Poly vinyl alcohol

•Function:Film coated with this product is impervious to gas.

•Application: Packaging used to keep food and other products fresh.

•Special Properties:Environmentally friendly, smooth and flat surface for printing.

Competitive products: PVDC and PVA coated films

(¥ million)’00’99 ’01 ’02 ’03

2,01

3

2,06

1

2,15

2

2,08

3

2,11

7

(FY)

PVDC coated films32%

Target

Aluminum deposition films33%

Inorganic deposition films

13%

Pressed films15%

PVA coated films7%

Inorganic materials are a few nanometers thick.

Coating Structure

Binder resin

Base film (OPP, PET, nylon, and other plastic films)

O2

0.5 m

An Environmental Protection Oriented BusinessOffset and Newspaper InksWe supply low environmental impact inks, such as offsetand newspaper printing inks that are Eco Mark certifiedproducts. We also have a soybean oil-based ink with aguaranteed high level of soybean oil that has beenapproved to use the Soy Seal.

Among volatile organic compounds (VOC) free ink forsheet-fed printing presses, we have developed DiatoneEcopure SOY CL-100 and Waterless Ecopure SOY CL.Having replaced all volatilepetroleum-based solventswith soybean oil and othervegetable oils andremoved VOC, oursoybean oil-basedinks are much lesspolluting than previous ones.

Gravure InksOf course, we already produce a toluene-free gravureink. However we have taken this process one step furtherto develop a toluene-free, methyl ethyl ketone-free (MEK)gravure ink. In addition, we also have water-based gravure inks.

SAKATA INX has dedicated itself to the protection ofthe environment since establishing its formerEnvironmental Department, currently the Quality andEnvironmental Department, in 1973. In 2001, weacquired ISO 14001 environmental management certi-fication for our three major plants, the Tokyo, Osaka,and Hanyu plants. With the certification of theFunabashi Plant in 2002, we established an environ-mental management system for all four plants, andworked to reduce the environmental impact of ourmanufacturing activities. This goal is being achieveby, among other efforts, lowering of energy con-sumption, reducing of industrial wastes, and increas-ing our recycling rate.

In developing products, we follow the basic princi-ple of making them environmentally friendly, safe andbeautiful. We have launched a variety of environmen-tally friendly products, and have won the reputationas “environmentally conscious SAKATA.”

We provide environmentally friendly inks in all ofour ink fields.

Environmental Activities


ISO 14001 Certification

Diatone Ecopure SOY CL-100

Belle Color Gravure Ink

Activities to Reduce Environmental ImpactUsing quantitative targets wherever possible, SAKATAINX is working to reduce the environmental impacts of itsbusiness. Activities principally involve reducing energyconsumption (CO2 emissions equivalent) and waste, andimproving the recycling rate at its four plants in Tokyo,Osaka, Hanyu, and Funabashi.

Reducing CO2 Emissions (Energy Consumption)The figures used to monitor our production of CO2 aretotal CO2 emissions, which is the CO2 calculated asbeing produced by electricity and by petroleum-basedfuel used at our four plants, and unit CO2 emissions,which is total CO2 emissions (tons) divided by total pro-duction volume (tons). A base of 100 has been set usingthe result in FY1999.

As a result of the continuous improvement, the envi-ronmental performance, the unit CO2 emissions hassteadily declined over the years. Total CO2 emissionswere on the rise until the FY2001, but by establishing anenvironmental management system, emissions are nowon the decline thanks to the efforts of each division tofind ways to reduce their energy consumption. In FY2003 under review, total CO2 emissions decreased0.7% year on year and the unit CO2 emissions fell 2.4%.

Reduction of WasteConscious of the importance of recycling waste, we mon-itor the volume of waste produced by our four plants,including used drums, packaging for raw materials, andwaste chemicals, by the total volume of materials used aswell as the amount recycled and the recycling rate. In theyear ended March 2002, total waste produced at our fourplants was 3,174 tons, representing a decrease of 2%. Ofthat amount, we recycled 1,619 tons, equivalent to a recy-cling rate of 51%.

During the fiscal year under review, we took steps toprevent the emission of dioxin from our plants by demol-ishing our waste incinerator at the Tokyo Plant. As aresult, the amount of waste increased by 366 tons.However, our recycling campaign successfully raised ourrecycling rate to about 66%.


’99 ’00 ’01 ’02 ’03

11,2

51

11,5

23

10,5

23

10,4

47

11,0

55

Total CO2 emissions (tons)Unit of CO2 emissions

100 97 9485 83

(FY) ’99 ’00 ’01 ’02 ’03

1,62

3

1,73

8

1,61

9 2,34

8

1,49

0

1,52

9

1,49

3

1,55

5

1,19

2

1,35

4

66.3

Waste (recycled amount) (tons)Waste (non-recycled amount) (tons)Recycling rate (%)

52.4

51.5

53.8

51.0

(FY)

Total CO2 Emissions/Unit CO2 Emissions

Waste/Recycling Rate

Environmental Report 2002

Japan’s First Multi-Vendor Showroom “Solution Square” OpensIn July 2003, expanding the operations of ga city Corp.,our joint venture with TOYO INK MFG. CO., LTD, weopened Japan’s first multi-vendor showroom.

The simplification of the printing process is progress-ing rapidly due to digitalization. Still, because the printingindustry covers a lot of territory— advertising, packaging,and many other businesses—the system needs of print-ing companies vary considerably depending on the typesof products they are printing.

As systems become highly advanced and sophisti-cated, expertise is essential in designing system archi-tectures to serve specific needs. For that reason, there isa strong need in the market for independent advice froma source other than manufacturers. The joint venture gacity Corp. was formed to act as a system integrator offering combinations of the products of a wide range ofmanufacturers with the goal of supplying customers withoptimal systems. At the showroom, visitors can gethands-on experience in operating computer to plate(CTP), direct digital color print (DDCP), and other systems using actual equipment.

Sales of 100% Vegetable Oil, Waterless Offset Ink BeginPlacing a high priority on environmental protection, weare actively developing environmentally friendly products.

Sheet-fed offset printing is commonly used for print-ing brochures, posters, catalogs, and other similar publi-cations. This offset printing employs two methods: oneusing a dampening solution on the printing plate and theother does not, instead using a waterless printing plate toserve the same purpose. Because the waterless printingplate does not produce wastewater and achieves a fasterstart up, it is receiving a lot of attention in the industry.We were the first in Japan to develop a VOC-free ink forthis printing method that replaces all volatiles petroleum-based solvents with soybean oil and vegetable oils. Wecommenced sales of Diatone Waterless Ecopure SOY CLin December 2002. We have been selling DiatoneEcopure SOY CL-100, an ink for printing with a dampening solutionsince 2001.

Topics


Solution Square

Diatone Waterless Ecopure SOY CL

Sakata at a Glance

Printing inks

Graphic artsmaterials

By operationalsegment Main products & merchandise Future strategy

By geographicsegment* Scope of business Future strategy

Net sales in FY2006 (target) (¥ millions)

% of Net sales

Net sales in FY2003 (¥ millions)

Net sales in FY2006 (target) (¥ millions)

% of Net sales

Net sales in FY2003 (¥ millions)

Other businesses

Japan

Asia

North America

Others

Products: printing inks, mainly used for printing on corrugated paper,newsprint and plastic film and foroffset printing, related chemicaladditives and overprinting vanish

Merchandise: graphic arts materialssuch as graphic film and chemicals,materials for the printing process,machinery and equipment for graphicand printing industries

Products: toner for copying machinesand related materials, pigment dispersionand color film developing and printingservices and other technical services Merchandise: equipment for colormatching systems, photograph relatedmaterials such as film, chemicals, printingpaper and electronic components

Further strengthening sales expansion activities based on closerelationships with customers, we plan to increase the degree ofcustomer satisfaction. In particular, we are positioningenvironmentally friendly inks as a strategic product, aiming tooutperform overall market growth in unit sales volume.

Along with the progress of digitalization, we are targeting salesgrowth through the supply of optimum hardware and softwarefor managing workflow.

We are aggressively expanding sales of pigment-based inkjet ink, pigment dispersion for color filters, and gas barrier coatings.

We are increasing the profitability of printing inks by outperformingthe market in unit sales, increasing productivity, and reducingcosts. We are also expanding the profitability contribution of newproducts. Sales of printing equipment are being boosted bystrengthening our system development capabilities.

Because strong growth is anticipated in the Asian printing ink market, we areactively developing business in this region. In China, we will aim to establish a business base for SAKATA INX Shanghai Co., operations of which areslated to begin in 2004. In Indonesia and India, we plan to expand ourproduction facilities to meet the growing demand for gravure printing inks.

Strengthening customer services, we are expanding salesbased on cooperative efforts by our technical services andsales staffs. Among products, the Ecopure series of printinginks has been positioned as our strategic product.

In other regions, we are continuing to target sales growth forprinting inks.

73,900

68,400

6,200

32,100

2,600

24,600

11,400

68,234

60,580

4,263

30,797

2,333

21,019

9,414

69.2%

61.8%

4.4%

31.4%

2.4%

21.3%

9.5%

Manufacture and sale of printing inks,sale of graphic arts materials and otherbusinesses

Manufacture and sale of printing inks



Notes: 1. Inter-segment sales have not been eliminated from sales figures.2. The regions mainly include the following countries:

Asia Indonesia, Malaysia and India North America United States and Canada Others Spain and United Kingdom13SAKATA INX Annual Report 2003


Six-Year SummarySakata Inx Corporation and Consolidated SubsidiariesFor the years ended March 31, 2003, 2002, 2001, 2000, 1999 and 1998

Financial Section

Millions of Yen

2003 2002 2001 2000 1999 1998

For the year:Net Sales........................................................................... ¥96,987 ¥103,093 ¥99,215 ¥94,116 ¥102,125 ¥110,513By Operational Segment:*

Printing Inks .................................................................. 68,234 71,390 67,730 62,701 66,156 71,195Graphic Arts Materials .................................................. 21,019 23,204 22,481 22,832 27,067 29,180Other Businesses.......................................................... 9,414 9,949 10,849 10,173 9,816 11,074

Cost of Sales..................................................................... 70,369 76,934 74,882 70,916 77,933 84,109Selling, General and Administrative Expenses ................. 22,195 22,544 21,745 20,781 21,581 22,648Operating Income ............................................................. 4,423 3,615 2,588 2,418 2,611 3,756Income (loss) Before Income Taxes.................................. 5,126 2,379 (433) 2,935 1,907 3,187Net Income (loss) .............................................................. 2,778 1,123 (459) 1,884 1,115 2,042Depreciation and Amortization ......................................... 2,205 2,394 2,350 2,657 2,919 2,864Capital Expenditures ........................................................ 2,118 1,444 1,265 1,195 2,596 4,156R&D Expenses .................................................................. 2,152 2,083 2,061 2,013 2,117 1,930

Per share data: (in yen)Net Income (loss) .............................................................. 43.75 17.94 (7.30) 30.10 17.81 32.62Shareholders’ Equity......................................................... 447.02 421.55 482.32 447.80 363.80 358.84

At year-end:Total Assets ..................................................................... 80,040 85,581 85,755 86,542 81,554 88,255Shareholders’ Equity......................................................... 28,013 26,389 24,728 28,033 22,774 22,464Interest-bearing Debt........................................................ 24,156 28,166 30,194 30,272 33,691 34,798

Notes: 1. Because SIIX Corp. ceased to be a consolidated subsidiary and began to be accounted for by the equity method in the fiscal year ended March 2001, performance figures for priorfiscal years have been adjusted to account for SIIX Corp. by the equity method to allow comparison with recent consolidated performance.

2. Inter-segment sales have not been eliminated from sales figures.

CONSOLIDATED SUBSIDIARIES

SAKATA INX has a total of 12 consolidated subsidiaries,

comprising of two domestic subsidiaries in the Other business-

es segment and 10 overseas subsidiaries in the Printing inks

business. The Company accounted for 5 companies by the

equity method, including two domestic companies in the Other

businesses segment and three overseas companies in the

Printing inks business.

OVERVIEW

During the fiscal year ended March 2003, the Japanese econo-

my continued to face harsh conditions. Personal consumption

remained stagnant, corporations curtailed their capital expendi-

tures, and the stock market slumped against the backdrop of an

unstable financial system.

Although many countries in Asia experienced mild econom-

ic recovery, the slowdown of the recovery in the U.S. economy

due to the outbreak of the war with Iraq and the independent

appreciation of the Euro against other currencies left the global

economy in a continued unstable state.

Under these conditions, the Company carried out aggres-

sive sales activities in conjunction with technical support and

also launched environmentally friendly printing inks and other

new products on the market. At the same time, the Company

targeted cost reductions through cuts in procurement costs for

raw materials and supplies as well as cost benefits from

revisions of its distribution and production systems.

As a result, consolidated net sales declined 5.9% from

the previous fiscal year, to ¥96,987 million. Operating income,

however, rose 22.3%, to ¥4,423 million. Due to an other income

of ¥1,419 million on reversal of prior service costs of pension

plan, net income soared 147.3%, to ¥2,778 million.

Foreign currency translation adjustments on consolidated

performance during the fiscal year under review reduced net

sales by ¥3,056 million and net income by ¥66 million.

REVIEW OF OPERATIONS BY OPERATIONAL SEGMENT*

* Inter-segment sales have not been eliminated from sales figures.

Printing Inks

Although prices for printing inks continued to decline during the

fiscal year under review, unit sales volume expanded for each of our

subsidiaries in Japan and overseas. Reflecting these conditions,

sales declined 4.4%, to ¥68,234 million, generating 69.2% of net

sales. Boosted by an improvement in performance in the United

States, operating income gained 22.9%, to ¥6,397 million.

Graphic Arts Materials

The Graphic Arts Materials segment handles materials for print-

ing process, machinery and equipment for graphic and printing

industries. During the fiscal year, the division tried to offset the

drop in demand for analog products with expanded sales of

printing plate production related pre-sensitized (PS) plate for

digital output and proofing materials. However, due to the stag-

nation in the economy, demand was down for all types of prod-

ucts. As a result, sales fell 9.4%, to ¥21,019 million, accounting

for 21.3% of net sales. Accordingly, operating income dropped

35.8%, to ¥298 million.

Others Businesses

The Other businesses segment comprises electronic recording

materials, pigment dispersion related products, photograph

film development and printing, and other businesses. Lower

demand from the advertising industry because of the slump in

the economy resulted in a decline in sales of the photography

business, which is centered on developing, printing, and enlarg-

ing (DPE) services. In addition sales of color-related equipment


Management’s Discussion and Analysis

’99 ’00 ’01 ’02 ’03

94,1

16

99,2

15

103,

093

102,

125

96,9

87

Printing inks (¥ million)Graphic arts materials (¥ million)Other businesses (¥ million)

(FY)

Cost of sales (¥ million)Cost to sales ratio (%)

’99 ’00 ’01 ’02 ’03

70,9

16

74,8

82

76,9

34

77,9

33

70,3

69

76.3 75.3 75.5 74.6 72.6

(FY)

Selling, general and administrative expenses (¥ million)SG&A ratio (%)

’99 ’00 ’01 ’02 ’03

20,7

81

21,7

45

22,5

44

21,5

81

22,1

95

21.1 22.1 21.9 21.9 22.9

(FY)

Cost of Sales/Cost to Sales Ratio

Net Sales

Selling, General and Admini-strative Expenses/SG&A Ratio

struggled. Consequently, sales decreased 5.4%, to ¥9,414

million, accounting for 9.5% of net sales. Operating income

declined 18.6%, to ¥417 million.

REVIEW OF OPERATIONS BY GEOGRAPHIC SEGMENT*

* Inter-segment sales have not been eliminated from sales figures.

Japan

Under the continued stagnation in the Japanese economy,

total unit shipments in Japanese printing ink industry fell for the

second consecutive year. For the fiscal year ended March 2003,

total shipments edged down 1.9% in volume and value. Despite

the overall decline, SAKATA INX posted a 3% increase in unit

sales volume based on aggressive sales activities and the strong

reputation of its technical support services. Looking at unit ship-

ments by ink type, newspaper printing inks rose 1.9%, offset

inks edged down 0.3%, flexographic printing inks declined

0.6%, and gravure inks increased 6.7%. On the other hand,

sales of graphic arts materials decreased substantially because

of capital investment restraint in the printing industry.

As a result, sales declined 4.1%, to ¥60,580 million generat-

ing 61.8% of net sales. Reflecting the drop in equipment sales,

operating income slid 0.6%, to ¥5,059 million.

Asia

In Asia, markets where the GDP is growing are expanding. In

March 2003, due to the inclusion of a subsidiary in India in the

Company’s consolidated subsidiaries, sales jumped 30.1%, to

¥4,263 million, accounting for 4.4% of net sales. Operating

income increased 5.4%, to ¥375 million.

North America

A decline in demand for printing services due to the slowdown

in the U.S. economy resulted in declines for unit sales and sales

of printing inks. Looking at a breakdown by ink type, sales of

ultraviolet (UV) ink rose, but sales of letter press inks used for

printing newspapers and magazines were weak. Under the

impact of these market conditions, the performances of our

U.S. subsidiaries weakened. Sales dropped 12.8%, to ¥30,797

million, accounting for 31.4% of net sales. Foreign currency

translation adjustments reduced sales by ¥3,165 million.

Operating income, however, surged 141.8%, to ¥1,481 million,

supported by strong cost reduction efforts.

Others

In Europe and other regions, sales were extremely favorable,

rising 11.7%, to ¥2,333 million and accounting for 2.4% of net

sales. Operating income increased 16.8%, to ¥191 million.

INCOME STATEMENT ANALYSIS

For the fiscal year ended March 31, 2003, consolidated net sales

amounted to ¥96,987 million, declining 5.9% from the previous

fiscal year. Cost of sales declined 8.5%, to ¥70,369 million. This

decline could mainly be attributed to group-wide efforts to cut

costs, resulting in substantial cost reductions in procurement of

raw materials and in manufacturing costs, in particular, by North

American subsidiaries. As a result, the cost of sales to net sales

ratio declined 2.0 percentage points, to 72.6%.

Selling, general and administrative (SG&A) expenses edged

down 1.5%, to ¥22,195 million, thanks to declines in personnel,

freight, depreciation and amortization, and other expenses.

The SG&A to net sales ratio, however, rose 1.0 percentage

point, to 22.9%. For the fiscal year under review, capital ex-

penditures totaled ¥2,118 million, up 46.6%; depreciation and

amortization expenses amounted to ¥2,205 million, down 7.9%;

and R&D expenses were ¥2,152 million, an increase of 3.3%

year on year.

Consolidated operating income rose 22.3%, to ¥4,423

million, supported by the substantial improvement in the


Capital expenditures (¥ million)Depreciation & amortization (¥ million)

’99 ’00 ’01 ’02 ’03

1,19

5

1,26

5

1,44

4

2,59

6

2,11

8

(FY)

2,65

7

2,35

0

2,39

4

2,91

9

2,20

5

R&D expenses (¥ million)R&D expenses to sales ratio (%)

’99 ’00 ’01 ’02 ’03

2,01

3

2,06

1

2,08

3

2,11

7

2,15

2

2.1 2.1 2.1 2.0 2.2

(FY)

Operating income (¥ million)Operating income to sales ratio (%)

’99 ’00 ’01 ’02 ’03

2,41

8

2,58

8

3,61

5

2,61

1

4,42

3

2.6 2.6 2.63.5 4.6

(FY)

Capital Expenditures/Depreciation & Amortization

R&D Expenses/R&D Expenses to Sales Ratio

Operating Income/Operating Income to Sales Ratio

profitability of U.S. subsidiaries. The operating income to net

sales ratio increased 1.0 percentage points, to 4.5%. Among

other income and expenses, a ¥1,419 million gain on reversal

of prior service costs of pension plan supported a 115.5% jump

in income before income taxes, to ¥5,126 million. Net income

climbed 147.3%, to ¥2,778 million.

Consequently, the earnings on sales (net income to net

sales) ratio increased 1.8 percentage points, to 2.9%.

ANALYSIS OF FINANCIAL POSITION

At March 31, 2003, total asset amounted to ¥80,040 million, an

decrease of 6.5% from the previous fiscal year. Current assets

decreased 8.4%, to ¥41,298 million, partially because of a

¥3,034million, or 9.8%, decrease in trade notes and accounts

receivable due to a banking holiday on the last day of the fiscal

year ended March 2002.

Property, plant and equipment were approximately the

same as in the previous fiscal year, declining 1.7%, to ¥17,813

million. The main additions during the fiscal year were the

renewal of production facilities at SAKATA INX and North

American subsidiaries. Investments and other assets declined

mainly due to a decrease in the allowance for employees’

retirement benefits, and total tangible assets decreased

3.4%, to ¥34,846 million.

The Company is making strong efforts to reduce its interest-

bearing debt. At the end of March 2003, total debt obligation

amounted to ¥51,693 million, a decline of 12.3% from the prior

fiscal year. Of this amount, interest-bearing debt totaled ¥24,156

million, decreasing 14.2% year on year. As a result, the debt-

equity ratio improved 20.7 percentage points, to 86.2%.

Current liabilities dropped 10.4%, to ¥36,317 million, par-

tially because of a decrease in trade notes and accounts

payables and bank loans due to a banking holiday on the last

day of the previous fiscal year. Accordingly, the liquidity ratio

improved 2.4 percentage points, to 113.7%.

Fixed liabilities decreased 16.5%, to ¥15,376million, due to

a decrease in long-term debt and in the provision for employ-

ees’ retirement benefits.

At March 31, 2003, shareholders’ equity was up 6.2% from

the previous fiscal year, to ¥28,013 million, because of the

growth in net income. The equity ratio improved 4.2 percentage

points, to 35.0% from 30.8%.

Return on equity (ROE) rose substantially to 10.2% from

4.4% in the previous fiscal year.

CASH FLOW ANALYSIS

For the fiscal year ended March 31, 2003, net cash flow provided

by operating activities amounted to ¥6,219 million, up 7.7% from

the previous fiscal year. This increase can mainly be attributed

to the substantial growth in income before income taxes.

However, a loss on sales of investment securities, a decrease in

the provision for employees’ retirement benefits, and the impact

of the banking holiday on the last day of the previous fiscal year

resulting in the increase in cash flows from operating activities

being limited to ¥444 million.

Net cash used in investment activities increased 47.6%, to

¥2,087 million. This increase mainly resulted from the substantial

growth in acquisition of property, plant and equipment.

Consequently, free cash flow at the end of the fiscal year was

¥4,132 million, declining 5.2% from the previous fiscal year.

Net cash used in financing activities declined 3.5%, to

¥3,993 million. The principal components of financial activities

were a ¥3,575 million decrease in interest-bearing debt and

¥376 million in cash dividends paid.

As a result, cash and cash equivalents at end of year

amounted to ¥3,261 million, an increase of 4.2% from the

previous fiscal year.


Net income (¥ million)Net income to sales ratio (%)

’99 ’00 ’01 ’02 ’03

1,88

4

(459

)

1,12

3

1,11

5

2,77

8

1.1 2.0

(0.5)

1.1

2.9

(FY)

Inerest-bearing debt (¥ million)D/E ratio (%)

’99 ’00 ’01 ’02 ’03

30,2

72

30,1

94

28,1

6633,6

91

24,1

56

147.9

108.0122.1

106.7 86.2

(FY)

Shareholders’ equity (¥ million)ROE (%)

’99 ’00 ’01 ’02 ’03

28,0

33

24,7

28

26,3

89

22,7

74 28,0

13

4.9 7.4

-1.7

4.410.2

(FY)

Net Income/Net Income toSales Ratio

Interest-Bearing Debt/ D/E Ratio

Shareholders’ Equity/ROE

Millions of yen

ASSETS 2003 2002

Current assets:Cash and cash equivalents (Notes 8 and 11).................................................................................................... ¥ 3,261 ¥ 3,129Marketable securities (Notes 6 and 8)............................................................................................................... 10 10Receivables (Notes 5 and 8):

Trade notes and accounts:Unconsolidated subsidiaries and affiliates ............................................................................................... 646 478Other ......................................................................................................................................................... 27,211 30,413.................................................................................................................................................................. 27,857 30,891

Inventories (Note 7) ........................................................................................................................................... 8,365 9,137Short-term investments..................................................................................................................................... 11 21Deferred income taxes (Note 13)....................................................................................................................... 935 938Other current assets.......................................................................................................................................... 1,226 1,350Allowance for doubtful receivables ................................................................................................................... (367) (373)

Total current assets .................................................................................................................................. 41,298 45,103

Property, plant and equipment (Note 8):Land .................................................................................................................................................................. 6,179 6,187Buildings and structures.................................................................................................................................... 15,668 15,591Machinery and equipment................................................................................................................................. 30,260 29,782Construction in progress................................................................................................................................... 125 222

.................................................................................................................................................................. 52,232 51,782Accumulated depreciation ................................................................................................................................ (34,419) (33,669)

Net property, plant and equipment............................................................................................................... 17,813 18,113

Investments and other assets:Investments in:

Unconsolidated subsidiaries and affiliates.................................................................................................... 5,765 5,899Other (Notes 6 and 8) .................................................................................................................................... 7,557 7,326

Long-term loans to:Unconsolidated subsidiaries and affiliates.................................................................................................... — 19Other ............................................................................................................................................................. 1,502 1,537

Deferred income taxes (Note 13)....................................................................................................................... 1,168 1,822Other.................................................................................................................................................................. 2,596 2,880Allowance for doubtful receivables ................................................................................................................... (1,555) (1,563)

Total investments and other assets .......................................................................................................... 17,033 17,920

Intangibles:Goodwill ............................................................................................................................................................ 3,711 4,084Other.................................................................................................................................................................. 185 361

.................................................................................................................................................................. 3,896 4,445

.................................................................................................................................................................. ¥80,040 ¥85,581

The accompanying notes are an integral part of these statements.


Consolidated Balance SheetsSakata Inx Corporation and Consolidated SubsidiariesMarch 31, 2003 and 2002

Millions of yen

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY 2003 2002

Current liabilities:Bank loans (Note 8) ........................................................................................................................................... ¥ 7,971 ¥10,381Long-term debt due within one year (Note 8) ................................................................................................... 4,799 4,366Payables (Note 5):

Trade notes and accounts:Unconsolidated subsidiaries and affiliates ............................................................................................... 108 25Other ......................................................................................................................................................... 16,383 19,296

Other ............................................................................................................................................................. 988 732.................................................................................................................................................................. 17,479 20,053

Accrued expenses............................................................................................................................................. 2,477 2,524Income taxes and enterprise tax payable ......................................................................................................... 1,216 819Accrued employees’ bonuses........................................................................................................................... 1,019 1,049Other current liabilities ...................................................................................................................................... 1,356 1,339

Total current liabilities ................................................................................................................................... 36,317 40,531

Long-term debt due after one year (Note 8) .................................................................................................. 11,386 13,419

Employees’ retirement benefits (Note 12) ..................................................................................................... 3,486 4,637

Director’s retirement benefits ........................................................................................................................ 243 189

Deferred income taxes (Note 13) ................................................................................................................... 111 —

Other non-current liabilities ........................................................................................................................... 150 179

Contingent liabilities (Note 14)

Minority interest in consolidated subsidiaries.............................................................................................. 334 237

Shareholders’ equity:Common stock:

Authorized—144,000,000 shares,Issued—62,601,161 shares .......................................................................................................................... 7,473 7,473

Capital surplus................................................................................................................................................... 5,575 5,575Retained earnings (Note 16) .............................................................................................................................. 17,327 15,152Net unrealized holding gains on securities........................................................................................................ 890 436Foreign currency translation adjustments ......................................................................................................... (3,245) (2,246)

.................................................................................................................................................................. 28,020 26,390Treasury stock – 23,093 shares ........................................................................................................................ (7) (1)Total shareholders’ equity ................................................................................................................................. 28,013 26,389

.................................................................................................................................................................. ¥80,040 ¥85,581


Millions of yen

2003 2002

Net sales ......................................................................................................................................................... ¥96,987 ¥103,093Cost of sales .................................................................................................................................................. 70,369 76,934Selling, general and administrative expenses ............................................................................................ 22,195 22,544

Operating income.................................................................................................................................... 4,423 3,615

Other income (expenses):Interest and dividend income .......................................................................................................................... 228 242Gain on sales of investments in subsidiaries and affiliates ............................................................................. 15 78Administration fees from unconsolidated subsidiaries and affiliates .............................................................. 119 156Equity in earnings of affiliates.......................................................................................................................... 74 115Reversal of prior service costs of pension plan(Note 12) ................................................................................ 1,419 —Interest expense .............................................................................................................................................. (612) (964)Loss on sales of investment securities............................................................................................................ (334) (1,083)Write-down of investment securities ............................................................................................................... (248) (32)Write-down of memberships in golf clubs....................................................................................................... (137) (44)Other-net ......................................................................................................................................................... 179 296

Income before income taxes................................................................................................................... 5,126 2,379

Income taxes:Current............................................................................................................................................................. 1,788 1,189Deferred (Note13) ............................................................................................................................................ 457 (19)

................................................................................................................................................................ 2,245 1,170

Minority interests in income of consolidated subsidiaries ........................................................................ (103) (86)Net income .................................................................................................................................................. ¥ 2,778 ¥ 1,123

Yen

Net income per share of common stock ......................................................................................................... ¥ 43.75 ¥ 17.94Cash dividends per share applicable to the year ............................................................................................ 6.00 6.00



Consolidated Statements of IncomeSakata Inx Corporation and Consolidated SubsidiariesYears ended March 31, 2003 and 2002

Millions of yen

Number of Net Foreign shares of unrealized currencycommon Common Capital Retained holding gains translation Treasury

stock stock surplus earnings on securities adjustments stock

Balance at March 31, 2001 ........................................... 62,601,161 ¥7,473 ¥5,575 ¥14,242 ¥1,057 ¥(3,618) ¥(0)Net income...................................................................... — — — 1,123 — — —

Foreign currency translation adjustments....................... — — — — — 1,372 —

Decrease in net unrealized holding gains on securities .................................................................. — — — — (621) — —

Treasury stock................................................................. — — — — — — (1)

Cash dividends paid (¥6.0 per share).............................. — — — (375) — — —

Bonuses to directors and statutory auditors................... — — — (38) — — —

Effect of increase in investments accounted for by the equity method .................................................... — — — 261 — — —

Effect of increase in consolidated subsidiaries............... — — — (61) — — —

Balance at March 31, 2002 ........................................... 62,601,161 7,473 5,575 15,152 436 (2,246) (1)

Net income...................................................................... — — — 2,778 — — —

Foreign currency translation adjustments....................... — — — — — (999) —

Increase in net unrealized holding gains on securities .................................................................. — — — — 454 — —

Treasury stock................................................................. — — — — — — (6)

Cash dividends paid (¥6.0 per share).............................. — — — (376) — — —

Bonuses to directors and statutory auditors................... — — — (35) — — —

Effect of increase in consolidated subsidiaries............... — — — (192) — — —

Balance at March 31, 2003 ........................................... 62,601,161 ¥7,473 ¥5,575 ¥17,327 ¥ 890 ¥(3,245) ¥(7)



Consolidated Statements of Shareholders’ EquitySakata Inx Corporation and Consolidated SubsidiariesYears ended March 31, 2003 and 2002

Millions of yen

2003 2002

Cash flows from operating activities:Income before income taxes ................................................................................................................................. ¥5,126 ¥2,379Adjustments to reconcile income before income taxes to net cash provided by operating activities:

Depreciation and amortization .......................................................................................................................... 2,205 2,394Gain on sales of investments in subsidiaries and affiliates ............................................................................... (15) (78)Loss on sales of investment securities.............................................................................................................. 334 1,083Write-down of investment securities................................................................................................................. 248 32Write-down of memberships in golf club .......................................................................................................... 137 44Provision for (reversal of) allowance for doubtful receivables........................................................................... (104) 217Decrease in provision for employees’ retirement benefits ................................................................................ (1,150) (128)Decrease in provision for accrued employees’ bonuses .................................................................................. (30) (133)Interest and dividend income............................................................................................................................ (228) (242)Interest expense................................................................................................................................................ 612 964Equity in earnings of unconsolidated affiliates.................................................................................................. (74) (115)Decrease in trade notes receivable ................................................................................................................... 2,822 740Decrease in inventories ..................................................................................................................................... 428 1,608Decrease in trade notes payable....................................................................................................................... (2,800) (754)Increase (decrease) in accounts payable .......................................................................................................... (73) 51Cash paid for bonuses to directors and statutory auditors .............................................................................. (35) (38)Other—net ......................................................................................................................................................... 540 (551)

Sub total........................................................................................................................................................ 7,943 7,473Interest and dividends received ........................................................................................................................ 288 312Interest paid....................................................................................................................................................... (675) (897)Income taxes and enterprise tax paid ............................................................................................................... (1,337) (1,113)

Net cash provided by operating activities..................................................................................................... 6,219 5,775

Cash flows used in investing activities:Acquisition of property, plant and equipment ....................................................................................................... (1,667) (1,413)Proceeds from sales of property, plant and equipment ........................................................................................ 20 177Proceeds from sales of marketable securities and investments ........................................................................... 452 1,553Purchase of investments ....................................................................................................................................... (592) (1,898)Loans receivable advanced................................................................................................................................... (1,730) (1,419)Repayment of loans receivable ............................................................................................................................. 1,770 1,613Other—net ............................................................................................................................................................. (340) (27)

Net cash used in investing activities ............................................................................................................. (2,087) (1,414)


Consolidated Statements of Cash FlowsSakata Inx Corporation and Consolidated SubsidiariesYears ended March 31, 2003 and 2002

Millions of yen

2003 2002

Cash flows used in financing activities:Decrease in short-term bank loans ....................................................................................................................... (1,942) (1,399)Proceeds from long-term bank loans.................................................................................................................... 3,285 1,821Repayment of long-term bank loans ..................................................................................................................... (4,918) (4,151)Cash dividends paid .............................................................................................................................................. (376) (376)Distributions to minority shareholders................................................................................................................... (18) (16)Other—net ............................................................................................................................................................. (24) (16)

Net cash used in financing activities............................................................................................................. (3,993) (4,137)

Effect of exchange rate changes on cash and cash equivalents.................................................................... (8) 67

Net increase in cash and cash equivalents....................................................................................................... 131 291Cash and cash equivalents at beginning of year.............................................................................................. 3,129 2,817Increase in cash and cash equivalents due to change in the scope of consolidation ................................. 1 21Cash and cash equivalents at end of year (Note 11)......................................................................................... ¥3,261 ¥3,129



2. SIGNIFICANT ACCOUNTING POLICIESConsolidation

The consolidated financial statements include the accounts of the

Company and its twelve (eleven in 2002) significant subsidiaries.

All significant intercompany transactions and accounts have been

eliminated. The fiscal year-end of most of the consolidated foreign

subsidiaries is December 31 and is different from the Company’s.

Significant transactions between December 31 and March 31 are

reflected in the consolidated financial statements.

In the elimination of investments in subsidiaries, the assets and

liabilities of the subsidiaries, including the portion attributable to

minority shareholders, are evaluated using the fair value at the

time the Company acquired control of the respective subsidiaries.

Differences between the cost of investments in consolidated sub-

sidiaries and the equity in their net assets at dates of acquisition

are amortized within twenty years.

The equity method is applied to five affiliates. Five unconsolidated

subsidiaries and three affiliates are not accounted for by the equity

method because they are immaterial.

Allowance for doubtful receivables

The Company and its consolidated subsidiaries (the “Companies”)

mainly adopted the policy of providing the allowance for doubtful

receivables in an amount sufficient to cover possible losses on

collection by estimating individually uncollectible amounts and

applying a percentage based on collection experience to the

remaining receivables.

Translation of foreign currencies

Receivables and payables denominated in foreign currencies are

translated into Japanese yen at the year-end-rates and resulting

gains and losses are recognized in the statements of income.

The financial statements of consolidated foreign subsidiaries

are translated into Japanese yen at the year-end-rates, except that

shareholders’ equity accounts are translated at historical rates.

The resulting foreign currency translation adjustments are included

in shareholders’ equity (and minority interests).

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTSSakata Inx Corporation (the “Company”) and its consolidated

domestic subsidiaries maintain their official accounting records in

Japanese yen and in accordance with the provisions set forth in the

Japanese Commercial Code and accounting principles and prac-

tices generally accepted in Japan (“Japanese GAAP”). The accounts

of consolidated foreign subsidiaries are based on their accounting

records maintained in conformity with generally accepted account-

ing principles and practices prevailing in the respective countries of

domicile. Certain accounting principles and practices generally

accepted in Japan are different from International Accounting

Standards and standards in other countries in certain respects as to

application and disclosure requirements. Accordingly, the accom-

panying financial statements are intended for use by those who are

informed about Japanese accounting principles and practices.

The accompanying consolidated financial statements have been

restructured and translated into English (with some expanded

descriptions and the inclusion of consolidated statements of share-

holders’ equity) from the consolidated financial statements of the

Company prepared in accordance with Japanese GAAP and filed

with the appropriate Local Finance Bureau of the Ministry of

Finance as required by the Securities and Exchange Law. Some

supplementary information included in the statutory Japanese lan-

guage consolidated financial statements, but not required for fair

presentation is not presented in the accompanying consolidated

financial statements.


Notes to Consolidated Financial StatementsSakata Inx Corporation and Consolidated Subsidiaries

Securities

The Companies examine the intent of holding each security and

classify those securities as (a) securities held for trading purposes

(hereafter, “trading securities”), (b) debt securities intended to be

held to maturity (hereafter, “held-to-maturity debt securities”), (c)

equity securities issued by subsidiaries and affiliated companies,

and (d) all other securities that are not classified in any of the above

categories (hereafter, “available-for-sale securities”).

The Companies do not hold trading securities. Held-to-maturity

debt securities are stated at amortized cost. Equity securities issued

by subsidiaries and affiliated companies which are not consolidated

or accounted for using the equity method are stated at moving-

average cost. Available-for-sale securities with available fair market

values are stated at fair market value. Unrealized gains and unreal-

ized losses on these securities are reported, net of applicable

income taxes, as a separate component of shareholders’ equity.

Realized gains and losses on sales of such securities are computed

using moving-average cost. Other securities with no available fair

market value are stated at moving-average cost.

If the market value of held-to-maturity debt securities, equity

securities issued by unconsolidated subsidiaries and affiliated com-

panies, and available-for-sale securities, declines significantly, such

securities are stated at fair market value and the difference between

fair market value and the carrying amount is recognized as loss in

the period of the decline. If the fair market value is not readily avail-

able, such securities should be written down to net asset value with

a corresponding charge in the income statement in the event net

asset value declines significantly. In these cases, such fair market

value or the net asset value will be the carrying amount of the

securities at the beginning of the next year.

Derivatives and hedge accounting

The Companies state derivative financial instruments at fair value

and recognize changes in the fair value as gains or losses unless

derivative financial instruments are used for hedging purposes.

If derivative financial instruments are used as hedges and meet

certain hedging criteria, the Companies defer recognition of gains

or losses resulting from changes in fair value of derivative financial

instruments until the related losses or gains on the hedged items

are recognized.

However, in cases where forward foreign exchange contracts are

used as hedges and meet certain hedging criteria, forward foreign

exchange contracts and hedged items are accounted for in the

following manner:

1. If a forward foreign exchange contract is executed to hedge an

existing foreign currency receivable or payable:

(a) the difference, if any, between the Japanese yen amount of

the hedged foreign currency receivable or payable translated

using the spot rate at the inception date of the contract and

the book value of the receivable or payable is recognized in

the statement of income in the period which includes the

inception date, and

(b) the discount or premium on the contract (that is, the difference

between the Japanese yen amount of the contract translated

using the contracted forward rate and that translated using the

spot rate at the inception date of the contract) is recognized

over the term of the contract

2. If a forward foreign exchange contract is executed to hedge a

future transaction denominated in a foreign currency, the future

transaction will be recorded using the contracted forward rate,

and no gains or losses on the forward foreign exchange contract

are recognized.

Also, if interest rate swap contracts are used as hedges and meet

certain hedging criteria, the net amount to be paid or received under

the interest rate swap contract is added to or deducted from the

interest on the assets or liabilities for which the swap contract was

executed.

Inventories

Inventories of the Company and its consolidated domestic subsid-

iaries are stated at cost, cost being determined using the moving-

average method. Inventories of consolidated foreign subsidiaries

are stated principally at the lower of cost or market, cost being

determined using the first-in, first-out method.


Property, plant and equipment

Property, plant and equipment are carried at cost. The Company

and its consolidated domestic subsidiaries provide depreciation

principally on a declining balance method over estimated useful lives.

However, depreciation for buildings, except building fixtures, of the

Company and its consolidated domestic subsidiaries acquired after

March 31, 1998 is stated on the straight-line method.

Certain consolidated foreign subsidiaries compute depreciation

on the straight-line method over estimated useful lives.

The range of useful lives is summarized as follows:

Buildings and structures 3 to 60 years

Machinery and equipment 2 to 20 years

Finance leases

Finance leases of the Company and certain consolidated subsidiaries

which do not transfer ownership are accounted for in the same

manner as operating leases in accordance with Japanese GAAP.

Goodwill

Effective January 1, 2002, certain consolidated foreign subsidiaries

in the United States adopted Statement of Financial Accounting

Standards (SFAS) No.142, “Goodwill and Other Intangible Assets”.

The statement prescribes the accounting treatment for both identifi-

able intangibles and goodwill after initial recognition and provides

that goodwill is no longer amortized over 40 years, but is tested for

impairment using a fair value methodology.

Under SFAS No.142, the U.S. subsidiaries were required to test

all existing goodwill for impairment as of January 1, 2002 on a

reporting unit basis. Accordingly, as of January 1, 2002, the U.S.

subsidiaries ceased amortizing goodwill and evaluated its carrying

value for impairment using an income approach in accordance with

the Statement’s guidance.

The U.S. subsidiaries determined that goodwill was not impaired

as of the date of adoption of SFAS No.142. As a result of adopting

SFAS No.142, operating income for the year ended March 31, 2003

increased by ¥135 million compared with what would have been

recorded under the previous accounting policy.

Software costs

The Company and its consolidated domestic subsidiaries account

for software, which is included in intangible assets, and depreciate

it using the straight-line method over the estimated useful life of

five years.

Research and development expenses

Research and development expenses are charged to income as

incurred. Research and development expenses for the years ended

March 31, 2003 and 2002 were ¥2,152 million and ¥2,083 million,

respectively.

Income taxes

The Companies recognize tax effects of temporary differences

between the carrying amounts of assets and liabilities for tax and

financial reporting. The asset and liability approach is used to rec-

ognize deferred income tax assets and liabilities for the expected

future tax consequences of temporary differences between the

carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for income tax purposes.

The aggregate statutory income tax rate used for calculation

of deferred taxes assets and liabilities was 41.9% for the year

ended March 31, 2002. Effective for the year commencing on April

1, 2004 or later, according to the revised local tax law, income tax

rates for enterprise taxes will be reduced as a result of introducing

the assessment by estimation on the basis of the size of business.

Based on the change of income tax rates, for calculation of deferred

taxes assets and liabilities, the Company and consolidated domestic

subsidiaries used the aggregate statutory income tax rates of 41.9%

and 40.6% for current items and non-current items, respectively,

for the year ended March 31, 2003.

As the result of the change in the aggregate statutory income

tax rates, deferred taxes assets decreased by ¥36 million and provi-

sion for deferred income taxes and net unrealized holding gains on

securities increased by ¥57 million and ¥21 million, respectively,

compared with what would have been recorded under the previous

local tax law.


Bonuses

The Company and its consolidated domestic subsidiaries follow the

general Japanese practice of paying bonuses to employees in July

and December. Accrued bonus liabilities at the balance sheet date

are calculated based upon management’s estimate of annual

amounts thereof.

Bonuses to directors and statutory auditors, which are subject

to approval at the shareholders’ meeting, are accounted for as an

appropriation of retained earnings.

Retirement benefits

(a) Employees:The Company and its consolidated domestic subsidiaries provide

two types of post-employment benefit plans, unfunded lump-sum

payment plans and funded contributory pension plans, under

which all eligible employees are entitled to benefits based on the

level of wages and salaries at the time of retirement or termination,

length of service and certain other factors. The pension plans

cover 50% of total retirement benefits.

The liabilities and expenses for retirement benefits are deter-

mined based on the amounts actuarially calculated using certain

assumptions. The Company and its consolidated domestic sub-

sidiaries provide for employees’ retirement benefits at the balance

sheet date based on the estimated amounts of projected benefit

obligation and the fair value of the plan assets at that date.

Actuarial gains and losses are recognized in expenses using

the straight-line method within the average of the estimated

remaining service lives (mainly 15 years) commencing with the

following period.

None of the consolidated foreign subsidiaries have provided

allowances for employees’ retirement benefits at March 31, 2003

and 2002.

(b) Directors and statutory auditors:The liability for directors’ and statutory auditors’ retirement bene-

fits is provided based on the Company’s internally decided criteria.

Consolidated Statements of Cash Flows

In preparing the consolidated statements of cash flows, cash

on hand, readily-available deposits and short-term highly liquid

investments with maturities of not exceeding three months at the

time of purchase are considered to be cash and cash equivalents.

Amounts per share

(a) Net income per share of common stockEffective April 1, 2002, the Company adopted the new account-

ing standard for net income per share and related guidance

(Accounting Standards Board Statement No. 2, “Accounting

Standard for Earnings Per Share” and Financial Standards

Implementation Guidance No. 4, “Implementation Guidance

for Accounting Standard for Earnings Per Share”.

Net income per share of common stock for the year ended

March 31, 2002 would have been ¥17.37, if this new accounting

standard were applied retroactively.

(b) Cash dividends per shareCash dividends per share presented in the statements of income

represent the cash dividends declared applicable to the year,

including dividends paid after the end of the year.


3. ACCOUNTING STANDARD FOR TREASURY STOCK AND REVERSAL OF STATUTORY RESERVESEffective April 1, 2002, the Companies adopted the new accounting

standard for treasury stock and reversal of statutory reserves

(Accounting Standards Board Statement No.1, “Accounting

Standard for Treasury Stock and Reduction of Statutory Reserves”,

issued by the Accounting Standards Board of Japan on February

21, 2002).

The effect on net income of the adoption of the new accounting

standard was immaterial.

4. CHANGES IN PRESENTATION OF SHAREHOLDERS’ EQUITY IN THE BALANCE SHEETAs a result of adopting this new accounting standard and applica-

tion of the related revised disclosure requirements, shareholders’

equity accounts in the accompanying balance sheet as of March 31,

2003 are presented differently from prior years. Shareholders’ equity

accounts as of March 31, 2002 have been restated to the presenta-

tion for 2003.


5. EFFECT OF BANK HOLIDAY ON MARCH 31, 2002As financial institutions in Japan were closed on March 31, 2002,

amounts that would normally be settled on March 31, 2002 were

collected or paid on the following business day, April 1, 2002. The

effects of the settlements on April 1, 2002 instead of March 31

included the following:

Millions of yen

2002

Notes and accounts receivable increase ............................................................................................................................................... ¥980

Notes and accounts payable increase ................................................................................................................................................... 446

6. SECURITIESThe following table summarizes acquisition costs, book values and fair values of securities with available fair values as of March 31, 2003 and

2002:

(a) Held-to-maturity debt securitiesSecurities with available fair values exceeding book values:

Millions of yen

2003 2002

Book value ............................................................................................................................................................................... ¥ — ¥10

Fair value.................................................................................................................................................................................. — 11

Difference................................................................................................................................................................................. ¥ — ¥ 1

(b) Available-for-sale securitiesSecurities with book values exceeding acquisition costs:

Millions of yen

Acquisition cost Book value Difference

2003 2002 2003 2002 2003 2002

Equity securities ................................................................................................ ¥2,949 ¥3,801 ¥4,760 ¥5,082 ¥1,811 ¥1,281

Securities with book values not exceeding acquisition costs:

Millions of yen

Acquisition cost Book value Difference

2003 2002 2003 2002 2003 2002

Equity securities ................................................................................................ ¥1,899 ¥1,648 ¥1,719 ¥1,235 ¥(180) ¥(413)

Others ................................................................................................................ 39 81 39 54 — (27)

Total .................................................................................................................. ¥1,938 ¥1,729 ¥1,758 ¥1,289 ¥(180) ¥(440)

The following table summarizes book values of securities with no available fair values as of March 31, 2003 and 2002:

Millions of yen

Book value

2003 2002

Held-to-maturity debt securities ............................................................................................................................................. ¥ 10 ¥ —

Available-for-sale securities:

Non-listed equity securities................................................................................................................................................. 238 155

Preferred securities ............................................................................................................................................................. 800 800

Sub-total.............................................................................................................................................................................. 1,038 955

Equity securities issued by subsidiaries and affiliates............................................................................................................. 5,384 5,812

Total ........................................................................................................................................................................................ ¥6,432 ¥6,767

Held-to-maturity debt securities mature as follows:

Millions of yen

Over one year but Within one year within five years

2003 2002 2003 2002

Held-to-maturity debt securities:

Government bonds ............................................................................................................................. ¥ — ¥10 ¥ — ¥ —


Total sales of available-for-sale securities in the year ended March 31, 2003 amounted to ¥350 million (¥881 million in 2002) and related

losses amounted ¥334 million (¥1,083 million in 2002), respectively.

7. INVENTORIESInventories at March 31, 2003 and 2002 consisted of the following:

Millions of yen

2003 2002

Finished goods ........................................................................................................................................................................ ¥4,566 ¥5,151

Merchandise ............................................................................................................................................................................ 694 768

Work in process....................................................................................................................................................................... 653 655

Raw materials and supplies..................................................................................................................................................... 2,452 2,563

........................................................................................................................................................................................ ¥8,365 ¥9,137


8. BANK LOANS AND LONG-TERM DEBTBank loans at March 31, 2003 and 2002 were represented by short-term notes generally for one year, bearing interest ranging from 0.59% to

16.50%.

Long-term debt at March 31, 2003 and 2002 consisted of the following:

Millions of yen

2003 2002

Secured:

Loans principally from banks 0.60%–11.00% maturing serially through 2014 ............................................................. ¥ 1,885 ¥ 2,096

Unsecured:

Loans principally from banks 0.60%–11.75% maturing serially through 2007 ..................................................... 14,300 15,689................................................................................................................................................................................... 16,185 17,785

Less amounts due within one year..................................................................................................................................... 4,799 4,366

................................................................................................................................................................................... ¥11,386 ¥13,419

The aggregate annual maturities of long-term debt at March 31, 2003 were as follows:

Year ending March 31, Millions of yen

2004 ....................................................................................................................................................................................................... ¥ 4,799

2005 ....................................................................................................................................................................................................... 7,074

2006 ....................................................................................................................................................................................................... 961

2007 ....................................................................................................................................................................................................... 667

2008 and there after ............................................................................................................................................................................... 2,684

....................................................................................................................................................................................................... ¥16,185

At March 31, 2003 assets pledged as collateral for short-term banks loans of ¥330 million, transaction guarantees and secured long-term

bank loans were as follows:

Year ending March 31, Millions of yen

Cash and cash equivalents .................................................................................................................................................................... ¥ 5

Marketable securities ............................................................................................................................................................................. 10

Receivables ............................................................................................................................................................................................ 330

Property, plant and equipment—net of accumulated depreciation ....................................................................................................... 4,908

Investments in other ............................................................................................................................................................................... 40

....................................................................................................................................................................................................... ¥5,293


9. FINANCE LEASESInformation on non-capitalized finance leases of the Companies as lessee at March 31, 2003 and 2002 was as follows:

Millions of yen

2003 2002

Original lease obligations for machinery and equipment ........................................................................................................ ¥3,052 ¥3,744

Payments remaining ................................................................................................................................................................ 1,348 1,550

Lease payments for such leases for the years ended March 31, 2003 and 2002 were ¥500 million and ¥543 million, respectively. Future

minimum lease payments due under such leases at March 31, 2003 and 2002 were as follows:

Millions of yen

2003 2002

Payments due within one year................................................................................................................................................. ¥ 472 ¥ 499

Payments due after one year................................................................................................................................................... 876 1,051

Total ........................................................................................................................................................................................ ¥1,348 ¥1,550

10. DERIVATIVE TRANSACTIONSThe Companies have entered into forward foreign exchange con-

tracts, as required, to hedge risks of changes in foreign currency

exchange rates associated with their foreign trade and interest swap

agreements to convert interest on floating rate debt to a fixed rate.

The Companies do not use any other derivative transactions. The

Companies adopted hedge accounting for all derivative transactions.

The following summarizes hedging derivative financial instruments

used by the Companies and items hedged:

Hedging instruments:

Forward foreign exchange contracts

Interest rate swap contracts

Hedged items:

Foreign currency trade receivables and trade payables

(existing and expected)

Interest on loans payable

The Companies evaluate hedge effectiveness by comparing the

cumulative changes in fair value of hedged items and corresponding

changes in the hedging derivative instruments. If interest rate swap

contracts meet certain hedging criteria, the judgement of the effec-

tiveness is omitted.

The Companies use the derivative financial instruments only for the

purpose of hedging future risks, not for the purpose of speculation.

As a normal business risk, the Companies are exposed to market

risk for the above contracts; however, counterparties to these finan-

cial instruments are major financial institutions which are expected to

fully perform under the terms of the agreements, thereby mitigating

credit risk.

The derivative transactions are executed and managed by each

company’s financial departments and approval of each transaction

has to be obtained from the directors before execution.


11. CONSOLIDATED STATEMENTS OF CASH FLOWSThere is no difference between cash and cash equivalents in the consolidated balance sheet and in the consolidated statements of cash

flows.

12. EMPLOYEES’ RETIREMENT BENEFITSThe Company and its consolidated domestic subsidiaries provide two types of retirement benefit plans, unfunded lump-sum payment plans

and funded non-contributory pension plans.

The liabilities for retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2003 and 2002

consist of the following:

Millions of yen

2003 2002

Projected benefit obligation ............................................................................................................................................... ¥20,501 ¥19,263

Less unrecognized actuarial differences............................................................................................................................ (6,838) (3,948)

Less fair value of pension assets ....................................................................................................................................... (10,177) (10,678)

Liability for retirement benefits .................................................................................................................................. ¥ 3,486 ¥ 4,637

Included in the consolidated statements of income for the years ended March 31, 2003 and 2002 are retirement benefit expenses com-

prised of the following:

Millions of yen

2003 2002

Service costs – benefits earned during the year ................................................................................................................ ¥ 458 ¥ 435

Interest cost on projected benefit obligation ..................................................................................................................... 536 575

Expected return on plan assets.......................................................................................................................................... (321) (444)

Reversal of prior service costs (*) ....................................................................................................................................... (1,419) —

Amortization of actuarial differences.................................................................................................................................. 489 274

Retirement benefits expenses................................................................................................................................... ¥ (257) ¥ 840

(*) Return of substitutional portion of Employees’ Pension Insurance


The discount rate and the rate of expected return on plan assets

used by the Company are 2.0% (3.0% in 2002) and 3.0% (4.0% in

2002), respectively. The estimated amount of all retirement benefits

to be paid at future retirement dates is allocated equally to each

service year using the estimated number of total service years. Prior

service costs and net transition obligation are recognized as current

costs and actuarial gains and losses are recognized in the consoli-

dated statements of income using the straight-line method within

the average of the estimated remaining service lives (mainly 15

years) commencing with the current period.

Employees of Japanese companies are compulsorily included

in the Welfare Pension Insurance Scheme operated by the govern-

ment. Employers are legally required to deduct employees’ welfare

pension insurance contributions from their payroll and to pay them

to the government together with employers’ own contributions. For

companies that have established their own Employees’ Pension

Fund which meets certain legal requirements, it is possible to trans-

fer a part of their welfare pension insurance contributions (so-called

substitutional portion of the government’s scheme) to their own

Employees’ Pension Fund under the government’s permission

and supervision.

Based on the newly enacted Defined Benefit Corporate Pension

Law, the Company and its consolidated domestic subsidiaries

decided to restructure their Employees’ Pension Fund and were

permitted by the Minister of Health, Labor and Welfare on February

17, 2003 to be released from their future obligation for payments

for the substitutional portion of the Employees’ Pension Insurance

Scheme. Pension assets for the substitutional portion maintained

by the Employees’ Pension Fund are to be transferred back to the

government’s scheme.

The Company and its consolidated domestic subsidiaries did

not apply the transitional provisions as prescribed in paragraph

47-2 of the JICPA Accounting Committee Report No. 13, “Practical

Guideline for Accounting of Retirement Benefits (Interim Report)”,

which allows recognition of the effect of transferring the substitu-

tional portion on the date permission was received from the Ministry

of Health, Labor and Welfare for financial accounting purpose. It will

be recognized on the date transfer of the substitutional portion is

actually executed.

The effect if the Company and its consolidated domestic subsid-

iaries had applied the transitional provisions as prescribed in para-

graph 47-2 of guidelines, would be to report a gain of ¥940 million.

13. DEFERRED INCOME TAXESThe significant differences between the aggregate statutory income tax rate and the effective income tax rate for the year ended March 31,

2002 are as follows.

2002

Aggregate statutory income tax rate............................................................................................................................................................. 41.9%

Permanently non-deductible expenses .................................................................................................................................................... 5.9

Permanently non-taxable dividend income .............................................................................................................................................. (2.1)

Per capita inhabitant tax ........................................................................................................................................................................... 2.1

Other ......................................................................................................................................................................................................... 1.4

Effective income tax rate............................................................................................................................................................................... 49.2%


There is no disclosure of the difference between the aggregate

statutory income tax rate and the Company’s effective tax rate for

financial statement purposes for the year ended March 31, 2003 in

accordance with Japanese GAAP in case the difference is less than

5% of the effective tax rate.

Significant components of the Companies’ deferred income

tax assets and liabilities as of March 31, 2003 and 2002 are

as follows:

Millions of yen

2003 2002

Deferred income tax assets

Allowance of doubtful receivables ...................................................................................................................................... ¥ 525 ¥ 480

Write-down of inventories ................................................................................................................................................... 328 348

Retirement benefits ............................................................................................................................................................. 1,410 1,877

Accrued employees’ bonuses............................................................................................................................................. 355 284

Tax loss carryforwards ........................................................................................................................................................ 287 —

Accrued enterprise taxes .................................................................................................................................................... 113 73

Other ................................................................................................................................................................................... 766 517

Total deferred income tax assets ............................................................................................................................................ 3,784 3,579

Deferred income tax liabilities

Net unrealized holding gains on securities ......................................................................................................................... (662) (352)

Special reserves .................................................................................................................................................................. (444) (466)

Other ................................................................................................................................................................................... (686) (1)

Total deferred income tax liabilities ......................................................................................................................................... (1,792) (819)

Net deferred income tax assets............................................................................................................................................... ¥1,992 ¥2,760

14. CONTINGENT LIABILITIESAt March 31, 2003 and 2002, the Companies were contingently liable as follows:

Millions of yen

2003 2002

Endorsement of notes discounted or endorsed ...................................................................................................................... ¥ — ¥ 76

As guarantors of indebtedness................................................................................................................................................ 1,279 1,282

........................................................................................................................................................................................ ¥1,279 ¥1,358


15. SEGMENT INFORMATION(a) Information by operational segment

Segment Main products and merchandise

Printing inks Products Printing inks, mainly used for printing on corrugated paper, newsprint and plastic film and for

offset printing, related chemical additives and overprinting varnish

Graphic arts materials Merchandise Graphic arts materials such as graphic film and chemicals, materials for the printing process,

machinery and equipment for graphic and printing industries

Other businesses Products Toner for copying machines and related materials, pigment dispersion and color film developing

and printing services and other technical services,

Merchandise Equipment for color matching systems, photograph related materials such as film, chemicals,

printing paper and electronic components

Year ended March 31, 2003 Millions of yen

Graphic Other EliminationsPrinting inks arts materials businesses Total and corporate Consolidated

Outside customers............................................................... ¥68,231 ¥20,744 ¥8,012 ¥96,987 ¥ — ¥96,987

Intersegment ........................................................................ 3 275 1,402 1,680 (1,680) —

Total sales............................................................................ 68,234 21,019 9,414 98,667 (1,680) 96,987

Operating costs ................................................................... 61,837 20,721 8,997 91,555 1,009 92,564

Operating income ................................................................ ¥ 6,397 ¥ 298 ¥ 417 ¥ 7,112 ¥ (2,689) ¥ 4,423

Assets .................................................................................. ¥45,230 ¥11,943 ¥8,143 ¥65,316 ¥14,724 ¥80,040

Depreciation......................................................................... 2,058 44 58 2,160 45 2,205

Capital expenditures............................................................ 2,064 28 13 2,105 14 2,119

Letters of awareness, which the Company has given to banks for bank loans of unconsolidated subsidiaries and affiliated companies at

March 31, 2003 and 2002, were ¥8 million and ¥383 million, respectively.


Graphic Other EliminationsPrinting inks arts materials businesses Total and corporate Consolidated

Outside customers............................................................... ¥71,389 ¥23,059 ¥8,645 ¥103,093 ¥ — ¥103,093

Intersegment ........................................................................ 1 145 1,304 1,450 (1,450) —

Total sales............................................................................ 71,390 23,204 9,949 104,543 (1,450) 103,093

Operating costs ................................................................... 66,186 22,740 9,436 98,362 1,116 99,478

Operating income ................................................................ ¥ 5,204 ¥ 464 ¥ 513 ¥ 6,181 ¥ (2,566) ¥ 3,615

Assets .................................................................................. ¥48,510 ¥13,951 ¥8,106 ¥ 70,567 ¥15,014 ¥ 85,581

Depreciation......................................................................... 2,236 41 78 2,355 39 2,394

Capital expenditures............................................................ 1,307 49 59 1,415 30 1,445

(b) Information by geographic segment


North Eliminations Japan Asia America Others Total and corporate Consolidated

Outside customers .............................................. ¥59,845 ¥4,263 ¥30,550 ¥2,329 ¥ 96,987 ¥ — ¥ 96,987

Intersegment........................................................ 735 — 247 4 986 (986) —

Total sales............................................................ 60,580 4,263 30,797 2,333 97,973 (986) 96,987

Operating costs ................................................... 55,521 3,888 29,316 2,142 90,867 1,697 92,564

Operating income ................................................ ¥ 5,059 ¥ 375 ¥ 1,481 ¥ 191 ¥ 7,106 ¥(2,683) ¥ 4,423

Assets .................................................................. ¥57,415 ¥2,708 ¥17,337 ¥1,683 ¥ 79,143 ¥ 897 ¥ 80,040


Corporate costs and expenses of ¥2,766 million and ¥2,666 mil-

lion for the years ended March 31, 2003 and 2002 mainly consist of

expenses of the administrative departments of the Company.

Corporate assets of ¥15,492 million and ¥15,492 million for the

years ended March 31, 2003 and 2002 mainly consist of assets of

the administrative departments of the Company.

As a result of adopting SFAS No.142 as described in Note 2,

operating income of the Printing inks segment for the year ended

March 31, 2003 increased by ¥135 million compared with what

would have been recorded under the previous accounting policy.


North Eliminations Japan Asia America Others Total and corporate Consolidated

Outside customers .............................................. ¥62,719 ¥3,276 ¥35,009 ¥2,089 ¥103,093 ¥ — ¥103,093

Intersegment........................................................ 460 — 316 — 776 (776) —

Total sales............................................................ 63,179 3,276 35,325 2,089 103,869 (776) 103,093

Operating costs ................................................... 58,090 2,921 34,713 1,925 97,649 1,829 99,478

Operating income ................................................ ¥ 5,089 ¥ 355 ¥ 612 ¥ 164 ¥ 6,220 ¥(2,605) ¥ 3,615

Assets .................................................................. ¥59,706 ¥2,241 ¥20,917 ¥1,423 ¥ 84,287 ¥ 1,294 ¥ 85,581

The regions mainly include the following countries:

Year ended March 31, 2003

(1) Asia Indonesia, Malaysia and India

(2) North America United States and Canada

(3) Others Spain and United Kingdom


(1) Asia Indonesia and Malaysia


(3) Others Spain and United Kingdom


Corporate costs and expenses of ¥2,766 million and ¥2,666 mil-

lion for the years ended March 31, 2003 and 2002 mainly consist of

expenses of the administrative departments of the Company.

Corporate assets of ¥15,492 million and ¥15,492 million for the

years ended March 31, 2003 and 2002 mainly consist of assets of

the administrative departments of the Company.

As a result of adopting SFAS No.142 as described in Note 2,

operating income of North America for the year ended March 31,

2003 increased by ¥135 million compared with what would have

been recorded under the previous accounting policy.

(c) Overseas sales

Overseas sales, which consist of the total sales of the Companies made outside Japan, were as follows:


NorthAsia America Others Total

Overseas sales ................................................................................................................................ ¥5,224 ¥29,495 ¥3,588 ¥38,307

The percentage of overseas sales to consolidated net sales ......................................................... 5.4% 30.4% 3.7% 39.5%


NorthAsia America Others Total

Overseas sales ................................................................................................................................ ¥4,482 ¥34,352 ¥2,840 ¥41,674

The percentage of overseas sales to consolidated net sales ......................................................... 4.4% 33.3% 2.7% 40.4%

The regions mainly include the following countries:


(1) Asia China, Indonesia, Malaysia and India


(3) Others Spain, United Kingdom and Brazil


(1) Asia China, Indonesia and Malaysia


(3) Others Spain, United Kingdom and Brazil

16. SUBSEQUENCE EVENTAt the ordinary shareholders’ meeting of the Company held on June 27, 2003, appropriations of retained earnings for the year ended March 31,

2003, were duly approved as follows:

Millions of yen

Cash dividends—¥3 per share ............................................................................................................................................................... ¥188

Bonuses to directors and statutory auditors .......................................................................................................................................... 38



Independent Auditors’ Report

To the Shareholders and Board of Directors of Sakata Inx Corporation:

We have audited the accompanying consolidated balance sheets of Sakata Inx Corporation (a Japanese corporation), and subsid-iaries as of March 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity and cash flows forthe years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted out audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstate-ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial state-ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that out audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of Sakata Inx Corporation and subsidiaries as of March 31, 2003 and 2002, and the consolidated results oftheir operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted inJapan as described in Note 1 to the consolidated financial statements.

Asahi & Co.

Osaka, JapanJune 27, 2003

Head Office:1-23-37, Edobori, Nishi-ku, Osaka 550-0002

Founded:November 1, 1896

Board of Directors and Auditors: (As of June 27, 2003)

PresidentKAZUMI SUZUKI

Executive Vice PresidentMASAO IKEMOTO

Managing DirectorsMITSUO MATSUZAWAKUNITAKA FUJIWARAHIROSHI OTASABURO ARAKI

DirectorsKIYOHARU NISHIMURAJUNZO MATSUKIMITSURU KOJIMAHIROTSUGU TAKAMARUMASAAKI KOMORI

Corporate AuditorsGENICHI KITAMURAHISAHIRO HIDAKAZUYUKI TAMURADAISAKU KINOSHITA

Major Subsidiaries and Affiliates:

Domestic:

SIIX CORPORATION1-8-14, Minami-Honmachi, Chuo-ku, Osaka, 541-0054TEL: 81-6-6266-6400FAX: 81-6-6266-6428URL:http://www.siix.co.jp

SAKATA SANGYO, LIMITED1-3-14 Kitahama, Chuo-ku, Osaka, 541-0041TEL: 81-6-6201-3201FAX: 81-6-6201-3333

SAKATA LABOSTATION CO.,LTD.2-14-11, Akasaka, Minato-ku, Tokyo, 107-0052TEL: 81-3-3585-9621FAX: 81-3-3582-0558

LOGI CO-NET CORP.3-23-3, Edo, Kawaguchi-shi, Saitama 334-0074TEL: 81-48-283-1731FAX: 81-48-283-5750

ga city Corp.2-10-8, Ryogoku, Sumida-ku, Tokyo, 130-0026TEL: 81-3-5600-2211FAX: 81-3-5600-2241

Overseas:

INX INTERNATIONAL INK CO.651 Bonnie Lane, Elk Grove Village, IL 60007, U.S.A.TEL: 1-847-981-9399FAX: 1-847-981-9447URL:http://www.inxink.com

CPS CORP.3257 Middle Road, Dunkirk, NY 14048,U.S.A.TEL: 1-716-366-6010FAX: 1-716-366-2820

KNIGHT COLORS & CHEMICALS CO.2515 US Highway 12 SW P.O. Box 8,Montrose, MN 55363-0008, U.S.A.TEL: 1-612-658-4608FAX: 1-612-658-4146

INX INTERNATIONAL INK CORP.799 Avoca Avenue, Dorval, Quebec H9P 1Q4, CANADA TEL: 1-514-636-5330FAX: 1-514-633-9390

THE INX GROUP(UK) LTD. Unit 6C Trenspennine, Trading Estates,Rochdale, Gorrels Way OL 112PX, ENGLANDTEL: 44-1706-868-788FAX: 44-1706-868-355

INX INTERNATIONAL INK CO., LTD. 50 Cookstown Industrial Estate, Tallaght,Dublin 24, IRELANDTEL: 353-1-451-2411FAX: 353-1-452-7771

SAKATA INX ESPAÑA, S.A.Apartado de Correos, 53, 08184 Palau de Plegamans (Barcelona), SPAIN TEL: 34-93-864-8122FAX: 34-93-864-5878URL:http://www.sakatainx.es

P.T. SAKATA INX INDONESIA Wisma Akr. 6th Floor-Suite 604, JI.Panjang, Kebon Jeruk, Jakarta Barat 11530, INDONESIATEL: 62-21-531-1006FAX: 62-21-531-1014

SAKATA INX (MALAYSIA) SDN.BHD. Lot 65, Jalan Teluk Gadung 27/93, Section 27, 40000 Shah Alam, Selangor Darul Ehsan, MALAYSIATEL: 60-3-5191-8878FAX: 60-3-5191-8870

SAKATA INX (INDIA) LTD.10th Floor, Devika Tower, 6, Nehru Place, New Delhi 110019, INDIATEL: 91-11-628-3460FAX: 91-11-623-2158URL:http://www.sakataindia.com

TAIWAN SAKATA INX CORP. 21-1, Lane 45, Sec.2, Chung-Shan, North Road, Taipei, TAIWANTEL: 886-2-2536-5087FAX: 886-2-2537-4327

NANSHA SAKATA INK CORP. Industrial Road 5, Dayong Special Economic Zone, Nansha,Panyu, Guangdong Province, CHINATEL: 86-20-84980097FAX: 86-20-84980085

CDI SAKATA INX CORP. Don Jesus Blvd., Alabang Hills Village,Alabang, Muntinlupa, Metro Manila, PHILIPPINESTEL: 63-2-842-2070 FAX: 63-2-842-0962

ETERNAL SAKATA INX CO., LTD 19 Moo 14, Phetkasem 69 Road, Nongkham, Bangkok, 10160, THAILANDTEL: 66-2-806-4341FAX: 66-2-445-5280


Corporate Data (As of March 31, 2003)


Investor Information (As of March 31, 2003)

Common Stock:Stock trading unit 1,000 sharesAuthorized 144,000,000 sharesIssued and outstanding 62,601,161 sharesPaid-in capital ¥7,473 millionNumber of shareholders 4,655Stock exchange listings Tokyo, OsakaTransfer agent for common stock The Sumitomo Trust & Banking Co., Ltd.

4-5-33, Kitahama, Chuo-ku, Osaka 540-8639

Major Shareholders:

Shareholders Number of shares held (thousands)

TOYO INK MFG. CO., LTD. 6,220Michio Kanbe 3,566Sumitomo Life Insurance Company 3,510SOMPO JAPAN INSURANCE INC. 3,310The Master Trust Bank of Japan, Ltd (Trust Account) 3,255Resona Bank, Limited 3,113The Chase Manhattan Bank N.A. London 3,051Toppan Printing Co., Ltd. 3,000Mitsui Asset Trust and Banking Company, Limited (Trustee of Investment Trust) 2,483Sumitomo Mitsui Banking Corporation 2,196

For Further Information, Contact at:International Operation Div.SAKATA INX CORP.1-23-37, Edobori, Nishi-ku, Osaka 550-0002Tel:81-6-6447-5847Fax:81-6-6447-5829http://www.inx.co.jp

http://www.inx.co.jpThis annual report is printed with the environmentally friendly VOC-free ink

Diatone Waterless Ecopure SOY CL on 100% recycled paper in Japan.

Documents

Annual Report 2003 - サカタインクス · 2 SAKATA INX Annual Report 2003 For the fiscal year ended March 2003, SAKATA INX’s consolidated net sales totaled ¥96,987 million,