asahi glass co., ltd.
ASAHI GLASS CO., LTD.
Financial Review 2005
For the year ended December 31, 2005
CONTENTS Consolidated Eleven-Year Summary . . . . . . . . Inside Cover Management’s Discussion and Analysis . . . . . . . . . . . . . .
2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 12 Consolidated Statements of Income . . . . . . . . . . . . . . . . . 14 Consolidated Statements of Shareholders’ Equity . . . . . . 15 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 16 Notes to Consolidated Financial Statements . . . . . . . . . . 17 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 35
CONSOLIDATED ELEVEN-YEAR SUMMARY Asahi Glass Co., Ltd. and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004 and for the nine-month period ended December 31, 2003; the years ended March 31, 2003, 2002, 2001, 2000, 1999, 1998, 1997 and 1996
2005/12
2004/12
2003/12
2003/3
¥1,526,661 118,194
¥1,475,727 139,404
¥1,242,957 83,187
¥1,295,011 67,475
82,758 60,015
134,010 78,287
85,707 53,641
5,734 (3,918)
Segment Information Sales to customers Glass operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glass operations (old) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronics and display operations . . . . . . . . . . . . . . . . . . Electronics operations (old) . . . . . . . . . . . . . . . . . . . . . . . . Chemicals operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 754,779 — 441,689 — 295,802 34,371
¥ 734,653 — 434,731 — 275,957 30,386
¥ 662,323 — 335,497 — 218,124 27,013
¥ 705,345 — 307,799 — 250,359 31,508
Financial Position Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests in consolidated subsidiaries . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927 688,432 922,631 587,145 99,320 852,684
¥1,885,269 648,237 853,391 549,139 125,308 699,139
¥1,806,612 582,060 810,213 489,319 110,709 622,800
¥1,786,513 549,255 798,868 569,875 72,000 553,835
¥
¥
¥
¥
Operating Results Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data (Yen and U.S. Dollars) Net income (loss)—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Data Return on equity (ROE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on assets (ROA) (operating income base) . . . . . . . . . Interest-bearing debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development costs . . . . . . . . . . . . . . . . . . . . . Number of shares outstanding (thousands) . . . . . . . . . . . . . . Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.36 48.70 15.00 726.98
7.7% 6.0% ¥ 529,387 122,665 203,995 31,706 1,186,000 56,857
66.75 63.01 12.00 601.47
11.8% 7.6% ¥ 523,831 132,558 164,655 32,265 1,175,242 56,776
45.65 43.17 6.75 530.57
9.1% 4.6% ¥ 574,268 99,900 110,355 27,333 1,175,242 55,732
(3.37) — 9.00 471.79
(0.7%) 3.7% ¥ 685,682 108,982 98,285 30,868 1,175,242 53,728
Note: Interest-bearing debts comprise short-term bank loans, current maturities of long-term debt, commercial paper, bonds, long-term debt and notes receivable discounted.
34 FINANCIAL REVIEW 2005
Millions of yen 2002/3
2001/3
2000/3
1999/3
1998/3
1997/3
1996/3
Thousands of U.S. dollars 2005/12
¥1,263,196 58,988
¥1,312,829 111,652
¥1,257,052 60,689
¥1,280,990 43,746
¥1,346,727 66,072
¥1,337,293 66,281
¥1,278,715 55,530
$12,937,805 1,001,644
(7,653) (12,605)
60,434 24,725
25,767 13,164
25,644 5,099
46,681 20,362
53,711 24,167
37,144 24,837
701,339 508,602
¥ 662,203 — 311,836 — 248,327 40,830
¥ 618,492 — 384,941 — 263,782 45,614
¥ 652,323 — 283,595 — 254,393 66,741
— ¥ 783,017 — 140,375 281,994 75,604
— ¥ 795,143 — 124,966 341,589 85,029
— ¥ 775,967 — 105,549 364,566 91,211
— ¥ 723,755 — 106,863 352,207 95,890
$ 6,396,602 — 3,743,127 — 2,506,797 291,279
¥1,889,384 555,891 817,998 588,671 93,843 585,975
¥1,886,815 582,459 762,784 633,630 91,948 607,000
¥1,881,333 693,941 745,134 606,604 97,846 605,210
¥1,848,539 723,766 730,368 633,544 85,765 612,404
¥1,810,644 720,779 726,055 727,096 69,820 630,374
¥1,794,056 758,610 706,053 609,316 67,004 618,437
¥1,685,720 681,374 691,522 524,449 65,075 605,571
$17,643,449 5,834,169 7,818,907 4,975,805 841,695 7,226,136
¥
¥
¥
¥
¥
¥
¥
$
(10.73) — 9.00 498.74
(2.1%) 3.1% ¥ 735,314 109,954 130,913 28,957 1,175,242 48,362
21.04 20.46 9.00 516.49
4.1% 5.9% ¥ 685,521 97,522 93,261 28,374 1,175,242 48,809
11.20 — 9.00 514.97
2.2% 3.3% ¥ 680,025 94,198 90,084 26,519 1,175,242 43,217
4.34 16.74 9.00 521.09
0.8% 2.4% ¥ 689,480 93,271 93,864 36,000 1,175,242 —
17.33 9.71 10.00 536.38
3.3% 3.9% ¥ 647,191 87,165 125,955 36,000 1,175,242 —
20.56 20.24 9.00 526.23
3.9% 3.8% ¥ 632,500 78,674 112,848 36,000 1,175,242 —
21.14 — 9.50 515.28
4.1% 3.4% ¥ 591,300 79,844 115,571 34,000 1,175,228 —
0.44 0.41 0.13 6.16
7.7% 6.0% $ 4,486,331 1,039,534 1,728,771 268,695 1,186,000 56,857
Asahi Glass Co., Ltd. 371
MANAGEMENT’S DISCUSSION AND ANALYSIS
The discussion and analysis herein of sales and operating income is based on segment information. Sales for operating segments and geographic areas include all intersegment transactions.
Change in Scope of Consolidation Beginning in 2005, Murakami Chemicals Co., Ltd. and 14 other companies were included in the scope of consolidation. On the other hand, Asahi Tostem Exterior Building Materials Co., Ltd. and 22 other companies were deconsolidated due to mergers, the sale of stock and other measures taken as part of business restructuring. These changes brought the total of consolidated subsidiaries to 245.
Currency Fluctuations The Japanese yen weakened against both the U.S. dollar and the euro during fiscal 2005. The average yen-dollar rate was ¥111.0=US$1.00, compared with ¥108.1=US$1.00 in fiscal 2004, and the average yen-euro rate was ¥137.3=1.00 euro, compared with ¥134.4=1.00 euro in the previous year.
Overview of the Period Ended December 31, 2005 Overview and Main Initiatives In fiscal 2005, recovery of the Japanese economy became even more evident supported by an expansion in consumer spending and capital expenditure in the private sector, despite the upward pressure on costs reflecting price hikes of oil and other various raw materials in the upstream markets with more primary material input. In Asia, supported by the stable economic growth of China and the economic recovery of NIEs (Newly Industrialized Economies), the economy continued to expand, although some ASEAN countries such as Indonesia and Thailand failed to get on a recovery track affected by the higher oil prices. In the U.S., the economy weakened in some sectors due to fears over a surge in energy prices, higher interest rates, and the effects of large hurricanes, but remained entirely though moderately firm because employment and capital investment increased. In Europe, the economy in Russia and East Europe continued to be steady. In Western Europe, however, demand still stayed low despite the signs of a pickup in exports. Under such circumstances, the AGC Group further strove to expand its business operations in rapidly growing markets for display materials, including glass substrates used in flat panel displays (FPDs), while boosting sales of value-added products in the businesses of glass for construction, automotive glass, and chemicals. However, the AGC Group’s earnings were adversely affected by several factors such as weak demand for cathode ray tube (CRT) glass and a subsequent fall in its price, slow sales in the electronic materials business, and price hikes of raw materials and energies. As a result, the AGC Group posted net sales of ¥1,526.7 billion for the fiscal year under review, up ¥50.9 billion or 3.5% from the previous year, and an operating income of ¥118.2 billion, down ¥21.2 billion or 15.2%, and net income decreased ¥18.3 billion or 23.3% to ¥60.0 billion.
Consolidated Net Sales Consolidated net sales were ¥1,526.7 billion in fiscal 2005. By operating segment, the Glass Operations segment recorded sales of ¥758.9 billion in the year under review. In the Flat Glass Company, shipments rose in Europe, while sales of some products leveled off in Japan. Some Asian regions suffered a slight slowing of demand due to oil price increases, in addition to production concerns. In North America, shipments stayed healthy. In the Automotive Glass Company, sales expanded due to a worldwide increase in automobile production, particularly Japanese-affiliated automakers. Sales in the Electronics and Display Operations segment were ¥443.8 billion. Demand for CRT glass remained sluggish in the year under review, though sales volume, which had continued to fall, being influenced by market adjustments of inventories begun at the start of the year under review, slightly recovered and a price decline was curbed in the fourth quarter of fiscal 2005. In the FPD business, sales of glass substrates increased due to strong demand for panels for PCs and thinscreen TVs as well as a growing trend toward the use of larger panels.
2
FINANCIAL REVIEW 2005
In the Electronics materials business, demand for LCD back-light tubes continued to be steady due to an increase in the production of LCD panels, while sales of optical filters for use in liquid crystal projectors decreased, affected by demand adjustments and a price drop in the market of digital electronics products. Sales of synthetic quartz for semiconductor manufacturing equipment and small- and medium-sized displays for cellular phones picked up slightly in the fourth quarter of fiscal 2005. Sales in the Chemicals Operations segment were ¥300.4 billion in fiscal 2005. In the chlor-alkali & urethane business, due to continued robust demand throughout the year in Japan, China and Southeast Asia, sales remained firm. In the fluorochemicals & specialty chemicals business, shipments of optical filters for Plasma Display Panels (PDPs) and other fluorinated products increased steadily due to strong demand. Sales by Operating Segment
Sales by Operating Segment (Billions of yen)
2005/12
2,000
1,475.7
1,500
1,263.2 1,295.0
1,526.7
1,243.0
Millions of yen 2004/12
2003/12
Glass Operations . . . . . . . . . . . . . . . . . . . . . . Electronics and Display Operations . . . . . . . . Chemicals Operations . . . . . . . . . . . . . . . . . . Other Operations . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 758,894 443,803 300,397 80,253 (56,686)
¥ 740,483 435,744 286,018 75,029 (61,547)
¥ 664,683 336,993 227,121 64,231 (50,071)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,526,661
¥1,475,727
¥1,242,957
1,000
Income and Expenses 500
Cost of sales rose ¥67.6 billion or 6.2% to ¥1,152.2 billion in fiscal 2005. Meanwhile, the cost-to-sales ratio stood at 75.5%, an increase of 2.0 percentage points year on year, as the AGC Group’s efforts to reduce expenses and increase sales of high-value-added products failed to offset higher costs resulting from the price surges of raw materials and energy sources, including oil.
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 Glass Operations Electronics and Display Operations Chemicals Operations Other Operations
Cost of Sales and SGA Expenses
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . Cost-to-sales ratio . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . SGA expenses . . . . . . . . . . . . . . . . . . . . . . . . Percentage of net sales . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥1,152,165 75.5% 374,496 256,302 16.8%
¥1,084,550 73.5% 391,177 251,773 17.1%
¥941,342 75.7% 301,615 218,428 17.6%
Operating income, the net result of gross profit minus SGA expenses, was ¥118.2 billion, down ¥21.2 billion or 15.2% from a year earlier, and the operating margin dropped 1.7 percentage points, from 9.4% in the previous year, to 7.7%. Other expenses were a net ¥35.4 billion, compared with expenses of ¥5.4 billion in fiscal 2004. Equity in earnings of unconsolidated subsidiaries and affiliates fell to ¥1.8 billion from ¥5.3 billion in the previous year, partially influenced by a change in the scope of equity-method affiliates. The AGC Group registered an impairment loss on long-lived assets of ¥31.6 billion in the year under review, compared with a loss of ¥14.5 billion in fiscal 2004 due mainly to the property, plant and equipment that manufacture CRT glass amid weakening demand for such glass on a global basis. Further, expenses for restructuring programs of ¥15.7 billion were recorded, mainly in relation to the restructuring of CRT glass business in Japan and Asian companies. Thanks to a currency exchange gain derived from the yen’s depreciation against the U.S. dollar, however, the AGC Group posted ¥35.4 billion in net other expenses, which was up ¥30.0 billion from the previous year.
Asahi Glass Co., Ltd.
3
Operating Income and Operating Margin (Billions of yen/%) 200
12
9.4
150
9 139.4
7.7
Income before income taxes and minority interests decreased ¥51.3 billion year on year, to ¥82.8 billion. Minority interests in earnings of consolidated subsidiaries was ¥10.4 billion (income), compared with ¥14.3 billion (expenses) in the previous year, reflecting worsened earnings at subsidiaries engaged in the CRT glass business. Consequently, net income for the year under review was ¥60.0 billion, down ¥18.3 billion or 23.3% from ¥78.3 billion in the year earlier. Basic net income per share decreased 23.1% year on year from ¥66.75 to ¥51.36. ROE decreased 4.1 percentage points to 7.7% and ROA on an operating income base also decreased 1.6 percentage points to 6.0%.
118.2 6.7
100
6
Income
83.2
5.2
Millions of yen 2004/12
2003/12
¥118,194 7.7%
¥139,404 9.4%
¥83,187 6.7%
82,758 60,015 3.9%
134,010 78,287 5.3%
85,707 53,641 4.3%
51.36 48.70 7.7%
66.75 63.01 11.8%
45.65 43.17 9.1%
6.0%
7.6%
4.6%
4.7 67.5
2005/12
59.0
50
3
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 0
Operating Income Operating Margin
Total Shareholders’ Equity and ROE (Billions of yen/%) 15
1,000 11.8 852.7
12
800 9.1
600
586.0
553.8
699.1
9
622.8
400
6
200
3
0
0 –0.7 –2.1
–200 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 –3
Total Shareholders’ Equity ROE
Sales of Glass Operations (Billions of yen) 800 740.5
758.9
708.4 664.7
600
400
200
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
4
FINANCIAL REVIEW 2005
Performance by Segment Glass Operations
7.7
666.5
Operating income . . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage of net sales . . . . . . . . . . . . . . . . . . Per share data (yen) . . . . . . . . . . . . . . . . . . . . . —Net income—basic . . . . . . . . . . . . . . . . . . —Net income—fully diluted . . . . . . . . . . . . . Return on Equity (ROE) . . . . . . . . . . . . . . . . . . Return on Assets (ROA) (operating income base) . . . . . . . . . . . . . . . . .
Glass Operations comprise flat glass for construction and automotive glass, which are both conducted globally, as well as the Japanese domestic business involving other glass categories including fiberglass and other applications. Although the construction market suffered from a severe winter during the first quarter, particularly in Europe, shipments of flat glass and high-value-added products throughout the year increased from the previous year. By region, shipments rose in Europe while sales of some products leveled off in Japan. Other Asian regions suffered slow demand on rising prices of oil, in addition to production concerns. In North America, shipments stayed healthy from the previous year’s level. The AGC Group strove to reduce costs through a benchmarking process, which analyzes the productivity of the AGC Group’s manufacturing plants and adopts the most efficient manufacturing processes globally, and it also adjusted product prices in conjunction with price hikes in raw materials and energy sources, which, however, could not offset higher costs caused by sharply rising prices of fuel oil and natural gas. In the automotive glass business, sales increased from a year earlier due to the worldwide increase in automobile production, particularly Japanese-affiliated automakers. By region, in Asia including Japan, overall sales of automotive glass expanded as exports of automobiles from Japan rose up and mainly thanks to healthy sales in Asia, the number of automobiles produced there rose year on year. In North America, despite a slight drop in automobile production influenced by weak sales of the Big Three in the U.S., automotive glass sales were up as sales of value-added products increased. In Europe, sales grew somewhat, reflecting a slight growth in automobile production in the region.
In other glass operations, sales of fiberglass declined year on year due to slow growth in the housing market in Japan. In addition, Asahi Tostem Exterior Building Materials Co., Ltd., which specializes in residential exterior siding boards, was reclassified as an equity-method affiliate effective from the beginning of fiscal 2005. Consequently, net sales from Glass Operations for the year under review increased ¥18.4 billion or 2.5% from the previous year to ¥758.9 billion, while operating income decreased ¥10.0 billion or 20.9% to ¥38.0 billion.
Electronics and Display Operations
Sales of Electronics and Display Operations (Billions of yen) 500 435.7
443.8
400 337.0
300
314.9 309.9
200
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Electronics and Display Operations involve the display business, which handles CRT glass and glass substrates for FPDs, as well as the electronic materials business. The CRT glass business remained sluggish in fiscal 2005, although sales volume, which had continued to fall influenced by market adjustments of inventories begun at the start of this year, slightly recovered and a price decline was curbed in the fourth quarter of the fiscal year. To cope with this prolonged weak demand, the AGC Group made operational adjustments at its production bases, and closed manufacturing facilities at some of them. On the other hand, sales at the FPD glass substrate business increased due to strong demand for glass substrates for TFT LCDs and PDPs as a result of higher demand for screen panels for PC monitors and thin-screen televisions (such as LCD TVs and PDP TVs) as well as a growing trend toward larger panels. In the electronic materials business, demand for LCD back-light tubes continued to be steady due to an increase in the production of LCD panels. However, sales of optical filters for use in liquid crystal projectors and optical pickup elements for DVD decks were strongly affected by demand adjustments and a price drop in the market of digital electronics products. Demand for synthetic quartz used for semiconductor manufacturing equipment as well as small- and medium-sized displays installed in cellular phones and other equipment recovered in the fourth quarter, but remained low for the entire year, hurt by the demand adjustments. In Electronics and Display Operations, the growth of the FPD glass substrate business could not totally offset the slump of the CRT glass business and the electronic materials business. As a result, net sales for fiscal 2005 increased ¥8.1 billion or 1.8% from the previous year to ¥443.8 billion, and operating income was ¥60.9 billion, down ¥10.0 billion or 14.1%.
Chemicals Operations
Sales of Chemicals Operations (Billions of yen) 300
300.4 286.0 258.7 261.3 227.1
200
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Chemicals Operations comprise the chlor-alkali & urethane business and the fluorochemicals & specialty chemicals business. The chlor-alkali & urethane business involves caustic soda, vinyl chloride monomer and other chlor-alkali chemicals in addition to basic ingredients of urethane, such as polyols. The fluorochemicals & specialty chemicals business consists of fluorinated resins, fluorinated oil and water repellents, fluoropolymer films, and fluorinated gases and solvents, as well as other specialty chemicals including battery materials, liquid crystal materials and fine silica. The chlor-alkali & urethane business, in which demand continued to be strong throughout the year in Japan, China and Southeast Asia, remained active in fiscal 2005. These favorable results are attributable to the fact that although the prices of raw materials and energies rose, the AGC Group could spread the price revisions made according to product values by adding high-performance to products and closely meeting the needs of local customers, thus being capable of absorbing the effects of market fluctuations. In the fluorochemicals & specialty chemicals business, shipments of optical filters for PDPs were strong as demand continued to grow from the second quarter of fiscal 2005. Sales of fluorinated resins, fluoropolymer films, fluorinated elastomers, and fluorinated oil and water repellents were also steady, helped by high demand. In North America, the AGC Group continued to implement measures for improving profitability of the fluorinated resin business. As a result, Chemicals Operations posted net sales of ¥300.4 billion in the year ended December 31, 2005, up ¥14.4 billion or 5.0% from the preceding year, while posting operating income of ¥16.3 billion, down ¥1.3 billion or 7.2%.
Asahi Glass Co., Ltd.
5
Other Operations Other Operations consist of ceramics and a variety of service-related businesses, including logistics and engineering services. Sales of high-performance, high-value-added products expanded in the glass engineering sector and the environmental energy sector in the ceramics business during fiscal 2005. As a result, net sales from Other Operations for the year under review increased ¥5.2 billion or 7.0%, year on year, to ¥80.3 billion. Operating income was ¥3.2 billion, up ¥0.2 billion or 6.5%. Operating Income by Operating Segment
Sales and Income by Operation
(Billions of yen)
150
139.4 118.2
100 83.2 59.0
67.5
50
0
–50 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 Glass Operations Electronics and Display Operations Chemicals Operations Other Operations
Glass Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Electronics and Display Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Chemicals Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Other Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥758,894 37,986 5.0%
¥740,483 48,017 6.5%
¥664,683 35,550 5.3%
443,803 60,888 13.7%
435,744 70,862 16.3%
336,993 38,480 11.4%
300,397 16,295 5.4%
286,018 17,559 6.1%
227,121 7,690 3.4%
80,253 3,151 3.9%
75,029 2,958 3.9%
64,231 1,543 2.4%
Sales and Income by Geographic Area
Operating Income by Geographic Area (Billions of yen) 139.4
150
118.2
100 83.2 67.5 59.0
50
0
–50 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Japan Asia The Americas Europe
6
FINANCIAL REVIEW 2005
Japan Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Asia Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . The Americas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Europe Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥856,232 68,827 8.0%
¥868,622 67,520 7.8%
¥680,151 26,246 3.9%
390,702 37,332 9.6%
341,761 52,166 15.3%
263,931 35,287 13.4%
203,911 (6,973) (3.4%)
204,578 (3,240) (1.6%)
176,716 4,919 2.8%
318,738 22,160 7.0%
295,676 25,854 8.7%
274,000 17,080 6.2%
Assets, Liabilities and Shareholders’ Equity
Interest-bearing Debt and Debt-to-equity Ratio (Billions of yen/Times) 2.0
800 735.3 685.7
600
1.5
574.3 523.8 529.4 1.08
1.10
400
We continue to adhere to a policy of maintaining appropriate liquidity, securing the funds necessary to conduct our operations and ensuring the soundness of our balance sheet. With the aim of facilitating the stable procurement of long-term funds, we have obtained an A rating from Standard & Poor’s, an A1 rating from Moody’s Investors Service and an AA rating from Rating and Investment Information, Inc. Total assets were ¥2,081.9 billion as of the end of fiscal 2005, an increase of ¥196.7 billion from the previous year. This increase is attributable chiefly to: an increase in property, plant and equipment resulting from proactive investments in manufacturing facilities for FPD glass substrates amid growing demand for screen panels for thin-screen televisions, and increased investment securities reflecting a growth in unrealized gains on holdings of listed securities thanks to a recovery in the stock market. At the end of fiscal 2005, total liabilities, the sum of total current liabilities and total non-current liabilities, amounted to ¥1,129.9 billion, up ¥69.1 billion from the preceding year, owing primarily to an increase in trade notes and accounts payable, deferred income taxes, and such like. The outstanding balance of interest-bearing debt including short-term bank loans, bonds issued and long-term loans from banks and other financial institutions increased along with the buildup of capital investments, but the AGC Group strove to reduce debts as a whole. As a result, the balance at the end of fiscal 2005 was ¥529.4 billion, up ¥5.6 billion from the preceding year. Shareholders’ equity was ¥852.7 billion at the end of the year under review, up ¥153.5 billion from the preceding year, mainly because of an increase in retained earnings due to net income and an increase in unrealized gains on securities reflecting rising prices of listed stocks. Additional paidin capital rose ¥11.9 billion as a result of a stock swap through which the Company made Asahi Techno Glass Corporation into a wholly owned subsidiary in fiscal 2005. As a consequence of the above, the equity ratio rose 3.9 percentage points from December 31, 2004 to 41.0%. Total shareholders’ equity per share was ¥726.98, up from ¥601.47.
1.0
0.78
Assets, Liabilities and Shareholders’ Equity 0.64
2005/12
Millions of yen 2004/12
2003/12
¥2,081,927 688,432 238,023 349,953 587,145
¥1,885,269 648,237 215,783 260,320 549,139
¥1,806,612 582,060 203,643 285,714 489,319
529,387 852,684 41.0% 726.98 0.56
523,831 699,139 37.1% 601.47 0.64
574,268 622,800 34.5% 530.57 0.78
0.56
0.5
200
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
0
Interest-bearing Debt Debt-to-equity Ratio * Debt-to-equity Ratio=Interest-bearing Debt/ Shareholders’ Equity and Minority Interests
Equity Ratio (%) 50
As of
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments and advances . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . Interest-bearing debt (includes notes receivable discounted) . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . Equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity per share (yen) . . . . . . . . . . . . . . . . . . . Debt-to-equity ratio (times) . . . . . . . . . . . . . . .
41.0 37.1
40 34.5 31.0
31.0
30
20
10
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Asahi Glass Co., Ltd.
7
Cash Flows Cash and cash equivalents (hereinafter “cash”) at December 31, 2005 amounted to ¥54.0 billion, a decrease of ¥13.9 billion from ¥67.9 billion at the end of the previous year.
Cash Flows from Operating Activities Net cash provided by operating activities amounted to ¥185.5 billion for the year under review, a decrease of ¥47.4 billion from the previous year. This decline is attributable chiefly to a decrease in income before income taxes and minority interests and increased payments of corporate income taxes.
Cash Flows from Investing Activities Net cash used in investing activities increased ¥9.9 billion year on year, to ¥135.8 billion. During the year under review, capital investments were made mainly in the expansion of manufacturing facilities for FPD glass substrates of the Electronics & Display Operations, as well as the business development of the Glass Operations in such emerging markets as Central and Eastern Europe, including Russia. As a result, free cash flow, which is the sum of cash flows from operating and investing activities, for fiscal 2005 declined ¥57.2 billion from the previous year to ¥49.7 billion.
Cash Flows from Financing Activities
Cash Provided by Operating Activities
Net cash used in financing activities fell ¥31.5 billion from a year earlier to ¥67.4 billion, with cash being used for debt repayment and the payment of dividends.
(Billions of yen) 300
Summary Cash Flow Statement 232.9
200 185.5
177.3 147.9 129.7
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Free Cash Flow (Billions of yen) 150
107.0
100 86.4
62.6
50
49.7
22.6
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
8
FINANCIAL REVIEW 2005
Net cash provided by operating activities . . . . . Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . Repayments of long-term debts . . . . . . . . . . Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . Changes in cash and cash equivalents . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents held by newly consolidated subsidiaries net, of those held by deconsolidated subsidiaries . . . . . . . . . . . . Cash and cash equivalents at end of year . . . .
2005/12
Millions of yen 2004/12
2003/12
¥185,505
¥232,888
¥147,883
82,758 122,665 (135,796)
134,010 132,558 (125,933)
85,707 99,900 (61,462)
(197,265) 49,709 (67,436) (50,973)
(161,103) 106,955 (98,967) (51,241)
(108,181) 86,421 (92,331) (45,449)
4,028 (13,699)
1,521 9,509
(1,661) (7,571)
67,944
55,916
55,283
(238) 54,007
2,519 67,944
8,204 55,916
Risks Associated With Operations Set out below are the risks associated with the AGC Group’s operations and other risks that may materially influence the decisions of investors to invest in the AGC Group. However, the description does not include all possible risks relating to the AGC Group and there may exist additional risks not stated below. Any such risks are also likely to influence investors’ decisions. Future matters contained in this statement are based on information available as of March 30, 2006.
(1) Economic status of the markets in which the AGC Group’s products are sold Demand for the AGC Group’s products is impacted by trends in such industries as construction and building materials, automobile, electronics and display. The AGC Group’s products are supplied throughout the world, for example in the U.S., Asia and Europe, as well as Japan, and sales are therefore influenced by local economies. Although the AGC Group is working hard to build an earnings structure that is not impacted by changes in the business environment, by improving productivity and reducing fixed and variable costs, its performance and financial state is susceptible to declining demand from the industries mentioned as well as overall economic downturns in the regions where its products are primarily sold.
(2) High dependence on the electronics and display operations In the year through December 2005, operating income of the Electronics and Display operations accounted for 51.5% of the AGC Group’s total operating income, denoting a heavy reliance on this sector for revenue. Earnings from these operations tend to fluctuate substantially, and losses cannot always be offset by income from other operations. This has the potential to significantly impact the AGC Group’s performance and financial position.
(3) Expansion of operations overseas The AGC Group has substantial operations overseas, through exports of products and manufacturing abroad. The risks associated with operating abroad include deteriorating political and economic situations, the imposition of regulations on imports and foreign investment, unexpected changes in laws, the worsening of public security, and the occurrence of terrorist attacks and war. These events may hinder the AGC Group’s operations overseas and have serious effects on its performance and financial position.
(4) Competitive edge, and development and commercialization of new technologies and products In every field in which the AGC Group engages, there are competitors supplying products similar to those of the AGC Group. Accordingly, to maintain its competitive edge, the AGC Group is striving to identify the needs of customers, and to develop and commercialize new technologies and products. However, should the AGC Group fail to appropriately respond to technical changes and customer needs or take too long to develop and commercialize new technologies and products, growth would be hampered and profitability would decline. This may significantly impact the AGC Group’s performance and financial position.
(5) Procurement of production materials and resources Because the AGC Group partially uses special materials, suppliers of which are limited, if supply tightens or is delayed, the AGC Group’s performance and financial positions may be greatly affected.
Asahi Glass Co., Ltd.
9
(6) Government regulations In the countries and regions where it operates, the AGC Group is subject to the approval and authorization of local governments with respect to investments, regulations on exports and imports, as well as laws governing commercial transactions, labor, patents, taxation, foreign exchanges, and other issues. Consequently, amendments to these regulations and laws may significantly influence the AGC Group’s performance and financial position.
(7) Environmental regulations The AGC Group engages primarily in glass and chemicals operations, which are characterized by a heavy environmental impact because they consume a great quantity of resources and energy. Recognizing this, the AGC Group is making great efforts to reduce the environmental impact by improving facilities, establishing related management systems, and raising production efficiency by decreasing unit resource consumption and unit energy consumption. However, if environmental regulations become more stringent and the public calls for greater corporate responsibility in environmental protection, the AGC Group’s performance and financial position may be significantly impacted.
(8) Product liability The AGC Group is making every effort to ensure that products are of the highest quality, according to their individual characteristics. Despite these efforts, the possibility remains that unexpected quality problems may occur because of unanticipated factors developing, prompting a major recall. This could substantially influence the AGC Group’s performance and financial position.
(9) Intellectual property rights The AGC Group endeavors to acquire intellectual property rights that appear useful for its present business activities and future operations alike, while investigating the rights of other firms, in order to prevent intellectual property issues from arising. However, there is the possibility that the AGC Group will enter into disputes with other firms over intellectual property or that other firms will infringe the AGC Group’s intellectual property rights. This has the potential to materially influence the AGC Group’s performance and financial position.
(10) Litigation There is always a risk that other firms, corporate groups, or individuals may take legal action against the AGC Group with respect to its operations at home and abroad. During the fiscal period under review, there was no legal action pending that had a significantly negative effect on the AGC Group’s operations. However, if a major lawsuit is filed against the AGC Group, its performance and financial positions may be significantly impacted.
(11) Effect of natural disasters and accidents To minimize the adverse impact on business caused by the suspension of production, the AGC Group regularly conducts inspections of all facilities for maintenance purposes and to prevent potential damage from disaster. But there is no guarantee that the effects of disasters occurring at manufacturing facilities (including earthquakes, power outages, and other disruptions) can be completely eliminated or mitigated. Given that some of the AGC Group’s products cannot be replaced by alternatives, should production cease at some facilities temporarily or for the long term because of a major earthquake or other incident, the AGC Group’s ability to manufacture such products is likely to sharply decline. Should this occur, the AGC Group’s performance and financial position may be greatly affected.
10 FINANCIAL REVIEW 2005
(12) Exchange rate fluctuations The AGC Group manufactures and sells products worldwide, and converts transaction accounts in local currencies, including sales, costs, and assets, into yen when preparing consolidated financial statements. Even if the values of these items remain unchanged in local currency terms, they may change when converted into yen depending on exchange rates. The yen’s appreciation against other currencies (particularly the U.S. dollar and the euro, which account for a considerable percentage of the AGC Group’s sales) generally has a negative affect on the AGC Group’s earnings, while the depreciation of the yen exerts a favorable influence. The AGC Group also manufactures products at its facilities worldwide, including Japan, and exports the products to a number of countries. The AGC Group generally procures raw materials and sells products in the local currency of each country/region. Accordingly, fluctuations in exchange rates influence the prices of materials the AGC Group procures and the pricing policy for its products, and this impacts the AGC Group’s performance, financial position and future earnings.
(13) Retirement benefit obligations The AGC Group calculates costs for employee retirement benefits and obligations based on an actuarial assumption of the returns on pension funds and a specific discount rate. If the actuarial assumption and results diverge substantially because of a deterioration in the market environment for pension fund management, future costs for retirement benefits will increase, and this may seriously impact the AGC Group’s performance and financial position.
(14) Decline in asset values of fixed assets If the asset values of the AGC Group’s owned fixed assets were to decline because of a drop in market values or profitability, the AGC Group’s performance and financial position may be substantially impacted.
(15) Other Officials from the European Commission visited two AGC Group companies in Belgium, Glaverbel S.A. and AGC Automotive Europe S.A., on February 22 and 23, 2005, with authorization to inspect documents in connection with alleged infringements of competition rules. At this moment, however, it is not clear yet to what extent this matter will impact the operating performance and the financial position of the AGC Group.
Asahi Glass Co., Ltd. 11
CONSOLIDATED BALANCE SHEETS Asahi Glass Co., Ltd., and Consolidated Subsidiaries As of December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen
ASSETS
2005
Current Assets: Cash on hand and in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts receivable (Note 7) . . . . . . . . . . . . . . . . . . . . Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
73,811 309,432 238,023 5,586 13,342 54,805 (6,567)
2004
¥
98,648 280,616 215,783 4,071 9,382 46,486 (6,749)
2005
$
625,517 2,622,305 2,017,144 47,339 113,068 464,448 (55,652)
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
688,432
648,237
5,834,169
Investments and Advances: Investments in securities (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . Other investments and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286,749 34,179 29,025
195,926 28,632 35,762
2,430,076 289,653 245,974
349,953
260,320
2,965,703
Property, Plant and Equipment (Notes 5 and 8): Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
527,363 1,650,764 118,620 77,011
489,097 1,514,588 110,728 61,462
4,469,178 13,989,525 1,005,254 652,636
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,373,758 (1,451,127)
2,175,875 (1,322,484)
20,116,593 (12,297,686)
922,631
853,391
7,818,907
12,885 37,949 (3,449)
20,788 29,821 (2,854)
109,195 321,602 (29,229)
47,385
47,755
401,568
Goodwill, Net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,526
75,566
623,102
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927
¥1,885,269
$17,643,449
Other Assets: Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these consolidated financial statements.
12 FINANCIAL REVIEW 2005
Thousands of U.S. dollars (Note 3)
Millions of yen
LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Short-term bank loans (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . Commercial paper (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts payable (Note 7) . . . . . . . . . . . . . . . . . . . . . . Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued bonuses to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guarantee deposits from dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
¥
80,920 39,187 32,037 206,351 41,081 20,065 33,157 6,804 12,675 847 6,522 107,499
2004
¥
2005
72,513 47,383 25,734 181,775 38,040 18,207 33,202 5,704 12,877 147 2,315 111,242
$
685,763 332,093 271,500 1,748,737 348,144 170,042 280,992 57,661 107,415 7,178 55,271 911,009
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
587,145
549,139
4,975,805
Non-current Liabilities: Long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits for directors and corporate auditors . . . . . . Reserve for rebuilding furnaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
398,472 64,448 1,533 17,810 2,060 58,455
398,256 57,091 1,498 16,141 5,739 32,958
3,376,881 546,169 12,992 150,932 17,458 495,381
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
542,778
511,683
4,599,813
Minority Interests in Consolidated Subsidiaries . . . . . . . . . . . . . . . . . . .
99,320
125,308
841,695
90,473 96,561 556,424 121 124,262 (1,448)
90,472 84,628 511,749 121 58,641 (32,926)
766,720 818,314 4,715,458 1,025 1,053,068 (12,271)
Commitments and Contingent Liabilities (Note 12) Shareholders’ Equity: Common stock—no par value Authorized: 2,000,000,000 shares at December 31, 2005 and 2004 Issued and outstanding: 1,185,999,578 shares at December 31, 2005 and 1,175,242,497 shares at December 31, 2004 . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gains on securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . Less: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . Less: Treasury stock, at cost, 13,150,884 shares at December 31, 2005 and 13,048,678 shares at December 31, 2004 (Note 17) . . . . . . .
(13,709)
(13,546)
(116,178)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
852,684
699,139
7,226,136
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927
¥1,885,269
$17,643,449
Asahi Glass Co., Ltd. 13
CONSOLIDATED STATEMENTS OF INCOME Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen 2005
2004
2005
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Sales (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,526,661 1,152,165
¥1,475,727 1,084,550
$12,937,805 9,764,110
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, General and Administrative Expenses (Note 13) . . . . . . . . . . . .
374,496 256,302
391,177 251,773
3,173,695 2,172,051
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expenses): Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain (loss) on sale and disposal of properties, net . . . . . . . . . . . . . . . . . Impairment loss on long-lived assets (Note 5) . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . Gain on sale of investments in securities, unconsolidated subsidiaries and affiliates (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on write-down of investments in securities . . . . . . . . . . . . . . . . . . . Exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on reversal of reserve for restructuring programs . . . . . . . . . . . . . . Gain from transfer of the substitutional portion of the employees’ pension fund’s liabilities to the Japanese Government . . . . . . . . . . . . . One-time adjustments to accumulated depreciation of long-lived assets . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,194
139,404
1,001,644
5,491 (13,073) 2,083 (31,556) 1,802
5,048 (11,293) (2,967) (14,505) 5,262
46,534 (110,788) 17,653 (267,424) 15,271
13,714 — 6,723 (15,683) 1,778
21,050 (3,113) (1,992) (9,891) 3,811
116,220 — 56,975 (132,907) 15,068
2,222 — (8,937)
24,530 (14,880) (6,454)
18,831 — (75,738)
Income before income taxes and minority interests . . . . . . . . . . . . . . . Income Taxes (Notes 2 (14) and 10): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,758
134,010
701,339
47,694 (14,567)
39,947 1,467
404,186 (123,449)
Minority Interests in Earnings (Losses) of Consolidated Subsidiaries . . .
33,127 10,384
41,414 (14,309)
280,737 88,000
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
60,015
¥
78,287
The accompanying notes are an integral part of these consolidated financial statements.
14 FINANCIAL REVIEW 2005
¥51.36 48.70 15.00
508,602
In exact U.S. dollars (Note 3)
In exact yen
Per Common Share (Notes 2 (17) and 15): Net income—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
¥66.75 63.01 12.00
$0.44 0.41 0.13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands Number of shares of common stock
Balance at December 31, 2003 . . . . . . . . . . . . . 1,175,242 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Dividends declared . . . . . . . . . . . . . . . . . . . . . . — Bonuses to directors and corporate auditors . . . . — Decrease due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — Decrease due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — Increase due to the merger of subsidiaries . . . . — Decrease due to the merger of subsidiaries . . . . — Increase due to asset revaluation at overseas subsidiaries . . . . . . . . . . . . . . . . . . . — Gain on sale of treasury stock, net of tax . . . . . — Foreign currency translation adjustments, net . . . — Unrealized gains on securities, net of tax . . . . . — Asset revaluation reserve . . . . . . . . . . . . . . . . . — Increase of treasury stock . . . . . . . . . . . . . . . . . — Balance at December 31, 2004 . . . . . . . . . . . . . 1,175,242 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Dividends declared . . . . . . . . . . . . . . . . . . . . . . — Bonuses to directors and corporate auditors . . . . — Increase due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — Increase due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — Increase due to the exchange of stock . . . . . . . 10,757 Increase due to the conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . 1 Decrease due to inclusion of new subsidiaries in affiliates . . . . . . . . . . . . . . — Loss on sale of treasury stock, net of tax . . . . . — Foreign currency translation adjustments, net . . . — Unrealized gains on securities, net of tax . . . . . — Asset revaluation reserve . . . . . . . . . . . . . . . . . — Increase of treasury stock . . . . . . . . . . . . . . . . . — Balance at December 31, 2005 . . . . . . . . . . . . . 1,186,000
Millions of yen Common stock
Additional paid-in capital
Retained earnings
¥90,472 — — —
¥84,396 — — —
¥449,958 78,287 (14,964) (98)
—
—
— — —
Others
¥
Total
(810) — — —
¥ (1,216) — — —
¥622,800 78,287 (14,964) (98)
(31)
—
—
(31)
— 229 —
(1,191) — (229)
— — —
— — —
(1,191) 229 (229)
— — — — — — ¥90,472 — — —
— 3 — — — — ¥84,628 — — —
17 — — — — — ¥511,749 60,015 (15,689) (181)
— — 11,249 15,397 0 — ¥ 25,836 — — —
— — — — — (12,330) ¥ (13,546) — — —
17 3 11,249 15,397 0 (12,330) ¥699,139 60,015 (15,689) (181)
—
—
550
—
—
550
— —
— 11,937
145 —
— —
— —
145 11,937
1
0
—
—
—
1
— — — — — — ¥90,473
— (4) — — — — ¥96,561
(139) (26) — — — — ¥556,424
— — 31,478 65,621 0 — ¥122,935
— — — — — (163) ¥(13,709)
(139) (30) 31,478 65,621 0 (163) ¥852,684
Thousands Number of shares of common stock
Treasury stock, at cost
Thousands of U.S. dollars (Note 3) Common stock
Additional paid-in capital
Retained earnings
Others
Treasury stock, at cost
Total
Balance at December 31, 2004 . . . . . . . . . . . . . 1,175,242 $766,712 $717,187 $4,336,856 $ 218,949 $(114,797) $5,924,907 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 508,602 — — 508,602 Dividends declared . . . . . . . . . . . . . . . . . . . . . . — — — (132,958) — — (132,958) Bonuses to directors and corporate auditors . . . . — — — (1,534) — — (1,534) Increase due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — — — 4,661 — — 4,661 Increase due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — — — 1,229 — — 1,229 Increase due to the exchange of stock . . . . . . . 10,757 — 101,161 — — — 101,161 Increase due to the conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . 1 8 0 — — — 8 Decrease due to inclusion of new subsidiaries in affiliates . . . . . . . . . . . . . . — — — (1,178) — — (1,178) Loss on sale of treasury stock, net of tax . . . . . — — (34) (220) — — (254) Foreign currency translation adjustments, net . . . — — — — 266,763 — 266,763 Unrealized gains on securities, net of tax . . . . . — — — — 556,110 — 556,110 Asset revaluation reserve . . . . . . . . . . . . . . . . . — — — — 0 — 0 Increase of treasury stock . . . . . . . . . . . . . . . . . — — — — — (1,381) (1,381) Balance at December 31, 2005 . . . . . . . . . . . . . 1,186,000 $766,720 $818,314 $4,715,458 $1,041,822 $(116,178) $7,226,136 The accompanying notes are an integral part of these consolidated financial statements.
Asahi Glass Co., Ltd. 15
CONSOLIDATED STATEMENTS OF CASH FLOWS Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen
Cash Flows from Operating Activities: Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . . Gain on sale of investments in securities, unconsolidated subsidiaries, affiliates and properties, etc., net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in trade notes and accounts receivable . . . . . . . . . . . . . . . . . . . . Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in trade notes and accounts payable . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Investing Activities: Decrease in time deposits due over three months . . . . . . . . . . . . . . . . . . Increase in time deposits due over three months . . . . . . . . . . . . . . . . . . . Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . Purchases of investments in securities, unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale and redemption of investments in securities, unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Financing Activities: Increase in short-term bank loans and commercial paper . . . . . . . . . . . . . Proceeds from long-term debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayments of long-term debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of a subsidiary’s bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of borrowed securities . . . . . . . . . . . . . . . . . . . . . . . . Repayments from sale of borrowed securities . . . . . . . . . . . . . . . . . . . . . Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . Changes in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents Held by Newly Consolidated Subsidiaries, Net of Those Held by Deconsolidated Subsidiaries . . . . . . . . . . . . . . . . Cash and Cash Equivalents at End of Year (Note 2 (18)) . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements.
16 FINANCIAL REVIEW 2005
2005
2004
2005
¥ 82,758 122,665 31,556 7,774 5,813 (5,491) 13,073 (2,019) (1,802)
¥134,010 132,558 14,505 7,965 (15,655) (5,048) 11,293 902 (5,262)
$ 701,339 1,039,534 267,424 65,881 49,263 (46,534) 110,788 (17,110) (15,271)
(15,494) (23,069) (16,279) 19,229 21,171 239,885 5,126 (14,618) (44,888) 185,505
(17,035) (10,852) (7,039) 9,368 12,465 262,175 6,322 (11,332) (24,277) 232,888
(131,305) (195,500) (137,958) 162,958 179,414 2,032,923 43,441 (123,881) (380,407) 1,572,076
(20,149) 34,773 (197,265) 13,863
(30,615) 8,904 (161,103) 8,828
(170,754) 294,686 (1,671,737) 117,483
(4,026)
(14,970)
(34,119)
36,146 862 (135,796)
63,849 (826) (125,933)
306,322 7,305 (1,150,814)
7,241 28,023 (50,973) 19,927 (16,181) — — (23,146) (432) (11,573) (20,534) 212 (67,436) 4,028 (13,699) 67,944
3,736 45,677 (51,241) 9,453 (66,530) (10,805) 3,288 — (12,408) — (20,097) (40) (98,967) 1,521 9,509 55,916
61,364 237,483 (431,975) 168,873 (137,127) — — (196,153) (3,661) (98,076) (174,017) 1,797 (571,492) 34,137 (116,093) 575,797
(238) ¥ 54,007
2,519 ¥ 67,944
(2,018) $ 457,686
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asahi Glass Co., Ltd., and Consolidated Subsidiaries
Note 1: Basis of Presentation The accompanying consolidated financial statements of Asahi Glass Company, Limited (the “Company”), and its consolidated subsidiaries have been prepared based on the accounts of the Company and respective consolidated subsidiaries (together, referred to as the “Companies”). The accounts of the Company and its domestic consolidated subsidiaries incorporated in Japan have been prepared in accordance with the provisions set forth in the Japanese Commercial Code and in conformity with generally accepted accounting principles and practices prevailing in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accounts of overseas consolidated subsidiaries are based on their financial statements prepared in conformity with generally accepted accounting principles and practices prevailing in the respective countries in which the subsidiaries are incorporated. Certain items presented in the consolidated financial statements filed with the Ministry of Finance in Japan have been reclassified for the convenience of readers outside Japan. Note 2: Summary of Significant Accounting Policies (1) Scope of Consolidation The Company had 304 subsidiaries as of December 31, 2005 (325 as of December 31, 2004). The consolidated financial statements include the accounts of the Company and 245 (253 as of December 31, 2004) of its subsidiaries. The definition of subsidiary is based on the substantive existence of controlling power. The major subsidiaries, which have been consolidated with the Company, are listed below: Country/region of incorporation ( i )
A.G. Finance Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Distribution & Delivery Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Fiber Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Ceramics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Fine Techno Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Techno Glass Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ise Chemicals Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Optrex Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AFG Industries, Inc. (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AGA Capital, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass America, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Fine Techno Taiwan Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Techno Vision Pte., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glaverbel S.A. (iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hankuk Electric Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P.T. Asahimas Chemical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shanghai Asahi Electronic Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.A. U.S.A. U.S.A. Taiwan Singapore Belgium South Korea Indonesia China
Direct and indirect ownership percentage (ii)
100.0% 100.0 100.0 100.0 100.0 100.0 53.3 60.0 100.0 100.0 100.0 100.0 100.0 100.0 42.8 52.5 40.0
Paid-in capital (millions)
¥800 ¥100 ¥6,000 ¥3,500 ¥9,000 ¥7,233 ¥3,599 ¥2,500 US$553 US$20 US$859 NT$2,120 S$121 =C199 WON40,366 US$42 US$128
(i) If other than Japan (ii) As of December 31, 2005 (iii) Includes 19 companies consolidated by AFG Industries, Inc. (iv) Includes 94 companies consolidated by Glaverbel S.A. Note: All of the consolidated subsidiaries use a fiscal year ending December 31 of each year.
The accounts of the remaining 59 (72 as of December 31, 2004) unconsolidated subsidiaries are excluded from the consolidated financial statements since the aggregate amounts of these subsidiaries in terms of combined assets, net sales, net income (loss) and retained earnings (accumulated deficit) are immaterial in relation to those of the consolidated financial statements of the Companies.
Asahi Glass Co., Ltd. 17
(2) Principles of Consolidation For the purposes of preparing the consolidated financial statements, all significant intercompany transactions, account balances and unrealized profits among the Companies have been eliminated. At December 31, 2005 and 2004, the financial year-end of all the consolidated subsidiaries matches that of the Company. Elimination of investments in shares of consolidated subsidiaries, together with the fair value of underlying equity in the net assets of such subsidiaries, has been done to include equity in net income of subsidiaries subsequent to the date of acquisition in the Consolidated Statements of Income. Any difference between the cost of an investment in a subsidiary and the fair value of underlying equity in net assets of the subsidiary, unless specifically identified and reclassified to the applicable accounts from which the value originates, is treated as an asset or a liability (“Goodwill” account). Goodwill is amortized over a period of 20 years on a straight-line basis. Legal reserves of consolidated subsidiaries provided subsequent to the acquisition of such subsidiaries are included in retained earnings and are not shown separately in the consolidated financial statements. Until the year ended December 31, 2003, the goodwill recorded by subsidiaries in the U.S was accounted for in accordance with Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets,” which requires that goodwill not be amortized but tested for impairment on an annual basis. Effective January 1, 2004, the Company changed its policy of accounting for goodwill to be in conformity with that of the Company, where goodwill is amortized over 20 years on a straight-line basis, as permitted under Japan GAAP. This change was triggered by the publication of “Statement of Opinion on Establishment of Accounting Standard for Business Combination” issued by the Business Accounting Council of Japan, and was in order to achieve a better presentation of the financial condition and operational results of the consolidated group. In addition, the unamortized balance of the existing goodwill is amortized over ten years. The effect of this change in accounting policy was to decrease operating income by ¥5,439 million ($46,093 thousand) and income before income taxes and minority interests for the year ended December 31, 2004 by the same amount, as compared with the amount which would have been reported if the previous standards had been consistently applied. The effect of this change on each segment is described in the section on segment information as shown in note 19. (3) Investments in Unconsolidated Subsidiaries and Affiliates Under the Equity Method The Company had 59 (72 as of December 31, 2004) unconsolidated subsidiaries and 56 (62 as of December 31, 2004) affiliates as of December 31, 2005. Affiliates are defined to include those which are 15% or more owned and those that are subject to exercise of influence over the management of the affiliates by the investor company. The equity method is applied only to investments in major companies (32 and 33 companies at December 31, 2005 and 2004, respectively). The investments in the remaining unconsolidated subsidiaries and affiliates are stated at cost or less, because they do not have a material effect on the consolidated financial statements. (4) Translation of Foreign Currency Financial Statements (Accounts of Overseas Subsidiaries and Affiliates) All the assets and liabilities of overseas consolidated subsidiaries and overseas affiliates accounted for by the equity method are translated into yen at the current exchange rates prevailing at the balance sheet dates, except common stock and additional paid-in capital accounts which are translated at the historical rates. Revenues and expenses are translated by the average exchange rates prevailing during each period. The resulting differences are recorded as “Foreign currency translation adjustments,” a separate component of Shareholders’ Equity, and “Minority Interests in Consolidated Subsidiaries” in the Consolidated Balance Sheets. (5) Translation of Foreign Currency Transactions Revenue and expense items arising from transactions denominated in foreign currencies are translated into yen at the rates effective at the respective transaction dates. Foreign currencies and monetary receivables and payables denominated in foreign currencies are translated into yen at the current exchange rates prevailing at the respective balance sheet dates and the resulting translation gain or loss is included in determination of net income for the period. (6) Valuation of Securities Securities other than securities of subsidiaries and affiliated companies are stated at market value. Differences between market value and acquisition costs are recorded as “Unrealized gains on securities, net of tax” in Shareholders’ Equity. The cost of securities sold is calculated by the moving-average method. Securities without market value are stated at cost determined by the moving-average method. Debt securities that are expected to be held-to-maturity are accounted for by the amortized cost method. Declines in the value of securities, other than those which are deemed to be temporary, are reflected in current income. (7) Inventories Inventories are mainly stated at the lower of cost or market value, cost being determined by the moving-average method.
18 FINANCIAL REVIEW 2005
(8) Property, Plant and Equipment Depreciation by the Company and its domestic consolidated subsidiaries is principally computed by the declining-balance method, at rates based on the estimated useful lives of the assets. Depreciation by overseas consolidated subsidiaries is principally computed by the straight-line method over the estimated useful lives of the assets. The Company and certain domestic subsidiaries changed the estimated value of the residual value of property, plant and equipment from five percent of the acquisition costs to the nominal value. Effective January 1, 2004, the residual value is required to be written down to one yen in the following year when the net book value of the asset reaches five percent of the acquisition cost. This change was made to reflect the fact that the actual disposal value of property, plant and equipment is almost zero. As a result of the change, property, plant and equipment at December 31, 2004 decreased by ¥14,880 million ($126,102 thousand), and income before income taxes and minority interests for the year ended December 31, 2004 decreased by the same amount, as compared with the amount which would have been reported if the estimated residual value had not been changed. (9) Intangible Assets Amortization of intangible assets is computed by the straight-line method, principally over a period of five years. (10) Impairment of Long-Lived Assets On August 9, 2002, the Business Accounting Council of Japan issued new accounting standards entitled “Statement of Opinion on the Establishment of Accounting Standards for Impairment of Long-Lived Assets.” Further, on October 31, 2003, the Accounting Standards Board of Japan issued Financial Accounting Standards Implementation Guidance No. 6 “Guidance for Application of Accounting Standards for Impairment of Long-Lived Assets.” This standard shall be effective from the fiscal year beginning April 1, 2005, and an earlier adoption for the fiscal year ending March 31, 2004 is permitted. At December 31, 2004, the Companies adopted the accounting standard for impairment of Long-Lived Assets. The Companies recorded an impairment loss of ¥14,505 million ($122,924 thousand) on Long-Lived Assets as other expenses in the statements of income for the year ended December 31, 2004. (11) Certain Accrued Expense Items Certain accrued expense items, which are essentially an estimate of amounts to be determined in future years, are provided by the Companies. The basis for recognizing such accrued expenses is as follows: (i) Allowance for bad debts “Allowance for bad debts” is provided for at an amount sufficient to cover possible losses on the collection of receivables. For certain doubtful receivables, the uncollectible amounts are estimated based on a review of the collectibility of individual receivables. (ii) Accrued bonuses to employees “Accrued bonuses to employees” is provided for based on the estimated amount to be paid to employees after the balance sheet date for their services rendered during the current period. (iii) Accrued retirement benefits for directors and corporate auditors “Accrued retirement benefits for directors and corporate auditors” is provided for based on the estimated amount to be paid to directors and corporate auditors under the Companies’ internal rules. (iv) Reserve for rebuilding furnaces “Reserve for rebuilding furnaces” is provided for based on estimated costs to be incurred at the next periodic repair works on its facilities over the service period until the next repair works. (v) Reserve for restructuring programs “Reserve for restructuring programs” represents reasonably estimated costs arising from the additional severance compensation program related to restructuring, and the restructuring of certain businesses of the Companies. (12) Accounting for Retirement Benefits to Employees Recognition of accrued retirement benefits to employees is based on actuarial valuation of projected benefit obligations and fund assets. The prior service cost is amortized over the average remaining service period of employees (mainly 13 years), from the year when it is incurred. Actuarial gains/losses are amortized over the average remaining service period of employees (mainly 13 years), in the year subsequent to when it is incurred.
Asahi Glass Co., Ltd. 19
On March 26, 2004, the Company obtained governmental approval for its exemption from the obligation for benefits related to future employee service under the substitutional portion (first approval) from the Ministry of Health, Labour, and Welfare. As permitted by Article 47-2 of “Practical Guidelines on Accounting for Postretirement Benefits (Interim Report)” issued by the Japan Institute of Certified Public Accountants (JICPA), the Company adopted the transitional treatment of separation of the substitutional portion. This allows the elimination of the substitutional portion of the benefit obligation and the related assets transferred to the Japanese government to be recorded on the date of the first approval, together with the recognition of the proportionate amount of the unrecognized gain or loss. As a result, a one-off gain resulting from the separation of the substitutional portion of the Employees’ Pension Fund amounting to ¥24,329 million ($206,178 thousand) was recognized in the year ended December 31, 2004. The fair value of the plan assets to be transferred to the Japanese government was ¥56,016 million ($474,712 thousand) as at December 31, 2004. (13) Accounting for Consumption Tax Consumption tax is imposed at the flat rate of 5% on all Japanese domestic consumption of goods and services (with certain exemptions). The consumption tax withheld upon sale, and consumption tax paid on purchases of goods and services, are not included in the amounts of respective revenue and cost or expense items in the accompanying Consolidated Statements of Income. The consumption tax withheld and consumption tax paid are recorded as assets or liabilities and the net balance is included in “Other current assets” of the Consolidated Balance Sheets, as the case may be. (14) Income Taxes The Companies have adopted the consolidated tax return system for the calculation of income taxes effective from the year ended December 31, 2005. Under the consolidated tax return system, the Companies consolidate all wholly owned domestic subsidiaries based on the Japanese tax regulations. (15) Derivative Financial Instruments The Companies use financial instruments to reduce their exposure to market risks from fluctuations in foreign currency exchange rates, interest rates, and oil prices that may occur in the ordinary course of business. The basic rules and policies are determined by the Board of Directors, and the results of the transactions, including balances and gains/losses, are periodically reported to management. The controls over the transaction and position balances of foreign currency derivatives are monitored by the accounting/finance departments and the controls over the transactions and position balances of commodity derivatives are monitored by the procurement department. Hedging instruments mainly include foreign currency swap contracts, interest rate swap contracts and commodity swap contracts. Hedged items mainly include bonds and fuel oil. Derivatives are recorded at fair value. (16) Appropriation of Retained Earnings Under the Japanese Commercial Code and the Articles of Incorporation of the Company, the appropriation of retained earnings proposed by the Board of Directors is subject to approval by the shareholders at a meeting, which shall be held within three months of the end of each financial year. The appropriations of retained earnings reflected in the accompanying consolidated financial statements include the results of such appropriations applicable to the immediately preceding financial year as approved at the shareholders’ meeting, and effected, during the relevant year. Dividends are paid to shareholders on the shareholders’ register at the end of each financial year. As is customary practice in Japan, the payment of bonuses to directors and corporate auditors is made out of retained earnings through appropriation, instead of being charged to income of the year. (17) Net Income and Dividends per Share Net income per share of common stock is based upon the weighted average number of shares of common stock outstanding during each financial year, adjusted for subsequent free distribution of shares (stock splits). “Bonuses to directors and corporate auditors,” which are determined through appropriation of retained earnings by resolution of the general shareholders’ meeting subsequent to the year-end, and not reflected in the accounts of the current year, should be reflected in the calculation of net income per share as if “Bonuses to directors and corporate auditors” were to be charged to income during the year. Diluted net income per share is computed, based on the assumption that the convertible bonds, treasury stock for stock option and warrant for stock option were fully converted into common stock on the date of issuance or at the beginning of the respective years subsequent to the issuance, with appropriate adjustments of related interest expenses (net of tax). Cash dividends per share shown for each reporting period in the accompanying Consolidated Statements of Income represents dividends approved or declared as applicable to the respective reporting periods.
20 FINANCIAL REVIEW 2005
(18) Cash and Cash Equivalents in the Consolidated Statements of Cash Flows “Cash and cash equivalents” comprises cash on hand, bank deposits available for withdrawal on demand, and short-term investments due within three months or less and substantially free from any price fluctuation risk. Cash and cash equivalents at December 31, 2005 and 2004 consisted of: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Cash on hand and in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable included in other current assets . . . . . . . . . . . . . . . . . . . .
¥73,811 384
¥98,648 413
2005/12
$625,517 3,254
Less: Time deposits due over three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,195 (20,188)
99,061 (31,117)
628,771 (171,085)
¥54,007
¥67,944
$457,686
(19) Important Non-Cash Transactions For the year ended December 31, 2005, Asahi Techno Glass Corporation became a wholly owned subsidiary of the Company due to the exchange of stock. 10,756,200 new shares were issued as part of this transaction.
Increase in additional paid-in capital due to the exchange of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Millions of yen
Thousands of U.S. dollars
2005/12
2005/12
¥11,937
$101,161
Note 3: United States Dollar Amounts The Company maintains its accounting records in yen. The dollar amounts included in the consolidated financial statements and notes thereto, represent the arithmetical results of translating yen to dollars on the basis of ¥118=US$1, the approximate exchange rate at the balance sheet date. The inclusion of such dollar amounts is solely for convenience and is not intended to imply that yen amounts have been or could be converted, realized or settled in dollars at ¥118=US$1 or at any other rate. Note 4: Inventories Inventories as at December 31, 2005 and 2004 consisted of: Thousands of U.S. dollars
Millions of yen
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repair parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
2005/12
¥119,024 52,980 42,577 23,442
¥104,117 47,614 41,315 22,737
$1,008,678 448,983 360,822 198,661
¥238,023
¥215,783
$2,017,144
Note 5: Impairment of Long-Lived Assets For the year ended December 31, 2004, the Company adopted accounting for impairment of long-lived assets, namely property, plant and equipment, and goodwill. The Companies, as a general rule, categorize operating assets by business unit, whereas idle assets are assigned to a particular asset group on an individual basis. For the year ended December 31, 2005, the Companies marked down the book value of asset groups where there had been a significant decline in profitability and value to the recoverable amount and recorded the impairment losses of ¥38,230 million ($323,983 thousand) on long-lived assets under the Other Expenses section. ¥6,673 million ($56,551 thousand) of ¥38,230 million ($323,983 thousand) is recorded as “Expenses for restructuring programs.” With respect to operating assets, the Companies principally used the value in use for calculating the recoverable amount, whereas idle assets are recorded mainly at the official appraised value. The discount rate used for computing the value in use was the Company’s pre-tax cost of capital, which was 7%. The impairment loss on long-lived assets recorded in the income statement for the year ended December 31, 2005 consisted of: Business area
Geographic area
Category
Millions of yen
Thousands of U.S. dollars
Manufacturing facilities for CRT glass
Asia Japan
Machinery and buildings . . . . . . Machinery and buildings . . . . . .
¥29,948 3,887
$253,797 32,941
Manufacturing facilities for glass fibers
Japan
Machinery . . . . . . . . . . . . . . . . .
1,960
16,610
Goodwill for fabricated glass
Europe
Goodwill . . . . . . . . . . . . . . . . . .
1,223
10,364
Manufacturing facilities for electronic materials
Japan
Machinery and buildings . . . . . .
1,212
10,271
Asahi Glass Co., Ltd. 21
Note 6: Investments in Securities Acquisition cost, market value (book value) and unrealized gains/losses on investments in securities with market quotation on stock exchanges or others at December 31, 2005 and 2004 are summarized as follows: December 31, 2005 Millions of yen Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
¥87,437 1,526 93
¥190,785 9 0
¥(220) — —
¥278,002 1,535 93
¥89,056
¥190,794
¥(220)
¥279,630
December 31, 2004 Millions of yen Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
¥97,771 1,545 119
¥84,338 58 12
¥(644) — —
¥181,465 1,603 131
¥99,435
¥84,408
¥(644)
¥183,199
December 31, 2005 Thousands of U.S. dollars Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
$740,992 12,932 788
$1,616,822 76 0
$(1,864) — —
$2,355,950 13,008 788
$754,712
$1,616,898
$(1,864)
$2,369,746
The aggregate carrying amounts of investments in non-public companies at December 31, 2005 and 2004, which were included in “Investments in securities” and valued at cost, were ¥7,118 million ($60,322 thousand) and ¥12,725 million, respectively. Proceeds from sale of other investments in securities were ¥23,827 million ($201,924 thousand) and ¥41,209 million for the years ended December 31, 2005 and 2004, respectively. In addition, gross realized gains were ¥12,896 million ($109,288 thousand) and ¥11,958 million, and gross realized losses were ¥95 million ($805 thousand) and ¥50 million for the year ended December 31, 2005 and 2004, respectively. The redemption schedule for securities with maturity dates classified as other securities and held-to-maturity debt securities as of December 31, 2005 and 2004 is summarized as follows: December 31, 2005 Millions of yen Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
Due after one year through five years
Due after five years through ten years
Due after ten years
5 1,013
¥ 25 522
¥17 —
— —
¥1,018
¥547
¥17
—
December 31, 2004 Millions of yen Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 FINANCIAL REVIEW 2005
Due after one year through five years
Due after five years through ten years
Due after ten years
¥2 —
¥ 11 1,604
¥9 —
¥29 —
¥2
¥1,615
¥9
¥29
December 31, 2005 Thousands of U.S. dollars Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Due after one year through five years
Due after five years through ten years
Due after ten years
42 8,585
$ 212 4,424
$144 —
— —
$8,627
$4,636
$144
—
Note 7: The Accounting Treatment of Notes Receivable and Payable Maturing on December 31, which was a bank holiday The year-end dates of 2005 and 2004, namely, December 31, 2005 and 2004 were bank holidays. Although notes receivable and payable with maturity on these dates were accordingly settled on January 4, 2006 and January 4, 2005, the Companies accounted for their given notes in their financial statements as if they had been settled on those maturity dates. Notes maturing at December 31, 2005 and 2004 were dealt with in the above manner as follows: Thousands of U.S. dollars
Millions of yen
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥3,742 996
¥5,486 1,640
2005/12
$31,712 8,441
Note 8: Short-Term Bank Loans and Long-Term Debts Short-term bank loans and long-term debt at December 31, 2005 and 2004, are summarized as follows: Weighted average interest rate
Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of bonds at interest rates ranging from 0.13% to 2.06% . .
3.7% 3.8% 2.8%
Weighted average interest rate
Long-term bank loans from banks and other financial institutions . . . . . . . . Less: Portions due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.9% convertible bonds due December 26, 2008 . . . . . . . . . . . . . . . . . . . 1.5% bonds due February 21, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5% bonds due December 16, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9% bonds due September 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3% bonds due October 17, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7% bonds due June 3, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds at interest rates ranging from 0.13% to 2.06% at December 31, 2005 and 0.04% to 2.96% at December 31, 2004, respectively, issued by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Portions due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9%
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
¥ 80,920 32,037 29,598 9,589
¥ 72,513 25,734 31,318 16,065
$ 685,763 271,500 250,831 81,262
¥152,144
¥145,630
$1,289,356
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
¥151,753 (29,598)
¥164,063 (31,318)
$1,286,043 (250,831)
2005/12
122,155
132,745
1,035,212
98,702 30,000 20,000 25,000 15,000 20,000
98,703 30,000 20,000 25,000 15,000 20,000
836,458 254,237 169,492 211,864 127,119 169,492
55,523
52,297
470,533
264,225 (9,589)
261,000 (16,065)
2,239,195 (81,263)
254,636
244,935
2,157,932
21,681
20,576
183,737
¥398,472
¥398,256
$3,376,881
Average interest rates are calculated using the average interest rates of short-term bank loans and long-term debt outstanding as at December 31, 2005.
Asahi Glass Co., Ltd. 23
The aggregate annual maturities of long-term loans and bonds outstanding at December 31, 2005 are as follows:
Long-term loans Year ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds Year ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Millions of yen
Thousands of U.S. dollars
¥ 29,598 15,983 17,320 13,520 53,197 22,134
$ 250,831 135,449 146,780 114,576 450,822 187,576
¥151,752
$1,286,034
¥
$
9,589 49,022 109,826 35,014 3,560 57,213
¥264,224
81,263 415,441 930,728 296,729 30,169 484,856
$2,239,186
As of December 31, 2005 and 2004, the assets of the Companies, which were furnished as collaterals for short-term and longterm bank loans, are summarized as follows: Millions of yen 2005/12
Assets pledged as collateral: Investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment (book value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt secured by collateral: Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
2004/12
Thousands of U.S. dollars 2005/12
8 7,587
¥ 7 34,458
$ 68 64,296
¥7,595
¥34,465
$64,364
¥2,613 141
¥ 2,027 1,057
$22,144 1,195
¥2,754
¥ 3,084
$23,339
Note 9: Retirement Benefit Plans The employees of the Companies (excluding directors and corporate auditors) are generally entitled to lump-sum retirement benefits determined based on the average rate of pay, length of service and conditions under which the terminations occur. In addition, the Company and its domestic subsidiaries and certain foreign subsidiaries have adopted funded non-contributory and contributory defined benefit pension plans. The contributory plans mainly represent the Employees’ Pension Fund plans (“EPFs”), composed of the substitutional portions that are the obligation related to the government defined benefit prescribed by the Japanese Welfare Pension Insurance Law (“JWPIL”), and the corporate portions based on contributory defined benefit pension arrangements established at the discretion of the Company and its subsidiaries. The pension plans of the Company and its certain domestic subsidiaries provide for a lump-sum payment or pension payments for life generally after the age of 60, at the option of employees with at least 20 years of participation in the plan. Those employees retiring with less than 20 years of participation are entitled to a lump-sum payment of the current value of their vested benefits. The amount of retirement benefits to be paid by the Company and its certain domestic subsidiaries are, in most cases, reduced by the benefits payable under the pension plans.
24 FINANCIAL REVIEW 2005
In addition to the recognition of transfer of the substitutional portion of the Employees’ Pension Funds, described in note 2 (12), the Asahi Glass Group Pension Fund, in which certain domestic subsidiaries participate, obtained government approval for exemption from the obligation for benefits related to future employee services under the substitutional portion (first approval) and past employee services under the substitutional portion (second approval) from the Ministry of Health, Labor and Welfare on November 1, 2004 and November 1, 2005, respectively. As a result, a gain amounting to ¥2,221 million ($18,822 thousand) was recognized in the year ended December 31, 2005. The funded status of the pension benefit plans is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
Projected Benefit Obligation: Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥(338,765) 284,107
¥(334,039) 230,202
$(2,870,889) 2,407,686
Unfunded projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54,658) 1,191 (10,037)
(103,837) 52,684 (2,020)
(463,203) 10,093 (85,059)
Less: Prepaid pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(63,504) 944
(53,173) 3,918
(538,169) 8,000
Accrued retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (64,448)
¥ (57,091)
$ (546,169)
Retirement Benefit Costs: Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 10,813 9,525 (5,541) 6,817 (304)
¥ 10,596 9,834 (5,665) 6,401 (251)
$
91,636 80,720 (46,958) 57,771 (2,576)
Retirement benefit cost for the period . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 21,310
¥ 20,915
$
180,593
Gain from the transfer of the substitutional portion of the Employees’ Pension Fund Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
(2,221)
¥ 19,089 Assumptions Used for Calculation of the Projected Benefit Obligation: Attribution method for projected benefit obligation . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . Amortization period for prior service cost . . . . . . . . . . . . . . . . . . . . . . . Amortization period for actuarial loss/gain . . . . . . . . . . . . . . . . . . . . . . .
Straight-line method Mainly 2.5% Mainly 3.5% Mainly 13 years Mainly 13 years
¥ (24,530)
$
(18,822)
¥
$
161,771
(3,615)
Straight-line method Mainly 2.5% Mainly 3.5% Mainly 13 years Mainly 13 years
Note 10: Income Taxes Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries for the years ended December 31, 2005 and 2004, consisted of corporate income tax (national), enterprise tax (local) and resident income taxes (local) at the approximate rates indicated below: Rates on taxable income 2005/12
2004/12
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resident income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.0% 7.4 6.0
30.0% 9.9 6.0
43.4%
45.9%
Statutory tax rate in effect to reflect the deductibility of enterprise tax when paid . . . . . . . . . . . . . . . . . .
40.4%
41.8%
Unlike other income taxes, enterprise tax is deductible for tax purposes when it is paid. “Income Taxes” in the accompanying Consolidated Statements of Income includes all taxes based on income mentioned above.
Asahi Glass Co., Ltd. 25
Deferred tax assets and liabilities (both current and non-current) consisted of the following elements: Millions of yen 2005/12
Deferred Tax Assets: Accrued enterprise tax not deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for bad debts in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued bonuses to employees in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . Reserve for periodic repair works not deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for rebuilding furnaces in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization of furnaces in excess of tax limit . . . . . . . . . . . . . . . . Tax losses carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on write-down of investments in securities in excess of tax limit . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
2,339 1,276 2,286 726 66,652 5,532 7,248 21,733 10,390 2,864 33,179
Thousands of U.S. dollars
2004/12
¥
2,342 1,209 1,998 665 62,974 4,717 6,231 18,420 11,171 3,238 27,390
2005/12
$
19,822 10,814 19,373 6,153 564,847 46,881 61,424 184,178 88,051 24,271 281,178
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,225 (24,972)
140,355 (22,338)
1,306,992 (211,628)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥129,253
¥118,017
$1,095,364
Deferred Tax Liabilities: Unrealized gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on establishment of trust for retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . Deferred capital gain reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (68,418) (33,154) (14,408) (19,257) (27,091)
¥ (26,156) (32,892) (17,250) (19,568) (25,085)
$ (579,813) (280,966) (122,102) (163,195) (229,585)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(162,328)
(120,951)
(1,375,661)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (33,075)
¥ (2,934)
$ (280,297)
The reconciliation of the statutory tax rates and the effective income tax rates appearing in the Consolidated Statements of Income for the years ended December 31, 2005 and 2004 are shown as follows: Statutory tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Entertainment expenses, etc., nondeductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income, not taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Difference in tax rates applied to overseas subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss generated by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax benefits resulting from utilization of losses carried forward by subsidiaries not recognized in the prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
40.4% 0.7 (1.4) (5.2) 4.0
41.8% 0.4 (0.4) (7.1) 0.2
(3.4) (0.9) 5.8 40.0%
(4.0) (1.6) 1.6 30.9%
Note 11: Accounting for Leases All finance lease contracts, other than those through which the ownership of the leased assets is transferred to the lessees, are accounted for using a method similar to that applicable to operating leases. 1 Lessees’ accounting Lease expenses on finance lease contracts without ownership transfer for the years ended December 31, 2005 and 2004, are summarized as follows: Millions of yen
Lease expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 FINANCIAL REVIEW 2005
2005/12
2004/12
¥1,277
¥1,752
Thousands of U.S. dollars 2005/12
$10,822
The acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which included the portion of interest thereon, are summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥7,316 (4,823)
¥7,996 (5,418)
2005/12
$62,000 (40,873)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,493
¥2,578
$21,127
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,277
¥1,752
$10,822
Depreciation is computed using the straight-line method over the lease term of the leased assets with no residual value. The amount of outstanding future lease payments due at December 31, 2005 and 2004, which included the portion of interest thereon, is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Future lease payments: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥ 898 1,595
¥1,096 1,482
$ 7,610 13,517
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,493
¥2,578
$21,127
The amount of outstanding future lease payments under non-cancelable operating leases at December 31, 2005 and 2004, is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Future lease payments: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥ 1,891 9,666
¥1,304 6,255
$16,025 81,916
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥11,557
¥7,559
$97,941
2 Lessors’ accounting Lease receipts and depreciation expense on finance lease contracts without ownership transfer for the years ended December 31, 2005 and 2004, are summarized as follows: Thousands of U.S. dollars
Millions of yen
Lease receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥807 253
¥903 362
2005/12
$6,839 2,144
The acquisition cost, accumulated depreciation, and net book value of the leased assets, which included the portion of interest thereon, are summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥327 (180)
¥598 (350)
$2,771 (1,525)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥147
¥248
$1,246
Asahi Glass Co., Ltd. 27
The amount of outstanding future lease receipts under non-cancelable operating leases at December 31, 2005 and 2004, is summarized as follows: Millions of yen
Thousands of U.S. dollars
2005/12
2004/12
Future lease receipts: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥111 243
¥235 275
$ 941 2,059
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥354
¥510
$3,000
Note 12: Commitments and Contingent Liabilities As of December 31, 2005, the Companies had contingent liabilities in the aggregate amount of ¥3,627 million ($30,737 thousand) from notes endorsed. In addition, as of December 31, 2005, the Companies had contingent liabilities of ¥453 million ($3,839 thousand) arising from notes discounted by bank. The Companies had contingent obligations for guarantee of loans borrowed by the following companies as of December 31, 2005: Millions of yen
Loans borrowed by: DAP Technology Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea Autoglass Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thousands of U.S. dollars
¥2,898 1,480 2,727
$24,560 12,542 23,110
¥7,105
$60,212
The Company had a contract with a financial institution which acts as an agent to assume the debt obligation of the Company’s corporate bonds as follows. In accordance with the “Accounting Standards Concerning Financial Products,” such debt obligations can be eliminated from the balance sheets. Millions of yen
0.4% bonds due October 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥15,000
Thousands of U.S. dollars
$127,119
Note 13: R&D Costs Research and development costs incurred by the Companies for the years ended December 31, 2005 and 2004, included in “Selling, General and Administrative Expenses” and “Cost of Sales,” totalled ¥31,706 million ($268,695 thousand) and ¥32,265 million, respectively. Note 14: Subsequent Appropriations of Retained Earnings The following appropriations of unappropriated retained earnings of the Company were approved by its shareholders at the general shareholders’ meeting held on March 30, 2006: December 31, 2005 Millions of Thousands of yen U.S. dollars
Appropriations Cash dividends (¥7.50 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 FINANCIAL REVIEW 2005
¥8,796 33
$74,542 280
Note 15: Net Income per Share—Basic and Net Income per Share—Fully Diluted Calculations of net income per share for the years ended December 31, 2005 and 2004 are as follows: Thousands of U.S. dollars
Millions of yen
Net income per share—basic Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Bonuses to directors and corporate auditors . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of shares issued (thousands) . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
2005/12
¥60,015 50
¥78,287 113
$508,602 424
¥59,965
¥78,174
$508,178
1,167,462
1,171,183
1,167,462 In exact U.S. dollars
In exact yen
Net income per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥51.36
¥66.75
2005/12
$0.44
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Net income per share—fully diluted Adjustments to net income Interest expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,145
¥1,118
$9,703
Increase in common shares (thousands) Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock for stock option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warrant for stock option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,039 21 174
87,039 11 159
87,039 21 174
87,234
87,209
87,234 In exact U.S. dollars
In exact yen
Net income per share—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2005/12
2004/12
¥48.70
¥63.01
2005/12
$0.41
The potential common stock upon exercise of stock option rights with anti-dilutive effect, excluded from the computation of “Net income per share—fully diluted,” amounted to 630,000 and 630,000 shares at December 31, 2005 and 2004, respectively. Note 16: Stock-Based Compensation Plan At the general shareholders’ meeting held on June 28, 2001, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 229,000 shares of common stock were granted to Company directors and employees. All options are exercisable at an exercise price of ¥1,010 (exact yen) from August 1, 2003 through July 31, 2007. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, or additional shares issued at a price less than the market price per share. At the general shareholders’ meeting held on June 27, 2002, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 346,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥799 (exact yen) from August 1, 2004 through July 31, 2008. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. At the general shareholders’ meeting held on June 27, 2003, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 370,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥826 (exact yen) from August 1, 2005 through July 31, 2009. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. At the general shareholders’ meeting held on March 30, 2004, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 630,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥1,243 (exact yen) from June 1, 2006 through May 31, 2010. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. Asahi Glass Co., Ltd. 29
At the general shareholders’ meeting held on March 30, 2005, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 660,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥1,226 (exact yen) from June 1, 2007 through May 31, 2011. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. In addition, at the general shareholders’ meeting held on March 30, 2006, the shareholders approved a stock-based compensation plan. Under this plan, options for a maximum of 690,000 shares of common stock will be granted to the Company directors and employees. Subsequent directors’ meetings will determine specific future grantees. All options will be exercisable at an exercise price of 105% of the average market price for 30 trading days starting from the 45 days prior to the date immediately after the grant date. The options are exercisable from June 1, 2008 through May 31, 2012. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. Note 17: Treasury Stock During the years ended December 31, 2005 and 2004, the Company acquired 102,206 shares and 11,511,843 shares of treasury stock, respectively. At the general shareholders’ meeting held on March 30, 2004, the Articles of Incorporation were amended and as a result the Company may purchase treasury stock by way of a resolution of the board of directors, which is permitted under Article 211-3, Section 1 Clause 2 of the Japanese Commercial Code. Based on the resolution by the board of directors, the Company purchased 11,220,000 shares of common stock which is included in 11,511,843 shares in order to enhance the flexibility of the Company’s capital stock management strategy to reflect the rapid change in the economy. Note 18: Information on Derivatives As of December 31, 2005 and 2004, derivatives, including forward foreign exchange contracts and interest rate swap transactions (other than those accounted for as hedges) are summarized as follows: Millions of yen 2005/12 Contracted amount and option premium Total
Forward Foreign Exchange Contracts: Sell U.S. dollars . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . Buy U.S. dollars . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . Currency Option Contracts: Sell call option/Buy put option . . . . . Buy Put option . . . . . . . . . . . . . . . . . . . Call option . . . . . . . . . . . . . . . . . . Sell Put option . . . . . . . . . . . . . . . . . . . Call option . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . *Represents option premiums
30 FINANCIAL REVIEW 2005
Due over one year
2004/12 Contracted amount and option premium
Market value
Gain (loss)
Total
Due over one year
Market value
Gain (loss)
¥6,167 5,041
— —
¥6,567 5,047
¥(400) (6)
¥3,311 8,162
— —
¥3,098 8,169
¥213 (7)
1,699 2,868
— —
1,777 2,947
78 79
38 2,581
— —
37 2,685
(1) 104
550 —
— —
(2)
(2)
6,826 —
— —
(28)
(28) *
2,103 (28) 1,393 (12)
— — — —
46
18
17 *
6
— — — —
21
18
637 (4) 2,963 (39)
148
109 *
839 (6) 4,240 (19)
— — — —
2
4
— *
9
— — — —
—
10
— — 637 (60)
75
(15) *
¥(214)
¥392
Millions of yen 2005/12 Contracted amount and option premium
Interest Rate Swap Contracts: Receiving fixed rates and paying floating rates . . . . . . . . . . . . Receiving floating rates and paying fixed rates . . . . . . . . . . . . . . Interest Rate Cap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Floor Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . . Sell . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Swaption Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . . Sell . . . . . . . . . . . . . . . . . . . . . . . . . .
2004/12 Contracted amount and option premium
Total
Due over one year
Market value
Gain (loss)
Total
Due over one year
Market value
Gain (loss)
¥81,688
¥79,688
¥389
¥389
¥24,106
¥19,274
¥ 565
¥ 565
56,014
35,835
(362)
(362)
74,423
45,563
(1,325)
(1,325)
34,538 (170)
26,987 (107)
258
88
19,542 (38)
7,646 (17)
5
(33) *
41,250 (128) 11,186 (53)
19,576 (64) 9,089 (44)
68
(60)
211 *
10
21,241 (93) 4,248 (21)
325
43
35,286 (114) 4,248 (21)
9
12 *
— — 14,469 (91)
— — 14,469 (91)
—
—
8 *
36
12,278 (15) 18,106 (24)
23
55
12,278 (15) 18,106 (24)
34
(10) *
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . .
¥101
¥ (572)
Oil Swap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
2,159
—
72
72
499
—
(6)
(6)
Metal Swap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
15
—
(2)
(2)
1,423 (133)
— —
149
16
247 (0)
— —
2
2 *
Oil Option Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 88
¥
(6)
*Represents option premiums
Asahi Glass Co., Ltd. 31
Note 19: Segment Information Segment information of the Companies classified by industrial segment for the years ended December 31, 2005 and 2004 is presented as below: The Companies operate principally in four industrial segments: Glass products, Electronics and Display products, Chemical products, and Other products. Glass products: Flat and fabricated glass, construction materials and others Electronics and Display products: FPD (liquid crystal display, PDP) glass substrates, CRT glass bulbs, and electronic components and others Chemical products: Caustic soda, chlorine and its derivative products, fluorochemical products and others Other products: Ceramics and others As discussed in note 2 (2) effective January 1, 2004, the accounting method for amortization of the goodwill of U.S. subsidiaries has been changed to be in conformity with that of the Company where goodwill is amortized over a period of 20 years on a straight-line basis. The effect of this change was a decrease in operating income of ¥5,439 million ($46,093 thousand) in the Glass segment. ¥6,673 million ($56,551 thousand) of impairment loss on long-lived assets is recorded as expenses for restructuring programs. For the year ended December 31, 2005 Millions of yen
Glass
Electronics and Display
Chemicals
Other
Total
Sales: Sales to customers . . . . . . . . . . . . Inter-segment sales/transfers . . . .
¥754,799 4,095
¥441,689 2,114
¥295,802 4,595
¥ 34,371 45,882
Total sales . . . . . . . . . . . . . . . . . . . .
758,894
443,803
300,397
80,253
Operating expenses . . . . . . . . . . . . .
720,908
382,915
284,102
Operating income . . . . . . . . . . . . . .
¥ 37,986
¥ 60,888
¥ 16,295
¥
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
¥873,193 ¥ 56,682
¥614,036 ¥ 46,085
¥ 3,183 ¥ 73,038
¥ 34,754 ¥100,505
Corporate or elimination
Consolidated total
¥1,526,661 56,686
— (56,686)
¥1,526,661 —
1,583,347
(56,686)
1,526,661
77,102
1,465,027
3,151
¥ 118,320
¥
(126)
¥ 118,194
¥283,413 ¥ 18,616
¥257,438 ¥ 1,383
¥2,028,080 ¥ 122,766
¥53,847 ¥ (101)
¥2,081,927 ¥ 122,665
— ¥ 27,480
¥ ¥
¥ 38,230 ¥ 203,995
— —
¥ 38,230 ¥ 203,995
293 2,972
(56,560)
1,408,467
For the year ended December 31, 2004 Millions of yen
Glass
Electronics and Display
Chemicals
Other
Total
Corporate or elimination
Consolidated total
Sales: Sales to customers . . . . . . . . . . . . Inter-segment sales/transfers . . . .
¥734,653 5,830
¥434,731 1,013
¥275,957 10,061
¥ 30,386 44,643
¥1,475,727 61,547
— (61,547)
¥1,475,727 —
Total sales . . . . . . . . . . . . . . . . . . . .
740,483
435,744
286,018
75,029
1,537,274
(61,547)
1,475,727
Operating expenses . . . . . . . . . . . . .
692,466
364,882
268,459
72,071
1,397,878
(61,555)
1,336,323
Operating income . . . . . . . . . . . . . .
¥ 48,017
¥ 70,862
¥ 17,559
¥
2,958
¥ 139,396
¥
8
¥ 139,404
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
¥822,721 ¥ 66,301
¥563,180 ¥ 40,499
¥285,149 ¥ 24,276
¥246,793 ¥ 1,567
¥1,917,843 ¥ 132,643
¥(32,574) ¥ (85)
¥1,885,269 ¥ 132,558
¥ 9,649 ¥ 66,078
— ¥ 81,545
¥ 3,796 ¥ 15,671
¥ ¥
¥ 14,505 ¥ 164,655
— —
¥ 14,505 ¥ 164,655
32 FINANCIAL REVIEW 2005
1,060 1,361
For the year ended December 31, 2005 Thousands of U.S. dollars Electronics and Display
Glass
Chemicals
Other
Total
Corporate or elimination
Consolidated total
Sales: Sales to customers . . . . . . . . . . . . $6,396,602 $3,743,127 $2,506,797 $ 291,279 $12,937,805 Inter-segment sales/transfers . . . . 34,703 17,915 38,941 388,831 480,390
— $12,937,805 (480,390) —
Total sales . . . . . . . . . . . . . . . . . . . .
6,431,305
3,761,042
2,545,738
680,110
13,418,195
(480,390)
12,937,805
Operating expenses . . . . . . . . . . . . .
6,109,390
3,245,042
2,407,644
653,407
12,415,483
(479,322)
11,936,161
Operating income . . . . . . . . . . . . . . $ 321,915 $ 516,000 $ 138,094 $
26,703 $ 1,002,712 $ (1,068) $ 1,001,644
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
2,483 $ 323,983 25,187 $ 1,728,771
$7,399,941 $5,203,695 $2,401,805 $2,181,678 $17,187,119 $456,330 $17,643,449 $ 480,356 $ 390,551 $ 157,763 $ 11,720 $ 1,040,390 $ (856) $ 1,039,534 $ 26,975 $ 294,525 — $ $ 618,966 $ 851,737 $ 232,881 $
— $ 323,983 — $ 1,728,771
Segment information of the Companies classified by geographic area for the years ended December 31, 2005 and 2004 is presented as follows: As discussed in note 2 (2) effective January 1, 2004, the accounting method for amortization of the goodwill of U.S. subsidiaries has been changed to be in conformity with that of the Company where goodwill is amortized over a period of 20 years on a straight-line basis. The effect of this change was a decrease in operating income of ¥5,439 million ($46,093 thousand) in the Americas segment. For the year ended December 31, 2005 Millions of yen Japan
Asia
The Americas
Europe
Total
Corporate or elimination
Consolidated total
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . .
¥686,484 169,748
¥327,602 63,100
¥196,056 7,855
¥316,519 2,219
¥1,526,661 242,922
— (242,922)
¥1,526,661 —
Total . . . . . . . . . . . . . . . . .
856,232
390,702
203,911
318,738
1,769,583
(242,922)
1,526,661
Operating expenses . . . . . . . . .
787,405
353,370
210,884
296,578
1,648,237
(239,770)
1,408,467
Operating income (loss) . . . . . .
¥ 68,827
¥ 37,332
¥ (6,973)
¥ 22,160
¥ 121,346
¥ (3,152)
¥ 118,194
Assets . . . . . . . . . . . . . . . . . . .
¥825,483
¥501,662
¥206,315
¥367,639
¥1,901,099
¥180,828
¥2,081,927
For the year ended December 31, 2004 Millions of yen Japan
Asia
The Americas
Europe
Total
Corporate or elimination
Consolidated total
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . .
¥705,465 163,157
¥281,217 60,544
¥195,815 8,763
¥293,230 2,446
¥1,475,727 234,910
— (234,910)
¥1,475,727 —
Total . . . . . . . . . . . . . . . . .
868,622
341,761
204,578
295,676
1,710,637
(234,910)
1,475,727
Operating expenses . . . . . . . . .
801,102
289,595
207,818
269,822
1,568,337
(232,014)
1,336,323
Operating income (loss) . . . . . .
¥ 67,520
¥ 52,166
¥ (3,240)
¥ 25,854
¥ 142,300
¥ (2,896)
¥ 139,404
Assets . . . . . . . . . . . . . . . . . . .
¥779,950
¥447,241
¥197,535
¥348,231
¥1,772,957
¥112,312
¥1,885,269
Asahi Glass Co., Ltd. 33
For the year ended December 31, 2005 Thousands of U.S. dollars Japan
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . . Total . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . .
The Americas
Asia
Europe
$5,817,661 $2,776,288 $1,661,492 1,438,542 534,746 66,568
Corporate or elimination
Total
$2,682,364 $12,937,805 18,805 2,058,661
Consolidated total
— $12,937,805 (2,058,661) —
7,256,203
3,311,034
1,728,060
2,701,169
14,996,466
(2,058,661)
12,937,805
6,672,923
2,994,661
1,787,153
2,513,373
13,968,110
(2,031,949)
11,936,161
Operating income (loss) . . . . . .
$ 583,280 $ 316,373 $
(59,093) $ 187,796 $ 1,028,356 $
Assets . . . . . . . . . . . . . . . . . . .
$6,995,619 $4,251,373 $1,748,432
(26,712) $ 1,001,644
$3,115,585 $16,111,009 $1,532,440 $17,643,449
Major countries/regions in the regional segmentation above Asia: Indonesia, Singapore, Thailand, Taiwan, China, and South Korea The Americas: U.S.A., Canada, and Mexico Europe: Belgium, Netherlands, Italy, Spain, Czech Republic, Germany, France, U.K., and Russia Overseas sales by geographic area and those as a percentage of consolidated sales for the years ended December 31, 2005 and 2004 are as follows: For the year ended December 31, 2005 Thousands of U.S. dollars
Millions of yen
Overseas sales . . . . . . . . . . . . . . . . . . . . . . . Consolidated sales . . . . . . . . . . . . . . . . . . . . Percentage . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
The Americas
Europe
Other
Total
Total
¥393,649 — 25.8%
¥189,580 — 12.4%
¥319,328 — 20.9%
¥18,121 — 1.2%
¥ 920,678 ¥1,526,661 60.3%
$ 7,802,356 $12,937,805
For the year ended December 31, 2004 Millions of yen
Overseas sales . . . . . . . . . . . . . . . . . . . . . . . Consolidated sales . . . . . . . . . . . . . . . . . . . . Percentage . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
The Americas
Europe
Other
Total
¥359,766 — 24.4%
¥194,448 — 13.2%
¥299,959 — 20.3%
¥14,292 — 1.0%
¥ 868,465 ¥1,475,727 58.9%
Major countries/regions in the regional segmentation above Asia: Indonesia, Singapore, Thailand, Taiwan, China, and South Korea The Americas: U.S.A., Canada, and Mexico Europe: Belgium, Netherlands, Italy, Spain, Czech Republic, Germany, France, and Russia Other: Oceania, Middle East, and Africa
34 FINANCIAL REVIEW 2005
REPORT OF INDEPENDENT AUDITORS
Millions of yen 2002
2001
1997
1996
¥1,280,990 43,746
¥1,346,727 66,072
¥1,337,293 66,281
¥1,278,715 55,530
$12,937,805 1,001,644
25,644 5,099
46,681 20,362
53,711 24,167
37,144 24,837
701,339 508,602
2000
To the Board of Directors of ¥1,257,052 ¥1,263,196 ¥1,312,829 58,988 111,652 60,689 Asahi Glass Company, Limited
(7,653) (12,605)
1998
Thousands of U.S. Dollars 2005/12
60,434 24,725
1999
25,767 13,164
We have audited the accompanying consolidated balance sheets of Asahi Glass Company and its consolidated subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
¥ 662,203 ¥ 618,492 ¥ 652,323 — — — — $ 6,396,602 — — — ¥ 783,017 ¥ 795,143 ¥ 775,967 ¥ 723,755 — We conducted our audits in accordance with auditing standards generally—accepted in Japan. require3,743,127 that we plan 311,836 384,941 283,595 — — Those standards — and perform about whether the consolidated statements are free of material — the audit to — obtain reasonable — assurance 140,375 124,966 105,549financial106,863 — 248,327 263,782 254,393 281,994 341,589 364,566 352,207 2,506,797 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 40,830 45,614 66,741 75,604 85,029 91,211 95,890 291,279
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis
¥1,889,384 ¥1,881,333 ¥1,848,539 ¥1,810,644 ¥1,794,056 ¥1,685,720 $17,643,449 for our opinion.¥1,886,815 555,891 582,459 693,941 723,766 720,779 758,610 681,374 5,834,169 817,998 762,784 745,134 730,368 726,055 706,053 691,522 7,818,907 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial 588,671 633,630 606,604 633,544 727,096 609,316 524,449 4,975,805 position of Asahi Glass Company and its consolidated subsidiaries as of December 31, 2005 and 2004, and the consolidated results 93,843 91,948 97,846 85,765 69,820 67,004 65,075 841,695 of585,975 their operations607,000 and their cash flows for the year612,404 then ended in conformity generally accepted in Japan. 605,210 630,374 with accounting 618,437 principles 605,571 7,226,136
¥
As discussed in Note 2 (2) to the consolidated financial statements, the Company changed its policy of accounting for goodwill from
(10.73)
¥
21.04
¥
11.20
¥
4.34
¥
17.33
¥
20.56
¥
21.14
$
0.44
the year—ended December effective as 20.24 of December 31, 2004, have 20.46 31, 2004. Also, — as discussed 16.74in Note 2 (10), 9.71 — the Companies 0.41 9.00the accounting 9.00 9.00 9.00 assets.10.00 9.00 9.50 0.13 adopted standard for impairment of long-lived
498.74
516.49
514.97
521.09
536.38
526.23
515.28
6.16
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 3 to the accompanying consolidated (2.1)% 4.1% 2.2% 0.8% financial statements. 3.3%
3.1 % 5.9% ¥ 735,314 ¥ 685,521 109,954 97,522 130,913 93,261 28,957 28,374 1,175,242 1,175,242 March 30, 2006 48,362 48,809
3.3% ¥ 680,025 94,198 90,084 26,519 1,175,242 43,217
2.4% ¥ 689,480 93,271 93,864 36,000 1,175,242 —
3.9% ¥ 647,191 87,165 125,955 36,000 1,175,242 —
3.9% 3.8% ¥ 632,500 78,674 112,848 36,000 1,175,242 —
4.1% 3.4% ¥ 591,300 79,844 115,571 34,000 1,175,228 —
7.7% 6.0% $ 4,486,331 1,039,534 1,728,771 268,695 1,186,000 56,857
Asahi Glass Co., Ltd. 35
Investor Relations: 1-12-1, Yurakucho, Chiyoda-ku, Tokyo 100-8405, Japan Tel: +81-3-3218-5064 Fax: +81-3-3201-5390 URL: http://www.agc.co.jp/english e-mail: [email protected]
This financial review is printed on recycled paper. Printed in Japan
Financial Review 2005
For the year ended December 31, 2005
CONTENTS Consolidated Eleven-Year Summary . . . . . . . . Inside Cover Management’s Discussion and Analysis . . . . . . . . . . . . . .
2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 12 Consolidated Statements of Income . . . . . . . . . . . . . . . . . 14 Consolidated Statements of Shareholders’ Equity . . . . . . 15 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 16 Notes to Consolidated Financial Statements . . . . . . . . . . 17 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 35
CONSOLIDATED ELEVEN-YEAR SUMMARY Asahi Glass Co., Ltd. and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004 and for the nine-month period ended December 31, 2003; the years ended March 31, 2003, 2002, 2001, 2000, 1999, 1998, 1997 and 1996
2005/12
2004/12
2003/12
2003/3
¥1,526,661 118,194
¥1,475,727 139,404
¥1,242,957 83,187
¥1,295,011 67,475
82,758 60,015
134,010 78,287
85,707 53,641
5,734 (3,918)
Segment Information Sales to customers Glass operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glass operations (old) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronics and display operations . . . . . . . . . . . . . . . . . . Electronics operations (old) . . . . . . . . . . . . . . . . . . . . . . . . Chemicals operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 754,779 — 441,689 — 295,802 34,371
¥ 734,653 — 434,731 — 275,957 30,386
¥ 662,323 — 335,497 — 218,124 27,013
¥ 705,345 — 307,799 — 250,359 31,508
Financial Position Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests in consolidated subsidiaries . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927 688,432 922,631 587,145 99,320 852,684
¥1,885,269 648,237 853,391 549,139 125,308 699,139
¥1,806,612 582,060 810,213 489,319 110,709 622,800
¥1,786,513 549,255 798,868 569,875 72,000 553,835
¥
¥
¥
¥
Operating Results Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data (Yen and U.S. Dollars) Net income (loss)—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Data Return on equity (ROE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on assets (ROA) (operating income base) . . . . . . . . . Interest-bearing debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development costs . . . . . . . . . . . . . . . . . . . . . Number of shares outstanding (thousands) . . . . . . . . . . . . . . Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.36 48.70 15.00 726.98
7.7% 6.0% ¥ 529,387 122,665 203,995 31,706 1,186,000 56,857
66.75 63.01 12.00 601.47
11.8% 7.6% ¥ 523,831 132,558 164,655 32,265 1,175,242 56,776
45.65 43.17 6.75 530.57
9.1% 4.6% ¥ 574,268 99,900 110,355 27,333 1,175,242 55,732
(3.37) — 9.00 471.79
(0.7%) 3.7% ¥ 685,682 108,982 98,285 30,868 1,175,242 53,728
Note: Interest-bearing debts comprise short-term bank loans, current maturities of long-term debt, commercial paper, bonds, long-term debt and notes receivable discounted.
34 FINANCIAL REVIEW 2005
Millions of yen 2002/3
2001/3
2000/3
1999/3
1998/3
1997/3
1996/3
Thousands of U.S. dollars 2005/12
¥1,263,196 58,988
¥1,312,829 111,652
¥1,257,052 60,689
¥1,280,990 43,746
¥1,346,727 66,072
¥1,337,293 66,281
¥1,278,715 55,530
$12,937,805 1,001,644
(7,653) (12,605)
60,434 24,725
25,767 13,164
25,644 5,099
46,681 20,362
53,711 24,167
37,144 24,837
701,339 508,602
¥ 662,203 — 311,836 — 248,327 40,830
¥ 618,492 — 384,941 — 263,782 45,614
¥ 652,323 — 283,595 — 254,393 66,741
— ¥ 783,017 — 140,375 281,994 75,604
— ¥ 795,143 — 124,966 341,589 85,029
— ¥ 775,967 — 105,549 364,566 91,211
— ¥ 723,755 — 106,863 352,207 95,890
$ 6,396,602 — 3,743,127 — 2,506,797 291,279
¥1,889,384 555,891 817,998 588,671 93,843 585,975
¥1,886,815 582,459 762,784 633,630 91,948 607,000
¥1,881,333 693,941 745,134 606,604 97,846 605,210
¥1,848,539 723,766 730,368 633,544 85,765 612,404
¥1,810,644 720,779 726,055 727,096 69,820 630,374
¥1,794,056 758,610 706,053 609,316 67,004 618,437
¥1,685,720 681,374 691,522 524,449 65,075 605,571
$17,643,449 5,834,169 7,818,907 4,975,805 841,695 7,226,136
¥
¥
¥
¥
¥
¥
¥
$
(10.73) — 9.00 498.74
(2.1%) 3.1% ¥ 735,314 109,954 130,913 28,957 1,175,242 48,362
21.04 20.46 9.00 516.49
4.1% 5.9% ¥ 685,521 97,522 93,261 28,374 1,175,242 48,809
11.20 — 9.00 514.97
2.2% 3.3% ¥ 680,025 94,198 90,084 26,519 1,175,242 43,217
4.34 16.74 9.00 521.09
0.8% 2.4% ¥ 689,480 93,271 93,864 36,000 1,175,242 —
17.33 9.71 10.00 536.38
3.3% 3.9% ¥ 647,191 87,165 125,955 36,000 1,175,242 —
20.56 20.24 9.00 526.23
3.9% 3.8% ¥ 632,500 78,674 112,848 36,000 1,175,242 —
21.14 — 9.50 515.28
4.1% 3.4% ¥ 591,300 79,844 115,571 34,000 1,175,228 —
0.44 0.41 0.13 6.16
7.7% 6.0% $ 4,486,331 1,039,534 1,728,771 268,695 1,186,000 56,857
Asahi Glass Co., Ltd. 371
MANAGEMENT’S DISCUSSION AND ANALYSIS
The discussion and analysis herein of sales and operating income is based on segment information. Sales for operating segments and geographic areas include all intersegment transactions.
Change in Scope of Consolidation Beginning in 2005, Murakami Chemicals Co., Ltd. and 14 other companies were included in the scope of consolidation. On the other hand, Asahi Tostem Exterior Building Materials Co., Ltd. and 22 other companies were deconsolidated due to mergers, the sale of stock and other measures taken as part of business restructuring. These changes brought the total of consolidated subsidiaries to 245.
Currency Fluctuations The Japanese yen weakened against both the U.S. dollar and the euro during fiscal 2005. The average yen-dollar rate was ¥111.0=US$1.00, compared with ¥108.1=US$1.00 in fiscal 2004, and the average yen-euro rate was ¥137.3=1.00 euro, compared with ¥134.4=1.00 euro in the previous year.
Overview of the Period Ended December 31, 2005 Overview and Main Initiatives In fiscal 2005, recovery of the Japanese economy became even more evident supported by an expansion in consumer spending and capital expenditure in the private sector, despite the upward pressure on costs reflecting price hikes of oil and other various raw materials in the upstream markets with more primary material input. In Asia, supported by the stable economic growth of China and the economic recovery of NIEs (Newly Industrialized Economies), the economy continued to expand, although some ASEAN countries such as Indonesia and Thailand failed to get on a recovery track affected by the higher oil prices. In the U.S., the economy weakened in some sectors due to fears over a surge in energy prices, higher interest rates, and the effects of large hurricanes, but remained entirely though moderately firm because employment and capital investment increased. In Europe, the economy in Russia and East Europe continued to be steady. In Western Europe, however, demand still stayed low despite the signs of a pickup in exports. Under such circumstances, the AGC Group further strove to expand its business operations in rapidly growing markets for display materials, including glass substrates used in flat panel displays (FPDs), while boosting sales of value-added products in the businesses of glass for construction, automotive glass, and chemicals. However, the AGC Group’s earnings were adversely affected by several factors such as weak demand for cathode ray tube (CRT) glass and a subsequent fall in its price, slow sales in the electronic materials business, and price hikes of raw materials and energies. As a result, the AGC Group posted net sales of ¥1,526.7 billion for the fiscal year under review, up ¥50.9 billion or 3.5% from the previous year, and an operating income of ¥118.2 billion, down ¥21.2 billion or 15.2%, and net income decreased ¥18.3 billion or 23.3% to ¥60.0 billion.
Consolidated Net Sales Consolidated net sales were ¥1,526.7 billion in fiscal 2005. By operating segment, the Glass Operations segment recorded sales of ¥758.9 billion in the year under review. In the Flat Glass Company, shipments rose in Europe, while sales of some products leveled off in Japan. Some Asian regions suffered a slight slowing of demand due to oil price increases, in addition to production concerns. In North America, shipments stayed healthy. In the Automotive Glass Company, sales expanded due to a worldwide increase in automobile production, particularly Japanese-affiliated automakers. Sales in the Electronics and Display Operations segment were ¥443.8 billion. Demand for CRT glass remained sluggish in the year under review, though sales volume, which had continued to fall, being influenced by market adjustments of inventories begun at the start of the year under review, slightly recovered and a price decline was curbed in the fourth quarter of fiscal 2005. In the FPD business, sales of glass substrates increased due to strong demand for panels for PCs and thinscreen TVs as well as a growing trend toward the use of larger panels.
2
FINANCIAL REVIEW 2005
In the Electronics materials business, demand for LCD back-light tubes continued to be steady due to an increase in the production of LCD panels, while sales of optical filters for use in liquid crystal projectors decreased, affected by demand adjustments and a price drop in the market of digital electronics products. Sales of synthetic quartz for semiconductor manufacturing equipment and small- and medium-sized displays for cellular phones picked up slightly in the fourth quarter of fiscal 2005. Sales in the Chemicals Operations segment were ¥300.4 billion in fiscal 2005. In the chlor-alkali & urethane business, due to continued robust demand throughout the year in Japan, China and Southeast Asia, sales remained firm. In the fluorochemicals & specialty chemicals business, shipments of optical filters for Plasma Display Panels (PDPs) and other fluorinated products increased steadily due to strong demand. Sales by Operating Segment
Sales by Operating Segment (Billions of yen)
2005/12
2,000
1,475.7
1,500
1,263.2 1,295.0
1,526.7
1,243.0
Millions of yen 2004/12
2003/12
Glass Operations . . . . . . . . . . . . . . . . . . . . . . Electronics and Display Operations . . . . . . . . Chemicals Operations . . . . . . . . . . . . . . . . . . Other Operations . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 758,894 443,803 300,397 80,253 (56,686)
¥ 740,483 435,744 286,018 75,029 (61,547)
¥ 664,683 336,993 227,121 64,231 (50,071)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,526,661
¥1,475,727
¥1,242,957
1,000
Income and Expenses 500
Cost of sales rose ¥67.6 billion or 6.2% to ¥1,152.2 billion in fiscal 2005. Meanwhile, the cost-to-sales ratio stood at 75.5%, an increase of 2.0 percentage points year on year, as the AGC Group’s efforts to reduce expenses and increase sales of high-value-added products failed to offset higher costs resulting from the price surges of raw materials and energy sources, including oil.
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 Glass Operations Electronics and Display Operations Chemicals Operations Other Operations
Cost of Sales and SGA Expenses
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . Cost-to-sales ratio . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . SGA expenses . . . . . . . . . . . . . . . . . . . . . . . . Percentage of net sales . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥1,152,165 75.5% 374,496 256,302 16.8%
¥1,084,550 73.5% 391,177 251,773 17.1%
¥941,342 75.7% 301,615 218,428 17.6%
Operating income, the net result of gross profit minus SGA expenses, was ¥118.2 billion, down ¥21.2 billion or 15.2% from a year earlier, and the operating margin dropped 1.7 percentage points, from 9.4% in the previous year, to 7.7%. Other expenses were a net ¥35.4 billion, compared with expenses of ¥5.4 billion in fiscal 2004. Equity in earnings of unconsolidated subsidiaries and affiliates fell to ¥1.8 billion from ¥5.3 billion in the previous year, partially influenced by a change in the scope of equity-method affiliates. The AGC Group registered an impairment loss on long-lived assets of ¥31.6 billion in the year under review, compared with a loss of ¥14.5 billion in fiscal 2004 due mainly to the property, plant and equipment that manufacture CRT glass amid weakening demand for such glass on a global basis. Further, expenses for restructuring programs of ¥15.7 billion were recorded, mainly in relation to the restructuring of CRT glass business in Japan and Asian companies. Thanks to a currency exchange gain derived from the yen’s depreciation against the U.S. dollar, however, the AGC Group posted ¥35.4 billion in net other expenses, which was up ¥30.0 billion from the previous year.
Asahi Glass Co., Ltd.
3
Operating Income and Operating Margin (Billions of yen/%) 200
12
9.4
150
9 139.4
7.7
Income before income taxes and minority interests decreased ¥51.3 billion year on year, to ¥82.8 billion. Minority interests in earnings of consolidated subsidiaries was ¥10.4 billion (income), compared with ¥14.3 billion (expenses) in the previous year, reflecting worsened earnings at subsidiaries engaged in the CRT glass business. Consequently, net income for the year under review was ¥60.0 billion, down ¥18.3 billion or 23.3% from ¥78.3 billion in the year earlier. Basic net income per share decreased 23.1% year on year from ¥66.75 to ¥51.36. ROE decreased 4.1 percentage points to 7.7% and ROA on an operating income base also decreased 1.6 percentage points to 6.0%.
118.2 6.7
100
6
Income
83.2
5.2
Millions of yen 2004/12
2003/12
¥118,194 7.7%
¥139,404 9.4%
¥83,187 6.7%
82,758 60,015 3.9%
134,010 78,287 5.3%
85,707 53,641 4.3%
51.36 48.70 7.7%
66.75 63.01 11.8%
45.65 43.17 9.1%
6.0%
7.6%
4.6%
4.7 67.5
2005/12
59.0
50
3
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 0
Operating Income Operating Margin
Total Shareholders’ Equity and ROE (Billions of yen/%) 15
1,000 11.8 852.7
12
800 9.1
600
586.0
553.8
699.1
9
622.8
400
6
200
3
0
0 –0.7 –2.1
–200 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 –3
Total Shareholders’ Equity ROE
Sales of Glass Operations (Billions of yen) 800 740.5
758.9
708.4 664.7
600
400
200
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
4
FINANCIAL REVIEW 2005
Performance by Segment Glass Operations
7.7
666.5
Operating income . . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage of net sales . . . . . . . . . . . . . . . . . . Per share data (yen) . . . . . . . . . . . . . . . . . . . . . —Net income—basic . . . . . . . . . . . . . . . . . . —Net income—fully diluted . . . . . . . . . . . . . Return on Equity (ROE) . . . . . . . . . . . . . . . . . . Return on Assets (ROA) (operating income base) . . . . . . . . . . . . . . . . .
Glass Operations comprise flat glass for construction and automotive glass, which are both conducted globally, as well as the Japanese domestic business involving other glass categories including fiberglass and other applications. Although the construction market suffered from a severe winter during the first quarter, particularly in Europe, shipments of flat glass and high-value-added products throughout the year increased from the previous year. By region, shipments rose in Europe while sales of some products leveled off in Japan. Other Asian regions suffered slow demand on rising prices of oil, in addition to production concerns. In North America, shipments stayed healthy from the previous year’s level. The AGC Group strove to reduce costs through a benchmarking process, which analyzes the productivity of the AGC Group’s manufacturing plants and adopts the most efficient manufacturing processes globally, and it also adjusted product prices in conjunction with price hikes in raw materials and energy sources, which, however, could not offset higher costs caused by sharply rising prices of fuel oil and natural gas. In the automotive glass business, sales increased from a year earlier due to the worldwide increase in automobile production, particularly Japanese-affiliated automakers. By region, in Asia including Japan, overall sales of automotive glass expanded as exports of automobiles from Japan rose up and mainly thanks to healthy sales in Asia, the number of automobiles produced there rose year on year. In North America, despite a slight drop in automobile production influenced by weak sales of the Big Three in the U.S., automotive glass sales were up as sales of value-added products increased. In Europe, sales grew somewhat, reflecting a slight growth in automobile production in the region.
In other glass operations, sales of fiberglass declined year on year due to slow growth in the housing market in Japan. In addition, Asahi Tostem Exterior Building Materials Co., Ltd., which specializes in residential exterior siding boards, was reclassified as an equity-method affiliate effective from the beginning of fiscal 2005. Consequently, net sales from Glass Operations for the year under review increased ¥18.4 billion or 2.5% from the previous year to ¥758.9 billion, while operating income decreased ¥10.0 billion or 20.9% to ¥38.0 billion.
Electronics and Display Operations
Sales of Electronics and Display Operations (Billions of yen) 500 435.7
443.8
400 337.0
300
314.9 309.9
200
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Electronics and Display Operations involve the display business, which handles CRT glass and glass substrates for FPDs, as well as the electronic materials business. The CRT glass business remained sluggish in fiscal 2005, although sales volume, which had continued to fall influenced by market adjustments of inventories begun at the start of this year, slightly recovered and a price decline was curbed in the fourth quarter of the fiscal year. To cope with this prolonged weak demand, the AGC Group made operational adjustments at its production bases, and closed manufacturing facilities at some of them. On the other hand, sales at the FPD glass substrate business increased due to strong demand for glass substrates for TFT LCDs and PDPs as a result of higher demand for screen panels for PC monitors and thin-screen televisions (such as LCD TVs and PDP TVs) as well as a growing trend toward larger panels. In the electronic materials business, demand for LCD back-light tubes continued to be steady due to an increase in the production of LCD panels. However, sales of optical filters for use in liquid crystal projectors and optical pickup elements for DVD decks were strongly affected by demand adjustments and a price drop in the market of digital electronics products. Demand for synthetic quartz used for semiconductor manufacturing equipment as well as small- and medium-sized displays installed in cellular phones and other equipment recovered in the fourth quarter, but remained low for the entire year, hurt by the demand adjustments. In Electronics and Display Operations, the growth of the FPD glass substrate business could not totally offset the slump of the CRT glass business and the electronic materials business. As a result, net sales for fiscal 2005 increased ¥8.1 billion or 1.8% from the previous year to ¥443.8 billion, and operating income was ¥60.9 billion, down ¥10.0 billion or 14.1%.
Chemicals Operations
Sales of Chemicals Operations (Billions of yen) 300
300.4 286.0 258.7 261.3 227.1
200
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Chemicals Operations comprise the chlor-alkali & urethane business and the fluorochemicals & specialty chemicals business. The chlor-alkali & urethane business involves caustic soda, vinyl chloride monomer and other chlor-alkali chemicals in addition to basic ingredients of urethane, such as polyols. The fluorochemicals & specialty chemicals business consists of fluorinated resins, fluorinated oil and water repellents, fluoropolymer films, and fluorinated gases and solvents, as well as other specialty chemicals including battery materials, liquid crystal materials and fine silica. The chlor-alkali & urethane business, in which demand continued to be strong throughout the year in Japan, China and Southeast Asia, remained active in fiscal 2005. These favorable results are attributable to the fact that although the prices of raw materials and energies rose, the AGC Group could spread the price revisions made according to product values by adding high-performance to products and closely meeting the needs of local customers, thus being capable of absorbing the effects of market fluctuations. In the fluorochemicals & specialty chemicals business, shipments of optical filters for PDPs were strong as demand continued to grow from the second quarter of fiscal 2005. Sales of fluorinated resins, fluoropolymer films, fluorinated elastomers, and fluorinated oil and water repellents were also steady, helped by high demand. In North America, the AGC Group continued to implement measures for improving profitability of the fluorinated resin business. As a result, Chemicals Operations posted net sales of ¥300.4 billion in the year ended December 31, 2005, up ¥14.4 billion or 5.0% from the preceding year, while posting operating income of ¥16.3 billion, down ¥1.3 billion or 7.2%.
Asahi Glass Co., Ltd.
5
Other Operations Other Operations consist of ceramics and a variety of service-related businesses, including logistics and engineering services. Sales of high-performance, high-value-added products expanded in the glass engineering sector and the environmental energy sector in the ceramics business during fiscal 2005. As a result, net sales from Other Operations for the year under review increased ¥5.2 billion or 7.0%, year on year, to ¥80.3 billion. Operating income was ¥3.2 billion, up ¥0.2 billion or 6.5%. Operating Income by Operating Segment
Sales and Income by Operation
(Billions of yen)
150
139.4 118.2
100 83.2 59.0
67.5
50
0
–50 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12 Glass Operations Electronics and Display Operations Chemicals Operations Other Operations
Glass Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Electronics and Display Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Chemicals Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Other Operations Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥758,894 37,986 5.0%
¥740,483 48,017 6.5%
¥664,683 35,550 5.3%
443,803 60,888 13.7%
435,744 70,862 16.3%
336,993 38,480 11.4%
300,397 16,295 5.4%
286,018 17,559 6.1%
227,121 7,690 3.4%
80,253 3,151 3.9%
75,029 2,958 3.9%
64,231 1,543 2.4%
Sales and Income by Geographic Area
Operating Income by Geographic Area (Billions of yen) 139.4
150
118.2
100 83.2 67.5 59.0
50
0
–50 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Japan Asia The Americas Europe
6
FINANCIAL REVIEW 2005
Japan Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Asia Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . The Americas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . Europe Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . .
2005/12
Millions of yen 2004/12
2003/12
¥856,232 68,827 8.0%
¥868,622 67,520 7.8%
¥680,151 26,246 3.9%
390,702 37,332 9.6%
341,761 52,166 15.3%
263,931 35,287 13.4%
203,911 (6,973) (3.4%)
204,578 (3,240) (1.6%)
176,716 4,919 2.8%
318,738 22,160 7.0%
295,676 25,854 8.7%
274,000 17,080 6.2%
Assets, Liabilities and Shareholders’ Equity
Interest-bearing Debt and Debt-to-equity Ratio (Billions of yen/Times) 2.0
800 735.3 685.7
600
1.5
574.3 523.8 529.4 1.08
1.10
400
We continue to adhere to a policy of maintaining appropriate liquidity, securing the funds necessary to conduct our operations and ensuring the soundness of our balance sheet. With the aim of facilitating the stable procurement of long-term funds, we have obtained an A rating from Standard & Poor’s, an A1 rating from Moody’s Investors Service and an AA rating from Rating and Investment Information, Inc. Total assets were ¥2,081.9 billion as of the end of fiscal 2005, an increase of ¥196.7 billion from the previous year. This increase is attributable chiefly to: an increase in property, plant and equipment resulting from proactive investments in manufacturing facilities for FPD glass substrates amid growing demand for screen panels for thin-screen televisions, and increased investment securities reflecting a growth in unrealized gains on holdings of listed securities thanks to a recovery in the stock market. At the end of fiscal 2005, total liabilities, the sum of total current liabilities and total non-current liabilities, amounted to ¥1,129.9 billion, up ¥69.1 billion from the preceding year, owing primarily to an increase in trade notes and accounts payable, deferred income taxes, and such like. The outstanding balance of interest-bearing debt including short-term bank loans, bonds issued and long-term loans from banks and other financial institutions increased along with the buildup of capital investments, but the AGC Group strove to reduce debts as a whole. As a result, the balance at the end of fiscal 2005 was ¥529.4 billion, up ¥5.6 billion from the preceding year. Shareholders’ equity was ¥852.7 billion at the end of the year under review, up ¥153.5 billion from the preceding year, mainly because of an increase in retained earnings due to net income and an increase in unrealized gains on securities reflecting rising prices of listed stocks. Additional paidin capital rose ¥11.9 billion as a result of a stock swap through which the Company made Asahi Techno Glass Corporation into a wholly owned subsidiary in fiscal 2005. As a consequence of the above, the equity ratio rose 3.9 percentage points from December 31, 2004 to 41.0%. Total shareholders’ equity per share was ¥726.98, up from ¥601.47.
1.0
0.78
Assets, Liabilities and Shareholders’ Equity 0.64
2005/12
Millions of yen 2004/12
2003/12
¥2,081,927 688,432 238,023 349,953 587,145
¥1,885,269 648,237 215,783 260,320 549,139
¥1,806,612 582,060 203,643 285,714 489,319
529,387 852,684 41.0% 726.98 0.56
523,831 699,139 37.1% 601.47 0.64
574,268 622,800 34.5% 530.57 0.78
0.56
0.5
200
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
0
Interest-bearing Debt Debt-to-equity Ratio * Debt-to-equity Ratio=Interest-bearing Debt/ Shareholders’ Equity and Minority Interests
Equity Ratio (%) 50
As of
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments and advances . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . Interest-bearing debt (includes notes receivable discounted) . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . Equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity per share (yen) . . . . . . . . . . . . . . . . . . . Debt-to-equity ratio (times) . . . . . . . . . . . . . . .
41.0 37.1
40 34.5 31.0
31.0
30
20
10
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Asahi Glass Co., Ltd.
7
Cash Flows Cash and cash equivalents (hereinafter “cash”) at December 31, 2005 amounted to ¥54.0 billion, a decrease of ¥13.9 billion from ¥67.9 billion at the end of the previous year.
Cash Flows from Operating Activities Net cash provided by operating activities amounted to ¥185.5 billion for the year under review, a decrease of ¥47.4 billion from the previous year. This decline is attributable chiefly to a decrease in income before income taxes and minority interests and increased payments of corporate income taxes.
Cash Flows from Investing Activities Net cash used in investing activities increased ¥9.9 billion year on year, to ¥135.8 billion. During the year under review, capital investments were made mainly in the expansion of manufacturing facilities for FPD glass substrates of the Electronics & Display Operations, as well as the business development of the Glass Operations in such emerging markets as Central and Eastern Europe, including Russia. As a result, free cash flow, which is the sum of cash flows from operating and investing activities, for fiscal 2005 declined ¥57.2 billion from the previous year to ¥49.7 billion.
Cash Flows from Financing Activities
Cash Provided by Operating Activities
Net cash used in financing activities fell ¥31.5 billion from a year earlier to ¥67.4 billion, with cash being used for debt repayment and the payment of dividends.
(Billions of yen) 300
Summary Cash Flow Statement 232.9
200 185.5
177.3 147.9 129.7
100
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
Free Cash Flow (Billions of yen) 150
107.0
100 86.4
62.6
50
49.7
22.6
0 ’02/3 ’03/3 ’03/12 ’04/12 ’05/12
8
FINANCIAL REVIEW 2005
Net cash provided by operating activities . . . . . Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . Repayments of long-term debts . . . . . . . . . . Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . Changes in cash and cash equivalents . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents held by newly consolidated subsidiaries net, of those held by deconsolidated subsidiaries . . . . . . . . . . . . Cash and cash equivalents at end of year . . . .
2005/12
Millions of yen 2004/12
2003/12
¥185,505
¥232,888
¥147,883
82,758 122,665 (135,796)
134,010 132,558 (125,933)
85,707 99,900 (61,462)
(197,265) 49,709 (67,436) (50,973)
(161,103) 106,955 (98,967) (51,241)
(108,181) 86,421 (92,331) (45,449)
4,028 (13,699)
1,521 9,509
(1,661) (7,571)
67,944
55,916
55,283
(238) 54,007
2,519 67,944
8,204 55,916
Risks Associated With Operations Set out below are the risks associated with the AGC Group’s operations and other risks that may materially influence the decisions of investors to invest in the AGC Group. However, the description does not include all possible risks relating to the AGC Group and there may exist additional risks not stated below. Any such risks are also likely to influence investors’ decisions. Future matters contained in this statement are based on information available as of March 30, 2006.
(1) Economic status of the markets in which the AGC Group’s products are sold Demand for the AGC Group’s products is impacted by trends in such industries as construction and building materials, automobile, electronics and display. The AGC Group’s products are supplied throughout the world, for example in the U.S., Asia and Europe, as well as Japan, and sales are therefore influenced by local economies. Although the AGC Group is working hard to build an earnings structure that is not impacted by changes in the business environment, by improving productivity and reducing fixed and variable costs, its performance and financial state is susceptible to declining demand from the industries mentioned as well as overall economic downturns in the regions where its products are primarily sold.
(2) High dependence on the electronics and display operations In the year through December 2005, operating income of the Electronics and Display operations accounted for 51.5% of the AGC Group’s total operating income, denoting a heavy reliance on this sector for revenue. Earnings from these operations tend to fluctuate substantially, and losses cannot always be offset by income from other operations. This has the potential to significantly impact the AGC Group’s performance and financial position.
(3) Expansion of operations overseas The AGC Group has substantial operations overseas, through exports of products and manufacturing abroad. The risks associated with operating abroad include deteriorating political and economic situations, the imposition of regulations on imports and foreign investment, unexpected changes in laws, the worsening of public security, and the occurrence of terrorist attacks and war. These events may hinder the AGC Group’s operations overseas and have serious effects on its performance and financial position.
(4) Competitive edge, and development and commercialization of new technologies and products In every field in which the AGC Group engages, there are competitors supplying products similar to those of the AGC Group. Accordingly, to maintain its competitive edge, the AGC Group is striving to identify the needs of customers, and to develop and commercialize new technologies and products. However, should the AGC Group fail to appropriately respond to technical changes and customer needs or take too long to develop and commercialize new technologies and products, growth would be hampered and profitability would decline. This may significantly impact the AGC Group’s performance and financial position.
(5) Procurement of production materials and resources Because the AGC Group partially uses special materials, suppliers of which are limited, if supply tightens or is delayed, the AGC Group’s performance and financial positions may be greatly affected.
Asahi Glass Co., Ltd.
9
(6) Government regulations In the countries and regions where it operates, the AGC Group is subject to the approval and authorization of local governments with respect to investments, regulations on exports and imports, as well as laws governing commercial transactions, labor, patents, taxation, foreign exchanges, and other issues. Consequently, amendments to these regulations and laws may significantly influence the AGC Group’s performance and financial position.
(7) Environmental regulations The AGC Group engages primarily in glass and chemicals operations, which are characterized by a heavy environmental impact because they consume a great quantity of resources and energy. Recognizing this, the AGC Group is making great efforts to reduce the environmental impact by improving facilities, establishing related management systems, and raising production efficiency by decreasing unit resource consumption and unit energy consumption. However, if environmental regulations become more stringent and the public calls for greater corporate responsibility in environmental protection, the AGC Group’s performance and financial position may be significantly impacted.
(8) Product liability The AGC Group is making every effort to ensure that products are of the highest quality, according to their individual characteristics. Despite these efforts, the possibility remains that unexpected quality problems may occur because of unanticipated factors developing, prompting a major recall. This could substantially influence the AGC Group’s performance and financial position.
(9) Intellectual property rights The AGC Group endeavors to acquire intellectual property rights that appear useful for its present business activities and future operations alike, while investigating the rights of other firms, in order to prevent intellectual property issues from arising. However, there is the possibility that the AGC Group will enter into disputes with other firms over intellectual property or that other firms will infringe the AGC Group’s intellectual property rights. This has the potential to materially influence the AGC Group’s performance and financial position.
(10) Litigation There is always a risk that other firms, corporate groups, or individuals may take legal action against the AGC Group with respect to its operations at home and abroad. During the fiscal period under review, there was no legal action pending that had a significantly negative effect on the AGC Group’s operations. However, if a major lawsuit is filed against the AGC Group, its performance and financial positions may be significantly impacted.
(11) Effect of natural disasters and accidents To minimize the adverse impact on business caused by the suspension of production, the AGC Group regularly conducts inspections of all facilities for maintenance purposes and to prevent potential damage from disaster. But there is no guarantee that the effects of disasters occurring at manufacturing facilities (including earthquakes, power outages, and other disruptions) can be completely eliminated or mitigated. Given that some of the AGC Group’s products cannot be replaced by alternatives, should production cease at some facilities temporarily or for the long term because of a major earthquake or other incident, the AGC Group’s ability to manufacture such products is likely to sharply decline. Should this occur, the AGC Group’s performance and financial position may be greatly affected.
10 FINANCIAL REVIEW 2005
(12) Exchange rate fluctuations The AGC Group manufactures and sells products worldwide, and converts transaction accounts in local currencies, including sales, costs, and assets, into yen when preparing consolidated financial statements. Even if the values of these items remain unchanged in local currency terms, they may change when converted into yen depending on exchange rates. The yen’s appreciation against other currencies (particularly the U.S. dollar and the euro, which account for a considerable percentage of the AGC Group’s sales) generally has a negative affect on the AGC Group’s earnings, while the depreciation of the yen exerts a favorable influence. The AGC Group also manufactures products at its facilities worldwide, including Japan, and exports the products to a number of countries. The AGC Group generally procures raw materials and sells products in the local currency of each country/region. Accordingly, fluctuations in exchange rates influence the prices of materials the AGC Group procures and the pricing policy for its products, and this impacts the AGC Group’s performance, financial position and future earnings.
(13) Retirement benefit obligations The AGC Group calculates costs for employee retirement benefits and obligations based on an actuarial assumption of the returns on pension funds and a specific discount rate. If the actuarial assumption and results diverge substantially because of a deterioration in the market environment for pension fund management, future costs for retirement benefits will increase, and this may seriously impact the AGC Group’s performance and financial position.
(14) Decline in asset values of fixed assets If the asset values of the AGC Group’s owned fixed assets were to decline because of a drop in market values or profitability, the AGC Group’s performance and financial position may be substantially impacted.
(15) Other Officials from the European Commission visited two AGC Group companies in Belgium, Glaverbel S.A. and AGC Automotive Europe S.A., on February 22 and 23, 2005, with authorization to inspect documents in connection with alleged infringements of competition rules. At this moment, however, it is not clear yet to what extent this matter will impact the operating performance and the financial position of the AGC Group.
Asahi Glass Co., Ltd. 11
CONSOLIDATED BALANCE SHEETS Asahi Glass Co., Ltd., and Consolidated Subsidiaries As of December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen
ASSETS
2005
Current Assets: Cash on hand and in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts receivable (Note 7) . . . . . . . . . . . . . . . . . . . . Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
73,811 309,432 238,023 5,586 13,342 54,805 (6,567)
2004
¥
98,648 280,616 215,783 4,071 9,382 46,486 (6,749)
2005
$
625,517 2,622,305 2,017,144 47,339 113,068 464,448 (55,652)
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
688,432
648,237
5,834,169
Investments and Advances: Investments in securities (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . Other investments and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286,749 34,179 29,025
195,926 28,632 35,762
2,430,076 289,653 245,974
349,953
260,320
2,965,703
Property, Plant and Equipment (Notes 5 and 8): Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
527,363 1,650,764 118,620 77,011
489,097 1,514,588 110,728 61,462
4,469,178 13,989,525 1,005,254 652,636
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,373,758 (1,451,127)
2,175,875 (1,322,484)
20,116,593 (12,297,686)
922,631
853,391
7,818,907
12,885 37,949 (3,449)
20,788 29,821 (2,854)
109,195 321,602 (29,229)
47,385
47,755
401,568
Goodwill, Net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,526
75,566
623,102
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927
¥1,885,269
$17,643,449
Other Assets: Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these consolidated financial statements.
12 FINANCIAL REVIEW 2005
Thousands of U.S. dollars (Note 3)
Millions of yen
LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Short-term bank loans (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . Commercial paper (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts payable (Note 7) . . . . . . . . . . . . . . . . . . . . . . Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued bonuses to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guarantee deposits from dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
¥
80,920 39,187 32,037 206,351 41,081 20,065 33,157 6,804 12,675 847 6,522 107,499
2004
¥
2005
72,513 47,383 25,734 181,775 38,040 18,207 33,202 5,704 12,877 147 2,315 111,242
$
685,763 332,093 271,500 1,748,737 348,144 170,042 280,992 57,661 107,415 7,178 55,271 911,009
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
587,145
549,139
4,975,805
Non-current Liabilities: Long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits for directors and corporate auditors . . . . . . Reserve for rebuilding furnaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
398,472 64,448 1,533 17,810 2,060 58,455
398,256 57,091 1,498 16,141 5,739 32,958
3,376,881 546,169 12,992 150,932 17,458 495,381
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
542,778
511,683
4,599,813
Minority Interests in Consolidated Subsidiaries . . . . . . . . . . . . . . . . . . .
99,320
125,308
841,695
90,473 96,561 556,424 121 124,262 (1,448)
90,472 84,628 511,749 121 58,641 (32,926)
766,720 818,314 4,715,458 1,025 1,053,068 (12,271)
Commitments and Contingent Liabilities (Note 12) Shareholders’ Equity: Common stock—no par value Authorized: 2,000,000,000 shares at December 31, 2005 and 2004 Issued and outstanding: 1,185,999,578 shares at December 31, 2005 and 1,175,242,497 shares at December 31, 2004 . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gains on securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . Less: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . Less: Treasury stock, at cost, 13,150,884 shares at December 31, 2005 and 13,048,678 shares at December 31, 2004 (Note 17) . . . . . . .
(13,709)
(13,546)
(116,178)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
852,684
699,139
7,226,136
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . .
¥2,081,927
¥1,885,269
$17,643,449
Asahi Glass Co., Ltd. 13
CONSOLIDATED STATEMENTS OF INCOME Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen 2005
2004
2005
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Sales (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,526,661 1,152,165
¥1,475,727 1,084,550
$12,937,805 9,764,110
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, General and Administrative Expenses (Note 13) . . . . . . . . . . . .
374,496 256,302
391,177 251,773
3,173,695 2,172,051
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expenses): Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain (loss) on sale and disposal of properties, net . . . . . . . . . . . . . . . . . Impairment loss on long-lived assets (Note 5) . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . Gain on sale of investments in securities, unconsolidated subsidiaries and affiliates (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on write-down of investments in securities . . . . . . . . . . . . . . . . . . . Exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on reversal of reserve for restructuring programs . . . . . . . . . . . . . . Gain from transfer of the substitutional portion of the employees’ pension fund’s liabilities to the Japanese Government . . . . . . . . . . . . . One-time adjustments to accumulated depreciation of long-lived assets . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,194
139,404
1,001,644
5,491 (13,073) 2,083 (31,556) 1,802
5,048 (11,293) (2,967) (14,505) 5,262
46,534 (110,788) 17,653 (267,424) 15,271
13,714 — 6,723 (15,683) 1,778
21,050 (3,113) (1,992) (9,891) 3,811
116,220 — 56,975 (132,907) 15,068
2,222 — (8,937)
24,530 (14,880) (6,454)
18,831 — (75,738)
Income before income taxes and minority interests . . . . . . . . . . . . . . . Income Taxes (Notes 2 (14) and 10): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,758
134,010
701,339
47,694 (14,567)
39,947 1,467
404,186 (123,449)
Minority Interests in Earnings (Losses) of Consolidated Subsidiaries . . .
33,127 10,384
41,414 (14,309)
280,737 88,000
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
60,015
¥
78,287
The accompanying notes are an integral part of these consolidated financial statements.
14 FINANCIAL REVIEW 2005
¥51.36 48.70 15.00
508,602
In exact U.S. dollars (Note 3)
In exact yen
Per Common Share (Notes 2 (17) and 15): Net income—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
¥66.75 63.01 12.00
$0.44 0.41 0.13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands Number of shares of common stock
Balance at December 31, 2003 . . . . . . . . . . . . . 1,175,242 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Dividends declared . . . . . . . . . . . . . . . . . . . . . . — Bonuses to directors and corporate auditors . . . . — Decrease due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — Decrease due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — Increase due to the merger of subsidiaries . . . . — Decrease due to the merger of subsidiaries . . . . — Increase due to asset revaluation at overseas subsidiaries . . . . . . . . . . . . . . . . . . . — Gain on sale of treasury stock, net of tax . . . . . — Foreign currency translation adjustments, net . . . — Unrealized gains on securities, net of tax . . . . . — Asset revaluation reserve . . . . . . . . . . . . . . . . . — Increase of treasury stock . . . . . . . . . . . . . . . . . — Balance at December 31, 2004 . . . . . . . . . . . . . 1,175,242 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Dividends declared . . . . . . . . . . . . . . . . . . . . . . — Bonuses to directors and corporate auditors . . . . — Increase due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — Increase due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — Increase due to the exchange of stock . . . . . . . 10,757 Increase due to the conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . 1 Decrease due to inclusion of new subsidiaries in affiliates . . . . . . . . . . . . . . — Loss on sale of treasury stock, net of tax . . . . . — Foreign currency translation adjustments, net . . . — Unrealized gains on securities, net of tax . . . . . — Asset revaluation reserve . . . . . . . . . . . . . . . . . — Increase of treasury stock . . . . . . . . . . . . . . . . . — Balance at December 31, 2005 . . . . . . . . . . . . . 1,186,000
Millions of yen Common stock
Additional paid-in capital
Retained earnings
¥90,472 — — —
¥84,396 — — —
¥449,958 78,287 (14,964) (98)
—
—
— — —
Others
¥
Total
(810) — — —
¥ (1,216) — — —
¥622,800 78,287 (14,964) (98)
(31)
—
—
(31)
— 229 —
(1,191) — (229)
— — —
— — —
(1,191) 229 (229)
— — — — — — ¥90,472 — — —
— 3 — — — — ¥84,628 — — —
17 — — — — — ¥511,749 60,015 (15,689) (181)
— — 11,249 15,397 0 — ¥ 25,836 — — —
— — — — — (12,330) ¥ (13,546) — — —
17 3 11,249 15,397 0 (12,330) ¥699,139 60,015 (15,689) (181)
—
—
550
—
—
550
— —
— 11,937
145 —
— —
— —
145 11,937
1
0
—
—
—
1
— — — — — — ¥90,473
— (4) — — — — ¥96,561
(139) (26) — — — — ¥556,424
— — 31,478 65,621 0 — ¥122,935
— — — — — (163) ¥(13,709)
(139) (30) 31,478 65,621 0 (163) ¥852,684
Thousands Number of shares of common stock
Treasury stock, at cost
Thousands of U.S. dollars (Note 3) Common stock
Additional paid-in capital
Retained earnings
Others
Treasury stock, at cost
Total
Balance at December 31, 2004 . . . . . . . . . . . . . 1,175,242 $766,712 $717,187 $4,336,856 $ 218,949 $(114,797) $5,924,907 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 508,602 — — 508,602 Dividends declared . . . . . . . . . . . . . . . . . . . . . . — — — (132,958) — — (132,958) Bonuses to directors and corporate auditors . . . . — — — (1,534) — — (1,534) Increase due to inclusion of new subsidiaries in consolidation . . . . . . . . . . . . . . . . . . . . . . . . — — — 4,661 — — 4,661 Increase due to change of overseas subsidiary’s functional currency . . . . . . . . . . . — — — 1,229 — — 1,229 Increase due to the exchange of stock . . . . . . . 10,757 — 101,161 — — — 101,161 Increase due to the conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . 1 8 0 — — — 8 Decrease due to inclusion of new subsidiaries in affiliates . . . . . . . . . . . . . . — — — (1,178) — — (1,178) Loss on sale of treasury stock, net of tax . . . . . — — (34) (220) — — (254) Foreign currency translation adjustments, net . . . — — — — 266,763 — 266,763 Unrealized gains on securities, net of tax . . . . . — — — — 556,110 — 556,110 Asset revaluation reserve . . . . . . . . . . . . . . . . . — — — — 0 — 0 Increase of treasury stock . . . . . . . . . . . . . . . . . — — — — — (1,381) (1,381) Balance at December 31, 2005 . . . . . . . . . . . . . 1,186,000 $766,720 $818,314 $4,715,458 $1,041,822 $(116,178) $7,226,136 The accompanying notes are an integral part of these consolidated financial statements.
Asahi Glass Co., Ltd. 15
CONSOLIDATED STATEMENTS OF CASH FLOWS Asahi Glass Co., Ltd., and Consolidated Subsidiaries For the years ended December 31, 2005 and 2004
Thousands of U.S. dollars (Note 3)
Millions of yen
Cash Flows from Operating Activities: Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . . Gain on sale of investments in securities, unconsolidated subsidiaries, affiliates and properties, etc., net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in trade notes and accounts receivable . . . . . . . . . . . . . . . . . . . . Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in trade notes and accounts payable . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Investing Activities: Decrease in time deposits due over three months . . . . . . . . . . . . . . . . . . Increase in time deposits due over three months . . . . . . . . . . . . . . . . . . . Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . Purchases of investments in securities, unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale and redemption of investments in securities, unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Financing Activities: Increase in short-term bank loans and commercial paper . . . . . . . . . . . . . Proceeds from long-term debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayments of long-term debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of a subsidiary’s bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of borrowed securities . . . . . . . . . . . . . . . . . . . . . . . . Repayments from sale of borrowed securities . . . . . . . . . . . . . . . . . . . . . Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . Changes in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents Held by Newly Consolidated Subsidiaries, Net of Those Held by Deconsolidated Subsidiaries . . . . . . . . . . . . . . . . Cash and Cash Equivalents at End of Year (Note 2 (18)) . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements.
16 FINANCIAL REVIEW 2005
2005
2004
2005
¥ 82,758 122,665 31,556 7,774 5,813 (5,491) 13,073 (2,019) (1,802)
¥134,010 132,558 14,505 7,965 (15,655) (5,048) 11,293 902 (5,262)
$ 701,339 1,039,534 267,424 65,881 49,263 (46,534) 110,788 (17,110) (15,271)
(15,494) (23,069) (16,279) 19,229 21,171 239,885 5,126 (14,618) (44,888) 185,505
(17,035) (10,852) (7,039) 9,368 12,465 262,175 6,322 (11,332) (24,277) 232,888
(131,305) (195,500) (137,958) 162,958 179,414 2,032,923 43,441 (123,881) (380,407) 1,572,076
(20,149) 34,773 (197,265) 13,863
(30,615) 8,904 (161,103) 8,828
(170,754) 294,686 (1,671,737) 117,483
(4,026)
(14,970)
(34,119)
36,146 862 (135,796)
63,849 (826) (125,933)
306,322 7,305 (1,150,814)
7,241 28,023 (50,973) 19,927 (16,181) — — (23,146) (432) (11,573) (20,534) 212 (67,436) 4,028 (13,699) 67,944
3,736 45,677 (51,241) 9,453 (66,530) (10,805) 3,288 — (12,408) — (20,097) (40) (98,967) 1,521 9,509 55,916
61,364 237,483 (431,975) 168,873 (137,127) — — (196,153) (3,661) (98,076) (174,017) 1,797 (571,492) 34,137 (116,093) 575,797
(238) ¥ 54,007
2,519 ¥ 67,944
(2,018) $ 457,686
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asahi Glass Co., Ltd., and Consolidated Subsidiaries
Note 1: Basis of Presentation The accompanying consolidated financial statements of Asahi Glass Company, Limited (the “Company”), and its consolidated subsidiaries have been prepared based on the accounts of the Company and respective consolidated subsidiaries (together, referred to as the “Companies”). The accounts of the Company and its domestic consolidated subsidiaries incorporated in Japan have been prepared in accordance with the provisions set forth in the Japanese Commercial Code and in conformity with generally accepted accounting principles and practices prevailing in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accounts of overseas consolidated subsidiaries are based on their financial statements prepared in conformity with generally accepted accounting principles and practices prevailing in the respective countries in which the subsidiaries are incorporated. Certain items presented in the consolidated financial statements filed with the Ministry of Finance in Japan have been reclassified for the convenience of readers outside Japan. Note 2: Summary of Significant Accounting Policies (1) Scope of Consolidation The Company had 304 subsidiaries as of December 31, 2005 (325 as of December 31, 2004). The consolidated financial statements include the accounts of the Company and 245 (253 as of December 31, 2004) of its subsidiaries. The definition of subsidiary is based on the substantive existence of controlling power. The major subsidiaries, which have been consolidated with the Company, are listed below: Country/region of incorporation ( i )
A.G. Finance Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Distribution & Delivery Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Fiber Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Ceramics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Fine Techno Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Techno Glass Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ise Chemicals Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Optrex Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AFG Industries, Inc. (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AGA Capital, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass America, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Glass Fine Techno Taiwan Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asahi Techno Vision Pte., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glaverbel S.A. (iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hankuk Electric Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P.T. Asahimas Chemical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shanghai Asahi Electronic Glass Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.A. U.S.A. U.S.A. Taiwan Singapore Belgium South Korea Indonesia China
Direct and indirect ownership percentage (ii)
100.0% 100.0 100.0 100.0 100.0 100.0 53.3 60.0 100.0 100.0 100.0 100.0 100.0 100.0 42.8 52.5 40.0
Paid-in capital (millions)
¥800 ¥100 ¥6,000 ¥3,500 ¥9,000 ¥7,233 ¥3,599 ¥2,500 US$553 US$20 US$859 NT$2,120 S$121 =C199 WON40,366 US$42 US$128
(i) If other than Japan (ii) As of December 31, 2005 (iii) Includes 19 companies consolidated by AFG Industries, Inc. (iv) Includes 94 companies consolidated by Glaverbel S.A. Note: All of the consolidated subsidiaries use a fiscal year ending December 31 of each year.
The accounts of the remaining 59 (72 as of December 31, 2004) unconsolidated subsidiaries are excluded from the consolidated financial statements since the aggregate amounts of these subsidiaries in terms of combined assets, net sales, net income (loss) and retained earnings (accumulated deficit) are immaterial in relation to those of the consolidated financial statements of the Companies.
Asahi Glass Co., Ltd. 17
(2) Principles of Consolidation For the purposes of preparing the consolidated financial statements, all significant intercompany transactions, account balances and unrealized profits among the Companies have been eliminated. At December 31, 2005 and 2004, the financial year-end of all the consolidated subsidiaries matches that of the Company. Elimination of investments in shares of consolidated subsidiaries, together with the fair value of underlying equity in the net assets of such subsidiaries, has been done to include equity in net income of subsidiaries subsequent to the date of acquisition in the Consolidated Statements of Income. Any difference between the cost of an investment in a subsidiary and the fair value of underlying equity in net assets of the subsidiary, unless specifically identified and reclassified to the applicable accounts from which the value originates, is treated as an asset or a liability (“Goodwill” account). Goodwill is amortized over a period of 20 years on a straight-line basis. Legal reserves of consolidated subsidiaries provided subsequent to the acquisition of such subsidiaries are included in retained earnings and are not shown separately in the consolidated financial statements. Until the year ended December 31, 2003, the goodwill recorded by subsidiaries in the U.S was accounted for in accordance with Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets,” which requires that goodwill not be amortized but tested for impairment on an annual basis. Effective January 1, 2004, the Company changed its policy of accounting for goodwill to be in conformity with that of the Company, where goodwill is amortized over 20 years on a straight-line basis, as permitted under Japan GAAP. This change was triggered by the publication of “Statement of Opinion on Establishment of Accounting Standard for Business Combination” issued by the Business Accounting Council of Japan, and was in order to achieve a better presentation of the financial condition and operational results of the consolidated group. In addition, the unamortized balance of the existing goodwill is amortized over ten years. The effect of this change in accounting policy was to decrease operating income by ¥5,439 million ($46,093 thousand) and income before income taxes and minority interests for the year ended December 31, 2004 by the same amount, as compared with the amount which would have been reported if the previous standards had been consistently applied. The effect of this change on each segment is described in the section on segment information as shown in note 19. (3) Investments in Unconsolidated Subsidiaries and Affiliates Under the Equity Method The Company had 59 (72 as of December 31, 2004) unconsolidated subsidiaries and 56 (62 as of December 31, 2004) affiliates as of December 31, 2005. Affiliates are defined to include those which are 15% or more owned and those that are subject to exercise of influence over the management of the affiliates by the investor company. The equity method is applied only to investments in major companies (32 and 33 companies at December 31, 2005 and 2004, respectively). The investments in the remaining unconsolidated subsidiaries and affiliates are stated at cost or less, because they do not have a material effect on the consolidated financial statements. (4) Translation of Foreign Currency Financial Statements (Accounts of Overseas Subsidiaries and Affiliates) All the assets and liabilities of overseas consolidated subsidiaries and overseas affiliates accounted for by the equity method are translated into yen at the current exchange rates prevailing at the balance sheet dates, except common stock and additional paid-in capital accounts which are translated at the historical rates. Revenues and expenses are translated by the average exchange rates prevailing during each period. The resulting differences are recorded as “Foreign currency translation adjustments,” a separate component of Shareholders’ Equity, and “Minority Interests in Consolidated Subsidiaries” in the Consolidated Balance Sheets. (5) Translation of Foreign Currency Transactions Revenue and expense items arising from transactions denominated in foreign currencies are translated into yen at the rates effective at the respective transaction dates. Foreign currencies and monetary receivables and payables denominated in foreign currencies are translated into yen at the current exchange rates prevailing at the respective balance sheet dates and the resulting translation gain or loss is included in determination of net income for the period. (6) Valuation of Securities Securities other than securities of subsidiaries and affiliated companies are stated at market value. Differences between market value and acquisition costs are recorded as “Unrealized gains on securities, net of tax” in Shareholders’ Equity. The cost of securities sold is calculated by the moving-average method. Securities without market value are stated at cost determined by the moving-average method. Debt securities that are expected to be held-to-maturity are accounted for by the amortized cost method. Declines in the value of securities, other than those which are deemed to be temporary, are reflected in current income. (7) Inventories Inventories are mainly stated at the lower of cost or market value, cost being determined by the moving-average method.
18 FINANCIAL REVIEW 2005
(8) Property, Plant and Equipment Depreciation by the Company and its domestic consolidated subsidiaries is principally computed by the declining-balance method, at rates based on the estimated useful lives of the assets. Depreciation by overseas consolidated subsidiaries is principally computed by the straight-line method over the estimated useful lives of the assets. The Company and certain domestic subsidiaries changed the estimated value of the residual value of property, plant and equipment from five percent of the acquisition costs to the nominal value. Effective January 1, 2004, the residual value is required to be written down to one yen in the following year when the net book value of the asset reaches five percent of the acquisition cost. This change was made to reflect the fact that the actual disposal value of property, plant and equipment is almost zero. As a result of the change, property, plant and equipment at December 31, 2004 decreased by ¥14,880 million ($126,102 thousand), and income before income taxes and minority interests for the year ended December 31, 2004 decreased by the same amount, as compared with the amount which would have been reported if the estimated residual value had not been changed. (9) Intangible Assets Amortization of intangible assets is computed by the straight-line method, principally over a period of five years. (10) Impairment of Long-Lived Assets On August 9, 2002, the Business Accounting Council of Japan issued new accounting standards entitled “Statement of Opinion on the Establishment of Accounting Standards for Impairment of Long-Lived Assets.” Further, on October 31, 2003, the Accounting Standards Board of Japan issued Financial Accounting Standards Implementation Guidance No. 6 “Guidance for Application of Accounting Standards for Impairment of Long-Lived Assets.” This standard shall be effective from the fiscal year beginning April 1, 2005, and an earlier adoption for the fiscal year ending March 31, 2004 is permitted. At December 31, 2004, the Companies adopted the accounting standard for impairment of Long-Lived Assets. The Companies recorded an impairment loss of ¥14,505 million ($122,924 thousand) on Long-Lived Assets as other expenses in the statements of income for the year ended December 31, 2004. (11) Certain Accrued Expense Items Certain accrued expense items, which are essentially an estimate of amounts to be determined in future years, are provided by the Companies. The basis for recognizing such accrued expenses is as follows: (i) Allowance for bad debts “Allowance for bad debts” is provided for at an amount sufficient to cover possible losses on the collection of receivables. For certain doubtful receivables, the uncollectible amounts are estimated based on a review of the collectibility of individual receivables. (ii) Accrued bonuses to employees “Accrued bonuses to employees” is provided for based on the estimated amount to be paid to employees after the balance sheet date for their services rendered during the current period. (iii) Accrued retirement benefits for directors and corporate auditors “Accrued retirement benefits for directors and corporate auditors” is provided for based on the estimated amount to be paid to directors and corporate auditors under the Companies’ internal rules. (iv) Reserve for rebuilding furnaces “Reserve for rebuilding furnaces” is provided for based on estimated costs to be incurred at the next periodic repair works on its facilities over the service period until the next repair works. (v) Reserve for restructuring programs “Reserve for restructuring programs” represents reasonably estimated costs arising from the additional severance compensation program related to restructuring, and the restructuring of certain businesses of the Companies. (12) Accounting for Retirement Benefits to Employees Recognition of accrued retirement benefits to employees is based on actuarial valuation of projected benefit obligations and fund assets. The prior service cost is amortized over the average remaining service period of employees (mainly 13 years), from the year when it is incurred. Actuarial gains/losses are amortized over the average remaining service period of employees (mainly 13 years), in the year subsequent to when it is incurred.
Asahi Glass Co., Ltd. 19
On March 26, 2004, the Company obtained governmental approval for its exemption from the obligation for benefits related to future employee service under the substitutional portion (first approval) from the Ministry of Health, Labour, and Welfare. As permitted by Article 47-2 of “Practical Guidelines on Accounting for Postretirement Benefits (Interim Report)” issued by the Japan Institute of Certified Public Accountants (JICPA), the Company adopted the transitional treatment of separation of the substitutional portion. This allows the elimination of the substitutional portion of the benefit obligation and the related assets transferred to the Japanese government to be recorded on the date of the first approval, together with the recognition of the proportionate amount of the unrecognized gain or loss. As a result, a one-off gain resulting from the separation of the substitutional portion of the Employees’ Pension Fund amounting to ¥24,329 million ($206,178 thousand) was recognized in the year ended December 31, 2004. The fair value of the plan assets to be transferred to the Japanese government was ¥56,016 million ($474,712 thousand) as at December 31, 2004. (13) Accounting for Consumption Tax Consumption tax is imposed at the flat rate of 5% on all Japanese domestic consumption of goods and services (with certain exemptions). The consumption tax withheld upon sale, and consumption tax paid on purchases of goods and services, are not included in the amounts of respective revenue and cost or expense items in the accompanying Consolidated Statements of Income. The consumption tax withheld and consumption tax paid are recorded as assets or liabilities and the net balance is included in “Other current assets” of the Consolidated Balance Sheets, as the case may be. (14) Income Taxes The Companies have adopted the consolidated tax return system for the calculation of income taxes effective from the year ended December 31, 2005. Under the consolidated tax return system, the Companies consolidate all wholly owned domestic subsidiaries based on the Japanese tax regulations. (15) Derivative Financial Instruments The Companies use financial instruments to reduce their exposure to market risks from fluctuations in foreign currency exchange rates, interest rates, and oil prices that may occur in the ordinary course of business. The basic rules and policies are determined by the Board of Directors, and the results of the transactions, including balances and gains/losses, are periodically reported to management. The controls over the transaction and position balances of foreign currency derivatives are monitored by the accounting/finance departments and the controls over the transactions and position balances of commodity derivatives are monitored by the procurement department. Hedging instruments mainly include foreign currency swap contracts, interest rate swap contracts and commodity swap contracts. Hedged items mainly include bonds and fuel oil. Derivatives are recorded at fair value. (16) Appropriation of Retained Earnings Under the Japanese Commercial Code and the Articles of Incorporation of the Company, the appropriation of retained earnings proposed by the Board of Directors is subject to approval by the shareholders at a meeting, which shall be held within three months of the end of each financial year. The appropriations of retained earnings reflected in the accompanying consolidated financial statements include the results of such appropriations applicable to the immediately preceding financial year as approved at the shareholders’ meeting, and effected, during the relevant year. Dividends are paid to shareholders on the shareholders’ register at the end of each financial year. As is customary practice in Japan, the payment of bonuses to directors and corporate auditors is made out of retained earnings through appropriation, instead of being charged to income of the year. (17) Net Income and Dividends per Share Net income per share of common stock is based upon the weighted average number of shares of common stock outstanding during each financial year, adjusted for subsequent free distribution of shares (stock splits). “Bonuses to directors and corporate auditors,” which are determined through appropriation of retained earnings by resolution of the general shareholders’ meeting subsequent to the year-end, and not reflected in the accounts of the current year, should be reflected in the calculation of net income per share as if “Bonuses to directors and corporate auditors” were to be charged to income during the year. Diluted net income per share is computed, based on the assumption that the convertible bonds, treasury stock for stock option and warrant for stock option were fully converted into common stock on the date of issuance or at the beginning of the respective years subsequent to the issuance, with appropriate adjustments of related interest expenses (net of tax). Cash dividends per share shown for each reporting period in the accompanying Consolidated Statements of Income represents dividends approved or declared as applicable to the respective reporting periods.
20 FINANCIAL REVIEW 2005
(18) Cash and Cash Equivalents in the Consolidated Statements of Cash Flows “Cash and cash equivalents” comprises cash on hand, bank deposits available for withdrawal on demand, and short-term investments due within three months or less and substantially free from any price fluctuation risk. Cash and cash equivalents at December 31, 2005 and 2004 consisted of: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Cash on hand and in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable included in other current assets . . . . . . . . . . . . . . . . . . . .
¥73,811 384
¥98,648 413
2005/12
$625,517 3,254
Less: Time deposits due over three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,195 (20,188)
99,061 (31,117)
628,771 (171,085)
¥54,007
¥67,944
$457,686
(19) Important Non-Cash Transactions For the year ended December 31, 2005, Asahi Techno Glass Corporation became a wholly owned subsidiary of the Company due to the exchange of stock. 10,756,200 new shares were issued as part of this transaction.
Increase in additional paid-in capital due to the exchange of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Millions of yen
Thousands of U.S. dollars
2005/12
2005/12
¥11,937
$101,161
Note 3: United States Dollar Amounts The Company maintains its accounting records in yen. The dollar amounts included in the consolidated financial statements and notes thereto, represent the arithmetical results of translating yen to dollars on the basis of ¥118=US$1, the approximate exchange rate at the balance sheet date. The inclusion of such dollar amounts is solely for convenience and is not intended to imply that yen amounts have been or could be converted, realized or settled in dollars at ¥118=US$1 or at any other rate. Note 4: Inventories Inventories as at December 31, 2005 and 2004 consisted of: Thousands of U.S. dollars
Millions of yen
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repair parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
2005/12
¥119,024 52,980 42,577 23,442
¥104,117 47,614 41,315 22,737
$1,008,678 448,983 360,822 198,661
¥238,023
¥215,783
$2,017,144
Note 5: Impairment of Long-Lived Assets For the year ended December 31, 2004, the Company adopted accounting for impairment of long-lived assets, namely property, plant and equipment, and goodwill. The Companies, as a general rule, categorize operating assets by business unit, whereas idle assets are assigned to a particular asset group on an individual basis. For the year ended December 31, 2005, the Companies marked down the book value of asset groups where there had been a significant decline in profitability and value to the recoverable amount and recorded the impairment losses of ¥38,230 million ($323,983 thousand) on long-lived assets under the Other Expenses section. ¥6,673 million ($56,551 thousand) of ¥38,230 million ($323,983 thousand) is recorded as “Expenses for restructuring programs.” With respect to operating assets, the Companies principally used the value in use for calculating the recoverable amount, whereas idle assets are recorded mainly at the official appraised value. The discount rate used for computing the value in use was the Company’s pre-tax cost of capital, which was 7%. The impairment loss on long-lived assets recorded in the income statement for the year ended December 31, 2005 consisted of: Business area
Geographic area
Category
Millions of yen
Thousands of U.S. dollars
Manufacturing facilities for CRT glass
Asia Japan
Machinery and buildings . . . . . . Machinery and buildings . . . . . .
¥29,948 3,887
$253,797 32,941
Manufacturing facilities for glass fibers
Japan
Machinery . . . . . . . . . . . . . . . . .
1,960
16,610
Goodwill for fabricated glass
Europe
Goodwill . . . . . . . . . . . . . . . . . .
1,223
10,364
Manufacturing facilities for electronic materials
Japan
Machinery and buildings . . . . . .
1,212
10,271
Asahi Glass Co., Ltd. 21
Note 6: Investments in Securities Acquisition cost, market value (book value) and unrealized gains/losses on investments in securities with market quotation on stock exchanges or others at December 31, 2005 and 2004 are summarized as follows: December 31, 2005 Millions of yen Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
¥87,437 1,526 93
¥190,785 9 0
¥(220) — —
¥278,002 1,535 93
¥89,056
¥190,794
¥(220)
¥279,630
December 31, 2004 Millions of yen Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
¥97,771 1,545 119
¥84,338 58 12
¥(644) — —
¥181,465 1,603 131
¥99,435
¥84,408
¥(644)
¥183,199
December 31, 2005 Thousands of U.S. dollars Acquisition cost
Securities with market value Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain
Unrealized loss
Book value (Market value)
$740,992 12,932 788
$1,616,822 76 0
$(1,864) — —
$2,355,950 13,008 788
$754,712
$1,616,898
$(1,864)
$2,369,746
The aggregate carrying amounts of investments in non-public companies at December 31, 2005 and 2004, which were included in “Investments in securities” and valued at cost, were ¥7,118 million ($60,322 thousand) and ¥12,725 million, respectively. Proceeds from sale of other investments in securities were ¥23,827 million ($201,924 thousand) and ¥41,209 million for the years ended December 31, 2005 and 2004, respectively. In addition, gross realized gains were ¥12,896 million ($109,288 thousand) and ¥11,958 million, and gross realized losses were ¥95 million ($805 thousand) and ¥50 million for the year ended December 31, 2005 and 2004, respectively. The redemption schedule for securities with maturity dates classified as other securities and held-to-maturity debt securities as of December 31, 2005 and 2004 is summarized as follows: December 31, 2005 Millions of yen Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
Due after one year through five years
Due after five years through ten years
Due after ten years
5 1,013
¥ 25 522
¥17 —
— —
¥1,018
¥547
¥17
—
December 31, 2004 Millions of yen Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 FINANCIAL REVIEW 2005
Due after one year through five years
Due after five years through ten years
Due after ten years
¥2 —
¥ 11 1,604
¥9 —
¥29 —
¥2
¥1,615
¥9
¥29
December 31, 2005 Thousands of U.S. dollars Due in one year or less
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Due after one year through five years
Due after five years through ten years
Due after ten years
42 8,585
$ 212 4,424
$144 —
— —
$8,627
$4,636
$144
—
Note 7: The Accounting Treatment of Notes Receivable and Payable Maturing on December 31, which was a bank holiday The year-end dates of 2005 and 2004, namely, December 31, 2005 and 2004 were bank holidays. Although notes receivable and payable with maturity on these dates were accordingly settled on January 4, 2006 and January 4, 2005, the Companies accounted for their given notes in their financial statements as if they had been settled on those maturity dates. Notes maturing at December 31, 2005 and 2004 were dealt with in the above manner as follows: Thousands of U.S. dollars
Millions of yen
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥3,742 996
¥5,486 1,640
2005/12
$31,712 8,441
Note 8: Short-Term Bank Loans and Long-Term Debts Short-term bank loans and long-term debt at December 31, 2005 and 2004, are summarized as follows: Weighted average interest rate
Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of bonds at interest rates ranging from 0.13% to 2.06% . .
3.7% 3.8% 2.8%
Weighted average interest rate
Long-term bank loans from banks and other financial institutions . . . . . . . . Less: Portions due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.9% convertible bonds due December 26, 2008 . . . . . . . . . . . . . . . . . . . 1.5% bonds due February 21, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5% bonds due December 16, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9% bonds due September 9, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3% bonds due October 17, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7% bonds due June 3, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds at interest rates ranging from 0.13% to 2.06% at December 31, 2005 and 0.04% to 2.96% at December 31, 2004, respectively, issued by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Portions due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9%
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
¥ 80,920 32,037 29,598 9,589
¥ 72,513 25,734 31,318 16,065
$ 685,763 271,500 250,831 81,262
¥152,144
¥145,630
$1,289,356
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
¥151,753 (29,598)
¥164,063 (31,318)
$1,286,043 (250,831)
2005/12
122,155
132,745
1,035,212
98,702 30,000 20,000 25,000 15,000 20,000
98,703 30,000 20,000 25,000 15,000 20,000
836,458 254,237 169,492 211,864 127,119 169,492
55,523
52,297
470,533
264,225 (9,589)
261,000 (16,065)
2,239,195 (81,263)
254,636
244,935
2,157,932
21,681
20,576
183,737
¥398,472
¥398,256
$3,376,881
Average interest rates are calculated using the average interest rates of short-term bank loans and long-term debt outstanding as at December 31, 2005.
Asahi Glass Co., Ltd. 23
The aggregate annual maturities of long-term loans and bonds outstanding at December 31, 2005 are as follows:
Long-term loans Year ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds Year ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Millions of yen
Thousands of U.S. dollars
¥ 29,598 15,983 17,320 13,520 53,197 22,134
$ 250,831 135,449 146,780 114,576 450,822 187,576
¥151,752
$1,286,034
¥
$
9,589 49,022 109,826 35,014 3,560 57,213
¥264,224
81,263 415,441 930,728 296,729 30,169 484,856
$2,239,186
As of December 31, 2005 and 2004, the assets of the Companies, which were furnished as collaterals for short-term and longterm bank loans, are summarized as follows: Millions of yen 2005/12
Assets pledged as collateral: Investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment (book value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt secured by collateral: Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
2004/12
Thousands of U.S. dollars 2005/12
8 7,587
¥ 7 34,458
$ 68 64,296
¥7,595
¥34,465
$64,364
¥2,613 141
¥ 2,027 1,057
$22,144 1,195
¥2,754
¥ 3,084
$23,339
Note 9: Retirement Benefit Plans The employees of the Companies (excluding directors and corporate auditors) are generally entitled to lump-sum retirement benefits determined based on the average rate of pay, length of service and conditions under which the terminations occur. In addition, the Company and its domestic subsidiaries and certain foreign subsidiaries have adopted funded non-contributory and contributory defined benefit pension plans. The contributory plans mainly represent the Employees’ Pension Fund plans (“EPFs”), composed of the substitutional portions that are the obligation related to the government defined benefit prescribed by the Japanese Welfare Pension Insurance Law (“JWPIL”), and the corporate portions based on contributory defined benefit pension arrangements established at the discretion of the Company and its subsidiaries. The pension plans of the Company and its certain domestic subsidiaries provide for a lump-sum payment or pension payments for life generally after the age of 60, at the option of employees with at least 20 years of participation in the plan. Those employees retiring with less than 20 years of participation are entitled to a lump-sum payment of the current value of their vested benefits. The amount of retirement benefits to be paid by the Company and its certain domestic subsidiaries are, in most cases, reduced by the benefits payable under the pension plans.
24 FINANCIAL REVIEW 2005
In addition to the recognition of transfer of the substitutional portion of the Employees’ Pension Funds, described in note 2 (12), the Asahi Glass Group Pension Fund, in which certain domestic subsidiaries participate, obtained government approval for exemption from the obligation for benefits related to future employee services under the substitutional portion (first approval) and past employee services under the substitutional portion (second approval) from the Ministry of Health, Labor and Welfare on November 1, 2004 and November 1, 2005, respectively. As a result, a gain amounting to ¥2,221 million ($18,822 thousand) was recognized in the year ended December 31, 2005. The funded status of the pension benefit plans is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
Projected Benefit Obligation: Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥(338,765) 284,107
¥(334,039) 230,202
$(2,870,889) 2,407,686
Unfunded projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54,658) 1,191 (10,037)
(103,837) 52,684 (2,020)
(463,203) 10,093 (85,059)
Less: Prepaid pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(63,504) 944
(53,173) 3,918
(538,169) 8,000
Accrued retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (64,448)
¥ (57,091)
$ (546,169)
Retirement Benefit Costs: Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 10,813 9,525 (5,541) 6,817 (304)
¥ 10,596 9,834 (5,665) 6,401 (251)
$
91,636 80,720 (46,958) 57,771 (2,576)
Retirement benefit cost for the period . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 21,310
¥ 20,915
$
180,593
Gain from the transfer of the substitutional portion of the Employees’ Pension Fund Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
(2,221)
¥ 19,089 Assumptions Used for Calculation of the Projected Benefit Obligation: Attribution method for projected benefit obligation . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . Amortization period for prior service cost . . . . . . . . . . . . . . . . . . . . . . . Amortization period for actuarial loss/gain . . . . . . . . . . . . . . . . . . . . . . .
Straight-line method Mainly 2.5% Mainly 3.5% Mainly 13 years Mainly 13 years
¥ (24,530)
$
(18,822)
¥
$
161,771
(3,615)
Straight-line method Mainly 2.5% Mainly 3.5% Mainly 13 years Mainly 13 years
Note 10: Income Taxes Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries for the years ended December 31, 2005 and 2004, consisted of corporate income tax (national), enterprise tax (local) and resident income taxes (local) at the approximate rates indicated below: Rates on taxable income 2005/12
2004/12
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resident income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.0% 7.4 6.0
30.0% 9.9 6.0
43.4%
45.9%
Statutory tax rate in effect to reflect the deductibility of enterprise tax when paid . . . . . . . . . . . . . . . . . .
40.4%
41.8%
Unlike other income taxes, enterprise tax is deductible for tax purposes when it is paid. “Income Taxes” in the accompanying Consolidated Statements of Income includes all taxes based on income mentioned above.
Asahi Glass Co., Ltd. 25
Deferred tax assets and liabilities (both current and non-current) consisted of the following elements: Millions of yen 2005/12
Deferred Tax Assets: Accrued enterprise tax not deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for bad debts in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued bonuses to employees in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . Reserve for periodic repair works not deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement benefits in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for rebuilding furnaces in excess of tax limit . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization of furnaces in excess of tax limit . . . . . . . . . . . . . . . . Tax losses carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on write-down of investments in securities in excess of tax limit . . . . . . . . . . . . Reserve for restructuring programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
2,339 1,276 2,286 726 66,652 5,532 7,248 21,733 10,390 2,864 33,179
Thousands of U.S. dollars
2004/12
¥
2,342 1,209 1,998 665 62,974 4,717 6,231 18,420 11,171 3,238 27,390
2005/12
$
19,822 10,814 19,373 6,153 564,847 46,881 61,424 184,178 88,051 24,271 281,178
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,225 (24,972)
140,355 (22,338)
1,306,992 (211,628)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥129,253
¥118,017
$1,095,364
Deferred Tax Liabilities: Unrealized gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on establishment of trust for retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . Deferred capital gain reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (68,418) (33,154) (14,408) (19,257) (27,091)
¥ (26,156) (32,892) (17,250) (19,568) (25,085)
$ (579,813) (280,966) (122,102) (163,195) (229,585)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(162,328)
(120,951)
(1,375,661)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ (33,075)
¥ (2,934)
$ (280,297)
The reconciliation of the statutory tax rates and the effective income tax rates appearing in the Consolidated Statements of Income for the years ended December 31, 2005 and 2004 are shown as follows: Statutory tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Entertainment expenses, etc., nondeductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income, not taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Difference in tax rates applied to overseas subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss generated by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax benefits resulting from utilization of losses carried forward by subsidiaries not recognized in the prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
40.4% 0.7 (1.4) (5.2) 4.0
41.8% 0.4 (0.4) (7.1) 0.2
(3.4) (0.9) 5.8 40.0%
(4.0) (1.6) 1.6 30.9%
Note 11: Accounting for Leases All finance lease contracts, other than those through which the ownership of the leased assets is transferred to the lessees, are accounted for using a method similar to that applicable to operating leases. 1 Lessees’ accounting Lease expenses on finance lease contracts without ownership transfer for the years ended December 31, 2005 and 2004, are summarized as follows: Millions of yen
Lease expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 FINANCIAL REVIEW 2005
2005/12
2004/12
¥1,277
¥1,752
Thousands of U.S. dollars 2005/12
$10,822
The acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which included the portion of interest thereon, are summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥7,316 (4,823)
¥7,996 (5,418)
2005/12
$62,000 (40,873)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,493
¥2,578
$21,127
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,277
¥1,752
$10,822
Depreciation is computed using the straight-line method over the lease term of the leased assets with no residual value. The amount of outstanding future lease payments due at December 31, 2005 and 2004, which included the portion of interest thereon, is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Future lease payments: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥ 898 1,595
¥1,096 1,482
$ 7,610 13,517
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥2,493
¥2,578
$21,127
The amount of outstanding future lease payments under non-cancelable operating leases at December 31, 2005 and 2004, is summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Future lease payments: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥ 1,891 9,666
¥1,304 6,255
$16,025 81,916
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥11,557
¥7,559
$97,941
2 Lessors’ accounting Lease receipts and depreciation expense on finance lease contracts without ownership transfer for the years ended December 31, 2005 and 2004, are summarized as follows: Thousands of U.S. dollars
Millions of yen
Lease receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥807 253
¥903 362
2005/12
$6,839 2,144
The acquisition cost, accumulated depreciation, and net book value of the leased assets, which included the portion of interest thereon, are summarized as follows: Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
2005/12
Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥327 (180)
¥598 (350)
$2,771 (1,525)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥147
¥248
$1,246
Asahi Glass Co., Ltd. 27
The amount of outstanding future lease receipts under non-cancelable operating leases at December 31, 2005 and 2004, is summarized as follows: Millions of yen
Thousands of U.S. dollars
2005/12
2004/12
Future lease receipts: Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
¥111 243
¥235 275
$ 941 2,059
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥354
¥510
$3,000
Note 12: Commitments and Contingent Liabilities As of December 31, 2005, the Companies had contingent liabilities in the aggregate amount of ¥3,627 million ($30,737 thousand) from notes endorsed. In addition, as of December 31, 2005, the Companies had contingent liabilities of ¥453 million ($3,839 thousand) arising from notes discounted by bank. The Companies had contingent obligations for guarantee of loans borrowed by the following companies as of December 31, 2005: Millions of yen
Loans borrowed by: DAP Technology Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea Autoglass Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thousands of U.S. dollars
¥2,898 1,480 2,727
$24,560 12,542 23,110
¥7,105
$60,212
The Company had a contract with a financial institution which acts as an agent to assume the debt obligation of the Company’s corporate bonds as follows. In accordance with the “Accounting Standards Concerning Financial Products,” such debt obligations can be eliminated from the balance sheets. Millions of yen
0.4% bonds due October 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥15,000
Thousands of U.S. dollars
$127,119
Note 13: R&D Costs Research and development costs incurred by the Companies for the years ended December 31, 2005 and 2004, included in “Selling, General and Administrative Expenses” and “Cost of Sales,” totalled ¥31,706 million ($268,695 thousand) and ¥32,265 million, respectively. Note 14: Subsequent Appropriations of Retained Earnings The following appropriations of unappropriated retained earnings of the Company were approved by its shareholders at the general shareholders’ meeting held on March 30, 2006: December 31, 2005 Millions of Thousands of yen U.S. dollars
Appropriations Cash dividends (¥7.50 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 FINANCIAL REVIEW 2005
¥8,796 33
$74,542 280
Note 15: Net Income per Share—Basic and Net Income per Share—Fully Diluted Calculations of net income per share for the years ended December 31, 2005 and 2004 are as follows: Thousands of U.S. dollars
Millions of yen
Net income per share—basic Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Bonuses to directors and corporate auditors . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of shares issued (thousands) . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
2005/12
¥60,015 50
¥78,287 113
$508,602 424
¥59,965
¥78,174
$508,178
1,167,462
1,171,183
1,167,462 In exact U.S. dollars
In exact yen
Net income per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2004/12
¥51.36
¥66.75
2005/12
$0.44
Thousands of U.S. dollars
Millions of yen 2005/12
2004/12
Net income per share—fully diluted Adjustments to net income Interest expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥1,145
¥1,118
$9,703
Increase in common shares (thousands) Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock for stock option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warrant for stock option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,039 21 174
87,039 11 159
87,039 21 174
87,234
87,209
87,234 In exact U.S. dollars
In exact yen
Net income per share—fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005/12
2005/12
2004/12
¥48.70
¥63.01
2005/12
$0.41
The potential common stock upon exercise of stock option rights with anti-dilutive effect, excluded from the computation of “Net income per share—fully diluted,” amounted to 630,000 and 630,000 shares at December 31, 2005 and 2004, respectively. Note 16: Stock-Based Compensation Plan At the general shareholders’ meeting held on June 28, 2001, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 229,000 shares of common stock were granted to Company directors and employees. All options are exercisable at an exercise price of ¥1,010 (exact yen) from August 1, 2003 through July 31, 2007. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, or additional shares issued at a price less than the market price per share. At the general shareholders’ meeting held on June 27, 2002, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 346,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥799 (exact yen) from August 1, 2004 through July 31, 2008. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. At the general shareholders’ meeting held on June 27, 2003, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 370,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥826 (exact yen) from August 1, 2005 through July 31, 2009. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. At the general shareholders’ meeting held on March 30, 2004, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 630,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥1,243 (exact yen) from June 1, 2006 through May 31, 2010. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. Asahi Glass Co., Ltd. 29
At the general shareholders’ meeting held on March 30, 2005, the shareholders approved a stock-based compensation plan as an incentive plan for directors and selected employees. Under the plan, options for 660,000 shares of common stock were granted to the Company directors and employees. All options are exercisable at an exercise price of ¥1,226 (exact yen) from June 1, 2007 through May 31, 2011. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. In addition, at the general shareholders’ meeting held on March 30, 2006, the shareholders approved a stock-based compensation plan. Under this plan, options for a maximum of 690,000 shares of common stock will be granted to the Company directors and employees. Subsequent directors’ meetings will determine specific future grantees. All options will be exercisable at an exercise price of 105% of the average market price for 30 trading days starting from the 45 days prior to the date immediately after the grant date. The options are exercisable from June 1, 2008 through May 31, 2012. The terms of the options are subject to adjustment if there are stock splits, consolidation of shares, additional shares issued, or retirement of treasury shares at a price less than the market price per share. Note 17: Treasury Stock During the years ended December 31, 2005 and 2004, the Company acquired 102,206 shares and 11,511,843 shares of treasury stock, respectively. At the general shareholders’ meeting held on March 30, 2004, the Articles of Incorporation were amended and as a result the Company may purchase treasury stock by way of a resolution of the board of directors, which is permitted under Article 211-3, Section 1 Clause 2 of the Japanese Commercial Code. Based on the resolution by the board of directors, the Company purchased 11,220,000 shares of common stock which is included in 11,511,843 shares in order to enhance the flexibility of the Company’s capital stock management strategy to reflect the rapid change in the economy. Note 18: Information on Derivatives As of December 31, 2005 and 2004, derivatives, including forward foreign exchange contracts and interest rate swap transactions (other than those accounted for as hedges) are summarized as follows: Millions of yen 2005/12 Contracted amount and option premium Total
Forward Foreign Exchange Contracts: Sell U.S. dollars . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . Buy U.S. dollars . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . Currency Option Contracts: Sell call option/Buy put option . . . . . Buy Put option . . . . . . . . . . . . . . . . . . . Call option . . . . . . . . . . . . . . . . . . Sell Put option . . . . . . . . . . . . . . . . . . . Call option . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . *Represents option premiums
30 FINANCIAL REVIEW 2005
Due over one year
2004/12 Contracted amount and option premium
Market value
Gain (loss)
Total
Due over one year
Market value
Gain (loss)
¥6,167 5,041
— —
¥6,567 5,047
¥(400) (6)
¥3,311 8,162
— —
¥3,098 8,169
¥213 (7)
1,699 2,868
— —
1,777 2,947
78 79
38 2,581
— —
37 2,685
(1) 104
550 —
— —
(2)
(2)
6,826 —
— —
(28)
(28) *
2,103 (28) 1,393 (12)
— — — —
46
18
17 *
6
— — — —
21
18
637 (4) 2,963 (39)
148
109 *
839 (6) 4,240 (19)
— — — —
2
4
— *
9
— — — —
—
10
— — 637 (60)
75
(15) *
¥(214)
¥392
Millions of yen 2005/12 Contracted amount and option premium
Interest Rate Swap Contracts: Receiving fixed rates and paying floating rates . . . . . . . . . . . . Receiving floating rates and paying fixed rates . . . . . . . . . . . . . . Interest Rate Cap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Floor Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . . Sell . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Swaption Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . . Sell . . . . . . . . . . . . . . . . . . . . . . . . . .
2004/12 Contracted amount and option premium
Total
Due over one year
Market value
Gain (loss)
Total
Due over one year
Market value
Gain (loss)
¥81,688
¥79,688
¥389
¥389
¥24,106
¥19,274
¥ 565
¥ 565
56,014
35,835
(362)
(362)
74,423
45,563
(1,325)
(1,325)
34,538 (170)
26,987 (107)
258
88
19,542 (38)
7,646 (17)
5
(33) *
41,250 (128) 11,186 (53)
19,576 (64) 9,089 (44)
68
(60)
211 *
10
21,241 (93) 4,248 (21)
325
43
35,286 (114) 4,248 (21)
9
12 *
— — 14,469 (91)
— — 14,469 (91)
—
—
8 *
36
12,278 (15) 18,106 (24)
23
55
12,278 (15) 18,106 (24)
34
(10) *
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . .
¥101
¥ (572)
Oil Swap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
2,159
—
72
72
499
—
(6)
(6)
Metal Swap Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
15
—
(2)
(2)
1,423 (133)
— —
149
16
247 (0)
— —
2
2 *
Oil Option Contracts: Buy . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 88
¥
(6)
*Represents option premiums
Asahi Glass Co., Ltd. 31
Note 19: Segment Information Segment information of the Companies classified by industrial segment for the years ended December 31, 2005 and 2004 is presented as below: The Companies operate principally in four industrial segments: Glass products, Electronics and Display products, Chemical products, and Other products. Glass products: Flat and fabricated glass, construction materials and others Electronics and Display products: FPD (liquid crystal display, PDP) glass substrates, CRT glass bulbs, and electronic components and others Chemical products: Caustic soda, chlorine and its derivative products, fluorochemical products and others Other products: Ceramics and others As discussed in note 2 (2) effective January 1, 2004, the accounting method for amortization of the goodwill of U.S. subsidiaries has been changed to be in conformity with that of the Company where goodwill is amortized over a period of 20 years on a straight-line basis. The effect of this change was a decrease in operating income of ¥5,439 million ($46,093 thousand) in the Glass segment. ¥6,673 million ($56,551 thousand) of impairment loss on long-lived assets is recorded as expenses for restructuring programs. For the year ended December 31, 2005 Millions of yen
Glass
Electronics and Display
Chemicals
Other
Total
Sales: Sales to customers . . . . . . . . . . . . Inter-segment sales/transfers . . . .
¥754,799 4,095
¥441,689 2,114
¥295,802 4,595
¥ 34,371 45,882
Total sales . . . . . . . . . . . . . . . . . . . .
758,894
443,803
300,397
80,253
Operating expenses . . . . . . . . . . . . .
720,908
382,915
284,102
Operating income . . . . . . . . . . . . . .
¥ 37,986
¥ 60,888
¥ 16,295
¥
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
¥873,193 ¥ 56,682
¥614,036 ¥ 46,085
¥ 3,183 ¥ 73,038
¥ 34,754 ¥100,505
Corporate or elimination
Consolidated total
¥1,526,661 56,686
— (56,686)
¥1,526,661 —
1,583,347
(56,686)
1,526,661
77,102
1,465,027
3,151
¥ 118,320
¥
(126)
¥ 118,194
¥283,413 ¥ 18,616
¥257,438 ¥ 1,383
¥2,028,080 ¥ 122,766
¥53,847 ¥ (101)
¥2,081,927 ¥ 122,665
— ¥ 27,480
¥ ¥
¥ 38,230 ¥ 203,995
— —
¥ 38,230 ¥ 203,995
293 2,972
(56,560)
1,408,467
For the year ended December 31, 2004 Millions of yen
Glass
Electronics and Display
Chemicals
Other
Total
Corporate or elimination
Consolidated total
Sales: Sales to customers . . . . . . . . . . . . Inter-segment sales/transfers . . . .
¥734,653 5,830
¥434,731 1,013
¥275,957 10,061
¥ 30,386 44,643
¥1,475,727 61,547
— (61,547)
¥1,475,727 —
Total sales . . . . . . . . . . . . . . . . . . . .
740,483
435,744
286,018
75,029
1,537,274
(61,547)
1,475,727
Operating expenses . . . . . . . . . . . . .
692,466
364,882
268,459
72,071
1,397,878
(61,555)
1,336,323
Operating income . . . . . . . . . . . . . .
¥ 48,017
¥ 70,862
¥ 17,559
¥
2,958
¥ 139,396
¥
8
¥ 139,404
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
¥822,721 ¥ 66,301
¥563,180 ¥ 40,499
¥285,149 ¥ 24,276
¥246,793 ¥ 1,567
¥1,917,843 ¥ 132,643
¥(32,574) ¥ (85)
¥1,885,269 ¥ 132,558
¥ 9,649 ¥ 66,078
— ¥ 81,545
¥ 3,796 ¥ 15,671
¥ ¥
¥ 14,505 ¥ 164,655
— —
¥ 14,505 ¥ 164,655
32 FINANCIAL REVIEW 2005
1,060 1,361
For the year ended December 31, 2005 Thousands of U.S. dollars Electronics and Display
Glass
Chemicals
Other
Total
Corporate or elimination
Consolidated total
Sales: Sales to customers . . . . . . . . . . . . $6,396,602 $3,743,127 $2,506,797 $ 291,279 $12,937,805 Inter-segment sales/transfers . . . . 34,703 17,915 38,941 388,831 480,390
— $12,937,805 (480,390) —
Total sales . . . . . . . . . . . . . . . . . . . .
6,431,305
3,761,042
2,545,738
680,110
13,418,195
(480,390)
12,937,805
Operating expenses . . . . . . . . . . . . .
6,109,390
3,245,042
2,407,644
653,407
12,415,483
(479,322)
11,936,161
Operating income . . . . . . . . . . . . . . $ 321,915 $ 516,000 $ 138,094 $
26,703 $ 1,002,712 $ (1,068) $ 1,001,644
Assets . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Impairment loss on long-lived assets . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . .
2,483 $ 323,983 25,187 $ 1,728,771
$7,399,941 $5,203,695 $2,401,805 $2,181,678 $17,187,119 $456,330 $17,643,449 $ 480,356 $ 390,551 $ 157,763 $ 11,720 $ 1,040,390 $ (856) $ 1,039,534 $ 26,975 $ 294,525 — $ $ 618,966 $ 851,737 $ 232,881 $
— $ 323,983 — $ 1,728,771
Segment information of the Companies classified by geographic area for the years ended December 31, 2005 and 2004 is presented as follows: As discussed in note 2 (2) effective January 1, 2004, the accounting method for amortization of the goodwill of U.S. subsidiaries has been changed to be in conformity with that of the Company where goodwill is amortized over a period of 20 years on a straight-line basis. The effect of this change was a decrease in operating income of ¥5,439 million ($46,093 thousand) in the Americas segment. For the year ended December 31, 2005 Millions of yen Japan
Asia
The Americas
Europe
Total
Corporate or elimination
Consolidated total
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . .
¥686,484 169,748
¥327,602 63,100
¥196,056 7,855
¥316,519 2,219
¥1,526,661 242,922
— (242,922)
¥1,526,661 —
Total . . . . . . . . . . . . . . . . .
856,232
390,702
203,911
318,738
1,769,583
(242,922)
1,526,661
Operating expenses . . . . . . . . .
787,405
353,370
210,884
296,578
1,648,237
(239,770)
1,408,467
Operating income (loss) . . . . . .
¥ 68,827
¥ 37,332
¥ (6,973)
¥ 22,160
¥ 121,346
¥ (3,152)
¥ 118,194
Assets . . . . . . . . . . . . . . . . . . .
¥825,483
¥501,662
¥206,315
¥367,639
¥1,901,099
¥180,828
¥2,081,927
For the year ended December 31, 2004 Millions of yen Japan
Asia
The Americas
Europe
Total
Corporate or elimination
Consolidated total
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . .
¥705,465 163,157
¥281,217 60,544
¥195,815 8,763
¥293,230 2,446
¥1,475,727 234,910
— (234,910)
¥1,475,727 —
Total . . . . . . . . . . . . . . . . .
868,622
341,761
204,578
295,676
1,710,637
(234,910)
1,475,727
Operating expenses . . . . . . . . .
801,102
289,595
207,818
269,822
1,568,337
(232,014)
1,336,323
Operating income (loss) . . . . . .
¥ 67,520
¥ 52,166
¥ (3,240)
¥ 25,854
¥ 142,300
¥ (2,896)
¥ 139,404
Assets . . . . . . . . . . . . . . . . . . .
¥779,950
¥447,241
¥197,535
¥348,231
¥1,772,957
¥112,312
¥1,885,269
Asahi Glass Co., Ltd. 33
For the year ended December 31, 2005 Thousands of U.S. dollars Japan
Sales to customers . . . . . . . . . Inter-segment sales . . . . . . . . . Total . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . .
The Americas
Asia
Europe
$5,817,661 $2,776,288 $1,661,492 1,438,542 534,746 66,568
Corporate or elimination
Total
$2,682,364 $12,937,805 18,805 2,058,661
Consolidated total
— $12,937,805 (2,058,661) —
7,256,203
3,311,034
1,728,060
2,701,169
14,996,466
(2,058,661)
12,937,805
6,672,923
2,994,661
1,787,153
2,513,373
13,968,110
(2,031,949)
11,936,161
Operating income (loss) . . . . . .
$ 583,280 $ 316,373 $
(59,093) $ 187,796 $ 1,028,356 $
Assets . . . . . . . . . . . . . . . . . . .
$6,995,619 $4,251,373 $1,748,432
(26,712) $ 1,001,644
$3,115,585 $16,111,009 $1,532,440 $17,643,449
Major countries/regions in the regional segmentation above Asia: Indonesia, Singapore, Thailand, Taiwan, China, and South Korea The Americas: U.S.A., Canada, and Mexico Europe: Belgium, Netherlands, Italy, Spain, Czech Republic, Germany, France, U.K., and Russia Overseas sales by geographic area and those as a percentage of consolidated sales for the years ended December 31, 2005 and 2004 are as follows: For the year ended December 31, 2005 Thousands of U.S. dollars
Millions of yen
Overseas sales . . . . . . . . . . . . . . . . . . . . . . . Consolidated sales . . . . . . . . . . . . . . . . . . . . Percentage . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
The Americas
Europe
Other
Total
Total
¥393,649 — 25.8%
¥189,580 — 12.4%
¥319,328 — 20.9%
¥18,121 — 1.2%
¥ 920,678 ¥1,526,661 60.3%
$ 7,802,356 $12,937,805
For the year ended December 31, 2004 Millions of yen
Overseas sales . . . . . . . . . . . . . . . . . . . . . . . Consolidated sales . . . . . . . . . . . . . . . . . . . . Percentage . . . . . . . . . . . . . . . . . . . . . . . . .
Asia
The Americas
Europe
Other
Total
¥359,766 — 24.4%
¥194,448 — 13.2%
¥299,959 — 20.3%
¥14,292 — 1.0%
¥ 868,465 ¥1,475,727 58.9%
Major countries/regions in the regional segmentation above Asia: Indonesia, Singapore, Thailand, Taiwan, China, and South Korea The Americas: U.S.A., Canada, and Mexico Europe: Belgium, Netherlands, Italy, Spain, Czech Republic, Germany, France, and Russia Other: Oceania, Middle East, and Africa
34 FINANCIAL REVIEW 2005
REPORT OF INDEPENDENT AUDITORS
Millions of yen 2002
2001
1997
1996
¥1,280,990 43,746
¥1,346,727 66,072
¥1,337,293 66,281
¥1,278,715 55,530
$12,937,805 1,001,644
25,644 5,099
46,681 20,362
53,711 24,167
37,144 24,837
701,339 508,602
2000
To the Board of Directors of ¥1,257,052 ¥1,263,196 ¥1,312,829 58,988 111,652 60,689 Asahi Glass Company, Limited
(7,653) (12,605)
1998
Thousands of U.S. Dollars 2005/12
60,434 24,725
1999
25,767 13,164
We have audited the accompanying consolidated balance sheets of Asahi Glass Company and its consolidated subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
¥ 662,203 ¥ 618,492 ¥ 652,323 — — — — $ 6,396,602 — — — ¥ 783,017 ¥ 795,143 ¥ 775,967 ¥ 723,755 — We conducted our audits in accordance with auditing standards generally—accepted in Japan. require3,743,127 that we plan 311,836 384,941 283,595 — — Those standards — and perform about whether the consolidated statements are free of material — the audit to — obtain reasonable — assurance 140,375 124,966 105,549financial106,863 — 248,327 263,782 254,393 281,994 341,589 364,566 352,207 2,506,797 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 40,830 45,614 66,741 75,604 85,029 91,211 95,890 291,279
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis
¥1,889,384 ¥1,881,333 ¥1,848,539 ¥1,810,644 ¥1,794,056 ¥1,685,720 $17,643,449 for our opinion.¥1,886,815 555,891 582,459 693,941 723,766 720,779 758,610 681,374 5,834,169 817,998 762,784 745,134 730,368 726,055 706,053 691,522 7,818,907 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial 588,671 633,630 606,604 633,544 727,096 609,316 524,449 4,975,805 position of Asahi Glass Company and its consolidated subsidiaries as of December 31, 2005 and 2004, and the consolidated results 93,843 91,948 97,846 85,765 69,820 67,004 65,075 841,695 of585,975 their operations607,000 and their cash flows for the year612,404 then ended in conformity generally accepted in Japan. 605,210 630,374 with accounting 618,437 principles 605,571 7,226,136
¥
As discussed in Note 2 (2) to the consolidated financial statements, the Company changed its policy of accounting for goodwill from
(10.73)
¥
21.04
¥
11.20
¥
4.34
¥
17.33
¥
20.56
¥
21.14
$
0.44
the year—ended December effective as 20.24 of December 31, 2004, have 20.46 31, 2004. Also, — as discussed 16.74in Note 2 (10), 9.71 — the Companies 0.41 9.00the accounting 9.00 9.00 9.00 assets.10.00 9.00 9.50 0.13 adopted standard for impairment of long-lived
498.74
516.49
514.97
521.09
536.38
526.23
515.28
6.16
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 3 to the accompanying consolidated (2.1)% 4.1% 2.2% 0.8% financial statements. 3.3%
3.1 % 5.9% ¥ 735,314 ¥ 685,521 109,954 97,522 130,913 93,261 28,957 28,374 1,175,242 1,175,242 March 30, 2006 48,362 48,809
3.3% ¥ 680,025 94,198 90,084 26,519 1,175,242 43,217
2.4% ¥ 689,480 93,271 93,864 36,000 1,175,242 —
3.9% ¥ 647,191 87,165 125,955 36,000 1,175,242 —
3.9% 3.8% ¥ 632,500 78,674 112,848 36,000 1,175,242 —
4.1% 3.4% ¥ 591,300 79,844 115,571 34,000 1,175,228 —
7.7% 6.0% $ 4,486,331 1,039,534 1,728,771 268,695 1,186,000 56,857
Asahi Glass Co., Ltd. 35
Investor Relations: 1-12-1, Yurakucho, Chiyoda-ku, Tokyo 100-8405, Japan Tel: +81-3-3218-5064 Fax: +81-3-3201-5390 URL: http://www.agc.co.jp/english e-mail: [email protected]
This financial review is printed on recycled paper. Printed in Japan
