Financial Results for the Third Quarter of the Fiscal Year ending March 31, 2005 January 28, 2005 Oki Electric Industry Co., Ltd. Table of Contents 1. Financial results for the third quarter of the fiscal year ending March 31, 2005 1) Outline of financial results 2) Profit and loss outline 3) Balance sheet outline 4) Segment information 5) Cash flows 2. Full year projections for the fiscal year ending March 31, 2005 1) Premises 2) Segment information * The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 2 Third Quarter Overview Sales increased substantially, especially sales of IP networks for telecom carriers and sales of LSIs including LCD drivers and P2ROM (Approach for leveling imbalance between quarters also contributed) Incomes improved considerably along with sales growth (Recurring income achieved positive for the nine moths) Improvement of balance sheet includes decrease of interest-bearing debt by 36.2 (Billion yen) billion yen on a year-on-year basis Nine month results Three month results Dec. 03 Dec. 04 Variance Net Sales 428.3 478.4 50.1 Operating income (0.5) 6.4 Recurring income (7.0) Net income Dec. 03 Dec. 04 Variance 147.0 158.7 11.7 6.9 3.3 4.9 1.6 1.7 8.7 1.1 2.3 1.2 (11.5) (1.1) 10.4 (0.9) 1.8 2.7 Total assets 610.7 589.1 (21.6) - - - Shareholders’ equity 94.9 111.5 16.6 - - - Interest-bearing debt 322.3 286.1 (36.2) - - 3 Third Quarter Profit and Loss Outline Comparison of consolidated P/L (Billion yen) Q1 – Q3 (nine months) <Nine month P/L points> Q3 (three mo.) Dec. 03 Dec. 04 Variance Dec. 03 Dec. 04 428.3 478.4 50.1 147.0 158.7 (75.4%) (74.1%) (+1.3%) (74.3%) (73.0%) 323.0 354.6 31.6 109.2 115.9 (24.7%) (24.5%) (- 0.2%) (23.4%) (23.9%) 105.8 117.4 11.6 34.5 37.9 Operating income (0.5) 6.4 6.9 3.3 4.9 Other income (6.5) (4.7) 1.8 (2.2) (2.6) Recurring income (7.0) 1.7 8.7 1.1 2.3 1.1 2.7 1.6 0.3 2.2 Net sales (Cost of sales ratio) Cost of sales (SG&A ratio) SG&A Extraordinary income Extraordinary loss Income before taxes Income taxes Net income Sales increased in all segments, particularly in telecom and electronic devices Cost of sales improved due to reduction of procurement cost, etc. Operating income achieved profitability, due to large improvement in telecom and electronic device sectors, while decline in info segment Net income developed 10.4 5.3 (5.1) 3.0 0.7 (16.3) (0.9) 15.4 (1.6) 3.8 (4.8) 0.2 5.0 (0.7) 2.0 (11.5) (1.1) 10.4 (0.9) 1.8 considerably due to improvement in other and extraordinary incomes, added to increase in operating income 4 Other Income, Extraordinary Income Nine month comparison z Other income/expenses improved by 1.8 billion yen as financial account balance and foreign exchange balance improved z Extraordinary income/loss improved by 6.7 billion yen, largely due to gain on sales of fixed assets this year and disaster loss in the previous year (Billion yen) Dec. 03 Dec. 04 Operating income Interest and dividends income Foreign currency gain Others Other income Interest expense Foreign currency loss Others Other expenses (0.5) 6.4 0.9 1.1 1.4 2.3 5.5 1.6 1.7 8.8 0.4 0.6 2.1 5.1 1.7 6.8 Recurring income (7.0) 1.7 Recurring income Gain on sale of fixed assets Gain on sale of marketable securities Others Extraordinary income Loss on sale and disposition of fixed assets Disaster loss Special retirement payments Others Extraordinary loss Income before tax Dec. 03 Dec. 04 (7.0) 0.0 1.7 1.2 0.9 1.5 0.2 1.1 0.0 2.7 2.3 2.1 3.4 2.1 2.6 10.4 0.0 1.6 1.6 5.3 (16.3) (0.9) 5 First Half Balance Sheet Outline (1) <Balance Sheet: Assets> (Times) z Total assets decreased by 21.6 B yen on year-on-year base, due to reduction of accounts receivables and inventories z Major turnover ratios improved substantially Turnover ratio Dec. 03 Dec.04 Variance Total assets 0.93 1.06 0.13 improved Notes and accounts receivable 3.84 4.64 0.80 improved Inventory 3.41 4.28 0.87 improved (Billion yen) 600 622.9 27.9 169.9 610.7 44.9 127.7 609.6 55.4 589.1 155.3 119.7 38.7 Variance with Dec. 31, 2003 Cash and deposits - 6.2 Notes and accounts receivable - 8.0 400 200 158.9 157.4 177.4 139.0 27.7 32.4 30.1 35.0 136.4 120.6 119.7 126.2 103.6 107.7 110.1 Dec. 31, 03 Mar. 31, 04 - 18.5 Other current assets + 2.6 Propety, plant and equipment + 5.6 Investments and other assets + 2.9 110.6 0 Mar. 31, 03 Inventories Dec. 31, 04 6 First Half Balance Sheet Outline (2) <Balance Sheet: Liabilities and Shareholders’ Equity> z Interest-bearing debt decreased by 36.2 B yen on year-on-year base, due to improvement in cash flows Amount of interestbearing debt (B yen) Interest-bearing debt ratio (%) Shareholders’ equity ratio (%) Dec. 03 Dec. 04 322.3 286.1 36.2 decreased 52.8 48.6 4.2 improved 15.5 18.9 3.4 improved (Billion yen) 622.9 610.7 116.1 109.7 126.0 124.7 609.6 600 400 25.6 209.4 44.5 101.3 Notes and accounts payable 135.8 120.0 Short-term borrowings 142.3 31.1 23.7 197.6 161.7 143.8 48.0 40.7 47.8 94.9 110.5 111.5 200 Variance with Dec. 31, 2003 589.1 129.8 35.8 0 Other current liabilities Bond and long-term debt Dec. 31, 03 Mar. 31, 04 Dec. 31, 04 + 10.3 + 17.6 - 12.1 - 53.8 Other fixed liabilities and minority interests Shareholders' equity Mar. 31, 03 Variance - 0.2 + 16.6 Bonds due within a year and commercial paper are included in long-term debt and short-term borrowings respectively. 7 Third Quarter Segment Information Net sales <Q1-Q3 (nine months)> Net sales 428.3 (Billion yen) z Sales increases in all segments z In information systems segment, while printer sales grows, total sales remains slight increase due to significant decline of ATM caused by completion of new banknote-related business z Telecom segment shows significant growth due to expansion of investments on infrastructures by carriers z Sales in electronic devices segment increases considerably, especially sales of LCD drivers and P2ROMs (5.0 billion yen of business loss caused by earthquakes in the previous year) 478.4 45.9 Others 36.9 95.9 69.4 113.8 89.5 Electronic devices Telecom 226.1 229.2 Mar. 04 Mar. 05 Info systems Operating income Operating income 6.4 (0.5) Increase in telecom and device sectors covers large decline in info systems segment. Significant growth in total 8 Third Quarter: Information Systems <Q1-Q3 (nine months)> Net sales 226.1 (Billion yen) 229.2 Printers 89.9 97.9 43.2 42.2 93.0 89.1 Mar. 04 Information solutions Financial system solutions Mar. 05 Operating income 10.3 2.5 Net sales Printers Printer total sales grows on year-on-year basis. Increase in color NIP sales and steady in SIDM Information solutions Slight decrease from the previous year results due to tendency of investment deferment in both governments and enterprises sectors Financial system solutions Decrease in sales due to large declines in ATM sales and pertinent charge-free maintenance incomes, though sales of counter terminals for financial institutions grows Operating income Large decrease in income, due to decrease in ATM sales and its maintenance fees, fierce competitions in information segment, and prior investments for R&D and for sales expansion in printers 9 Third Quarter: Telecommunications <Q1-Q3 (nine months)> Net sales (Billion yen) 89.5 69.4 17.8 Enterprise networks 18.0 71.7 Carrier networks 51.4 Mar. 04 Net sales Enterprise networks Business inquiries are active, especially in SS9100, a pillar of information and telecom converged solutions, but almost same level of sales as the previous year Carrier networks Considerable sales increase due to expansion of investments on IP network infrastructures by telecom carriers Mar. 05 Operating income Operating income 2.6 Growth of sales for telecom carriers contributes significant increase of operating income (2.6) 10 Third Quarter: Electronic Devices <Q1-Q3 (nine months)> Net sales 113.8 95.9 1.4 11.1 16.5 66.9 2.0 11.9 26.0 73.9 (Billion yen) Optical components System memories Increase in sales of P2ROMs used for amusement equipment including games, electronic dictionary, educational equipment, and printers DRAMs System memories System LSIs, Logic LSIs Mar. 04 Net sales System LSIs, Logic LSIs Significant increase, especially in LCD drivers and foundry business. However, signs of weakening market in LCD drivers and PHS Mar. 05 Operating income 7.8 Operating income Significant increase due to large sales increase, results of business reforms in optical components, and 3.0 billion yen of business loss by earthquakes in previous year (0.3) 11 Cash Flows z z Issued 20.0 billion yen of convertible bonds in Nov. 2004 Full year projections on cash flow is unchanged from Oct. 28 2004 announcement Q1 – Q3 (Nine months) I. Cash flows from operating activities Income (loss) before income taxes Depreciation & amortization Changes in operating assets & liabilities Others II. Cash flows from investing activities Purchases of property, plant & equipment Others Free cash flows (I+II) III. Cash flows from financing activities Bond issuance Redemption of bonds Changes in other interest bearing debts, etc. Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end V. Interest-bearing debts at the period end FY Mar. 04 FY Mar. 05 (results) 38.7 (16.3) 25.2 16.9 12.9 (7.6) (14.5) 6.9 31.1 (12.6) 0.0 (7.7) (4.9) 18.5 47.2 322.3 (projections) 24.8 (0.9) 23.7 9.4 (7.4) (35.9) (30.5) (5.4) (11.1) (5.6) 20.0 (15.0) (10.6) (16.7) 41.7 286.1 Variance (Billion yen) Full year for FY Mar. 05 (Oct 28 project.) (13.9) 15.4 (1.5) (7.5) (20.3) (28.3) (16.0) (12.3) (42.2) 7.0 20.0 (7.3) (5.7) (35.2) (5.5) (36.2) 65.0 16.0 35.0 10.0 4.0 (45.0) (36.0) (9.0) 20.0 (25.0) (15.0) (10.0) (5.0) 53.1 266.4 12 Premises of Full Year Projections <Economy forecast> • While enterprise capital investment remains steady, the active digital appliance market, a leading force of economy, is toning down • High material prices, appreciation of yen, and slowdown of exports are causes of concern <Business environment> • Info systems: Expansion in the color printer market. Fierce competition in info systems including financial system solutions • Telecom: Continuous expansion of carriers investments to broadband IP networks • Device: Semiconductor market growth slows down, which leads downward trend in unit prices <Impact on profit by currency exchange rate> Q3 (nine months) results Projected rate Actual rate Q4 projections Projected rate US dollar 105 yen/$ 107.7 yen/$ 105 yen/$ Euro 130 yen/E 139.5 yen/E 130 yen/E 13 Full Year Projections Full year projection is unchanged form the previous announcement on Oct. 28, 2004 Net sales z In info systems segment, the printer market remains steady. Severer price competitions and deferred investments in financial and government sectors z In telecom segment, accelerated investments on infrastructures by telecom carriers are expected z Slowdown of growth in electronic device segment due to LCD driver price down led by the weakening market and volume decrease in LSIs for PHS led by inventory adjustment of terminals z Slight decrease in total sales Operating income In total, no significant changes. While there are concerns of income decrease along with sales reduction in information and device segments, income increase in telecom sector is expected <Previous announcement> (Oct. 28, 04)> (Billion yen) Net sales 710.0 654.2 70.0 57.1 Others 155.0 132.2 Devices 130.0 104.6 Telecom 360.3 355.0 Info. Systems Mar. 04 Mar. 05 Operating income Operating income Net income 29.0 21.6 10.0 1.3 14 Full Year Projections: Information Systems Net sales Printers Sales is expected to reach the projected numbers due to the steady color NIP and SIDM markets Information solutions Deferments of government systems to the next period and investment curb and delays by travel industry Financial system solutions Delay in rise of new market, such as e-financial systems, after completion of new banknoterelated businesses, and deferment of investments by financial institutions Operating income <Previous announcement> (Oct. 28, 04)> Net sales 360.3 (Billion yen) 355.0 Printers 124.8 86.5 140.0 88.0 149.0 127.0 Mar. 04 Mar. 05 Info solutions Financial system solutions Operating income 24.0 Risk of income reduction caused by sales decline in the financial system and government markets 16.5 15 Full Year Projections: Telecom Systems Net sales <Previous announcement> (Oct. 28, 04)> Net sales Carrier networks Upward sales due to accelerated expansion of local IP networks, investments on IP network constructions by telecom carriers, and steady sales of CPEs, including VoIP gateways (Billion yen) 130.0 104.6 30.0 26.5 Enterprise networks 100.0 Carrier networks 78.1 Mar. 04 Operating income Mar. 05 Operating income 7.5 Expect increase of operating income caused by increasing sales 3.4 16 Full Year Projections: Electronic Devices Net sales System memories P2ROMs’ sales further expands, particularly used for amusement equipment including games, electronic dictionaries, educational equipment, and printers <Previous announcement> (Oct. 28, 04)> Net sales 155.0 132.2 3.0 18.0 Optical components 1.9 15.5 30.0 DRAMs 23.7 System LSIs, Logic LSIs Sales reduction in PHS baseband LSIs due to inventory adjustments of terminals in China, and decline of price for driver LSIs 91.1 104.0 System memories System LSIs, Logic LSIs Mar. 04 Operating income (Billion yen) Mar. 05 Operating income 13.0 Risks are becoming obvious, as shown in price pressures caused by the weakening market 2.3 17