3 TOSHIBA CORPORATION TO OUR SHAREHOLDERS over two years, a Group-wide reduction of human resources by 10%, and ¥800 billion asset cuts. Drawing on Toshiba Value Created (TVC), a methodology we created for evaluating business performance, we initiated a series of restructuring measures in fiscal 2002. Among these were a joint venture with Matsushita Electric Industrial Co., Ltd. in color cathode ray tubes, and the merger of our indus- trial electric and automation systems businesses with that of Mitsubishi Electric Corporation. Continued competitiveness in the semiconductor industry was bolstered by the decision to initiate a four-year, ¥350 billion investment program to construct advanced fabrication facilities that will put 300 millimeter wafer lines at the center of Toshiba’s production of memory devices and system LSIs. In a move made to en- hance the brand value of our digital products businesses, Toshiba acquired Amuse Pictures, Inc., one of Japan’s leading independent film producers and distributors. As we worked for our ambitious goal of cutting procurement costs by 20% over two years, we also saw progress in Group- wide integration of procurement and in bringing engineers into procurement activities. These and other measures, in- cluding a greater emphasis on e-procurement, are expected to promote cost reductions in all aspects of our activities and add to the competitiveness of Toshiba products. Fiscal 2002, to March 31, 2003, opened on a positive note, as the world’s markets saw encouraging signs of recovery in the United States, and inventory adjustments contributed to an upturn in production. However, hopes for a moderate but sustainable global recovery proved short-lived. Overseas, geopolitical instability provoked doubt and a change of mood. In the U.S., the stock market declined as petroleum prices edged up, and individual consumption stagnated as concerns for property values undermined consumer confi- dence. In Europe, markets once again became sluggish. The only bright spots and expanding markets were to be found in China and other Asian countries that have become the workshops of the world. But the appearance of Severe Acute Respiratory Syndrome (SARS) in those countries raises ques- tions about the economic impact of the illness, and how affected regions can maintain high growth. While Japan ex- perienced substantial growth, due to the economic conditions in other Asian countries and a focus on recovery in export-led industries, domestic deflation combined with a long-term slump in private-sector capital investment and public spending to produce a negative nominal growth rate. Japan continues to experience severe setbacks in its transi- tion to recovery. Our efforts to reduce human resources were rewarded when we met our headcount target in fiscal 2002, a year earlier than planned. We were also successful in efforts to reduce as- sets by ¥450 billion, in addition to the ¥350 billion originally planned. Consolidated Group sales in fiscal 2002 were ¥5,655.8 bil- lion, a 5% increase compared to fiscal 2001. Operating income amounted to ¥115.5 billion, an increase of ¥229.1 billion over fiscal 2001. Income before taxes totaled ¥53.1 billion, an increase of ¥429.8 billion against fiscal 2001. These results took us a steady step forward toward recovery, and allowed us to pay a three-yen full-term dividend. Even in the midst of these severe economic conditions, we de- clared fiscal 2002 to be “The First Year of Toshiba’s Regeneration” and took decisive steps to strengthen competi- tiveness. Chief amongst these steps was accelerated execution of our 01 Action Plan—a three-year initiative announced in fiscal 2001—to bring forward the positive results we targeted. The Plan has supported us in raising management efficiency across the Group, promoting asset-light management and de- veloping a clear focus on selected businesses. Achievements of the 01 Action Plan include a 20% reduction in procurement We are at the threshold of a new age, an age of ubiquitous computing. In coming years, immense processing capabilities and powerful broadband networks will support the creation This year marks the launch of our latest mid-term business plan, which builds on our achievements in fiscal 2002 and represents our expectations for the years after fiscal 2003. Mid-term Business Plan Progress of the 01 Action Plan Achievements in Fiscal 2002 An Overview of Fiscal 2002 Industry Environment TO OUR SHAREHOLDERS Tadashi Okamura Director, President and Chief Executive Officer