32 TOSHIBA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS RESEARCH AND DEVELOPMENT CAPITAL EXPENDITURES FINANCIAL CONDITION CASH FLOWS Net cash used in financing activities amounted to ¥159.8 billion (US$1,331 million) compared with ¥53.5 billion in net cash pro- vided by financing activities in the previous fiscal year. This decrease was primarily due to a reduction of interest-bearing liabil- ities through the reinforcement of cash flow management. Accordingly, the interest-bearing liabilities were reduced by ¥165.1 billion. In addition, the effect of exchange rate changes was to decrease cash by ¥7.2 billion.  As a result, cash and cash equivalents at the fiscal year-end decreased ¥43.3 billion to ¥327.1 billion (US$2,726 million) com- pared with ¥370.4 billion recorded in the previous fiscal year. Net cash used in investing activities amounted to ¥148.0 billion (US$1,233 million), a decrease of ¥177.6 billion from ¥325.6 billion recorded in the previous fiscal year. This was mainly due to decreased capital investments in property, plant and equipment in line with the selective investments and increased cash inflows through the transfer of the DRAM business and sale and leaseback transactions. Net cash provided by operating activities amounted to ¥271.6 billion (US$2,263 million), a large increase of ¥122.4 billion from ¥149.2 billion recorded in the previous fiscal year. Despite increased cash outflows resulting from an increase in notes and accounts receiv- able and inventories, net cash provided by operating activities increased because of a large improvement in net income.  Shareholders’ equity decreased ¥134.3 billion year on year to ¥571.1 billion (US$4,759 million) primarily due to the increase in accumulated other comprehensive loss. Accumulated other comprehensive loss increased ¥152.0 billion year on year to ¥450.8 billion (US$3,756 million) mainly due to an increase in minimum pension liability adjustment. Retained earnings increased ¥18.5 billion year on year to ¥462.1 billion (US$3,850 million) due to the net income for the year. On the liabilities side, current and long-term liabilities decreased ¥20.9 billion year on year to ¥4,491.9 billion (US$37,433 mil- lion). Total interest-bearing liability was reduced by ¥165.1 billion year on year to ¥1,653.4 billion (US$13,778 million) with the cash flow generated from operations. Accrued pension and severance costs increased ¥241.8 billion year on year to ¥951.0 billion (US$7,925 million) due to a declined rate of return on plan asset and an amended discount rate for the projected benefit obligation. Deferred tax assets increased ¥113.7 billion year on year to ¥685.6 billion (US$5,713 million) primarily due to increase in accrued pension and severance costs. As of March 31, 2003, total assets amounted to ¥5,238.9 billion (US$43,658 million), a decrease of ¥168.8 billion from the previous fiscal year-end. Current assets declined ¥53.3 billion year on year to ¥2,621.2 billion (US$21,843 million). The primary reason for the decrease in current assets included the reduction of inventories, which decreased 9% year on year to ¥629.7 billion (US$5,247 million) due to the promotion of an “asset-light” program and transfer of the business line. Property, plant and equip- ment declined ¥155.0 billion year on year to ¥1,199.3 billion (US$9,994 million) primarily due to capital investment restraints and lease-back transactions. Capital expenditures amounted to ¥20.9 billion (US$174 million) for the development and manufacturing of new types of appli- ances in Home Appliances; ¥19.5 billion (US$162 million) in Social Infrastructure Systems for the system development and the ren- ovation and upgrading of infrastructure; ¥6.7 billion (US$56 million) in Power Systems, including for the renovation and upgrading of infrastructure; and ¥47.9 billion (US$399 million) in Others. In Digital Media, capital expenditures amounted to ¥21.1 billion (US$176 million), and were for the development and manu- facturing of new PC and mobile phone-related facilities. Principal facilities completed during the fiscal year included a PC man- ufacturing facilities for Toshiba Information Equipment (Hangzhou) Co., Ltd. Capital expenditures in Information & Communication Systems totaled ¥23.6 billion (US$196 million), and were allocated main- ly for the broadcast and network services business. Capital expenditures in Electronics Devices & Components amounted to ¥117.2 billion (US$976 million), and were for the devel- opment and increased production capacity of semiconductors and LCD displays. Principal facility completions during the fiscal year included manufacturing facilities for AFPD Pte., Ltd., low-temperature polysilicon TFT LCDs, facilities for manufacturing advanced system LSI at Oita Operations, and development facilities for advanced system ULSI at Yokohama Operations. Toshiba’s basic strategy for capital expenditures is to concentrate the allocation of its management resources in growth fields. Capital expenditures, which included investments in property, plant and equipment of ¥230.5 billion (US$1,921 million), amounted to ¥256.8 billion (US$2,140 million), and were made primarily in Electronic Devices & Components and Digital Media. Consolidated R&D expenditures increased 2% from the previous fiscal year to ¥331.5 billion (US$2,762 million). This was equivalent to 6% of consolidated net sales, virtually unchanged from the previous fiscal year. Principal R&D achievements and expenditures by segment were as follows. In Information & Communication Systems, R&D expenditures were ¥43.6 billion (US$363 million), mainly for the development of Web acceleration technology and mobile financial transaction technology; in Social Infrastructure Systems, R&D expenditures were ¥33.8 billion (US$282 million), primarily for the development of airport radar mon- itoring equipment and DNA chips. In Power Systems, R&D expenditures were ¥18.3 billion (US$153 million), principally for nuclear reactor inspection technology and electrical power plant distributed control systems. In Digital Media, R&D expenditures were ¥65.7 billion (US$548 million), chiefly for the development of wireless home media stations and small-form-factor direct-methanol fuel cells (DMFCs) for portable PCs. In Home Appliances, R&D expenditures were ¥19.8 billion (US$165 million), mainly for the devel- opment of non-fluorochloro hydrocarbon (fluorine) refrigerators and “FEMINITY” networked home appliances. In Electronic Devices & Components, R&D expenditures were ¥146.3 billion (US$1,219 million), primarily for the development of the world’s first large-size low-temperature polysilicon LCD that enables display on rounded surfaces, and RISC processors with common key data encryption systems (DES). In the Others segment, R&D expenditures were ¥4.0 billion (US$33 million), consisting mainly of research carried out at Shibaura Mechatronics Corporation.