To Our Shareholders 2 The 01 Action Plan envisages a Toshiba Group workforce of 170,000 by the end of March 2004, a 10% reduction against the end of March 2001. Toward fulfilling this target, we initi- ated a short-term voluntary early retirement program in fiscal 2001 that, along with natural attrition, allowed us to cut our In October 2001, we established the Procurement Innova- tion Division. This specialist organization is charged with re- ducing procurement costs by applying innovations that will achieve dramatic reform of Toshiba Group’s procurement struc- ture. More than 600 engineers from across the Group have been appointed to the division, to build a bridge between de- velopment and sourcing. They are promoting cost reduction measures based on Management Innovation (MI) methodolo- gies, assuring the widest possible use of standard parts and materials from the development stage, expanding electronic procurement, and extending multi-vendor procurement. In fis- cal 2001, all these yielded cost savings of ¥340 billion (US$2,556 million), approximately a 10% reduction of total procurement costs. We aim for the same kind of achievement this fiscal year. TVC has given us a powerful tool for analyzing business performance and developing strategy. Application of stringent TVC standards persuaded us to withdraw from the commodity DRAM business, to establish a joint venture for LCDs with Matsushita Electric Industrial Co., Ltd., and to integrate our power transmission and distribution business with that of Mitsubishi Electric Corporation. Our efforts for an enhanced business structure have been bolstered by the 01 Action Plan we launched in August 2001. The Plan targets intensified competitiveness and streamlined management, supported by corporate initiatives. The 01 Ac- tion Plan is proving successful in many ways, but four I con- sider particularly noteworthy are: Harsh business conditions prevailed throughout fiscal 2001, to March 31, 2002. In the aftermath of the U.S. Internet bubble, a slump in demand for IT—in recent years a driver of world economic growth—tipped high-tech industries into global re- cession. The Japanese economy faced a host of difficulties, chief among them lackluster demand and the tightening grip of deflation. Declines in corporate earnings and accompany- ing cuts in capital investment made the domestic situation worse, as did employment and wage adjustments that damp- ened consumer spending. At Toshiba, we continued the restructuring program initi- ated several years ago and took vigorous steps to strengthen competitiveness and streamline management with the 01 Ac- tion Plan. In this connection, we decided to withdraw from the commodity DRAM business, long a source of volatility in Group profits and a severe drag on results in the current economic downturn. In our core growth businesses, we promoted mea- sures designed to allow us to prosper and prevail in the face of fierce global mega-competition. Despite these efforts, Toshiba could not avoid the reality of a depressed market and we reported disappointing busi- ness results for fiscal 2001. Consolidated Group net sales were ¥5,394.0 billion (US$40,557 million), a 9% decline on a year-on-year basis. An operating loss of ¥113.6 billion (US$854 million), ¥345.7 billion lower than the operating income re- corded in the previous fiscal year, resulted in the Group’s first ever operating loss. As a result of restructuring charges of ¥208.9 billion (US$1,571 million) incurred in restructuring and a one-off voluntary early retirement program, Toshiba posted a loss before income taxes of ¥376.7 billion (US$2,832 mil- lion), ¥564.8 billion below the level of income before income taxes recorded in the previous fiscal year. Toshiba recorded a net loss of ¥254.0 billion (US$1,910 million), a ¥350.2 bil- lion decline from the previous fiscal year. Total retirement payments, which include additional payments for our limited-term voluntary early retirement pro- gram, amounted to ¥174.9 billion (US$1,315 million). This resulted in negative free cash flows of ¥176.4 billion (US$1,326 million). 1) The use of Toshiba Value Created (TVC) to monitor per- formance, develop strategy and support allocation of resources. 2) Cutting procurement costs by 20% 3) Reducing the Group workforce by 10% 4) Cutting assets by ¥800 billion (US$6,015 million) Summary of Fiscal 2001 Operating Results Progress of the 01 Action Plan