Bringing science to comfortable living through advancedKiru, Kezuru, Migaku technologies
DISCO's three core technologies contribute to the development of industry and to the enjoyment of life.
C o n t e n t s
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Operational Highlights
Consolidated Financial Highlights
Message from the President
Interview with the President
Special Feature 1
Special Feature 2
DISCO Values
Financial Section
Management’s Discussion and Analysis
Research & Development
About DISCO
Disclaimer regarding forward-looking statementsAny plans, predictions, strategies and beliefs in this annual report, other than those of historical fact, are forward-looking statements about the futureperformance of DISCO Corporation based upon management’s assumptions and beliefs in light of information currently available. Actual results maydiffer substantially from those anticipated in these statements. Potential uncertainties include, but are not limited to, the cyclical nature of thesemiconductor market; the increasingly horizontal international division of labor in the semiconductor manufacturing process; the concentration ofthe Company’s business among certain customers; the emergence of new technologies; the Company’s product development capabilities; theCompany’s ability to acquire and cultivate key human resources; exchange rate fluctuations; and other factors.
Our Mission:
Pioneering Kiru, Kezuru, Migakutechnologies Cutting, grinding and polishing technologies have been essential tools of mankind since the dawn of civilization.
Ever since its foundation, DISCO has sought to master these key technologies.
At DISCO, we refer to these universal technologies using their Japanese equivalents
Kiru (cutting), Kezuru (grinding) and Migaku (polishing). This is because we aim to create unique technologies,
so that these terms are understood all over the world.
Unwavering focus on human happinessScience takes great strides day by day, yet these do not always translate into social progress or happiness.
We earnestly wish that our technologies bring greater convenience, comfort, enjoyment and safety to
people’s lives.
Growth that DISCO pursuesDISCO measures its growth as a company in terms of how close we come to achieving our mission and how much
increase we have made in value exchange with our stakeholders.
We strive to transmit a long-term scenario of our growth and to realize it through increase of value exchange.
1DISCO CORPORATION
2 DISCO CORPORATION
Operational HighlightsNew IR Disclosure PolicyDISCO strives to disclose information promptly, accurately and fairly in accordance with the lawand rules for timely disclosure issued by the Tokyo Stock Exchange. The semiconductor andelectronic components industries are subject to severe market fluctuations and an ever-changingoperating environment. To provide stakeholders real-time information under such conditions, wemake preliminary announcements of consolidated and non-consolidated sales and earnings foreach quarter as soon as they are determined.
SEMICON Japan 20062006 marked the thirtieth anniversary of SEMICON Japan. The venue waslivelier than in past years, reflecting the current strength of thesemiconductor market. To promote our laser cutting technology, wedisplayed three actual DFL7160 units and set up a number of monitors thatshowed videos. Feedback from visitors was that our booth was well-organized and easy to comprehend.
Large Capital Investment ProjectsIn anticipation of the future operating environment, DISCO has decided to conduct three majorcapital investment projects. The Head Office/R&D Center will be expanded to help us respond tothe diversifying needs of our customers. Additionally, in order to accommodate increasedsemiconductor production volume, we will partially reconstruct the Kure Plant and Kuwabata Plantwith a view to increasing production capacity for equipment and consumable blades and wheels.These projects represent the largest capital investments we have made since completing thecurrent Head Office/R&D Center in fiscal 2004.
Honorary Chairman Kenichi Sekiya Appointed Director Emeritus of SEMIDISCO Corporation honorary chairman Kenichi Sekiya was appointed to serve as director emeritusof Semiconductor Equipment and Materials International (SEMI), a global industry associationserving companies that provide equipment, materials and services used to manufacturesemiconductors, displays, micro-electromechanical systems (MEMS) and related technologies.Director emeritus is a lifetime position, and candidates are nominated and appointed by theExecutive Committee of the SEMI Board in recognition of significant and long-standing contributionsto SEMI and the industry it serves. As non-voting members, they attend Board meetings as neededand provide expert advice.
Received Intel’s SCQI Award for 7th Straight Year
Note: Preliminary figures have not been audited by independent auditors, so they are subject to being updated when results are officially announced.
DISCO was named a recipient of Intel Corporation’s prestigious SupplierContinuous Quality Improvement (SCQI) Award for 2006. The award is Intel’shighest honor for suppliers and recognizes them for their outstandingcommitment to quality and performance, and also for providing products andservices deemed essential to Intel’s success. Our efforts in supplyingprecision wafer saws, polishers, grinding and singulation equipment wererecognized along with our quality, technology and accommodation of Intelpriorities, which led to DISCO being selected for a seventh consecutive award.
Year in Review
April 2006
May 2006
December 2006
March 2007
March 2007
3DISCO CORPORATION
Consolidated Financial Highlights
2007 2007
Millions of yen
2006
Thousands ofU.S. dollars (1)
For the Period:Net sales
Operating income
Net income
Capital expenditures
Depreciation and amortization
Research and development expenses
At Year-end:Total shareholders' equity
Total assets
Per Share of Common Stock:Basic net income
Cash dividends
Ratio:Return on equity (ROE) (2)
¥ 86,16119,52410,9366,5542,9686,415
¥ 81,824113,791
¥ 322.3275.00
14.4%
$ 729,869165,38892,63955,51925,14254,341
$ 693,130963,922
$ 2.730.64
¥ 68,885
13,949
8,230
3,288
2,762
6,353
¥ 70,277
99,319
¥ 252.82
50.00
13.1%Notes: (1) U.S. dollar amounts have been translated from Japanese yen, solely for the convenience of readers, at the rate of ¥118.05=US$1, the approximate exchange rate prevailing on
the Tokyo Exchange Market on March 31, 2007.(2) ROE=Net income ÷ Average shareholders’ equity x 100
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Years Ended March 31, 2007, 2006, 2005, 2004 and 2003
5DISCO CORPORATION
Since our establishment in 1937, DISCO Corporation has contributed to bringing
about a more prosperous, comfortable society by pioneering Kiru, Kezuru, Migaku
technologies for global industry. In 1995 we formulated the DISCO Vision, which
represents the desired future state of DISCO as a corporation, and is a milestone
we must achieve by 2010.
We have also formalized DISCO Values to clarify our values as a corporation.
These values cover everything, from the Company’s very reason for existence to
behavior guidelines for employees, and point to the mission we are called on to
pursue. We are striving for more than the mere pursuit of profit; our aim is to be a
corporation that is of value to all stakeholders, including shareholders, customers,
employees and local communities. To this end, it is important for us to work to
improve the corporate culture, to be recognized as a corporation of value and to
contribute to society. Sales, profit and financial performance overall are the
outcome of such pursuits.
The DISCO Group is primarily involved in the semiconductor industry, an extremely
challenging area of business. The pace of technological innovation is rapid and
market fluctuations are relentless. Nevertheless, with management guided by
DISCO Values, we intend to work to further increase our corporate value and
realize the DISCO Vision by carrying out business development oriented toward
our stakeholders.
Thank you for your continuing support.
June 2007 H. Mizorogi
6 DISCO CORPORATION
I n t e r v i e w w i t h t h e P r e s i d e n t
A
Q
1
How do you read the recent changes in the operating environment?
NAND flash memory is one of the current drivers of the
semiconductor industry. Its compact size and large capacity have
led it to be used in cell phones, which are continually advancing in
terms of functionality, and a wide range of other applications,
including digital cameras and portable music players. System in
Package (SiP) technology is supporting the growth of NAND flash
memory.
Until recently the semiconductor industry had been focused on
System on a Chip (SoC) development. SoC involves placing
various functions on a single chip in order to miniaturize circuit
boards, but its development takes considerable time and costs are
high. In contrast, with SiP, multiple chips are sealed into a single
package, which enables high-function semiconductors to be
manufactured at relatively low cost. However, stacking multiple
chips requires making the wafers, the raw material for the chips,
exceedingly thin.
In response to this need for thin wafers, we provide solutions that
utilize proprietary thinning and stress relief technologies. There is
no doubt that our business opportunities will grow alongside
expansion of the market for SiP technology.
7DISCO CORPORATION
I n t e r v i e w w i t h t h e P r e s i d e n t
A
Q
2
What technologies is DISCO currently developing?
The DISCO Vision calls for establishing new pillars for our Kiru,
Kezuru and Migaku technologies alongside our existing abrasive
technology. Under this policy, along with making traditional abrasive
technology more advanced, we have made strides in developing
new technologies and applications using lasers, plasma, ultrasonic
waves and water jets.
Laser full-cut dicing is one result of these development efforts. It
involves laser irradiation of the top surface of thin wafers. As fragile
materials and wafers get thinner, dicing becomes more and more
difficult. Laser full-cut dicing serves to improve dicing speed and
throughput on thin wafers, such as those used in compound
semiconductors for high-frequency devices.
DISCO has also developed ultrasonic wave dicing as a new
application for electronic and optical components. This new
application of the technology facilitates the processing of materials
for which blade dicing proves difficult, such as glass, ceramics,
metals and resins.
8 DISCO CORPORATION
I n t e r v i e w w i t h t h e P r e s i d e n t
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Head Office/R&D CenterInvestment : ¥7.5 billion Completion: End of 2008 A
Q
3
What capital investments are you making in order to accommodate increasing demand?
DISCO’s target market, the semiconductor industry, is expected to
steadily expand. In fiscal 2006 we decided on three large capital
investment projects in anticipation of market growth:
1) expansion of our Head Office/R&D Center, 2) partial reconstruction
of the Kure Plant, and 3) partial reconstruction of the Kuwabata Plant.
1) We will add a new building in the grounds of our current Head
Office/R&D Center in order to further promote research and
development on laser saws, which are garnering attention as a new
processing method, and to accommodate equipment for larger-
diameter wafers. We will invest a total of ¥8 billion into the new
building, which will have a floor area of 26,400 m2. It is slated for
completion by the end of 2008.
2) At the Kure Plant, a new building is currently under construction
and should be finished by the end of 2007. It is being built in
anticipation of growth in demand for consumable blades and wheels.
A seismic isolation structure that minimizes potential earthquake
damage has been incorporated into the design in order to ensure
stable supply of our products to our global customers. Total
investment in the plant is ¥1.8 billion, and when complete, it will
increase our current production capacity by 50%.
3) At the Kuwabata Plant, also located in the city of Kure, we are
constructing a new building with a view to enhancing production
capacity and increasing production efficiency for precision processing
equipment and consumables. Total investment is ¥2.5 billion, and the
building is scheduled for completion by the end of 2007.
9DISCO CORPORATION
I n t e r v i e w w i t h t h e P r e s i d e n t
A
Q
4
What are your basic policies for investor relations and distribution of earnings to shareholders?
We recognize that building good relationships with shareholders and
investors is very important for our development as a corporation.
Based on this recognition, the entire group is working to improve
returns to our shareholders, and to increase corporate value.
On the matter of distributing earnings to shareholders, we revised
our dividend policy to link it to corporate performance beginning in
fiscal 2006 and changed our payout ratio to 20%. We also made
the decision to tack on one-third of the balance of excess cash to
the dividend when our current deposits exceed the amount
necessary for corporate operations. By striking a balance between
dividends and internal reserves, we will strive to realize sustained
growth and further increase corporate value.
To enable shareholders and investors to truly understand the
corporation, we are also devoting energy to investor relations
activities. We are working to build relationships of trust by promptly
and fairly disclosing information on important managerial issues
and data on financial performance, as well as by holding corporate
briefings as needed.
Moreover, to ensure that DISCO continues to merit the trust of
society, we are strengthening corporate governance, compliance
and CSR initiatives. I would like to express our gratitude to all our
shareholders for your robust, ongoing support.
10 DISCO CORPORATION
1Special Feature
Precision Processing Tooling Business: the Source of DISCO’s Strength
Strengthening the Precision Consumables Business to Flatten the Ups and Downs of the Silicon CycleThe semiconductor market swings wildly up and down with the
imbalances in supply and demand. This is known as the silicon
cycle. Our precision processing equipment is easily susceptible to
the impact of customer capital investment cycles, so sales figures
fluctuate considerably. Consumable items, such as precision
dicing blades and grinding wheels, on the other hand, are
indispensable to semiconductor production. Unlike precision
processing equipment, the sales volume of consumables
increases in direct proportion to the number of semiconductors
manufactured. Therefore, the influence of the silicon cycle is
smaller. Sales of consumables over the past 15 years have grown
at a rate of over 10% annually. DISCO’s consumables are the
product of our advanced proprietary technologies and are
extremely competitive in the market. The business constitutes a
stable source of revenue that underpins our financial performance.
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11DISCO CORPORATION
Consumables are used in DISCO dicers and grinders to provide quality and performance. They include Kiru products
like dicing blades for cutting wafers, Kezuru products like grinding wheels, and Migaku products like dry polishing
wheels. We fully leverage the expertise we have accumulated since our founding to develop and manufacture these
products to meet the needs of our customers.
Capacity ExpansionThe consumables business is expected to see steady growth
driven by the expansion in semiconductor applications. There
is currently a mounting need for new consumables owing to
the development of new semiconductor materials and the
increasing complexity of processing technologies.
To accommodate this growth in demand, DISCO is
constructing a new facility at our plant for consumables in
Kure, Hiroshima prefecture.
The new building will adopt a seismic isolation structure to
mitigate earthquake risk and ensure stable product supplies
to our global customers. Production capacity is scheduled to
increase by about 50% when the building is completed in
2007.
Blade CharacteristicsDISCO precision dicing blades are primarily made of abrasivesand bond. Abrasives serve as the cutting material for processing,while the bond holds the abrasives in place.
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Blade MechanismPrecision dicing blades differ from normal cutting tools in that theyenable a special kind of processing function known as self-sharpening. During processing, new abrasives emerge so that theblade is constantly maintained in good condition.
1
2
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The bond that holds the abrasives in place is graduallyworn away by the stress of processing and grainsgiven off by the cutting work (the blade wears in aninward direction).
The abrasives that do the cutting are therefore strippedaway and new abrasives emerge on the surface toserve as the new cutting blade for processing.
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New Consumables Building at the Kure Plant
FeaturesAnticipatory measure to meet growing demand for consumablesProduction capacity will be boosted by around 50% over current levelsSeismic isolation structure
Total investment of ¥1.8 billion
Scheduled for completion in 2007
12 DISCO CORPORATION
2Special Feature
DFL7160 Advancing Kiru Technology
DFL7160
In order to accommodate increasingly sophisticated
semiconductor manufacturing processes, DISCO
offers not only conventional blade dicing but also a
lineup of precision cutting technologies that use
lasers.
The DFL7160 provides high speed, high quality
processing using lasers for full cutting and grooving,
and can be used to process materials and devices
that are difficult to process with conventional blade
dicing. The DFL7160 is a fully automatic laser saw
compatible with 300 mm wafers that is capable of
integrated processes from washing to drying.
13DISCO CORPORATION
Grooving of materialsfor high-performancedevicesThe system can cut metalization, test targets and low-k
film, which is widely used with high-performance
devices, without causing thermal warping or cracking.
It is normally quite difficult to obtain high levels of
productivity using conventional diamond blade dicing
on compound materials such as Gallium Arsenide
(GaAs), which is used in high-frequency devices.
Manufacturing technologies for thin, strong die is
required by System in Package (SiP) technology, which
is used to produce thinner, highly functional mobile
phones and memory cards. However, the thinner the
wafer, the more difficult blade dicing becomes. DISCO
has worked to solve this problem by optimizing the
laser head and optical system of the DFL7160, and has
succeeded in establishing a laser full-cut application.
Full Cut Dicing of Thin Silicon WafersAs wafers have become thinner, chipping or cracking
during dicing has a major impact on die strength. For
this reason, there is demand for a form of processing
that reduces chipping. In addition, an increasing
number of devices use Die Attach Film (DAF) as the
adhesive material for stacking thin die, so burr
reduction and dicing quality have also become issues.
In response, DISCO has developed an application that
performs laser full-cut dicing as one of the thin wafer
solutions for silicon. Throughput improvement can be
expected thanks to high-speed laser processing. For
wafers with DAF attached, laser dicing can be
performed on the silicon and DAF together or
separately.
Expanded use of the laser process
Laser process enables DISCO to cut material that was difficult with conventional blades.
GaAs wafer Sapphire DAF(Die Attach Film) Thin Silicon wafer
14 DISCO CORPORATION
DISCO Values
DISCO formalized DISCO Values as a management nucleus and a system of corporate philosophies to be relied on
for all business activities. DISCO will increase its exchange of value with its stakeholders for future corporate growth.
Structure of DISCO ValuesDISCO Values were formalized in 1997 as a result
of a project that was initiated in December 1995 by
the top management with the intent of creating a
more dynamic corporate culture. DISCO Values
respond to the question “Why does DISCO exist?”
and systematically summarize the Company’s
original values. At the same time, they provide for
future perspectives on how DISCO should be and
what DISCO should do to promote future
development while respecting its accumulated
traditions.
DISCO annually verifies DISCO Values and
modifies them as required to keep the content
optimally relevant.
Corporate Growth at DISCODISCO embodies basic ideas for its future-oriented
business activities in the form of a Management
Model. In this model, DISCO’s growth is fulfilled not
by quantitative scale expansion, such as a rise in
net sales or an increase in the number of offices and
employees, but rather by the achievement of the
Mission, which increases the exchange of value with
our stakeholders.
Based on the idea of exchange of value, whereby
corporations are a social system for value exchange
among a variety of people, DISCO views its
corporate growth in terms of increasing this
exchange of value with our stakeholders and
accordingly promotes stakeholder-oriented
management.
Structure of DISCO Values
DISCO Values
HighestValues
Reason for Existence
Addresses the role a company plays insociety, what the existence of DISCOmeans to society and in what waysworking at DISCO is meaningful.
UpperValues
Basic Ideals(Ideal Direction of theCorporation)
Management Ideals(Basic Approach ofManagement)
Reveals DISCO’s social mission, itstargets as a company, and the distinctivestyle of its company activities andcorporate culture.
MiddleValues
ManagementGuidelines(for corporate activities)
Illuminates DISCO’s set of values in 203guidelines. Used as the basis to determinewhat concepts to apply when formulatingor improving business processes oractivities and how to behave and makedecisions in the management andadministration of the company.
LowerValues
Behavior Identity Ethical Guidelines
Defines guidelines for actions that eachand every DISCO employee shouldcontinually strive to take.
DISCO’s Product IdentityExpresses the most basic concepts forDISCO products. Forms the basis fordistinctively DISCO product development.
Clarifies basic principles of managementand basic policies to be valued inmanagement.
Definition of Growth
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Improve ability toachieve Mission
Increase exchange of value with stakeholders
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DISCO
Financial Section
15DISCO CORPORATION
Six-Year Summary
For the Period:Net sales
Electronics industry-related productsIndustrial productsOther products
Operating income (loss)Income (loss) before income taxes and minority interests
Net income (loss)Capital expendituresDepreciation and amortizationResearch and development expenses
At Year-End:Total assetsInterest-bearing debtTotal shareholders’ equityNumber of shares issued and outstandingShare price (Yen)Number of shareholdersNumber of employees
Per Share of Common Stock (Yen and U.S. Dollars):
Basic net income (loss)Cash dividendsShareholders’ equity
Ratios:Gross profit marginOperating income marginIncome (loss) before income taxes and minority interests margin
Net income marginReturn on assets (ROA)(2)
Return on equity (ROE)(3)
Price-earnings ratioEquity ratioInterest coverage ratio(4)
¥68,88566,049
2,536300
13,949
13,3858,2303,2882,7626,353
¥99,3193,291
70,27733,562,718
7,74012,828
1,721
¥252.8250.002,092
52.5%20.2
19.411.915.213.130.670.8
479.0
¥60,32157,343
2,597381
9,869
9,0815,301
11,8152,4406,256
¥84,83912,04455,727
32,180,2404,600
15,6361,678
¥162.5740.001,730
50.7%16.4
15.08.8
12.09.9
28.365.7
252.8
¥48,24345,400
2,605238
5,625
5,2863,0953,2992,1082,653
¥80,35313,31151,002
32,130,7115,550
16,5721,670
¥94.7230.001,586
47.7%11.7
10.96.48.06.2
58.663.5
193.3
¥37,12434,355
2,614155
1,626
1,494382
2,2722,1482,160
¥61,9092,913
48,74632,117,999
3,80013,611
1,578
¥11.8020.001,518
45.2%4.4
4.01.02.80.8
322.078.747.8
¥30,37427,203
2,875296
(2,340)
(2,834)(1,796)3,0942,4562,437
¥63,7216,519
49,20432,117,125
8,10012,272
1,577
¥(55.91)20.001,532
41.5%(7.7)
(9.3)(5.9)(3.0)(3.6)
(144.9)77.2
(62.7)
$729,869706,726
20,9072,236
165,388
93,06392,63955,51925,14254,341
$963,9229,555
693,130
$2.730.64
20.27
Millions of yen Thousands ofU.S. dollars(1)
2006
¥86,16183,429
2,468264
19,524
10,98610,936
6,5542,9686,415
¥113,7911,128
81,82433,982,518
7,20013,293
2,012
¥322.3275.002,393
51.1%22.7
20.612.718.514.422.371.5
436.5
2007 2005 2004 2003 2002 2007
Notes: (1) U.S. dollar amounts have been translated from Japanese yen, solely for theconvenience of readers, at the rate of ¥118.05=US$1, the approximate exchange rateprevailing on the Tokyo Exchange Market on March 31, 2007.
(2) ROA = (Operating income + Interest and dividend income) ÷ Average total assets x 100(3) ROE = Net income ÷ Average shareholders’ equity x 100(4) Interest coverage ratio = (Operating income + Interest and dividend income) ÷ Interest expense
Contents16 Management’s Discussion and Analysis21 Research & Development22 Consolidated Balance Sheets24 Consolidated Statements of Income
25 Consolidated Statements of Changes in Net Assets26 Consolidated Statements of Cash Flows27 Notes to Consolidated Financial Statements41 Independent Auditors’ Report
Years Ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002
Management’s Discussion and Analysis
16 DISCO CORPORATION
Business Overview andResults of OperationsSummary of Results of OperationsFor the consolidated fiscal year under review, strong capitalinvestment by semiconductor manufacturers havecontinued, supported by demand for end-user application ofdigital products worldwide. Although the industry hasentered in the adjustment period in 2007, orders forsemiconductor equipment remained in a steady growth.
Regarding the Group's business operations, due to strongdemand from both home and abroad, sales and orderscontinually increased, generating record-high Q4 sales onquarterly basis. Especially sales of precision processingequipment for memory device and of grinding equipment formaterial wafers saw a considerable increase. Further, salesof precision processing tooling (consumables) grew,reflecting increase in number of semiconductor productionunits. The Group focused on improving customer’s valuewhile implementing aggressive sales activities. As a result,consolidated net sales for the fiscal year under review rose25.1% to ¥86,161 million, achieved the highestperformance in the past. Operating income climbed to40.0% to 19,524 million and consolidated net incomeincreased 32.9% to ¥10,936 million. In addition, share ofconsolidated net sales attributed to those overseas rose to66.0%, from 64.7% for the previous year, a gain of 1.3points.
Net SalesConsolidated net sales hit a record ¥86,161 million or up25.1% from the previous year. The strong results wereattributable to a sharp increase in sales of grinders formemory device and material wafer processing, reflectingsemiconductor manufacturers’ strong capital expenditures,and robust sales of consumables amid rising production ofsemiconductors.
Cost of salesReflecting higher net sales, the cost of sales increased¥9,373 million from the previous period to ¥42,107 million.Despite an increase in sales of high-margin consumables,overall profit margin remained flat because model changesof precision processing equipment almost finished and
higher sales were seen in the Asian region, where pricecompetition was fierce. Cost of sales ratio climbed 1.4percentage points to 48.9%.
Selling, General and Administrative ExpensesSelling, general and administrative (SG&A) expenses grew¥2,328 million to ¥24,530 million from ¥22,202 million overthe previous year, mainly because of the following factors:R&D expenses rose ¥47 million to ¥6,389 million, from¥6,342 million over the previous year. The majority of R&Dexpenses were used for the Electronics Industry-RelatedProducts division and we expect this strategic expense willtranslate into increased future earnings. Salaries, bonusesand provision for staff bonus reserve rose ¥950 millioncompared with the previous period, reflecting a largerworkforce, higher bonuses due to improved earnings, andincreased overtime work resulting from activities forreceiving orders. Sales commissions, packing and freightexpenses, and warranty cost, which vary proportionatelywith sales, increased by a combined ¥813 million over theprevious year, owing to a rise in sales.
As a result, SG&A expenses rose from the previous year,but this rise was offset by an increase in net sales. Hence,the ratio of SG&A expenses to net sales declined 3.9percentage points, compared with the previous year to28.4%.
Operating IncomeOperating income rose ¥5,575 million to ¥19,524 million,from ¥13,949 million for the previous year. This rise wasmainly attributable to a substantial increase in operatingincome in the Electronics Industry-Related Productsdivision, although such income dropped in the IndustrialProducts division.
Other Income (Expenses) Other income (expenses) increased ¥1,245 million to¥1,808 million (net), compared with an income of ¥564million (net) for the previous year. The increase was mainlydue to a valuation of inventories of ¥402 million and adisposal of inventories of ¥370 million. With regard toS.E.A. Utensili Diamantati S.p.A., an equity-method affiliate,the Group booked ¥157 million in losses on valuation ofinvestment securities and ¥204 million in provision ofallowance for doubtful accounts, as the Group’s IndustrialProducts division withdrew from products for stonematerials.
Income Before Income Taxes and Minority InterestsFor the above reasons, income before income taxes andminority interests increased ¥4,331 million from, ¥13,385
Forward-looking statements contained in the followingdiscussion and analysis are based on informationavailable to DISCO Group management as of March 31,2007.
17DISCO CORPORATION
million to ¥17,716 million.
Income TaxesThe effective income tax rate for the period under reviewwas 38.0%, which was lower than the normal effective taxrate of approximately 40.7%.
Minority Interests Minority interests earned ¥50 million attributable toconsolidated subsidiaries, such as DISCO TECHNOLOGY(SHANGHAI) CO., LTD. and DSD, Ltd.
Net Income Net income rose ¥2,706 million, to ¥10,936 million,compared with ¥8,230 million for the previous period.
Basic net income per share posted ¥322.32, comparedwith ¥252.82 in the previous year. Diluted net income pershare rose to ¥321.22, from ¥251.85 in the previous year.
Business Performance by SegmentElectronics Industry-Related Products DivisionThe Electronics Industry-Related Products division, ourcore business segment, manufacturers and marketsprecision processing equipment, such as dicing saws andgrinders; precision processing tooling (consumables suchas blades and wheels); and precision electroniccomponents. The division also provides full after-salesservice. In the consolidated fiscal year under review, theequipment and tooling for precision processing enjoyedlarge sales due to semiconductor manufacturers’ highutilization of capacity. By product, sales of cuttingequipment for electronic components and opticalsemiconductors were high. Also, sales of grindingequipment increased sharply, driven by our strategicproduct, thinning and stress-relief equipment, and surfacegrinding equipment for material wafers.
As a result, sales for the consolidated fiscal year underreview grew 26.3% over the previous period to reach¥83,429 million. Also operating income rose 33.4% over theprevious period, to reach ¥22,431 million.
Industrial Products Division and Other ProductsDivisionThe Industrial Products division manufactures and marketsindustrial diamond tools and general cutting and grindingtools, mainly for the civil engineering sector.
Despite aggressive marketing activities during the yearended March 31, 2007, sales by the division, on aconsolidated basis, declined 2.7%, to ¥2,468 million, owing
to national and local government policies, that haveconstrained public works expenditures. Operating incomealso fell 32.0% from that of the previous period, amountingto ¥145 million.
Regarding to S.E.A. Utensili Diamantati S.p.A., an equity-method affiliate, the Group posted ¥157 million fordevaluation loss on investment securities, and ¥204 millionfor provisions for bad debt, owning withdrawal from themarket of industrial grinding products business for stonematerial products.
The Other Products division focuses on the developmentand marketing of computer software, mainly targeted atsemiconductor equipment and device manufacturers. On aconsolidated basis, sales by the division decreased 12.0%from the previous period, to ¥264 million, while netoperating income increased 317.1% over the previousperiod, amounting to a gain of ¥45 million.
Geographic Segment InformationDomestic SegmentThis segment includes not only sales in Japan, but alsosales in Korea and Taiwan, etc. where the Group directlyexports without involving the Group’s overseas subsidiariesand markets through local distributors. Especially in Asia,for the consolidated fiscal year under review, net sales were¥53,585 million, up 29.9% over the previous year andoperating income also rose to ¥20,193 million, an increaseof 40.0% from the previous period. This is due to sharpincrease in orders for industrial grinding equipment forelectronics components in Japan as well as in Asia, whichwas driven specially by strong capital investment frommemory manufacturers in Korea, including subcontractors.
Overseas Segment The Group experienced remarkable sales growth in mostoverseas markets. Notably, sales of memory-relateddevices were favorable in Asian region. Net sales in NorthAmerica were ¥6,517 million, up 14.6% from the previousyear and net operating income rose to ¥248 million, up40.7% from the previous year. Sales in Asia were ¥16,410million, up 7.7% over the previous period, while netoperating income was ¥903 million, a decrease 55.0%compared with the previous period. Net sales in Europewere ¥9,649, an increase of 43.9% from the previous fiscalyear, and net operating income was ¥1,715 million, a rise of67.4% comparing with the previous period.
As a result, net sales in North America increased 10.8%
18 DISCO CORPORATION
from the previous period, to ¥5,919 million, in Asia was¥41,107 million, an increase of 25.3% from the previousperiod and in Europe was ¥9,798, an increase of 52.7%over the previous period to ¥9,797 million. Hence, total netsales in overseas segment to the consolidated net sales forfiscal year under review rose 1.3 points compared with theprevious year to 66.0% (64.7% for the previous year).
Liquidity and Capital Resources Assets, Liabilities and Shareholders’ EquityIn the fiscal year under review, total assets for theconsolidated fiscal year under review increased ¥14,472million over the previous year to ¥113,791 million. The mostsignificant factors contributing to this growth were increasesin notes and accounts receivable-trade, and cash and cashequivalents.
As for current assets, total current assets rose to ¥75,799million, up ¥11,520 million, owing to increase in notes andaccounts receivable-trade and inventories amid robustsales. Quick assets, the sum of cash and cash equivalents,and notes and accounts receivable-trade, totaled ¥51,842million, leaving the Company in a sound position to covercurrent liabilities which stood at ¥28,819 million at the endof the period.
Fixed assets for the consolidated fiscal year under reviewrose ¥2,952 million to ¥37,992 million, due primarily toconstruction of new building in the premise of HeadOffice/R&D Center, and Kure and Kuwabata plants.
Current liabilities decreased ¥1,985 million becausebonds with share warrants to be redeemed within one yearwere all redeemed. Meanwhile, the sum of notes payable-trade, accounts payable-trade, accrued expenses, incometax payable, etc. rose ¥2,758 million reflecting strong sales.As a result, current liabilities increased rose to ¥28,819million, up ¥3,325 million from the previous term.
Long-term liabilities rose ¥25 million to ¥3,148 millionfrom the previous year.
Minority interests for the consolidated fiscal year underreview rose ¥26 million to ¥451 million, compared with theprevious period.
Total shareholders’ equity grew ¥10,785 million to¥80,552 million. This was primarily due to increases incommon stock and additional paid-in capital totaling ¥2,146million, following the exercise of new share warrants of thenotes with stock acquisition rights and stock options, and arise in retained earnings of ¥8,653 million. Beginning in theconsolidated fiscal year under review, the Companyadopted “Accounting Standards for Share-Based
Compensation.” (Statement No. 8 issued by the AccountingStandards Board of Japan on December 27, 2005). Withthis adoption, we booked share subscription rights of ¥66million.
Cash FlowsWhile income before income tax increased 32.4%compared with the previous year to ¥17,716 million, cashand cash equivalents at the end of the consolidated fiscalperiod (hereinafter “Cash”) increased by ¥2,041 million asresult of payment of corporate tax payment and payment foracquisition of tangible fixed assets of ¥6,498 million and¥4,899 million, respective by, reflecting strong salesactivities.
Major factors for the above for the consolidated fiscalyear under review were as follows.
Cash flow provided by operating activitiesNet cash provided by operating activities at the end of theconsolidated fiscal period under review were ¥13,194million. This was mainly attributable to decrease in Cash bypayment of corporate taxes in the amount of ¥6,498 million,while there was an increase in income before income taxesand depreciation and amortization of each ¥17,716 millionand ¥2,964 million.
Cash flow used in investing activitiesNet cash used in investing activities at the end of theconsolidated fiscal period under review was ¥8,952 million,chiefly because of the following factors: investment inproperty, plant and equipment of ¥4,899 million forconstructing new building of the Head Office/R&D Center,Kure and Kuwabata plants, and disbursement for timedeposits of ¥3,000 million.
Hence, free cash flow adding up net cash flows fromoperating activities and investing activities at the end of theconsolidated fiscal period under review was ¥4,242 million(¥7,914 million for the previous year).
Cash flows used in financing activitiesNet cash used in financing activities at the end of theconsolidated fiscal year under review was ¥2,429 million.This was mainly due to the payment of dividends of ¥2,191million and repayment for short-term borrowings of ¥306million.
Financial PoliciesAs a general principle, the DISCO Group satisfies most ofits working capital and property, plant and equipmentfunding requirements through the use of its internal free
19DISCO CORPORATION
cash flows. Fluctuations in the Group’s operatingperformance may be significant, mainly owing to stronglinkage with the silicon cycle. Additionally, the developmentof the Group’s business requires us to actively take onbusiness risks, and, to balance this, we believe it isimportant for us to minimize the Group’s exposure tofinancial risk and build a high level of risk tolerance into ourfinancial structure. This has led us to develop a policy of notincreasing the Group’s interest-bearing debt, and, inparticular, bank borrowings.
When the need for large, one-off funding does arise, it isour policy to utilize direct financing sources in the financialmarkets, such as through secondary public stock offerings,which serves to keep financial risk at a minimum. Atpresent, we believe the Group has achieved a high degreeof financial stability primarily due to its low level of interest-bearing debt—mainly in the form of long-term borrowings—relative to its asset base.
To satisfy working capital requirements, each companywithin the Group arranges its own short-term borrowings(up to 12 months). In some cases, however, where fundingcost differentials are significant, the Group parent companymay raise funds and provide loans to consolidatedsubsidiaries as necessary.
As of the end of the consolidated fiscal year underreview, short-term loans stood at ¥300 million, all frombanks. In addition, property, plant and equipment fundingrequirements are satisfied through long-term loans, and asof the end of the consolidated fiscal year under review,long-term loans stood at ¥828 million, again all from banks.
We believe the Group remains in a strong position tomeet its ongoing working capital and capital expenditurerequirements and to facilitate its future growth. This positionis underpinned by the Group’s sound financial base and itsability to generate sufficient operating cash flows.
Risk FactorsBusiness and other risks which may materially affect to theGroup’s business, financial positions and the decisions ofour investors are as follows:
Cyclical Nature of the Semiconductor Market The Group manufactures precision equipment along withprecision processing tooling used in this equipment, andsells these products to semiconductor manufacturersworldwide. The semiconductor market is characterized byextreme volatility and large fluctuations in the balancebetween supply and demand. Consequently, the businessperformance of semiconductor manufacturers is strongly
affected by this, the so-called “silicon cycle.” Besides globalmacroeconomics trends, this cycle is influenced by suchfactors as; (1) supply and demand conditions andtechnology trends in consumer and industrial electronicsmarkets; and (2) the number of semiconductors used ineach end-user product and the processing capacity of thosesemiconductors. As a result, it is very difficult to producereliable forecasts concerning the semiconductor market.
The Group has made considerable efforts to structure itsbusiness in such a way that it remains profitable evenduring the downward phase of the cycle. Nonetheless, thebusiness performance of the Group may be unavoidablyaffected by cyclical fluctuations in the semiconductormarket that lead to slumps in the plant and equipmentinvestment trends of semiconductor manufacturers.
International Division of Labor in the SemiconductorManufacturing Industry In recent years, semiconductor manufacturers haveincreasingly shifted away from the traditional system ofcarrying out the entire production process in-house towardan outsourcing-based model. Under this new system,certain parts of the production process are outsourced tosilicon foundries and assembly subcontractors—mainly inAsia—leading to progressively greater horizontal division oflabor across countries and regions. Reflecting this change,the proportion of the Group’s sales generated in the Asiaregion has risen substantially over recent years. To acertain extent, by shifting to such a production system,semiconductor manufacturers are passing on some of thecyclical business risk associated with market fluctuations tothe foundries and subcontractors, which, in turn, tend toadopt a plant and equipment investment stance that is moresensitive to fluctuations in the semiconductor market thantraditional semiconductor manufacturers.
Consequently, the market-driven plant and equipmentinvestment conditions at foundries and subcontractors mayaffect the Group’s business performance.
Concentration of Business among Certain CustomersThe Group maintains business relationships with all of theworld’s major semiconductor manufacturers. Within thesemiconductor sector, there is a continuing trend towardmergers and acquisitions aimed at securing competitiveadvantage, as well as toward a very select group of leadingfirms becoming ever more dominant in terms of marketshare. These types of trends may be a factor in limiting thepool of potential customers for the Group’s products.
The Group’s business performance may also be affectedby the concentration of its business, at certain times,among a limited number of specific customers, who may
20 DISCO CORPORATION
use this situation as leverage during price negotiations. Thiscould lead to volatility in the prices and profitability of theGroup’s products.
Emergence of New Technologies The Group’s main products at present are precisionequipment and precision processing tools, for theprocessing of semiconductor silicon wafers. The currentmethod of cutting wafers using diamond blades becameestablished in the past as the optimal method for this taskas a result of semiconductor and electronic componentmanufacturers conducting extensive technical evaluationsof various possible methods. However, in the future,substitute technology may emerge, which may have anegative impact on the Group’s business performance.
In recent years, laser cutting technology has receivedmuch attention. The Group developed and sells laser sawsfor cutting materials that are difficult to cut efficiently usingprecision dicing blades.
Product Development Capabilities In fields where the pace of technical innovation isparticularly rapid, such as that of semiconductors andelectronic components, maintaining a competitiveadvantage in technology requires ongoing investment inresearch and development regardless of short-term marketfluctuations. To precisely meet the needs of its customers,which are becoming more diverse and sophisticated eachday, the Group allocates the maximum level of resourcespossible to R&D activities as one of management’s highestpriority tasks. However, by its very nature, productdevelopment is very complex and involves an extremelyhigh level of uncertainty. If the Group were not able toadequately predict changes in the industry and market, and,therefore, were not able to introduce attractive products tothe market in a timely manner, the Group’s businessperformance may be negatively affected.
Acquiring and Cultivating Key Human Resources As the Group’s future growth is greatly dependent onhaving talented engineers and other key human resources,the task of acquiring and cultivating these human resourcesis an extremely important issue for management. If theCompany cannot acquire or cultivate key human resources,this may negatively affect the Group’s future growth andbusiness performance.
Exchange Rate FluctuationsThe Group conducts its business not only with customers inJapan but also with semiconductor and electroniccomponent manufacturers in the United States, Europe and
Asia. For this reason, to enable the Group to rapidly andeffectively sell its products and provide after-sales serviceto semiconductor and electronic component manufacturers,it has established a network of sales and servicesubsidiaries in the United States, Europe and Asia. Whenthe Group exports products from Japan, depending on theregion or customer in question, currencies other than theJapanese yen, including the U.S. dollar, the euro and theSingapore dollar, may be used for the settlement oftransactions. As the Group’s products are, for the most part,manufactured in Japan, manufacturing costs are incurred inJapanese yen.
Consequently, as a general rule, a rise in the value of theyen has a negative effect on the Group’s businessperformance and a fall in the value of the yen has a positiveeffect. In this way, fluctuations in exchange rates may affectthe Group’s operating results.
Earthquake DisastersMany of the Group’s production facilities are located inHiroshima City and its corporate headquarters is located inTokyo, Japan, where a severe earthquake could strikeanywhere at any time. If a severe earthquake were to hitthe Group’s production facilities, it would cause a halt inproduction, and in the case of the Group’s headquarters,this would adversely affect the Group’s management.Further, depending on conditions, it would also adverselyaffect the Group’s business performance.
Other FactorsIn the conduct of its business, in addition to theaforementioned risk factors, the Group’s businessperformance may also be affected by economic crises,natural disasters, war and terrorist actions, epidemics,financial and capital markets, laws and governmentregulations, product defects, supply systems, intellectualproperty rights, and other factors, both global and regional.
21DISCO CORPORATION
silicon.
(4) New dicing blade VT07 seriesDISCO has developed a new dicing blade series using theoutstanding grinding ability of vitrified bond. Vitrified bond,with a proven track record grinding wheels, is now usedcommercially as a thin dicing blades, which have beendifficult to manufacture until now. The VT07 can achieveexcellent results with high-load processing, such as deepcutting of very hard materials like silicon nitride, by takingadvantage of the high rigidity and high-grinding ability ofvitrified bond.
(5) New wheel BR385A BR385 bond wheel, suitable for grinding glass, has beenadded to the lineup of the GF01-series grinding wheel.Application of the newly developed resin bond to both roughand finish grinding processes has now made it possible tocarry out high-grade grinding of fine surfaces. Given itssuperior grinding ability, the BR385 also makes it possible toachieve continuous grinding of glass in a stable mannerwithout intermediate dressing.
(6) Precision-processing components andsemiconductor-related components DISCO has invested actively in the development of precision-processing components, such as for MEMS sensor devices,RF powers, digital devices, glass wafer processingtechnology for combined biological/medical-use, andmicrofabrication technique for water-cooled heatsinks forcooling of next-generation high-power laser diodes.
DISCO has also advanced investments in the developmentof a microfabrication technology aimed at application of high-performing materials to support the heatsink market whereincreasingly high functionality is demanded.
R&D expenses in this division totaled ¥6,317 million.
Industrial Products Division(1) DISCO advanced initiatives to stabilize the performingquality of ultra-thin cutting wheels and CBN electrocoatwheels to meet the needs of the auto-related industry.
(2) DISCO has developed and launched new thin-bladed wetsegment saws, housed in lightweight aluminum shells withsilent cup wheels, as general-purpose ceramic tile cutters tomeet the needs of the construction processing market.
R&D expenses in this division totaled ¥97 million.
Electronics Industry-Related ProductsDivision(1) Edge profiling grinding technologyNext generation ultra-compact memory cards, developed tosupport the miniaturization and high-functionality of mobilephones and digital cameras, are becoming smaller andthinner based on die thinning and unified molding of the dieand package. Currently, a processing method, based oneither laser or water jet, is being used for curvilinearprocessing to trim the shape of the package edges afterunified molding. As a new processing method for thiscurvilinear process, DISCO has developed the edge profilegrinding technology that uses a purpose-built blade to attainbetter quality and lower-cost processing, based on DISCO’sabundant development experience in diamond wheels anddicing saws.
(2) R07 series BB100 bond blade for processing glass,quartz, etc.DISCO has developed a resin R07 series BB100 bond bladefor high-grade processing of hard and brittle materials suchas glass, quartz and ceramics. BB100’s characteristicfeatures lie in its higher thermal conductivity and strongerabrasive coating retention compared with conventional resinblades, which makes it possible to reduce instances ofchipping (or cracks occurring on the deburred planes due togrinding load) and improving both processing quality andprocessing speed.
(3) Cutting blade ZP07 for glass and silicon bondedwafersDISCO has developed a new electroformed blade ZP07series to enhance the processing performance of difficult-to-cut materials. The ZP07 combines high cutting ability, whichis specific to electroformed bonded blades, and appropriateself-sharpening ability, by forming pores in the electroformedbond to make a porus structure. It enables simultaneouscutting of glass and silicon wafers in a single pass, yieldingfavorable processing results on the surface of both glass and
The Group’s R&D expenses totaled ¥6,415 million for theyear under review. The technology development division inevery consolidated company of the DISCO Group developsnew products, application technology and productiontechnologies to meet the diverse needs of its users, andconducts basic research that is expected to constitutefuture business. The major achievements of each divisionfor the year under review are as follows.
Research & Development
Consolidated Balance Sheets
22 DISCO CORPORATION
DISCO Corporation and Consolidated Subsidiaries March 31, 2007 and 2006
Millions of yen
2007 2007
Thousands ofU.S. dollars (note 3)
ASSETSCURRENT ASSETS:
Cash and cash equivalents (note 4)Notes and accounts receivable-tradeAllowance for doubtful receivablesInventories (note 6)Deferred tax assets (note 11)Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:LandBuildings and structuresMachinery and equipmentTools, furniture and fixturesConstruction in progress
TotalAccumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:Investment securities (note 5)Investments in unconsolidated subsidiaries and
associated companies (note 7)Leasehold landDeferred tax assets (note 11)Other
Total investments and other assets
TOTAL
¥ 24,045 27,797
(430)17,283 2,431 4,673
75,799
12,458 17,203 14,617 3,758 4,487
52,523 (18,919)33,604
514
106 215
1,150 2,4034,388
¥ 113,791
2006
¥ 22,004 24,424
(54)15,749 1,176
980 64,279
12,207 17,176 12,924 3,352
431 46,090
(17,032)29,058
1,359
642 215
1,509 2,2575,982
¥ 99,319
$ 203,685235,468
(3,643)146,404
20,593 39,585
642,092
105,532 145,726 123,820
31,834 38,009
444,921 (160,262)284,659
4,354
898 1,821 9,742
20,35637,171
$ 963,922
See accompanying notes to consolidated financial statements.
23DISCO CORPORATION
Millions of yen
2007 2006 2007
Thousands ofU.S. dollars (note 3)
LIABILITIES AND NET ASSETSCURRENT LIABILITIES:
Short-term bank loans (note 8)Current portion of bondNotes and accounts payable-tradeAccrued expensesAccrued income taxes (note 11)Other current liabilities (note 11)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (note 8)Accrued retirement benefits (note 9)Other long-term liabilities (note 11)
Total liabilities
NET ASSETS (notes 2p, 10 and 20):SHAREHOLDERS' EQUITY:Common stock, authorized 72,000,000 shares;
issued and outstanding, 33,982,518 shares in 2007 and 33,562,718 shares in 2006.Additional paid-in capitalRetained earningsTreasury stock - at cost, 9,194 shares in 2007 and 7,182 shares in 2006.
TotalVALUATION AND TRANSLATION ADJUSTMENTS:Other securities valuation differenceTranslation adjustments
TotalSHARE SUBSCRIPTION RIGHTS (note 2s)MINORITY INTERESTS
Total net assetsCONTINGENT LIABILITIES
TOTAL
¥ 300 -
12,894 4,630 4,682 6,313
28,819
828 1,390
930 31,967
14,485 15,567 50,553
(53)80,552
59 696 755 66
451
81,824
¥ 113,791
¥ 606 1,985
11,826 3,365 3,795 3,917
25,494
700 1,874
549 28,617
13,412 14,494 41,900
(39)69,767
304 206 510
-425
70,702
¥ 99,319
$ 2,541 -
109,225 39,221 39,661 53,477
244,125
7,014 11,775
7,878 270,792
122,702 131,868 428,234
(449)682,355
500 5,896 6,396
559 3,820
693,130
$ 963,922
24 DISCO CORPORATION
DISCO CORPORATION and Consolidated Subsidiaries Years Ended March 31, 2007 and 2006
Millions of yen
2007 2006 2007
Thousands ofU.S. dollars (note 3)
NET SALES
COST OF SALES (notes 9 and 12)Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (notes 9, 12 and 13)Operating income
OTHER INCOME (EXPENSES):Interest and dividend incomeInterest expenseCommission incomeForeign exchange gain (loss) Equity in earnings (loss) of associated companies Loss on sale or disposal of property, plant and equipmentGain on sale of investment securitiesDevaluation loss on inventoriesLoss on disposal of inventoriesImpairment loss on property, plant and equipment Devaluation loss on investment securitiesImpairment loss on goodwillProvisions for bad debtOther, net
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
INCOME TAXES (note 11) Income taxes - CurrentIncome taxes - Deferred
INCOME BEFORE MINORITY INTERESTS
MINORITY INTERESTS
NET INCOME
¥ 86,161
42,10744,054
24,53019,524
150(45)57
(150)(98)
(322)280
(402)(370)
-(493)
-(379)(36)
(1,808)17,716
7,451(721)
6,730
10,986
(50)
¥ 10,936
¥ 68,885
32,73436,151
22,20213,949
82(29)37
25923
(72)16
(33)-
(314)(89)
(357)-
(87)(564)
13,385
5,07719
5,096
8,289
(59)
¥ 8,230
$ 729,869
356,688373,181
207,793165,388
1,271(381)483
(1,271)(830)
(2,728)2,372
(3,405)(3,134)
-(4,176)
-(3,211)
(306)(15,316)150,072
63,117(6,108)57,009
93,063
(424)
$ 92,639
Yen
2007 2006 2007
U.S. dollars (note 3)
AMOUNT PER SHARE OF COMMON STOCK:Net income (note 2o)BasicDiluted
Cash dividends applicable to the year
¥ 322.32321.2275.00
¥ 252.82251.8550.00
$ 2.732.720.64
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
25DISCO CORPORATION
Consolidated Statements of Changes in Net Assets
DISCO CORPORATION and Consolidated Subsidiaries Years Ended March 31, 2007 and 2006
Commonstock
Numberof
shares ofcommon
stock
Additionalpaid-incapital
(note 10)
Retainedearnings(note 10)
Treasurystock
Othersecuritiesvaluationdifference
Translationadjustments
Sharesubscription
rights
Minorityinterests
Total netassets
Millions of yen
BALANCE at MARCH 31, 2005Increase due to issuance of
common stock
Cash dividend paid
Bonuses to directors
Net income
Purchase of treasury stock
Net increase (decrease)
during the year
BALANCE at MARCH 31, 2006Increase due to issuance of
common stock (note 16d)
Cash dividend paid
Bonuses to directors
Net income
Purchase of treasury stock
Net increase (decrease)
during the year
BALANCE at MARCH 31, 2007
32,180,240
1,382,478
33,562,718
419,800
33,982,518
¥ 9,886
3,526
13,412
1,073
¥ 14,485
¥ 10,968
3,526
14,494
1,073
¥ 15,567
¥ 35,025
(1,287)
(65)
8,230
(3)
41,900
(2,193)
(90)
10,936
¥ 50,553
¥ (30)
(9)
(39)
(14)
¥ (53)
¥ 138
166
304
(245)
¥ 59
¥ (260)
466
206
490
¥ 696
¥ -
-
-
66
¥ 66
¥ 303
122
425
26
¥ 451
¥ 56,030
7,052
(1,287)
(65)
8,230
(9)
751
70,702
2,146
(2,193)
(90)
10,936
(14)
337
¥ 81,824
See accompanying notes to consolidated financial statements.
Shareholders’ equity Valuation and translation adjustments
Commonstock
Numberof
shares ofcommon
stock
Additionalpaid-incapital
(note 10)
Retainedearnings(note 10)
Treasurystock
Othersecuritiesvaluationdifference
Translationadjustments
Sharesubscription
rights
Minorityinterests
Total netassets
Thousands of U.S. dollars (note 3)
BALANCE at MARCH 31, 2006Increase due to issuance of
common stock (note 16d)
Cash dividend paid
Bonuses to directors
Net income
Purchase of treasury stock
Net increase (decrease)
during the year
BALANCE at MARCH 31, 2007
33,562,718
419,800
33,982,518
$ 113,613
9,089
$ 122,702
$122,779
9,089
$131,868
$ 354,934
(18,577)
(762)
92,639
$ 428,234
$ (330)
(119)
$ (449)
$ 2,566
(2,066)
$ 500
$ 1,745
4,151
$ 5,896
$ -
559
$ 559
$ 3,600
220
$ 3,820
$ 598,907
18,178
(18,577)
(762)
92,639
(119)
2,864
$ 693,130
Shareholders’ equity Valuation and translation adjustments
26 DISCO CORPORATION
Consolidated Statements of Cash Flows
OPERATING ACTIVITIES:Net incomeAdjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortizationLoss on sale or disposal of property, plant and equipmentLoss on disposal of inventoriesAmortization of goodwillImpairment loss on property, plant and equipmentDevaluation loss on investment securitiesGain on sale of investment securities Devaluation loss on inventoriesEquity in earnings (loss) of associated companiesIncrease in notes and accounts receivable-tradeIncrease in inventoriesIncrease in notes and accounts payable-tradeIncrease in accrued income taxesIncrease in accrued bonusIncrease (Decrease) in allowance for doubtful receivablesIncrease (Decrease) in accrued retirement benefitsDecrease in prepaid expensesIncrease in accounts payable-otherOther, net
Net cash provided by operating activitiesINVESTING ACTIVITIES:
Purchases of property, plant and equipmentProceeds from sales of property, plant and equipmentPurchases of investment securitiesProceeds from sales of investment securitiesDecrease in depositIncrease in depositIncrease of time deposits over one yearAcquisition of shares in consolidated subsidiaries (note 16b)Payments for receipt of business rights (note 16c)Increase in other assets
Net cash used in investing activitiesFINANCING ACTIVITIES:
Short-term bank loans, netRepayment of long-term debtCash dividends paidIssuance of common stockDebenture redemptionCash dividends paid for minority shareholdersOther
Net cash used in financing activitiesEFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTSNET CHANGE IN CASH AND CASH EQUIVALENTSCASH AND CASH EQUIVALENTS, BEGINNING OF YEARCASH AND CASH EQUIVALENTS, END OF YEAR
DISCO CORPORATION and Consolidated SubsidiariesMillions of yen
2007 2006 2007
Thousands ofU.S. dollars (note 3)
¥ 10,936
2,964252370
3-
493(280)40298
(1,728)(1,838)
637232276367(512)
52267203
13,194
(4,899)6
(182)44133(18)
(3,000)(170)(810)(353)
(8,952)
(306)(61)
(2,191)261(100)(17)(15)
(2,429)228
2,04122,004
¥ 24,045
¥ 8,230
2,76272
-36031489
(16)113(23)
(7,451)(786)
6,228910203(37)54
314852135
12,323
(2,656)11
(374)486
(5)(1,000)
(49)-
(390)(4,409)
(40)(1,720)(1,287)
60-
(36)(9)
(3,032)230
5,11216,892
¥ 22,004
$ 92,639
25,1082,1353,134
25-
4,176(2,372)3,405
830(14,638)(15,569)
5,3961,9652,3383,109(4,337)
4402,2621,720
111,766
(41,499)51
(1,542)3,736
280(152)
(25,413)(1,440)(6,861)(2,990)
(75,832)
(2,592)(517)
(18,560)2,211
(847)(144)(127)
(20,576)1,931
17,289186,396
$ 203,685See accompanying notes to consolidated financial statements.
Years Ended March 31, 2007 and 2006
27DISCO CORPORATION
Notes to ConsolidatedFinancial Statements
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTSThe accompanying consolidated financial statements of DISCO CORPORATION (“the Company”) and its consolidated subsidiaries havebeen prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accountingregulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certainrespects as to application and disclosure requirements of International Financial Reporting Standards.
The accounts of Company’s overseas subsidiaries are based on their accounting records maintained in conformity with generallyaccepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statementshave been restructured and translated into English (with certain expanded disclosure and the inclusion of the consolidated statements ofchanges in net assets for 2006) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAPand filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Certainsupplementary information included in the statutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and itssignificant subsidiaries (collectively, “the Companies”). Consolidation of the remaining subsidiaries would not have a material effect onthe accompanying consolidated financial statements. The Company has immaterial investments (of three and three subsidiaries) thatshould be consolidated in the accompanying financial statements (as of March 31, 2007 and 2006, respectively).
All significant intercompany accounts and transactions have been eliminated on consolidation. All material unrealized profits includedin assets resulting from transactions within the Companies have been eliminated.
Investments in significant associated companies are stated at their underlying equity value, and the companies’ share of the income orloss of such companies is included in consolidated income. In addition, the Company accounts for its unconsolidated subsidiaries andassociated companies under the cost method (of six and six entities at March 31, 2007 and 2006, respectively). The effect on theconsolidated financial statements of not applying the equity method was immaterial.
Two subsidiaries which had December 31 year ends closed their accounts tentatively at March 31. Two subsidiaries with a December 31year ends accounted for any major transaction that took place between December 31 and March 31 for these subsidiaries in theaccompanying consolidated financial statements.
Prior to April 1, 2006, goodwill is principally amortized over the expected periods to be benefited. Effective form year ended March 31,2007, negative goodwill is amortized over 5 years by the straight-line method.
b. Cash and Cash Equivalents – For purposes of the consolidated statements of cash flows, the Company considers all highly liquidinvestments, including time deposits with a maturity of three months or less when purchased, to be cash equivalents.
c. Inventories – Inventories of the Company and its domestic subsidiaries are stated at cost. The cost of finished goods and work inprocess is determined principally by the job-identification-cost method or average cost method. The cost of merchandise and rawmaterials of the Company and its domestic subsidiaries are determined principally by the average cost method.
Merchandise and finished goods of foreign subsidiaries are stated at the lower of cost (determined by the average cost method) ormarket value.
d. Marketable and Investment Securities – The Companies classify their debt and equity securities into one of the following threecategories: trading, held-to-maturity, or other securities. All securities of the Companies are classified as other securities. The Companieshave no trading and held-to-maturity securities.
Other securities with fair market value are principally carried at the fair market value. The difference between the acquisition cost andthe carrying value of other securities, net of related tax effect, is recognized in “Other securities valuation difference” as a separatecomponent of net assets until realized. Other securities without fair market value are stated at cost. The cost of other securities sold isprincipally computed based on the moving average method.
e. Derivatives – Derivative financial instruments are stated at fair value and changes in the fair value are recognized in the consolidatedstatements of income unless the derivative financial instruments are used for hedging purposes.
f. Property, Plant and Equipment – Property, plant and equipment are stated at cost. Depreciation is computed principally by thedeclining-balance method at rates based on the estimated useful lives of the assets. The straight-line method has been applied to newlyacquired buildings since April 1, 1998. The range of useful lives is principally from 3 to 38 years for buildings and structures, from 3 to 10years for machinery and equipment, and from 2 to 20 years for tools, furniture and fixtures.
g. Retirement Benefits – Employees of the Company and consolidated domestic subsidiaries are covered by an unfunded, non-contributory, defined benefit retirement plan. In addition, the Company and two of the domestic subsidiaries have funded,noncontributory, defined benefit pension plans, the funds of which are placed in trust with a private life insurance company and a trustbank. Certain consolidated overseas subsidiaries have defined contribution retirement plans.
Provisions for unfunded retirement benefits to directors and corporate auditors of two of the domestic consolidated subsidiaries werecalculated to accrue the amount required to be paid if all directors and statutory auditors retired at the balance sheet date.
h. Research and Development Expenses – Research and development expenses are charged to income when incurred.
i. Income Taxes – The Companies recognize deferred taxes for the estimated tax effects of temporary differences between the financialreporting and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates applicable to
28 DISCO CORPORATION
the periods in which the temporary differences are expected to be recovered or settled.
j. Per Share Information – The computation of net income per share is based on the weighted average number of shares of commonstock outstanding during each year. The average number of shares of common stock used in the computation was 33,929,583 sharesand 32,198,116 shares in 2007 and 2006, respectively.
Cash dividends per share are based on cash dividends declared with respect to income for the year.
k. Foreign Currency Translation – In accordance with the accounting standards for foreign currency translation issued by The BusinessAccounting Deliberation Council, foreign currency transactions are translated into Japanese yen at the rates in effect at the transactiondate.
At the year-end, receivables and payables denominated in foreign currencies are translated into Japanese yen at exchange rates ineffect at the balance sheet date. Resulting translation effects, including gains and losses on settlement, are credited or charged tocurrent income.
Investment securities and investments in unconsolidated subsidiaries and associated companies denominated in foreign currencies aretranslated into yen at the historical rates prevailing at the date of transaction.
Foreign exchange contracts are marked to market and included in other assets or other liabilities, with offsetting gain or loss included inother income or expense (the fair value method).
For consolidation purposes the financial statements of overseas subsidiaries are translated into Japanese yen, the reporting currency,as follows: all assets and liabilities are translated at the year-end exchange rates; shareholders’ equity accounts are translated athistorical rates; and revenue and expense items are translated at average rates. Translation adjustments are included in the net assetssection of the consolidated financial statements.
l. Leases – Leases are accounted for principally as operating leases. Under Japanese accounting standards for leases, finance leasesthat do not transfer ownership of the leased property to the lessee are permitted to be accounted for as rental transactions if certain “as ifcapitalized” information is disclosed in the notes to the lessee’s consolidated financial statements.
m. Use of Estimates – The preparation of the consolidated financial statements requires management of the Companies to make anumber of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent liabilities atthe date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significantitems subject to such estimates and assumptions include the valuation of receivables, inventories and deferred income tax assets andassets and obligations related to employee benefits. Actual results could differ from those estimates.
n. Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation. These changes hadno impact on previously reported results of operations or retained earnings.
o. Net income per share – The basis of net income per share of common stock for each year is computed based upon the weightedaverage number of common shares outstanding during the year. The diluted net income per share assumes full exercise of potentiallydilutive securities outstanding at the end of the year.
p. Accounting Standard for Presentation of Net Assets in the Balance Sheet – Effective from the year ended March 31, 2007, theCompany and its consolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Presentation of Net Assetsin the Balance Sheet” (Statement No.5 issued by the Accounting Standards Board of Japan on December 9, 2005), and theimplementation guidance for the accounting standard for presentation of net assets in the balance sheet (the Financial AccountingStandard Implementation Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9, 2005), (collectively, the“New Accounting Standards”).
Under the New Accounting Standards, the balance sheet comprises three sections, which are the assets, liabilities and net assets sections.Previously, the balance sheet comprised the assets, liabilities, minority interests, as applicable, and the shareholders’ equity sections.
Under the New Accounting Standards, the following items are presented differently compared to the previous presentation. Sharesubscription rights and minority interests are required to be included in the net assets section under the New Accounting Standards.Under the previous presentation rules, companies were required to present share subscription rights and minority interests in the currentliabilities section and between the non-current liabilities and shareholders’ equity sections, respectively.
The consolidated balance sheet as of March 31, 2006 has been restated to conform to the 2007 presentation. There were no effects ontotal assets or total liabilities from applying the New Accounting Standards to the balance sheet as of March 31, 2006.
The adoption of the New Accounting Standards had no impacts on the consolidated statement of income for the year ended March 31,2007. Also, if the New Accounting Standards had not been adopted at March 31, 2007, the shareholders’ equity amounting to ¥81,307million ($688,751 thousand) would have been presented.
q. Accounting Standard for Statement of Changes in Net Assets – Effective from the year ended March 31, 2007, the Company and itsconsolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Statement of Changes in Net Assets”(Statement No.6 issued by the Accounting Standards Board of Japan on December 27, 2005), and the implementation guidance for theaccounting standard for statement of changes in net assets (the Financial Accounting Standard Implementation Guidance No. 9 issuedby the Accounting Standards Board of Japan on December 27, 2005), (collectively, the “Additional New Accounting Standards”).
Accordingly, the Company prepared the statements of changes in net assets for the year ended March 31, 2007 in accordance with theAdditional New Accounting Standards. Also, the Company voluntarily prepared the consolidated statement of changes in net assets for2006 in accordance with the Additional New Accounting Standards. Previously, consolidated statements of shareholders’ equity wereprepared for the purpose of inclusion in the consolidated financial statements although such statements were not required underJapanese GAAP.
29DISCO CORPORATION
r. Bonuses to Directors – Effective from the year ended March 31, 2007, the Company and its consolidated domestic subsidiariesadopted the new accounting standard, “Accounting Standard for Directors’ Bonuses” (Statement No.4 issued by the AccountingStandards Board of Japan on November 29, 2005). The effect on the consolidated financial statements of adopting the New AccountingStandards was immaterial.
s. Stock Options – Effective April 1, 2006, the Company and its consolidated domestic subsidiaries adopted the new accountingstandard, “Accounting Standard for Share-Based Compensation” (Statement No.8 issued by the Accounting Standards Board of Japanon December 27, 2005) and “Guidance on Accounting Standard for Share-Based Compensation” (the Financial Accounting StandardImplementation Guidance No. 11 issued by the Accounting Standards Board of Japan on May 31, 2006). As a result of the adoption,selling, general and administrative expenses increased by negligible, thereby causing operating income and income before income taxesand minority interests to decreased by negligible, compared with the amounts that would have been recorded under the previousaccounting method.
t. Business Combination and Business Separation – Effective April 1, 2006, the Company and its consolidated domestic subsidiariesadopted the new accounting standard, “Accounting Standard for Business Combination” (issued by the Business Accounting Council onOctober 31, 2003), “Accounting Standard for Business Separation” (Statement No.7 issued by the Accounting Standards Board of Japanon December 27, 2005) and “Guidance on Accounting Standard for Business Combination and Business Separation” (the FinancialAccounting Standard Implementation Guidance No. 10 issued by the Accounting Standards Board of Japan on December 27, 2005).
3. FINANCIAL STATEMENT TRANSLATIONThe consolidated financial statements presented herein are expressed in yen and, solely for the convenience of the reader, have beentranslated into U.S. dollars at the rate of ¥118.05=U.S.$1, the approximate exchange rate prevailing on the Tokyo Exchange Market onMarch 31, 2007. This translation should not be construed as a representation that the amounts shown could be converted into U.S.dollars at such rate.
4. CASH AND CASH EQUIVALENTSA reconciliation of the cash and cash equivalents as per the balance sheets to the statements of cash flows at March 31, 2007 and 2006was as follows:
CostAggregate market value (carrying amount)
¥ 88187
¥ 255766
$ 7451,584
Millions of yen Thousands of U.S. dollars
2007 2006 2007
5. INVESTMENT SECURITIESThe cost and carrying amounts of securities with fair market values at March 31, 2007 and 2006 were as follows:
Cash and time deposits Time deposits with maturities of more than three monthsCash and cash equivalents
¥ 27,045(3,000)
¥ 24,045
¥ 22,004-
¥ 22,004
$ 229,098(25,413)
$ 203,685
Millions of yen Thousands of U.S. dollars
2007 2006 2007
30 DISCO CORPORATION
Unconsolidated subsidiaries:DISCO-SEA AMERICA, INC.DISCO HI-TEC (THAILAND)CO., LTD.DISCO HI-TEC MOROCCO SARL*2
Associated companies:DD DIAMOND CORPORATION*3
S.E.A. UTENSILI DIAMANTATI S.p.A.PRIME DIE TECHNOLOGIES, INC.*4
Dura Systems Corporation*5
APPLIED PRECISION, INC.*6
DHK Solution Corporation*7
Total
¥ 001
-00
103857
¥ 106
¥ 001
364267
010
0-
¥ 642
$ 008
-00
85322483
$ 898
Millions of yen Thousands of U.S. dollars
2007 2006 2007
92.5%49.3
100.0
-50.028.643.139.130.0
Equity Ownershippercentage *1
7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIESInvestments in unconsolidated subsidiaries and associated companies at March 31, 2007 and 2006 were as follows:
*1 Direct and indirect ownership at March 31, 2007.*2 DISCO HI-TEC MOROCCO SARL was incorporated on June 27, 2003.*3 DD DIAMOND CORPORATION became consolidated due to the additional acquisition of shares.*4 PRIME DIE TECHNOLOGIES, INC. was incorporated on February 24, 2003.*5 DSD, Ltd. directly owns 50.0% of Dura Systems Corporation, which was incorporated on September 18, 2003.*6 APPLIED PRECISION, INC. was incorporated on June 26, 2003. *7 DHK Solution Corporation was incorporated on July 4, 2006.
Loans from banks and other financial institutions, due through 2008 withinterest rates ranging from 3.0% to 6.2% and from 1.0% to 2.1% at March 31, 2007 and 2006
TotalLess current portionLong-term debt, less current portion
¥ 828828
-¥ 828
¥ 700700
-¥ 700
$ 7,0147,014
-$ 7,014
Millions of yen Thousands of U.S. dollars
2007 2006 2007
8. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans at March 31, 2007 and 2006 consisted of notes to banks and bank overdrafts. The annual interest rates applicableto the short-term bank loans ranged from 0.7% to 1.2% and from 0.7% to 4.4% at March 31, 2007 and 2006, respectively.
Long-term debt at March 31, 2007 and 2006 consisted of the following:
MerchandiseFinished goodsWork in processRaw materials and suppliesTotal
¥ 2,2431,9395,5017,600
¥ 17,283
¥ 2,0182,1024,8886,741
¥ 15,749
$ 19,00016,42546,59964,380
$ 146,404
Millions of yen Thousands of U.S. dollars
2007 2006 2007
6. INVENTORIESInventories at March 31, 2007 and 2006 consisted of the following:
31DISCO CORPORATION
Directors and corporate auditors are not covered by the above plan. Liability for retirement benefits to directors and corporate auditors oftwo of the consolidated subsidiaries included in the accompanying consolidated balance sheets amounted to ¥29 million ($246 thousand)and ¥87 million at March 31, 2007 and 2006, respectively. Amounts payable to them upon retirement are subject to shareholders’approval.
Actuarial assumptions:Method of allocating benefit obligationsDiscount rateExpected rate of return on plan assetsAmortization term of actuarial loss
Pro-rated on years of service2.0%1.5%3 years starting from next year
Service cost – benefits earned during the yearInterest cost on projected benefit obligationExpected return on plan assetsAmortization of actuarial loss
Net periodic costs
¥ 415101(64)
(328)¥ 124
¥ 460109(35)69
¥ 603
$ 3,515855
(542)(2,778)
$ 1,050
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Benefit obligations at end of yearFair value of plan assets at end of yearUnrecognized actuarial gain and lossPrepaid expenseAccrued retirement benefits
¥ 5,329(4,720)
7448
¥ 1,361
¥ 5,074(4,274)
9816
¥ 1,787
$ 45,142(39,983)
6,30268
$ 11,529
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Ending balances of the benefit obligations and the fair value of plan assets are as follows:
9. RETIREMENT BENEFITSThe employees of the Company and the consolidated domestic subsidiaries are entitled to lump-sum retirement benefits based on theirrate of pay at the time of termination, years of service and certain other factors. If the termination is involuntary or caused by death, theemployee is usually entitled to greater payments than in the case of voluntary termination.
Net periodic employee retirement benefit cost for the year ended March 31, 2007 and 2006 consisted of the following:
Year ending March 31:2007200820092010Total
¥ 700--
128¥ 828
$ 5,930--
1,084$ 7,014
Millions of yen Thousands of U.S. dollars
There were no collateralized bank loans at March 31, 2007 and 2006.
Annual maturities of long-term debt at March 31, 2007 were as follows:
32 DISCO CORPORATION
11. INCOME TAXESThe Company is subject to Japanese corporate, inhabitant and enterprise taxes on income, which, in the aggregate, result in a normalincome tax in Japan of approximately 40.7% for the years ended March 31, 2007 and 2006.
For the year ended March 31, 2007 and 2006, respectively, the value-added input and capital input portions of enterprise taxamounting to ¥205 million ($1,737 thousand) and ¥169 million were treated as selling, general and administrative expenses in accordancewith Practical Guidance Report No.12, “Treatment of the Pro Forma Standard Tax Portion of Corporate Tax in the Statements of Income,”issued by the Accounting Standards Board of Japan on February 13, 2004.
Deferred gain on sales of property, plant and EquipmentContribution gain from a local governmentTotal
¥ 424
¥ 46
¥ 465
¥ 51
$ 35634
$ 390
Millions of yen Thousands of U.S. dollars
2007 2006 2007
10. NET ASSETSThe Japanese Corporate Law (“the Law”) became effective on May 1, 2006, replacing the Japanese Commercial Code (“the Code”). TheLaw is generally applicable to events and transactions occurring after April 30, 2006 and for fiscal years ending after that date.
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However,a company may, by a resolution of the Board of Directors, designate an amount not exceeding one-half of the price of the new shares asadditional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or theexcess, if any, of 25% of common stock over the total of additional paid-in-capital and legal earnings reserve must be set aside asadditional paid-in-capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanyingconsolidated balance sheets.
Under the Code, companies were required to set aside an amount equal to at least 10% of the aggregate amount of cash dividendsand other cash appropriations as legal earnings reserve until the total of legal earnings reserve and additional paid-in capital equaled25% of common stock.
Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit by a resolution ofthe shareholders' meeting or could be capitalized by a resolution of the Board of Directors. Under the Law, both of these appropriationsgenerally require a resolution of the shareholders' meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code, however, on condition thatthe total amount of legal earnings reserve and additional paid-in capital remained equal to or exceeded 25% of common stock, they wereavailable for distribution by resolution of the shareholders’ meeting. Under the Law, all additional paid-in-capital and all legal earningsreserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statementsof the Company in accordance with Japanese laws and regulations.
At the general shareholders’ meeting held on June 22, 2007, the shareholders approved cash dividends amounting to ¥16,970 million($143,753 thousand). Such appropriations have not been accrued in the consolidated financial statement as of March 31, 2007. Suchappropriations are recognized in the period in which they are approved by the shareholders. The special taxation measures law andcorporate tax law permit companies to take as tax deductions certain reserves if provided through appropriation of retained earnings.Under Japanese tax laws, these reserves must be reversed to taxable income in future years. These reserves, included in retainedearnings at March 31, 2007 and 2006, were as follows:
33DISCO CORPORATION
The effective tax rate differs from the normal tax rate at March 31, 2007 and 2006 for the following reasons:
Japanese normal income tax rateExpenses not deductible /income not assessable for tax purposesInhabitant tax per capitaTax credit in relation to research and development CostsOther, net
Effective income tax rate
40.7%0.30.2
(1.8)(1.4)38.0%
40.7%0.30.2
(3.2) 0.1
38.1%
2007 2006
Net deferred tax assets were included in the following accounts:
Current assets – Deferred tax assetsInvestments and other assets – Deferred tax assetsCurrent liabilities – Other current liabilitiesLong-term liabilities – Other long-term liabilities
Total
¥ 2,4301,150
(0)(15)
¥ 3,565
¥ 1,1761,509
(0)(21)
¥ 2,664
$ 20,5849,742
(0)(127)
$ 30,199
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Deferred tax assets:Property, plant and equipment,
leasehold land and other assets —intercompany profits
Inventory — intercompany profitsDevaluation loss on inventoriesRetirement benefits for directors and corporate auditorsRetirement benefits for employeesLong-term prepaid expenseAccrued business taxesAccrued bonusNet operating loss carryforwardsLong-term liabilitiesDevaluation loss on investment securitiesDevaluation loss on golf membershipImpairment loss on fixed assetsOthers
Total deferred tax assetsValuation allowance
Net deferred tax assets
Deferred tax liabilities:Undistributed earnings of foreign subsidiariesOthers
Total deferred tax liabilities
Net deferred tax assets
¥ 186674251
-546120577761213182874
65128911
5,488(989)
4,499
84391
934
¥ 3,565
¥ 195493
6036
724168298647223182266
79128899
4,398(661)
3,737
812261
1,073
¥ 2,664
$ 1,5765,7092,126
-4,6251,0174,8886,4461,8041,5427,404
5511,0847,717
46,489(8,378)38,111
7,141771
7,912
$ 30,199
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 were as follows:
34 DISCO CORPORATION
Packing and freightSales commissionsProvision for product guaranteesSalary and bonusProvision for bonusesPension costsDepreciationAmortization of consolidation account adjustmentResearch and development
¥ 1,0871,421
7726,224
85855
7683
¥ 6,389
¥ 8551,116
4945,347
784258683
2¥ 6,341
$ 9,20812,037
6,54052,723
7,268466
6,50625
$ 54,121
Millions of yen Thousands of U.S. dollars
2007 2006 2007
Acquisition costAccumulated depreciationNet balance
¥ 1,959809
¥ 1,150
¥ 2,079819
¥ 1,260
$ 16,5956,853
$ 9,742
Millions of yen Thousands of U.S. dollars
2007 2006 2007
12. RESEARCH AND DEVELOPMENTResearch and development costs charged to income for the years ended March 31, 2007 and 2006 were ¥6,415 million ($54,341thousand) and ¥6,353 million, respectively.
13. SELLING, GENERAL AND ADMINISTRATIVE EXPENSESThe main components of “Selling, general and administrative expenses” for the years ended March 31, 2007 and 2006 were as follows:
14. LEASESFinance leases other than those which are deemed to transfer the ownership of the leased assets to lessees are generally accounted forby the method that is applicable to operating leases.
Acquisition costs, accumulated depreciation and net balance of leased tools, furniture and fixtures as of March 31, 2007 and 2006, as ifthey had been capitalized, were as follows:
The acquisition cost, accumulated depreciation and net balance under finance leases includes an imputed interest expense portion.Obligations under finance leases as of March 31, 2007 and 2006 were as follows:
Due within one yearDue after one yearTotal
¥ 179971
¥ 1,150
¥ 1931,067
¥ 1,260
$ 1,5168,226
$ 9,742
Millions of yen Thousands of U.S. dollars
2007 2006 2007
The obligations under finance leases includes an imputed interest expense portion.Total lease payments under finance lease arrangements that do not transfer ownership of the leased property to the lessee were ¥195million ($1,652 thousand) and ¥270 million for the years ended March 31, 2007 and 2006, respectively.
Obligations under operating leases as of March 31, 2007 and 2006 were as follows:
Due within one yearDue after one yearTotal
¥ 138963
¥ 1,101
¥ 1261,037
¥ 1,163
$ 1,1698,158
$ 9,327
Millions of yen Thousands of U.S. dollars
2007 2006 2007
35DISCO CORPORATION
Forward – to sell foreign currencies:U.S. dollar
Contract amountEstimated fair valueUnrealized gain (loss)
¥ 1,1671,170
(3)
¥ 700702
(2)
$ 9,8869,911
(25)
Millions of yen Thousands of U.S. dollars
2007 2006 2007
¥ 456,498
InterestIncome taxes
¥ 294,187
$ 38155,044
Millions of yen Thousands of U.S. dollars
2007 2006 2007
15. DERIVATIVESThe Company is exposed to risks arising from fluctuations in foreign currency exchange rates. In order to manage those risks, the Companyenters into certain derivative contracts, including foreign exchange contracts. Foreign exchange contracts are utilized to manage risksarising from foreign currency receivables from export of finished goods and forecasted foreign currency sales transactions. The Companyholds no derivatives for trading purposes.
Contract amount and fair value of foreign exchange contracts at March 31, 2007 and 2006 were as follows:
16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONa. Cash paid during the year for:
b. In the year ended March 31, 2007, the Company acquired additional shares of DD DIAMOND CORPORATION, which became a newlyconsolidated subsidiary of the Company. The following summarizes the carrying amount of assets and liabilities of this subsidiary atthe date of acquisition:
Current assetsNon current assetsGoodwillCurrent liabilitiesNon current liabilitiesMinority interest and prior year’s parent company’s interestAcquisition cost of the subsidiaryCash and cash equivalents of the subsidiaryCash outflow for the purchase of the subsidiary
¥ 428670
3(172)(198)(400)331
(161)170
$ 3,6255,676
25(1,457)(1,677)(3,388)2,804
(1,364)1,440
Millions of yen Thousands of U.S. dollars
2007 2007
36 DISCO CORPORATION
Net sales to external customersIntersegment net sales
Total net salesOperating expensesOperating income
Year ended March 31, 2007
¥ 86,161-
86,16166,637
¥ 19,524
Millions of yen
Consolidated
¥ -(235)(235)
2,862¥ (3,097)
Eliminations(Corporate)
¥ 26497
361316
¥ 45
Industry C
¥ 2,46835
2,5032,358
¥ 145
Industry B
¥ 83,429103
83,53261,101
¥ 22,431
Industry A
Net sales to external customersIntersegment net sales
Total net salesOperating expensesOperating income
Year ended March 31, 2006
¥ 68,885-
68,88554,936
¥ 13,949
Millions of yen
Consolidated
¥ -(119)(119)
2,974¥ (3,093)
Eliminations(Corporate)
¥ 30098
398387
¥ 11
Industry C
¥ 2,53621
2,5572,343
¥ 214
Industry B
¥ 66,049-
66,04949,232
¥ 16,817
Industry A
Net sales to external customersIntersegment net sales
Total net salesOperating expensesOperating income
Year ended March 31, 2007
$ 729,869-
729,869564,481
$ 165,388
Thousands of U.S. dollars
Consolidated
$ -(1,990)(1,990)24,243
$ (26,233)
Eliminations(Corporate)
$ 2,236822
3,0582,677
$ 381
Industry C
$ 20,907296
21,20319,975
$ 1,228
Industry B
$ 706,726872
707,598517,586
$ 190,012
Industry A
d. In the year ended March 31, 2007, convertible debentures in the amount of ¥1,885 million ($15,968 thousand) were converted intoshares of common stock of the Company. As a result, the common stock and the additional paid-in capital increased by ¥943 million($7,988 thousand), respectively.
17. SEGMENT INFORMATIONa. Operations in Different IndustriesInformation about the companies’ operations in different industries as of and for the years ended March 31, 2007 and 2006 is as follows:(1) Net sales and operating income
Current assetsNon current assetsCurrent liabilitiesNon current liabilitiesNegative goodwillAcquisition cost of the business transferCash and cash equivalentsAccount payable-Non tradeCash outflow for the purchase of the subsidiary
¥ 2,075391(65)
(3)(449)
1,949(252)(887)810
$ 17,5773,312(551)
(25)(3,803)16,510(2,135)(7,514)6,861
Millions of yen Thousands of U.S. dollars
2007 2007
c. In the year ended March 31, 2007, the Company’s consolidated subsidiary acquired business from Sinano Electric Co.,Ltd. Thefollowing summarizes the transferred assets and liabilities:
37DISCO CORPORATION
(2) Assets, depreciation and capital expenditures
AssetsDepreciation Capital expenditures
As of and for the year ended March 31, 2007
$ 963,92225,14255,519
Thousands of U.S. dollars
Consolidated
$ 306,5902,262
25,057
Eliminations(Corporate)
$ 2,03317
-
Industry C
$ 35,3841,042
76
Industry B
$ 619,91521,82130,386
Industry A
AssetsDepreciation Capital expenditures
As of and for the year ended March 31, 2007
¥ 113,7912,9686,554
Millions of yen
Consolidated
¥ 36,193267
2,958
Eliminations(Corporate)
¥ 2402-
Industry C
¥ 4,177123
9
Industry B
¥ 73,1812,5763,587
Industry A
AssetsDepreciation Capital expenditures
As of and for the year ended March 31, 2006
¥ 99,3192,7623,288
Millions of yen
Consolidated
¥ 28,904255463
Eliminations(Corporate)
¥ 18231
Industry C
¥ 4,25236
8
Industry B
¥ 65,9812,4682,816
Industry A
Notes:Industry A consists of dicing saws, grinders, polishers, laser saws and precision dicing blades and grinding wheels (consumables).Industry B consists of industrial diamond wheels and cut-off wheels.Industry C consists of software.Unallocated operating expenses included in “Eliminations (Corporate)” consists principally of general corporate expenses incurred by the Administration Headquarters of the Companywhich amounted to ¥3,125 million ($26,472 thousand) and ¥3,121 million for the years ended March 31, 2007 and 2006, respectively.Corporate assets included in “Eliminations (Corporate)” amounted to ¥36,273 million ($307,268 thousand) and ¥29,082 million at March 31, 2007 and 2006, respectively.
b.Geographic informationGeographic information of the Companies by area of origin for the years ended March 31, 2007 and 2006 are summarized as follows:
Net sales to external customersInterarea net sales
Total net salesOperating expensesOperating income Assets
Year ended March 31, 2007
¥ 86,161-
86,16166,637
¥ 19,524¥ 113,791
Millions of yen
Eliminations(Corporate) Consolidated
¥ -(24,314)(24,314)(20,779)
¥ (3,535)¥ 29,302
Europe
¥ 9,64923
9,6727,957
¥ 1,715¥ 3,788
Asia
¥ 16,410754
17,16416,261
¥ 903¥ 8,123
NorthAmerica
¥ 6,51769
6,5866,338
¥ 248¥ 2,958
¥ 53,58523,46877,05356,860
¥ 20,193¥ 69,620
Japan
Net sales to external customersInterarea net sales
Total net salesOperating expensesOperating income Assets
Year ended March 31, 2006
¥ 68,885-
68,88554,936
¥ 13,949¥ 99,319
Millions of yen
Eliminations(Corporate) Consolidated
¥ -(19,750)(19,750)(16,060)
¥ (3,690)¥ 21,175
Europe
¥ 6,70541
6,7465,722
¥ 1,024¥ 4,164
Asia
¥ 15,231114
15,34513,333
¥ 2,012¥ 8,198
NorthAmerica
¥ 5,68412
5,6965,519
¥ 177¥ 2,763
¥ 41,26519,58360,84846,422
¥ 14,426¥ 63,019
Japan
38 DISCO CORPORATION
Net sales to external customersInterarea net sales
Total net salesOperating expensesOperating income Assets
Year ended March 31, 2007
$ 729,869-
729,869564,481
$ 165,388$ 963,922
Thousands of U.S. dollars
Eliminations(Corporate) Consolidated
$ -(205,963)(205,963)(176,018)
$ (29,945)$ 248,217
Europe
$ 81,737194
81,93167,403
$ 14,528$ 32,088
Asia
$ 139,0096,387
145,396137,747
$ 7,649$ 68,810
NorthAmerica
$ 55,205585
55,79053,689
$ 2,101$ 25,057
$ 453,918198,797652,715481,660
$ 171,055$ 589,750
Japan
Notes: “North America” includes operations located primarily in the United States and Canada.“Asia” includes operations located primarily in Singapore, Malaysia and China.“Europe” includes operations located primarily in Germany, France and the United Kingdom.
c. Net sales to Foreign CustomersNet sales to foreign customers by destination for the years ended March 31, 2007 and 2006 are summarized as follows:
Net sales to foreign customers
Total net sales to domestic and foreign customers
Net sales to foreign customers as a percentage of total net sales
Year ended March 31, 2007
Millions of yen
Total
¥ 56,824
¥ 86,161
66.0%
Europe
¥ 9,798
11.4%
Asia
¥ 41,107
47.7%
¥ 5,919
6.9%
NorthAmerica
Net sales to foreign customers
Total net sales to domestic and foreign customers
Net sales to foreign customers as a percentage of total net sales
Year ended March 31, 2006
Millions of yen
Total
¥ 44,564
¥ 68,885
64.7%
Europe
¥ 6,415
9.3%
Asia
¥ 32,807
47.6%
¥ 5,342
7.8%
NorthAmerica
Net sales to foreign customers
Total net sales to domestic and foreign customers
Net sales to foreign customers as a percentage of total net sales
Year ended March 31, 2007
Thousands of U.S. dollars
Total
$ 481,355
$ 729,869
66.0%
Europe
$ 82,999
11.4%
Asia
$ 348,217
47.7%
$ 50,139
6.9%
NorthAmerica
Notes: “North America” primarily includes sales to the United States and Canada.“Asia” primarily includes sales to Singapore, Malaysia, Taiwan, Korea and China.“Europe” primarily includes sales to Germany, France and the United Kingdom.
39DISCO CORPORATION
18. STOCK COMPENSATIONOn September 27, 2002, the Board of Directors approved a stock option plan. Under the terms of the plan, new stock acquisition rightswere granted on October 7, 2002 to certain directors and employees of the Companies. There were 358 units of exercisable stockacquisition rights at March 31, 2007 and 35,800 new shares of common stock were available for awards. The stock options can beexercised at ¥5,264 per share until October 15, 2008.
On November 5, 2003, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisitionrights were granted on November 13, 2003 to certain directors and employees of the Companies. There were 568 units of outstandingstock acquisition rights at March 31, 2007 and 56,800 new shares of common stock were available for awards. The stock options can beexercised at ¥6,320 per share until November 13, 2009.
On July 27, 2004, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisition rightswere granted on July 27, 2004 to certain directors of the Company. There were 158 units of exercisable stock acquisition rights at March31, 2007 and 15,800 new shares of common stock were available for awards. The stock options can be exercised at ¥1 per share untilJune 1, 2024.
On October 21, 2004, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisitionrights were granted on October 29, 2004 to certain directors and employees of the Companies. There were 560 units of outstandingstock acquisition rights at March 31, 2007 and 56,000 new shares of common stock were available for awards. The stock options can beexercised at ¥4,730 per share until October 29, 2012.
On July 21, 2005, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisition rightswere granted on July 21, 2005 to certain directors of the Company. There were 169 units of exercisable stock acquisition rights at March31, 2007 and 16,900 new shares of common stock were available for awards. The stock options can be exercised at ¥1 per share untilJuly 21, 2025.
On October 26, 2005, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisitionrights were granted on November 4, 2005 to certain directors and employees of the Companies. There were 1,036 units of outstandingstock acquisition rights at March 31, 2007 and 103,600 new shares of common stock were available for awards. The stock option planhas a six-year term, and options vest and become fully exercisable at ¥5,162 per share on November 5, 2007.
On July 20, 2006, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisition rightswere granted on July 20, 2006 to certain directors of the Company. There were 88 units of exercisable stock acquisition rights at March31, 2007 and 8,800 new shares of common stock were available for awards. The stock options can be exercised at ¥1 per share untilAugust 11, 2026.
On October 25, 2006, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisitionrights were granted on November 9, 2006 to certain directors and employees of the Companies. There were 228 units of outstandingstock acquisition rights at March 31, 2007 and 22,800 new shares of common stock were available for awards. The stock option plan hasa six-year term, and options vest and become fully exercisable at ¥7,616 per share on November 10, 2008.
On October 25, 2006, the Board of Directors approved another stock option plan. Under the terms of the plan, new stock acquisitionrights were granted on November 9, 2006 to certain directors and employees of the Companies. There were 636 units of outstandingstock acquisition rights at March 31, 2007 and 63,600 new shares of common stock were available for awards. The stock option plan hasa six-year term, and options vest and become fully exercisable at ¥7,616 per share on November 10, 2008.
By resolution at the general shareholders’ meeting held on June 22, 2007, the Company introduced the following stock option plans.The Company introduced a stock option plan for certain employees of the Company. Under the terms of this plan, up to 75,000 shares ofcommon stock acquisition rights will be granted. The stock acquisition rights of this stock option plan can be exercised any time up to aperiod of 8 years from the grant date.
40 DISCO CORPORATION
Year-end cash dividends, ¥45 ($0.38) per share ¥ 1,529 $ 12,952
Millions of yen Thousands of U.S. dollars
b. Stock Option PlansStock option plans were approved at the annual meeting of shareholders held on June 22, 2007. The details of these stock option plansare described in the note 18 “STOCK COMPENSATION.”
19. BUSINESS COMBINATION AND BUSINESS SEPARATIONDISCO group took over the business from Sinano Electric Co.,Ltd. in order to secure the stability of supply for Electric motor which is keyparts for our machinery. The Company purchased the Land, buildings and structures from Sinano Electric Co.,Ltd. Dai-ichi Componentswhich is the Company’s subsidiary took over the whole business from Sinano Electric Co.,Ltd.
Contents of purchase of real property
(1) The purchased real propertyLand (area:64,406m2) , buildings and structures
(2) The purchase price¥238 million ($2,016 thousand)
(3) The purchase dateNovember 30, 2006
Description of business transfer
(1) The description of business transfer1 Manufacturing and sales business for Electric motor, Dynamo2 Contracting business for the construction of electric communication
(2) The transferred assetsCurrent assets, patents, fixed assets (except for the land, buildings and structures) and other assets
(3) The amount of acquisition¥1,711 million ($14,494 thousand)
(4) The amount, cause, method of amortization and term of amortization for negative goodwill 1 The amount of negative goodwill
¥449 million ($3,803 thousand)2 The cause of negative goodwill
Due to computing the profit planning 3 Amortization method and term of amortization
Negative goodwill is amortized over 5 years by the straight-line method.
(5) The date of business transferNovember 30, 2006
20. SUBSEQUENT EVENTSa. Cash dividends The following appropriations of retained earnings of the Company at March 31, 2007 were approved at the annual meeting ofshareholders held on June 22, 2007:
41DISCO CORPORATION
To the Shareholders and Board of Directors of DISCO CORPORATION:
We have audited the accompanying consolidated balance sheets of DISCO CORPORATION and consolidated
subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income, changes in net
assets and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of DISCO CORPORATION and subsidiaries as of March 31, 2007 and 2006, and the
consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March
31, 2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated
financial statements.
Tokyo, Japan
June 22, 2007
Independent Auditors’ Report
42 DISCO CORPORATION
About DISCO
Directors, Corporate Auditors and Operating Officers
President and CEO
Executive Director
Executive Director
Director, Member of the Board
Director, Member of the Board
Director, Member of the Board
Director, Member of the Board
Standing Corporate Auditor
Standing Corporate Auditor
Corporate Auditor
Corporate Auditor
Operating Officer, PS Company
Operating Officer, PS Company
General Manager, Corporate Strategy Division and Investor Relations
President, PS Company
General Manager, Hiroshima Works
Manager, Application R&D Department, PS Company
General Manager for Domestic Sales and Service, PS Company
General Manager, Corporate Support Division
Manager, Sales Engineering Department
Manager, Overseas Sales Department
Corporate Governance
DISCO’s system of corporete governance uses corporateauditors.
Corporate management requires a social function tosupervise operations, a growth function that developsstrategy, a significance function that defines goals, and arealization function that executes operations. At DISCO,corporate auditors handle the social, or supervisory, function.
DISCO has seven directors, a number kept small to facilitateagile decision-making. In addition, continuous efforts arebeing made through the DISCO Future Project (DFP), aproject aimed at improving corporate culture, which is one ofthe principal jobs of management. DISCO facilitatestransparency of governance by ensuring that personnel with athorough knowledge of the corporate identity are involved atall levels of the organization.
At a meeting of its Board of Directors held on May 11, 2006,DISCO adopted a fundamental policy concerning internalcontrols of the Company and its Group pursuant to theJapanese Corporate Law.
Board ofCorporateAuditors
AccountingAuditors
R&D Council Executive Committee
Internal Audit Office
Ethic Hotline
Corporate Product Liability Committee
Corporate Risk Management Committee
Corporate Environment Committee
HiroshimaWorks
PSCompany
CorporateStrategyDivision
Corporate SupportDivision
InvestorRelations
Office
Organization Chart
Board of Directors
President and CEO
Compensation Committee
DFP Committee
Hitoshi Mizorogi
Keizo Sekiya
Kazuma Sekiya
Hideyuki Sekiya
Keiichi Kajiyama
Takao Mizorogi
Takao Tamura
Susumu Tamari
Tadao Takayanagi
Yoshihisa Asaumi
Tadahiko Kuronuma
Kazuhisa Arai
Noboru Yoshinaga
(As of June 22, 2007)
43DISCO CORPORATION
Corporate Data (As of March 31, 2007) Shareholder Information (As of March 31, 2007)
Company Name:
Registered Office:
Founded:
Incorporated:
Capitalization:
Number of Employees (Non-consolidated Basis):
Offices:
Domestic Network:Sendai Regional Office
Osaka Branch Office
Kyushu Branch Office (Kumamoto)
Suwa Regional Office
Nagoya Regional Office
Global Network:DISCO HI-TEC AMERICA, INC.
DISCO HI-TEC EUROPE GmbH
DISCO HI-TEC FRANCE SARL
DISCO HI-TEC U.K. LTD.
DISCO HI-TEC MOROCCO SARL
DISCO HI-TEC (SINGAPORE) PTE LTD
DISCO HI-TEC (MALAYSIA) SDN. BHD.
DISCO HI-TEC (THAILAND) CO., LTD.
DISCO TECHNOLOGY (SHANGHAI) CO., LTD.
Affiliated Companies:TECNISCO, LTD.
DISCO ABRASIVE SYSTEMS K.K.
DSD, LTD.
DSD Kyushu, ltd.
DD Diamond Corporation
S.E.A. Utensili Diamantati S.p.A.
DISCO-SEA AMERICA, INC.
JETSIS INTERNATIONAL PTE LTD
DD Diamond Corporation
TECNISCO (Suzhou) Co., Ltd
DHK Solution Corporation
DISCO CORPORATION
13-11 Omori-Kita 2-chome,
Ota-ku, Tokyo, Japan
May 5, 1937
March 2, 1940
¥14,485,272,320
1,319
Head Office/R&D Center
Hiroshima Works (Kure Plant,
Kuwabata Plant, Nagatani Plant)
Shares of Common Stock Issued:
Shareholders:
Annual Shareholders’ Meeting:
Stock Listing:
33,982,518
13,598
June
Tokyo Stock Exchange,
1st Section (6146)
Stock Prices ����� Volume ��������
8,000
4,000
0
12,000
16,000
42006
5 6 7 8 9 10 11 12 12007
2 3
2,000
0
4,000
6,000
8,000
Shares Ownership by Shareholder Type:
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