Annual Report 2004 - Disco Corporation · · 2009-06-29Annual Report 2004. Profile ... processing...

Annual Report 2004Year Ended March 31, 2004

DIS

CO

CO

RP

OR

ATION

Annual R

eport 20

04

Profile

Disco Corporation is a semiconductor equipment manufacturer providing total

solutions in kiru (cutting), kezuru (grinding) and migaku (polishing) technologies

and applications. Disco holds the dominant share in several key precision

processing technology markets, in both the semiconductor and electronic

components fields. The Company’s industry leadership is exemplified by its

position as the world’s top manufacturer of grinders used at the final stage of

front-end processing and of dicing saws used at the initial stage of back-end

processing during wafer fabrication. Disco is also the world’s leading manufacturer

of precision diamond blades and grinding wheels.

Established in 1937, Disco embarked on building an overseas network at a

very early stage. By leveraging this well-established network, Disco meets the

needs of the global marketplace.

Disco’s mission is to bring the benefits of leading-edge science to everyday

lives by developing and applying the most advanced kiru, kezuru and migaku

technologies.

Any plans, predictions, strategies and beliefs in this annual report, other than those of historical fact,

are forward-looking statements about the future performance of Disco Corporation based upon

management’s assumptions and beliefs in light of information currently available. Actual results may

differ substantially from those anticipated in these statements.

Potential uncertainties include, but are not limited to, the cyclical nature of the semiconductor

market; the increasingly horizontal international division of labor in the semiconductor manufacturing

process; the concentration of the Company’s business among certain customers; the emergence of new

technologies; the Company’s product development capabilities; the Company’s ability to acquire and

cultivate key human resources; exchange rate fluctuations; and other factors.

1 Consolidated Financial Highlights

2 To Our Shareholders

4 Special Feature: Issues and Views

7 Developing a Platform for Sustainable Growth

8 Review of Operations

11 Financial Section

35 Corporate Data

35 Directors and Auditors

35 Common Stock Price Range

Disclaimer Regarding Forward-Looking Statements

Contents

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

1

(Millions of yen)

Net Income (Loss)

2000 2001 2002 2003 2004

(Yen)

Basic Net Income (Loss)per Share

2000 2001 2002 2003 2004

(%)

Return on Equity (ROE)

2000 2001 2002 2003 2004

51,266

74,112

(Millions of yen)

30,374

37,124

48,243

75,000

60,000

45,000

30,000

15,000

0

3,095

4,872

11,811

–1,796

382

12,000

9,000

6,000

3,000

0

–3,000

14.3

25.6

–3.6

0.8

6.2

28

21

14

7

0

–7

94.72

230.41

367.76

–55.91

11.80

400

300

200

100

0

–100

Net Sales

2000 2001 2002 2003 2004

Consolidated Financial Highlights

Thousands ofMillions of yen U.S. dollars (1)

Years Ended March 31, 2004 2003 2004

For the Period:

Net sales ¥48,243 ¥37,124 $456,458Operating income 5,625 1,626 53,222Net income 3,095 382 29,284Capital expenditures 3,299 2,272 31,214Depreciation and amortization 2,108 2,148 19,945Research and development costs 2,653 2,160 25,102

At Year-End:

Total shareholders’ equity ¥51,002 ¥48,746 $482,562Total assets 80,353 61,909 760,271

Yen U.S. dollars (1)

Per Share of Common Stock:

Basic net income ¥94.72 ¥11.80 $0.90Cash dividends 30.00 20.00 0.28

%

Ratio:

Return on equity (ROE) (2) 6.2% 0.8%

Notes: (1) U.S. dollar amounts have been translated from Japanese yen, solely for the convenience of readers, at the rate of ¥105.69=US$1, the approximateexchange rate prevailing on the Tokyo Exchange Market on March 31, 2004.

(2) ROE = Net income ÷ Average shareholders’ equity x 100

Disco Corporation and Consolidated Subsidiaries

2

Market Conditions and Operating ResultsDuring the fiscal year ended March 31, 2004,

semiconductor markets in Japan and the rest of Asia

remained robust. The North American semiconductor

market also exhibited firm growth, while European

markets staged a strong recovery. Broken down by end-

product application, demand for semiconductors rose

across a range of product categories. These included

semiconductors used in mobile phones equipped with color

liquid crystal displays (LCDs) and built-in cameras;

personal computers (PCs), for which replacement demand

is gaining momentum; still digital

cameras; DVD recorders; and other

digital consumer electronics. Based

on these developments in end-use

markets, the semiconductor

equipment market—in which Disco

is a participant—staged a full-scale

recovery, bolstered by both improved

earnings among semiconductor

manufacturers and a clear rebound in

semiconductor production and plant

and equipment investment.

Within these market conditions,

we aimed to further increase sales

through aggressive marketing

activities, including a continuation of

strategies to raise customer satisfaction and a strengthening

of sales programs for new products and models. We

responded to a rapid increase in product orders by

bolstering output capacity through such measures as

expanding the outsourcing of production personnel.

Reflecting the brisk level of production activity among

semiconductor manufacturers, orders for such consumables

as precision diamond blades and grinding wheels remained

solid over the entire period, as we recorded our highest-

ever sales of these products. In the area of machinery, sales

inquiries jumped significantly in the second half of the

period. This is mainly explained by a recovery in demand

for end-use applications, which in turn saw semiconductor

production volumes exceed historic peak levels. We also

believe that another factor contributing to this sudden

upturn in machinery inquiries is the extreme caution seen

until recently in plant and equipment investment by

semiconductor manufacturers since the bursting of the

information technology (IT) bubble in 2001.

As a result, consolidated net sales for the fiscal year

under review increased 30.0%, to ¥48,243 million

(US$456.5 million). An improvement in our gross profit

margin, mainly owing to new products and models

accounting for a higher proportion of machinery sales,

helped lift operating income 245.9%, from ¥1,626 million

to ¥5,625 million (US$53.2 million). Net income increased

more than eightfold, to ¥3,095 million (US$29.3 million),

and basic net income per share totaled

¥94.72 (US$0.90), compared with

¥11.80 in the previous period.

Medium- to Long-TermManagement StrategyOur goals are represented by the Disco

Vision, which draws a picture of how

the Company will look in 2010. The

economic component of the Disco

Vision focuses on the Company

building “sufficient economic

capacity,” as a prerequisite for

continued growth. However, it is

necessary to take into account the

silicon cycle—a structural

characteristic of the market in which we operate. This

means that four years of accumulated data—rather than

just a single year’s figures—should be used to obtain an

accurate view of the Company’s position and direction. For

this reason, one of our economic goals within the Disco

Vision has been set as “achieving a posture that enables us

to maintain an ordinary income margin of 20% or more,

averaged over four years” by 2010.

To realize this goal, a comprehensive set of strategies is

crucial. These strategies will ultimately be based on Disco’s

dominant market share in several key areas within the precision

processing field and its ability to continue providing high-value-

added solutions that satisfy customer needs by utilizing Disco’s

original kiru, kezuru and migaku technologies. This must be

accompanied by such measures as reform of the Company’s

earnings structure and reduction of operating costs.

To Our Shareholders

Kenichi Sekiya, Chairman and CEO

3

An important part of our strategic approach focuses on

earnings structure, as we strive to enhance our profit

margins. As well as a plan to double the current level of

sales in our consumables business at an early stage through

the development of new applications, we are also creating

new high-value-added machinery and upgrading existing

models to bolster the share of net sales accounted for by

such products. In the area of cost reduction, we are

implementing a Companywide program of business

process reengineering (BPR), including a thorough review

of operational processes through which we are building a

low-cost operations system. As part of our drive to

improve operational efficiency through the reform of

management skills in each division, we have also adopted

short-interval control methods. These involve breaking

down organizational targets to the individual staff level and

managing progress toward those individual targets on a

daily basis. We are currently considering a range of other

initiatives to achieve further cost savings.

Toward Sustainable GrowthOver many years, we at Disco have pursued organizational

management that seeks to strengthen the qualitative aspects

of the Company. Forming the backbone of these efforts are

the Disco Values. These are the core values of the Disco

Group, as well as the benchmark for our decision-making

processes. They also express the principles on which all

directors and employees carry out their work.

In recent times, the importance of sound corporate

governance has received much attention. At Disco, all

employees become thoroughly versed in the Disco Values,

allowing us to share a set of common values, while also

forming the basis of our corporate governance. By

expanding the scope of these shared values to include

many more people—including our various stakeholders—

we hope to promote the exchange of values for the benefit

of all. Through this process, we are endeavoring to

enhance corporate value based on a superior corporate

culture. We believe that the surest approach to ensure

sustained growth for Disco is to work toward a set of

shared values and the creation of a superior-quality

corporate culture.

Outlook for the Fiscal Year EndingMarch 31, 2005Surveying the state of the global economy, several factors

continue to pull in a positive direction. These include the

continuing phase of economic expansion in the United

States, the emergence of China as a major consumer region

and the recovery of the Japanese economy following a long

period of stagnation. Focusing on semiconductors and

semiconductor equipment, several market trends are

having a positive impact. These include a recovery in

corporate IT-related investment; continuing replacement

demand for PCs; the spread of such digital consumer

electronics products as LCD televisions, digital cameras

and DVD recorders; and user migration to the next

generation of high-value mobile phones, featuring color

LCDs and built-in cameras. Even if some short-term

adjustments in demand do occur, fundamentally, we

believe that the market will continue along its recovery

path. Against this backdrop, we are seeing the continuation

or emergence of a number of positive factors directly

affecting Disco, including the continuing shift to 300 mm

wafers, innovations in thin integrated circuits (ICs),

advances in chip size package (CSP) technology and the

introduction of grinders by wafer manufacturers.

In the fiscal year ending March 31, 2005, we will be

dealing with steady demand for 300 mm wafer equipment

and focusing on providing optimal solutions in such areas

as ultra-thin wafer processing and chip packaging. We will

also continue to strive for further penetration in the laser

saw market, which we successfully entered in 2002. In

China, which offers significant future opportunities, we

intend to continue strengthening our sales and marketing

systems to secure a competitive advantage.

Looking ahead, Disco aims to outperform the market

average growth rate through a strategy of timely and

appropriate new product releases. This will focus not

simply on keeping up with market volume, but also on

catering to qualitative and technical needs in the

marketplace.

Kenichi Sekiya, Chairman and CEO

4

Q:

Q:

Special Feature: Issues and Views

4

Does the recovery in operating resultsthat began in the period ended March 31,2003, represent a temporary phenomenonor should it be seen as the start of alonger trend? Also, how long do you thinkthe current recovery in the silicon cyclewill last?

We believe that the recovery in operating results, begunin the previous period, is not a temporary occurrence, butis, in fact, the precursor of a more substantive trend. Inboth final goods and electronic components, we see noparticular reasons for uneasiness in the supply and demandsituation and nothing to suggest a buildup of inventory inthe market. So, at this stage, we do not envisage the currentsilicon cycle recovery stalling in the second half of thefiscal year ending March 31, 2005.

In the area of final goods, China is rapidly emerging asa major consumer market. At the same time, the world’slargest market—the United States—continues to notchup robust gross domestic product (GDP) growth andeconomic fundamentals are generally favorable. We arealso seeing a broadening in semiconductor applications,led by such categories as digital cameras, DVD equipmentand LCD televisions. In mobile phones too, the globalpopularity of such features as color LCDs and built-incameras is expected to continue gaining momentum,meaning the average number of semiconductor devices

New Models as a Proportion of Machinery Sales (Non-Consolidated Basis)

Fiscal year ended March 31, 2002



Newmodels

56%New

models

34%Newmodels

23%

Hitoshi Mizorogi, President and COO

used per phone is rising. We also expect corporate demandfor replacement PCs to remain strong.

In the area of electronic components, electronicsmanufacturers do not appear to hold a surplus ofsemiconductor inventories. Production volumes havealready exceeded historic peak levels, while capacityutilization—at over 90%—is also running very high.

Our view is that, unlike the operating peak we saw in2000, a particular characteristic of this cycle is in the plantand equipment investment stance taken by semiconductormanufacturers, which does not appear to be overheated.

For Disco, whose main markets are in back-endprocessing, we anticipate a structural expansion in demandowing to such trends as the shift to 300 mm wafersand innovations in chip packaging, which is independentfrom the effects of cyclical peaks and troughs in thesemiconductor market.

Please explain how Disco has been ableto build an earnings structure that isrelatively insulated from the effects ofthe silicon cycle.

In terms of earnings structure, a major difference betweenDisco and other semiconductor equipment manufacturersis our consumables business in precision diamond bladesand grinding wheels. These consumables are used inDisco’s dicing saws and grinders, meaning that once amachine is delivered, the customer has a regular need forreplacement diamond blades and grinding wheels. For thisreason, we are able to maintain stable revenues that arerelatively unaffected by demand fluctuations caused by thesilicon cycle, thereby underpinning our earnings. In theperiod under review, precision diamond blades andgrinding wheels recorded their highest ever sales. One ofDisco’s medium- to long-term strategies is to develop newapplications as part of a drive to double our current level ofsales of consumables.

Market needs in the area of Disco’s advanced kiru, kezuruand migaku technologies are extremely diverse. Demand for

55Fiscal year ended March 31, 2002



300 mm

31%300 mm

29%300 mm

24%

300 mm Wafer Equipment as a Proportion of Machinery Sales(Non-Consolidated Basis)




46%

7%

35%

12%

45%

10%30%

15%

50%

13%

24%

13%

Breakdown of Consolidated Net Sales by Region

JapanNorth AmericaAsiaEurope

15.116.8

22.0

4.0 3.7 3.5

7.3

11.3

5.43.9

17.1

5.7

25

20

15

10

5

0

(Billions of yen) (Years ended March 31)

Japan NorthAmerica

Asia Europe

200220032004

Q:

Q:

these technologies comes not only from semiconductormanufacturers but also covers a wide range of othermarkets, including various types of electronic components.In addition, we are working to further expand thegeographic diversity of our markets to achieve addedearnings stability.

Another important point to remember is that if oneoperates in a semiconductor-related industry, one becomesacutely aware of the silicon cycle. It is a fact of life forus, so we have to turn it to our advantage. We do thisby concentrating our efforts on improving all kinds ofqualitative aspects of the Company when the cycle is inits downward phase. Part of this involves making theinvestments we will need when things improve becausewhen the market does move into its upward phase we haveto expend much of our energy on meeting the quantitativedemands placed on us.

Please outline the situation regardingdownward market pressure on prices andalso what cost reduction measures youare undertaking.

We believe that most of the downward pressure on priceshas subsided. That notwithstanding, a particular problemfaced by Disco is that we are now approaching a phase ofmodel changeover, and sales of old and new models mustcoexist. For our older models, the competitive dynamicsinvolved mean that, in certain cases, we must respond interms of price, and this has somewhat blunted anyimprovement in the gross profit margin. We anticipatesales of older models to be, for the most part, concludedduring the period ending March 31, 2005, and expectthis to lead to a subsequent improvement in the grossprofit margin.

In our consumables business, selling precision diamondblades and grinding wheels, we are achieving margins inline with historical peak levels.

In the area of cost reduction measures, we areimplementing a program of BPR. Working toward thetarget of achieving a stable ordinary income margin of20% on a four-year moving average basis by 2010, we arestriving to trim fixed costs and lower our variable costratio. This includes our target of reducing cost of sales5% per year. Another set of measures being undertakeninvolves strengthening our consolidated earnings base

through a thorough overhaul of unprofitable subsidiaries,including the reduction of personnel expenses. During thesecond half of the period under review, these subsidiarieswere successfully brought into the black.

What is the situation for orders in the areaof 300 mm wafer dicing saws and grinders,and grinders for wafer manufacturers?

Orders for 300 mm wafer dicing saws and grinders are bothgrowing steadily, and they now represent approximately30% of our equipment orders.

Among front-end processing equipment manufacturers,300 mm equipment has risen to represent 70% to 80% oftotal orders. This discrepancy arises owing to differentequipment buying patterns for front-end and back-endprocessing. In the case of front-end processing, whenchanging over to 300 mm wafers, customers tend tomake a block purchase of equipment covering all theirrequirements at once. In contrast, for back-endprocessing—the area applicable to the majority ofDisco’s equipment—customers usually make incrementalpurchases of equipment as their front-end productionvolume and yield rise. We anticipate that orders for our300 mm equipment will move into full swing over theperiod ending March 31, 2005, as 300 mm wafers becomeprevalent almost across the board.

In the area of grinders, during the period under reviewwafer manufacturers were aggressive in their purchasing.Shipments of 300 mm wafers continue to rise steadily, andwe expect to receive orders commensurate with this trendduring the period ending March 31, 2005.

6

Q: stiff competition and sustaining superior profit marginsis the ability to provide optimal solutions that matchcustomer needs, and thus maximize customer satisfaction.Disco’s position as the market leader also stems from thetrust and loyalty the Company’s products and services haveearned from its customers. This position is borne out by Disco’stop global market shares in several product categories.

Underpinning this dominant market position is Disco’shighly advanced technological know-how in the fields ofkiru, kezuru and migaku. In the precision processing ofmaterial, it is absolutely crucial to always obtain optimalperformance and control at the “processing point”—thesingle point of contact between the cutting wheel and thetarget material. To achieve this, it is necessary to fuse threetechnical elements, all at an extremely advanced level: thecutting wheel; the equipment in which the cutting wheel isused; and the application technology, which combines thefirst two elements in an optimal manner. Disco is uniquelyable to provide all three of these technical elements. Inaddition, our global service capabilities make it possiblefor us to provide comprehensive solutions to meetcustomer needs. Being always close to the customer—ableto respond rapidly on-site to deal with customer problemsas they occur—is a fundamental element of ourcompetitiveness. We intend to continue refining ourcapabilities in providing total solutions in kiru, kezuru andmigaku technologies to respond to the high expectationsof our customers. We want our customers to feel that Discois the company upon whom they can rely; their supplierof choice.

The new Omori Research and Development (R&D)Center, which is due for completion in November 2004,will play a vital role in further bolstering customersatisfaction. Our Tokyo-based R&D staff, serviceengineers and sales personnel, which are currently spreadover seven locations, will be brought together at the newsite. By doing so, we will be able to gain a more rapid andaccurate understanding of customer needs and shareinformation more efficiently throughout our organizationas we provide the best solutions possible. The new facilityand its location also offer significant advantages inrecruiting top-quality engineers and research staff. Atthe new R&D center, we will further strengthen ourapplication laboratory, which represents a strategicallyimportant area for the Company, as part of our ongoingefforts to enhance customer satisfaction.

6

Q:

During the period under review, whichregions made particularly notablecontributions to operating results? Whichregions are you anticipating will makestrong contributions in the period endingMarch 31, 2005?

On a geographic basis, Japan and other parts of Asia(Singapore, the Republic of Korea and Taiwan) wereparticularly strong. In Japan, semiconductor and wafermanufacturers improved capacity utilization and increasedplant and equipment investment. This helped bolstersales of machinery and precision diamond blades andgrinding wheels.

For the period ending March 31, 2005, we anticipate thatthese same regions will continue driving revenue growth.In the Chinese market, in preparation for rapid futuregrowth into one of the world’s major demand centers, wehave again moved to expand location and personnelnumbers. We also restructured our sales and marketingsetup in China, which had previously consisted of twoagents and one local subsidiary. The new structurecombines both sales and service functions into our localsubsidiary. During the fiscal year under review, thefirst half was affected by the outbreak of severe acuterespiratory syndrome (SARS) and other factors. However,near the end of the period orders from local firms becamebrisk. We expect sales to roughly double during the periodending March 31, 2005.

What strategies have you formulated toraise Disco’s profit margins? Also, whatmeasures are you taking to enhancecustomer satisfaction?

Disco is working toward the goal of achieving an ordinaryincome margin of 20% or more, averaged over four years,by 2010. To achieve this profit margin increase, we need todeal with both the revenue and cost sides of the equation.On the revenue side, we are focused on the timelyintroduction of high-performance, high-quality productsthat offer superior value. In addition, unlike otherequipment manufacturers, Disco operates a consumablesbusiness. As outlined above, we intend to double ourpresent sales in this business at an early stage through suchstrategies as the development of new product applications.On the cost side, we have set a structural cost reductiontarget of 5% per annum, including both cost of salesand selling, general and administrative expenses,which have risen over recent years. The details of howthese cost reductions will be achieved are currentlyunder consideration.

It is our fundamental belief, however, that the mostimportant prerequisite to being successful in the face of

7

Developing a Platform for Sustainable Growth

At Disco, environment, health and safety(EHS) issues are key management concerns.The importance of proper consideration ofEHS issues, in relation to all activities of theCompany, is thoroughly impressed upon allDisco employees. To further reinforce thisstance, the Company is involved in a widerange of specific EHS-related projects. Discois committed to developing a culture ofsustainability, in both business practices andthe use of finite resources, which enables it toplay a responsible role in a recycling-orientedsociety.

Equipment Recycling InitiativeDisco is not only pursuing reuse and recycling policies,but also endeavoring to reduce the amount of materialand energy resources it uses, as part of the Company’senvironmental conservation activities. Collectively, thethree key principles of reduce, reuse and recycle are knownas the “3Rs.”

As a tangible expression of the 3Rs principle in action,in October 2003 Disco announced an equipment recyclinginitiative covering the collection,disassembly and recycling of equipmentmanufactured by the Company. In thepast, when a customer wished todispose of Disco-manufacturedequipment, there was no system inplace that fully dealt with both theenvironmental impacts and the problems faced by thecustomer. For this reason, the customer carried suchoperational burdens as selecting disposal-relatedcontractors, arranging shipment and issuing manifests,as well as the ultimate responsibility for proper wastedisposal. Furthermore, as almost all Disco equipmentdisposed of was treated as industrial waste, reuse andrecycle practices were rarely applied, thereby causingsubstantial environmental impact.

In our disassembly and recycling operations, we contractto dispose of Disco-manufactured equipment on behalf ofour customers. This helps to minimize the impact on theenvironment and the costs involved for the customer. Ofthe end-of-life equipment collected by the Company,2%* of the components are reused, while 97%* of thecomponents are recycled. Only 1%* of the components aredisposed of as waste. As well as reducing environmentalimpact to an absolute minimum, this system also relieves ourcustomers of a great amount of administrative work.

* Figures given for the reuse and recycling of components are basedon the weight of equipment collected. Figures are calculatedinternally by Disco.

Hiroshima Works Receives OHSAS 18001CertificationAs part of Disco’s EHS initiative, in February 2004 theCompany’s Hiroshima Works, which comprises the Kure,Kuwabata and Nagatani plants, received the internationallyrecognized Occupational Health and Safety AssessmentSeries (OHSAS) 18001 certification. This complementsDisco’s previously obtained certifications under ISO 9001for quality management and ISO 14001 for environmentalmanagement.

Disco established an Occupational Health and SafetyManagement System on April 1, 2003, under which theCompany aims to minimize occupational hazards andprotect the health and safety of all employees andstakeholders. To help realize these goals, the Companyinitiated a program leading to compliance with OHSAS18001. The certification of the Hiroshima Works, Disco’smain production center, covers the following activities: thedesign, development and production of precision grindingand cutting machinery; the production of precisiondiamond blades and grinding wheels; the production ofcomponents for precision grinding and cutting machinery;the provision of a variety of precision processing services;the cutting of lead frames; and the production of metalmolds. Starting in April 2005, Disco aims to expandOHSAS 18001 certification to its Head Office and all otherlocations in Japan. Disco intends to further harness the“plan-do-check-action” virtuous cycle (a key conceptwithin total quality management, or TQM) that lies at thecore of our management practices to maintain and enhanceour Occupational Health and Safety Management System.By doing so, Disco aims to realize a zero-hazard workenvironment and seeks to increase the social value ofits operations.

At the Company’sHiroshima Works, whichreceived OHSAS 18001certification in February2004, we conduct riskassessments for all businessactivities, engage incontinuous risk reductionefforts and aim for “zerohazards” rather than “zeroaccidents.”

7

Reduce

RecycleReuse

8

Review of Operations

34,355

4,324

8,78350,000

40,000

30,000

20,000

10,000

0

10,000

8,000

6,000

4,000

2,000

0

*Before eliminations and corporate

Electronics Industry-RelatedProducts Division

2003 2004 2003 2004

(Millions of yen)

Segment Sales Operating Income*

45,400

Industrial Products Division¥2,605

Other Products Division¥238

Electronics Industry-Related Products Division¥45,40094.1%

(Millions of yen, %)

0.5%

5.4%

Sales by Division

400

300

200

100

0

(1995=100)

(Years Ended March 31)

Sales Index for Precision Diamond Blades and Grinding Wheels

2004200320022001200019991998199719961995Note: The above chart is based on non-consolidated data.

LithographyLayerdeposition

Probeand sort

Doping

Metallization and

passivation Silicon Wafer

Manufacturing

Front-End Process

Grinder

Grinding

Grinder8

Electronics Industry-Related Products DivisionOutline of the BusinessThe Electronics Industry-Related Products Division manufactures and marketsmachinery, such as dicing saws and surface grinders; consumables, such asprecision diamond blades and grinding wheels; and precision electroniccomponents. The division also provides full after-sales service. Customers of thedivision are mainly semiconductor and electronic component manufacturers. Thisdivision is our core business segment, accounting for 94.1% of consolidated netsales in the fiscal year ended March 31, 2004.

Orders and sales of machinery—our dominant product category—are heavilyinfluenced by the plant and equipment investment patterns of our customers. Incontrast, orders and sales of consumables, which are used in existing machineryat customers’ facilities, and revenue derived from after-sales services are muchless volatile.

Operating Environment and Results for the PeriodDuring the period under review, semiconductor demand increased across a rangeof end-product applications, in terms of both quantity and qualitative diversity.Applications for which semiconductor demand rose substantially includedmobile phones equipped with color LCDs and built-in cameras; PCs, for whichreplacement demand gained momentum; still digital cameras; DVD recorders; andother digital consumer electronics. Reflecting this robustness, the semiconductorequipment market moved into an expansionary phase, as a strong rebound insemiconductor manufacturers’ output and earnings led to brisk plant and equipmentinvestment activity aimed at bolstering production capacity.

Among the Company’s products, orders for precision diamond consumables,which had already recovered to normal levels in the previous period, also reflectedthe robust production levels at semiconductor manufacturers by reaching recordsales levels in the period under review.

Machinery orders were driven during the first half of the period by particularlystrong demand for dicing saws, which are used in the manufacture of CSPs (usedin mobile phones, digital cameras and other products) and optical semiconductordevices, including charge-coupled devices (CCDs), complementary metal oxidesemiconductor (CMOS) image sensors and light emitting diodes (LEDs). Demandwas also strong for surface grinders, which are used by wafer manufacturers. Inthe second half, we achieved double-digit growth in orders compared with thecorresponding period of the previous fiscal year, as the semiconductor market

9

SealingDieattach

Diebonding

MarkingTrimand form

Back-End Process

Dicing

Dicing Saw

Testing

Dicing Saw

Packagesingulation

9

staged a broad-based recovery, including a rebound in PC shipments. In particular,sales inquiries rapidly increased during the second half of the period as the siliconcycle swung fully into an upward phase.

As a result, sales by the Electronics Industry-Related Products Division, on aconsolidated basis, rose 32.1%, to ¥45,400 million (US$429.6 million) in the periodunder review, driven by a robust recovery in semiconductor shipments in Japan andother Asian markets, including Singapore, the Republic of Korea and Taiwan.Operating income (before eliminations and corporate) climbed 103.1%, to ¥8,783million (US$83.1 million). Contributing to this improvement in profitability werehigher sales of machinery and precision diamond blades and grinding wheels aswell as the fact that new series machines accounted for a higher proportion ofmachinery sales as the changeover to new models further progressed. Anothercontributing factor was the move into profitability of a subsidiary that hadrecorded a loss in the previous period owing to a slump in the fiber-opticcommunications market. This turnaround was achieved thanks to a comprehensivecost-cutting program.

New FacilitiesDuring the period, we added a new precision diamond production facility at theKure Plant of our Hiroshima Works. By integrating the manufacturing process forprecision diamond blades and grinding wheels, which was previously dispersedacross several locations, we expect to bolster production efficiency significantly.Total floor space at the new facility available for this production process hasalso been expanded, positioning us well to cater to any growth in demand forthese products.

Description of the new precision diamond production facility:Total construction cost Approximately ¥900 millionStructure size Total floor space of approximately 8,100 m2 (four floors)Completion October 2003Commencement of operations November 2003

Product TrendsDuring the period under review, we completed development of the following threenew models, which were subsequently exhibited at SEMICON Japan 2003, a tradeshow held in December each year.

1. Fully Automatic Dicing Saw DFD6240 for processing 200 mm wafers. This model catersnot only to the semiconductor manufacturing industry but also manufacturers ofelectronic and optical components.

2. Fully Automatic Grinder/Polisher DGP8760 for processing 200 mm and 300 mm wafers3. Fully Automatic Multi-Mounter DFM2700, designed for in-line configuration with the

DGP8760

In addition to the above three machines, we also focused on expanding sales ofother new models released in 2002 and 2003, including dicing saws and grinders.Other strategically important areas included our efforts to increase the marketpenetration of such equipment as dry polishers used in ultra-thin wafer processingand laser saws used for low dielectric constant (low-k) material and copperinterconnect grooving in the most advanced high-speed devices.

New precision diamondproduction facilityat the Kure Plant

Laser grooving of low-k material

10


2003 2004 2003 2004

2,614

129

2,6053,000

2,400

1,800

1,200

600

0

200

160

120

80

40

0

Industrial Products Division(Millions of yen)

188



2003 2004 2003 2004

155

4

40

250

200

150

100

50

0

50

40

30

20

10

0

Other Products Division(Millions of yen)

238


DGP8760 and DFM2700in-line system

DFD6240

Fully Automatic Dicing Saw DFD6240This machine is the successor to the DFD640 and DFD641 fully automatic dicingsaws for processing 200 mm wafers, which have achieved combined worldwidesales of over 2,000 units to the semiconductor and electronic component industries.The DFD6240 boasts a 20% smaller footprint than its predecessors, while improvingprocess quality and ease of operation.

Fully Automatic Grinder/Polisher DGP8760This machine is used for processing 200 mm and 300 mm wafers, and combinesinto a single machine the back-grinding functions and dry polishing functions ofthe previously released DFP8140 and DFP8160 dry polishers. In other words, backgrinding—for the purpose of wafer thinning—and stress relief are combined intoone complete system. Dry polishing, which requires no special chemicals or slurry,is gradually gaining market penetration thanks to such advantages as low runningcosts and ease of operation. However, until recently, dry polishers were usuallypurchased as an addition to an existing grinding process and used for low-volumeoutput of thin wafers. Anticipating heightened market needs for combined thinwafer processing, the Company exhibited the DGP8760 at SEMICON Japan inDecember 2003.

Fully Automatic Multi-Mounter DFM2700This multipurpose unit combines four functions: protective tape lamination; die-attach film (DAF*) lamination; mounting of wafers on dicing frames; and peelingof protective tape. It has an extremely small footprint, and, in combination with theDGP8760, forms the world’s smallest in-line system for grinding, stress relief andpost-grinding tape functions. This safe and reliable in-line system provides a totalsolution for processing ultra-thin 300 mm wafers with a finished thickness of50 µm or less.

* DAF is a special adhesive film that replaces epoxy paste for mounting and stacking semiconductorchips. It is typically laminated to the back of the wafer before dicing.

Industrial Products Division and Other Products DivisionThe Industrial Products Division manufactures and markets industrial diamondwheels and cutting and grinding tools, mainly for the civil engineering sector.

Despite aggressive marketing activities undertaken by the division during theperiod, owing to national and local government policies to constrain public worksexpenditures, sales by the division, on a consolidated basis, declined 0.3%, to¥2,605 million (US$24.6 million). Cost reductions and rationalization effortsresulted in operating income (before eliminations and corporate) of ¥188 million(US$1.8 million). We will continue to develop overseas marketing channels,as well as raise the ratio of production performed overseas to further increaseour competitiveness.

The Other Products Division focuses on the development and marketingof computer software, mainly targeted at semiconductor equipment anddevice manufacturers.

The division encompasses a subsidiary originally set up to develop software usedin our dicing saws. At present, over half the division’s work is commissioned byexternal customers. On a consolidated basis, sales by the division increased 53.5%,to ¥238 million (US$2.3 million). Operating income (before eliminations andcorporate) increased tenfold, to ¥40 million (US$0.4 million).

11

Six-Year SummaryThousands of

Millions of yen U.S. dollars (1)

2004 2003 2002 2001 2000 1999 2004

For the Period:Net sales ¥48,243 ¥37,124 ¥30,374 ¥74,112 ¥51,266 ¥33,590 $456,458

Electronics industry-related products 45,400 34,355 27,203 70,558 46,998 30,880 429,558Industrial products 2,605 2,614 2,875 2,758 2,822 2,560 24,648Other products 238 155 296 796 1,446 150 2,252

Operating income (loss) 5,625 1,626 (2,340) 20,993 10,911 3,971 53,222Income (loss) before income taxes and minority interests 5,286 1,494 (2,834) 20,613 8,767 3,862 50,015Net income (loss) 3,095 382 (1,796) 11,811 4,872 2,099 29,284Capital expenditures 3,299 2,272 3,094 8,149 2,608 1,857 31,214Depreciation and amortization 2,108 2,148 2,456 1,913 1,542 1,460 19,945Research and development costs 2,653 2,160 2,437 2,106 1,839 1,282 25,102

At Year-End:Total assets ¥80,353 ¥61,909 ¥63,721 ¥86,435 ¥67,055 ¥41,018 $760,271Interest-bearing debt 13,311 2,913 6,519 3,374 4,723 5,890 125,944Total shareholders’ equity 51,002 48,746 49,204 51,601 40,846 27,057 482,562Number of shares issued and outstanding 32,130,711 32,117,999 32,117,125 32,117,125 21,411,417 21,011,417Share price 48,245,550 3,800 8,100 9,100 18,500 4,600Number of shareholders 48,24316,572 13,611 12,272 13,201 6,194 792Number of employees (2) 48,2431,670 1,578 1,577 1,537 1,371 —

Per Share of Common Stock (Yen and U.S. Dollars):Basic net income (loss) ¥94.72 ¥11.80 ¥(55.91) ¥367.76 ¥230.41 ¥99.93 $0.90Cash dividends 30.00 20.00 20.00 40.00 20.00 20.00 0.28Total shareholders’ equity 1,586 1,518 1,532 1,606 1,907 1,287 15.01

Ratios:Gross profit margin 47.7% 45.2% 41.5% 51.9% 50.9% 50.1%Operating income margin 11.7 4.4 (7.7) 28.4 21.3 11.8Income (loss) before income taxes and minority interests margin 10.9 4.0 (9.3) 27.8 17.1 11.5Net income margin 6.4 1.0 (5.9) 15.9 9.5 6.2Return on assets (ROA) (3) 8.0 2.8 (3.0) 27.4 20.4 9.3Return on equity (ROE) (4) 6.2 0.8 (3.6) 25.6 14.3 8.0Price-earnings ratio 58.6 322.0 (144.9) 24.7 80.3 46.0Equity ratio 63.5 78.7 77.2 59.7 60.9 66.0Interest coverage ratio (5) 193.3 47.8 (62.7) 410.4 84.5 25.7

Notes: (1) U.S. dollar amounts have been translated from Japanese yen, solely for the convenience of readers, at the rate of ¥105.69=US$1, the approximateexchange rate prevailing on the Tokyo Exchange Market on March 31, 2004.

(2) From the fiscal year ended March 31, 2002, number of employees is given on a consolidated basis.(3) ROA = (Operating income + Interest and dividend income) ÷ Average total assets x 100(4) ROE = Net income ÷ Average shareholders’ equity x 100(5) Interest coverage ratio = (Operating income + Interest and dividend income) ÷ Interest expense

12 Management Discussion and Analysis

18 Consolidated Balance Sheets

20 Consolidated Statements of Income

21 Consolidated Statements of Shareholders’ Equity

22 Consolidated Statements of Cash Flows

23 Notes to Consolidated Financial Statements

34 Independent Auditors’ Report

Contents○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Financial Section

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

12

Management Discussion and Analysis

Forward-looking statements contained in the followingdiscussion and analysis are based on informationavailable to Disco Group management as of the timeof production of this annual report.

Business Overview and Results ofOperations

Overview of the Disco Group

The Disco Group comprises Disco Corporation, its 11 consolidatedsubsidiaries and two affiliates accounted for by the equity method.The Group’s main business is the manufacture and marketingof semiconductor equipment and grinding and cutting tools. TheGroup also provides maintenance and after-sales service for theseproducts. Other business includes the manufacture and marketingof precision electronic components and the development andmarketing of computer software and hardware.

Operating Environment

During the fiscal year ended March 31, 2004, the first half ofthe period was marked by fears of a global economic downturntriggered by such destabilizing factors as war in Iraq and thespread of SARS. In the second half, consumer sentimentimproved as these negative factors abated and the U.S. economyrecovered strongly, spurred on by large-scale tax cuts and otherfactors. In the Asia region, robust economic growth continued inChina and other countries, sustaining the overall recovery trend.

In the semiconductor and electronic components sectors,mobile phones equipped with color LCDs and built-in camerasachieved global market penetration, and demand increased insuch digital consumer electronics categories as still digitalcameras and DVD recorders. In the area of PCs—the largest end-use application for semiconductors—replacement demand beganto gain momentum in the second half of the period. According toWorld Semiconductor Trade Statistics (WSTS), the monthly unitvolume of semiconductor shipments reached a level similar to thatduring the previous market peak in October 2000. Underpinnedby these positive developments, earnings improved amongsemiconductor manufacturers and a full recovery in plant andequipment investment became apparent. Regionally, Japan andthe rest of Asia both experienced strong recoveries, with theformer having a large number of firms with strengths in makingsemiconductors used in digital consumer electronics, and the

latter now having the highest concentration of semiconductorproduction facilities in the world.

Summary of Results of Operations

Backed by the re-emergence of a positive mood for plant andequipment investment among semiconductor manufacturers,machinery orders, for such equipment as dicing saws andgrinders, grew substantially compared with the previous period.Sales of precision diamond blades and grinding wheels, whichare relatively unaffected by semiconductor market volatility,reached historic peaks, reflecting the high capacity utilizationlevels prevalent among semiconductor manufacturers. As aresult, consolidated net sales climbed 30.0%, to ¥48,243 million(US$456.5 million). Largely as a result of this increase in sales,operating income rose 245.9%, to ¥5,625 million (US$53.2 million),and net income jumped more than eightfold, from ¥382 millionin the previous period to ¥3,095 million (US$29.3 million). Withthe fiscal year ended March 31, 2002, marking the lowest ebb in theearnings cycle, operating results remained on a robust path duringthe period under review.

Net Sales

Driven by the factors outlined above, sales by the ElectronicsIndustry-Related Products Division increased ¥11,045 million,or 32.1%, to ¥45,400 million (US$429.6 million). Approximately80% of this increase was attributable to higher sales of machinery.Analyzed separately, machinery sales grew more than 50%, withthe rate of growth becoming particularly strong in the secondhalf of the period. Supported by the Electronics Industry-RelatedProducts Division’s robust performance, consolidated net sales leapt30.0%, to ¥48,243 million (US$456.5 million).

51,266

74,112

(Millions of yen)

30,374

37,124

48,243

80,000

64,000

48,000

32,000

16,000

0

Electronics Industry-Related Products DivisionIndustrial Products DivisionOther Products Division

Sales to domestic customers

Sales to overseascustomers

Sales by Division andSales by Location of Customer

2003200220012000 2004

13

On a geographic basis, sales growth was particularly noteworthyin the Asia region, in such markets as Singapore, the Republic ofKorea and Taiwan. In Japan, growth in sales to semiconductorand electronic component manufacturers was significant.

Owing to government policies to constrain public worksexpenditures, sales by the Industrial Products Division declined0.3%, to ¥2,605 million (US$24.6 million). Sales by theOther Products Division climbed 53.5%, to ¥238 million(US$2.3 million).

Cost of Sales and Selling, General andAdministrative Expenses

Reflecting higher net sales, cost of sales increased 24.0%, from¥20,345 million in the previous period to ¥25,225 million(US$238.7 million). The gross profit margin increased 2.5percentage points, to 47.7%, despite the negative effects of a risein the value of the yen felt in the second half. One major factorcontributing to this increase in the gross profit margin was animprovement in the gross profit margin for machinery. Atpresent, the Company is gradually introducing several series ofnew models, and, until this transition phase is completed, themarketing of both previous series and new series models will becarried out concurrently. In the period under review, the averagegross profit margin on sales of machinery rose as the weightingof new models, which have a relatively higher gross profitmargin, trended higher. Another factor helping to underpinthe gross profit margin was the higher capacity utilizationaccompanying a greater unit volume output of precision diamondblades and grinding wheels. This helped maintain gross profitmargins despite the strengthening yen.

Selling, general and administrative (SG&A) expenses climbed14.8%, to ¥17,393 million (US$164.6 million). The largest singleitem of increase within SG&A expenses was research anddevelopment costs, which rose ¥493 million. Most of thisadditional expense was incurred in relation to the business of ourElectronics Industry-Related Products Division as a strategic costthat we expect to bear fruit in the form of increased futureearnings. Another category to rise was salaries, bonuses andprovision to the reserve for staff bonuses, which increased¥529 million. Contributing to the growth in expenses in thisarea were higher staff bonuses accompanying the improvementin business performance, increased overtime payments due tobrisk sales-related activities and an increase in personnel numbers.Certain SG&A expense categories tend to vary proportionatelywith sales. Such categories include sales commissions, packaging,goods transportation and provision to the reserve for productwarranties, which increased by a combined ¥449 million duringthe period under review.

The rate of growth in SG&A expenses, however, was exceededby the growth rate of net sales, leading to a decrease in theSG&A expenses to net sales ratio of 4.7 percentage points,to 36.1%.

Operating Income

Operating income rose 245.9%, from ¥1,626 million in theprevious period to ¥5,625 million (US$53.2 million). The risewas mainly driven by a large increase in operating income inthe Electronics Industry-Related Products Division, mainly asa result of higher sales and enhanced gross profit margins formachinery. Also contributing to this increase in operating incomewas greatly improved results at one of our subsidiaries, whichhad booked an operating loss in the previous period. Thisturnaround came about thanks to the implementation of acomprehensive cost-cutting program.

Both the Industrial Products Division and the Other ProductsDivision achieved increases in operating income.

Other Income (Expenses)

Net other expenses increased 156.9%, from ¥132 million in theprevious term to ¥339 million (US$3.2 million). One majorcontributing factor to this increase was a rise in the value of theyen against the U.S. dollar, which resulted in foreign exchangeloss increasing from ¥278 million to ¥389 million (US$3.7 million).Another factor was lower interest and dividend income, whichfell from ¥149 million to ¥30 million (US$0.3 million), mainly2003200220012000 2004

(%)

21.3

29.6

50.9 51.9

28.4

23.5

–7.7

41.5

49.2

4.4

40.8

45.2

11.7

36.1

47.7

60

45

30

15

0

–15

Gross profit marginRatio of SG&A expenses to net salesOperating income margin

Gross Profit Margin,Ratio of SG&A Expenses to Net Sales

and Operating Income Margin

14

owing to the consolidation of Disco Technology (Shanghai) Co.,Ltd., from which we had received dividends totaling ¥108 millionin the previous term. One-off income items during the periodunder review included proceeds from loss indemnity insurance,a research and development grant received and a constructiongrant received for the Nagatani Plant, which came to a combinedtotal of ¥198 million.

One-off expense items for the period included a personnelexpenses adjustment loss amounting to ¥98 million arising froma change in the timing of when staff overtime payments arebooked as an expense to one month earlier than previously.

Income before Income Taxes and Minority Interests

Income before income taxes and minority interestsincreased 253.9%, from ¥1,494 million to ¥5,286 million(US$50.0 million).

Income Taxes

The effective income tax rate fell from 78.2% in the previousperiod to 40.4%. The main reason for this decline was the factthat the previous period’s effective income tax rate had beenextremely high owing to the effect of change in valuationallowance, which had boosted the effective income tax rate36.7 percentage points.

Minority Interests

In the previous period, ¥57 million was booked as minorityinterests in losses of consolidated subsidiaries. This was mainly

related to a loss by Tecnisco Ltd., which manufactures andmarkets precision electronic components. During the periodunder review, this subsidiary achieved profitability. In addition,from the period under review Disco Technology (Shanghai)became a consolidated subsidiary. A total of ¥54 million(US$0.5 million) was recorded as minority interests inearnings of consolidated subsidiaries during the periodunder review.

Net Income

Net income jumped more than eightfold, from ¥382 million to¥3,095 million (US$29.3 million). Basic net income per shareincreased from ¥11.80 to ¥94.72 (US$0.90). Diluted net incomeper share rose from ¥11.78 to ¥94.58 (US$0.89).

Liquidity and Capital Resources

Assets, Liabilities and Shareholders’ Equity

Total assets increased ¥18,444 million, or 29.8%, to ¥80,353million (US$760.3 million). The largest contributing factors tothis significant increase were growth in notes and accountsreceivable—trade, which accompanied the rise in net sales, and asubstantial increase in cash and cash equivalents, mainly owingto the ¥9,000 million raised from a convertible bond issue inJune 2003.

Within current assets, cash and cash equivalents jumped ¥12,364million, or 185.5%, to ¥19,031 million (US$180.1 million). Thiswas largely due to the presence, prior to disbursement at a later

2003200220012000 2004

(%)

3.6

2.8

5.8

8.0

5.5

10

8

6

4

2

0

Ratio of R&D Coststo Net Sales

2003200220012000 2004

– 1,960

8,0168,759

– 6,068

(Millions of yen)

2,455

6,361

9,631

– 3,586

4,018

12,000

8,000

4,000

0

– 4,000

– 8,000

Net cash provided by (used in) operating activitiesNet cash used in investing activitiesNet cash provided by (used in) financing activities

6,688

– 2,069

– 4,239

Cash Flows

– 737

2003200220012000 2004

(Millions of yen) (%)100,000

80,000

60,000

40,000

20,000

0

100

80

60

40

20

0

Total liabilities and minority interests (left scale)Total shareholders’ equity (left scale)Equity ratio (right scale)

60.959.7

77.2 78.7

Total Liabilities and Minority Interests,Total Shareholders’ Equity

and Equity Ratio

40,846

67,055

51,601

86,435

49,204

63,721

48,746 51,002

80,353

63.561,909

– 7,656

– 6,026

15

date, of funds raised from the aforementioned issuance ofconvertible bonds. The large rise in net sales led to an increasein notes and accounts receivable—trade of ¥5,593 million.Inventories declined ¥2,261 million, mainly due to increasedshipments of machinery. Total current assets climbed ¥15,690million, or 43.7%, to ¥51,599 million (US$488.2 million). Quickassets, the sum of cash and cash equivalents and notes andaccounts receivable—trade, totaled ¥35,935 million (US$340.0million). Even allowing for the payment of approximately¥10,000 million in the near future for the construction of theResearch and Development Center, sufficient funds remain tocover total current liabilities, which stood at ¥15,015 million(US$142.1 million) at the end of the period.

Net property, plant and equipment grew ¥2,180 million, or11.1%, to ¥21,788 million (US$206.2 million), bolstered by suchitems as construction in progress relating to the Research andDevelopment Center amounting to ¥1,676 million, and theinclusion of ¥869 million for the new precision diamondproduction facility at the Kure Plant. Even after the plannedaddition of approximately ¥10,000 million for the Research andDevelopment Center, we believe that net property, plant andequipment will remain at a comfortable level in relation to totalshareholders’ equity of ¥51,002 million (US$482.6 million).

Total current liabilities climbed ¥5,688 million, or 61.0%, to¥15,015 million (US$142.1 million). Significant items withinthis increase included a rise of ¥1,865 million in notes andaccounts payable—trade, which accompanied the growth inorders, and an increase in accrued income taxes of ¥1,765million, which was a result of the improvement in profitability.

Long-term liabilities jumped ¥10,399 million, or 276.7%, to¥14,157 million (US$133.9 million), owing to the issuance of¥9,000 million in convertible bonds and ¥2,200 million raised inthe form of long-term loans.

Minority interests increased ¥101 million, or 130.4%, to ¥179million (US$1.7 million). This rise was mainly attributable to theconsolidation of Disco Technology (Shanghai) and the associatedminority interest in earnings of this subsidiary.

Total shareholders’ equity grew ¥2,256 million, or 4.6%, to¥51,002 million (US$482.6 million). Retained earnings climbed¥2,441 million, reflecting the strong net income performance,and other securities valuation difference leapt ¥120 million as aresult of the strong rise in share prices toward the end of theperiod under review. These gains were partially offset by anincrease in negative translation adjustments of ¥343 million,owing to a rise in the value of the yen.

Cash Flows

Net cash provided by operating activities totaled ¥6,361 million(US$60.2 million), an increase of ¥2,343 million compared withthe previous period. This increase was largely caused by netincome of ¥3,095 million (US$29.3 million), which rose ¥2,713million compared with the previous period, and an increase inaccrued income taxes of ¥1,587 million (US$15.0 million),which rose ¥1,300 million compared with the previous period.Partially offsetting these factors was an increase in notes andaccounts receivable—trade of ¥5,746 million (US$54.4 million).

Net cash used in investing activities amounted to ¥3,586 million(US$33.9 million), an increase of ¥2,849 million comparedwith the previous period. This expansion was primarilyattributable to such items as increase in deposit relating to theconstruction of the Research and Development Center, and purchasesof property, plant and equipment relating to the new precisiondiamond production facility at the Kure Plant.

Net cash provided by financing activities totaled ¥9,631 million(US$91.1 million), compared with net cash used in financingactivities of ¥4,239 million in the previous period. The majorfactor contributing to this reversal was proceeds from the issuanceof convertible bonds amounting to ¥9,000 million.

As a result of the aforementioned changes, cash and cashequivalents, end of year, increased ¥12,364 million, to ¥19,031million (US$180.1 million).

The Company plans to use approximately ¥10,000 million ofcash and cash equivalents by November 2004 as the remainingpayment for purchases of property, plant and equipment relatingto the completion of the Research and Development Center.

Liquidity Management

As a general principle, the Disco Group satisfies most of itsworking capital and property, plant and equipment fundingrequirements through the use of its internal free cash flows.Fluctuations in the Group’s operating performance may besignificant, mainly owing to strong linkage with the “siliconcycle” affecting the semiconductor industry. Additionally, thedevelopment of the Group’s business requires us to actively takeon business risks, and, to balance this, we believe it is importantfor us to minimize the Group’s exposure to financial risk andbuild a high level of risk tolerance into our financial structure.This has led us to develop a policy of not increasing the Group’sinterest-bearing debt, and, in particular, bank borrowings. Whenthe need for large, one-off funding does arise, it is our policy toutilize direct financing sources in the financial markets, such asthrough secondary public stock offerings, which serves to keep

16

financial risk at a minimum. At present, we believe the Grouphas achieved a high degree of financial stability primarily due toits low level of interest-bearing debt—mainly in the form oflong-term borrowings—relative to its asset base.

To satisfy working capital requirements, each company withinthe Group arranges its own short-term borrowings (up to 12months). In some cases, however, where funding costdifferentials are significant, the Group parent company raisesfunds and provides loans to consolidated subsidiaries asnecessary. As of March 31, 2004, short-term bank loans stoodat ¥873 million (US$8.3 million). Some property, plant andequipment funding requirements are satisfied through loans frombanks and other financial institutions due through 2009, whichtotaled ¥3,126 million (US$29.6 million) as of March 31, 2004.Of this amount, ¥2,000 million is in the form of interest rateswaps, effectively providing us with a fixed rate of interest forthe amount of these swaps.

On June 11, 2003, the Company issued ¥9,000 million in zerocoupon yen-denominated convertible bonds maturing in 2010.Funds raised from this bond issue will be used to purchase landand buildings for the Company’s new Research and DevelopmentCenter, located in Ota-ku, Tokyo. In January 2004, these bondswere given an “A” rating (single-A-flat) by Japan Credit RatingAgency, Ltd., and had maintained this rating as of June 2004.This bond issue concludes our fund-raising activities relating tothe remaining ¥10,000 million needed for construction of theResearch and Development Center.

We believe the Group remains in a strong position to meet itsongoing working capital and capital expenditure requirementsand to facilitate its future growth. This position is underpinnedby the Group’s sound financial base and its ability to generatesufficient operating cash flows.

Risk Factors

Cyclical Nature of the Semiconductor Market

The Company manufactures semiconductor cutting and grindingmachinery along with precision diamond blades and grindingwheels used in this machinery, and markets these products tosemiconductor manufacturers. As is widely known, thesemiconductor market is subject to extremely large fluctuationsin demand and is influenced by such factors as: (1) globalmacroeconomic trends; (2) supply and demand conditions andtechnology trends in consumer and industrial electronicsmarkets; (3) the number of semiconductors used in each final

product and the processing capacity of those semiconductors;and (4) technical innovation trends in the semiconductor field.The business performance of semiconductor manufacturers—comprising the majority of our customer base—is stronglyaffected by the so-called “silicon cycle,” a fundamentalcharacteristic of the semiconductor market. Sales of theCompany’s semiconductor cutting and grinding machinery arehighly dependent on the plant and equipment investment trendsof semiconductor manufacturers, while sales of our precisiondiamond cutting blades and grinding wheels are subject to theproduction trends of semiconductor manufacturers. For thesereasons, the business performance of the Company may beunavoidably affected by cyclical fluctuations in thesemiconductor market.

Increasingly Horizontal International Division of Laborin the Semiconductor Manufacturing Process

In recent years, semiconductor manufacturers have increasinglyshifted away from the traditional system of carrying out theentire production process in-house toward an outsourcing-basedmodel. Under this new system, certain parts of the productionprocess are outsourced to silicon foundries and assemblysubcontractors—mainly in Asia—leading to progressivelygreater horizontal division of labor across countries and regions.Reflecting this change, the proportion of the Group’s salesgenerated in the Asia region has risen substantially over recentyears. To a certain extent, by shifting to such a productionsystem, semiconductor manufacturers are passing on some of thecyclical business risk associated with market fluctuations to thefoundries and subcontractors, which, in turn, tend to adopt aplant and equipment investment stance that is highly sensitiveto fluctuations in the semiconductor market. Consequently,this shift toward greater horizontal division of labor at aninternational level in the semiconductor production process mayaffect the Company’s business performance by furthermagnifying cyclical fluctuations.

Concentration of Business among Certain Customers

The Company maintains business relationships with all of theworld’s major semiconductor manufacturers. Within thesemiconductor sector, there is a continuing trend toward mergersand acquisitions aimed at securing competitive advantage, aswell as toward a very select group of leading firms becomingever more dominant in terms of market share. These typesof trends may be a factor in reducing the pool of potential

17

customers for the Company’s products. The Company’s businessperformance may also be affected by the concentration of itsbusiness, at certain times, among a limited number of specificcustomers, which may use this situation as leverage during pricenegotiations. This could lead to volatility in the prices theCompany receives for its products.

Emergence of New Technologies

The Company’s main products at present are cutting and grindingmachinery, for the processing of semiconductor silicon wafers,and precision diamond cutting blades and grinding wheels. Thecurrent method of cutting wafers using diamond blades becameestablished in the past as the optimal method for this task as aresult of semiconductor and electronic component manufacturersconducting extensive technical evaluations of various possiblemethods. However, in the future, substitute technology mayemerge, which may have a negative impact on the Company’sbusiness performance.

In recent years, laser cutting technology has received muchattention. The Company has already developed and begunmarketing laser saws for cutting materials that are difficult to cutefficiently using diamond blades.

Product Development Capabilities

In fields where the pace of technical innovation is particularlyrapid, such as semiconductors and electronic components, tomaintain competitive advantage based on technology requiresongoing investment in research and development regardless ofshort-term market fluctuations. To precisely meet the needs of itscustomers, which are becoming more diverse and sophisticatedeach day, the Company allocates the maximum level of resourcespossible to research and development activities as one ofmanagement’s highest priority tasks. However, by its very nature,product development is very complex and involves an extremelyhigh level of uncertainty. If the Company were not able toadequately predict changes in the industry and market, and,therefore, not be able to introduce attractive products to themarket in a timely manner, the Company’s business performancemay be negatively affected.

Acquiring and Cultivating Key Human Resources

As the Company’s future growth is greatly dependent on havingtalented engineers and other key human resources, the task ofacquiring and cultivating these human resources is an extremely

important issue for management. If the Company were notable to either acquire or cultivate key human resources, thismay negatively affect the Company’s future growth andbusiness performance.

Exchange Rate Fluctuations

The Company conducts its business not only with customers inJapan but also with semiconductor and electronic componentmanufacturers in the United States, Europe and Asia. For thisreason, to enable the Company to rapidly and effectively marketits products and provide after-sales service to semiconductor andelectronic component manufacturers, it has established a networkof sales and service subsidiaries in the United States, Europe andAsia. When the Company exports products from Japan,depending on the region or customer in question, currenciesother than the Japanese yen, including the U.S. dollar, the euroand the Singapore dollar, may be used for the settlement oftransactions. As the Company’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 valueof the yen has a negative effect on the Company’s businessperformance and a fall in the value of the yen has a positiveeffect. In this way, fluctuations in exchange rates may affect theCompany’s operating results.

Other Factors

In the conduct of its business, in addition to the aforementionedrisk factors, the Company’s business performance may also beaffected by global and regional: economic crises; naturaldisasters; wars and terrorist actions; epidemics; financial andcapital markets; laws and government regulations; productdefects; supply systems; intellectual property rights; andother factors.

18

Consolidated Balance Sheets

Thousands ofU.S. dollars

Millions of yen (Note 3)

March 31, 2004 and 2003 2004 2003 2004

ASSETSCurrent Assets:

Cash and cash equivalents (Note 4) ¥19,031 ¥06,667 $180,064Notes and accounts receivable—trade 16,904 11,311 159,940Allowance for doubtful receivables (46) (48) (435)Inventories (Note 6) 13,693 15,954 129,558Deferred tax assets (Note 11) 809 585 7,654Prepaid expenses and other current assets 1,208 1,440 11,430

Total current assets 51,599 35,909 488,211

Property, Plant and Equipment:Land 5,710 5,722 54,026Buildings and structures 14,161 13,322 133,986Machinery and equipment 10,285 9,159 97,313Tools, furniture and fixtures 3,456 3,118 32,700Construction in progress 3,386 2,096 32,037

Total 36,998 33,417 350,062Accumulated depreciation (15,210) (13,809) (143,912)

Net property, plant and equipment 21,788 19,608 206,150

Investments and Other Assets:Investment securities (Note 5) 1,180 805 11,165Investments in unconsolidated subsidiaries and associated companies (Note 7) 823 695 7,787Leasehold land 587 587 5,554Deferred tax assets (Note 11) 2,220 2,360 21,005Other 2,156 1,945 20,399

Total investments and other assets 6,966 6,392 65,910

Total ¥80,353 ¥61,909 $760,271

See accompanying Notes to Consolidated Financial Statements.


19



2004 2003 2004

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:

Short-term bank loans (Note 8) ¥00,873 ¥01,068 $008,260Current portion of long-term debt (Note 8) 918 567 8,686Notes and accounts payable—trade 5,653 3,788 53,487Accrued expenses 2,323 1,704 21,979Accrued income taxes (Note 11) 2,131 366 20,163Other current liabilities (Note 11) 3,117 1,834 29,492

Total current liabilities 15,015 9,327 142,067

Long-Term Liabilities:Long-term debt (Note 8) 11,520 1,278 108,998Accrued retirement benefits (Note 9) 2,636 2,466 24,941Other long-term liabilities (Note 11) 1 14 9

Total liabilities 29,172 13,085 276,015

Minority Interests 179 78 1,694

Shareholders’ Equity (Notes 10 and 19):Common stock—authorized, 72,000,000 shares; issued and outstanding, 32,130,711 shares in 2004 and 32,117,999 shares in 2003 9,796 9,773 92,686Additional paid-in capital 10,664 10,639 100,899Retained earnings 30,971 28,530 293,036Translation adjustments (548) (205) (5,185)Other securities valuation difference 138 18 1,306

Total 51,021 48,755 482,742Treasury stock—at cost, 3,161 shares in 2004 and 1,524 shares in 2003 (19) (9) (180)

Total shareholders’ equity 51,002 48,746 482,562

Contingent Liabilities (Note 16)

Total ¥80,353 ¥61,909 $760,271

20

Consolidated Statements of Income



Years Ended March 31, 2004 and 2003 2004 2003 2004

Net Sales ¥48,243 ¥37,124 $456,458

Cost of Sales (Notes 9 and 12) 25,225 20,345 238,670

Gross profit 23,018 16,779 217,788

Selling, General and Administrative Expenses (Notes 9 and 12) 17,393 15,153 164,566

Operating income 5,625 1,626 53,222

Other Income (Expenses):Interest and dividend income 30 149 284Interest expense (29) (37) (274)Commission income 46 44 435Foreign exchange loss (389) (278) (3,681)Equity in earnings of associated companies 19 51 180Gain (loss) on sales or disposals of property, plant and equipment 28 (19) 265Loss on disposal of inventories (19) (20) (180)Devaluation loss on investment securities (45) (85) (426)Other, net 20 63 190

(339) (132) (3,207)

Income before Income Taxes and Minority Interests 5,286 1,494 50,015

Income Taxes (Note 11) 2,137 1,169 20,220

Income before Minority Interests 3,149 325 29,795

Minority Interests (54) 57 (511)

Net Income ¥03,095 ¥00,382 $029,284

U.S. dollarsYen (Note 3)

Amount Per Share of Common Stock:Net income

Basic ¥94.72 ¥11.80 $0.90Diluted 94.58 11.78 0.89

Cash dividends applicable to the year 30.00 20.00 0.28



21

Consolidated Statements of Shareholders’ Equity

Disco Corporation and Consolidated SubsidiariesMillions of yen

OtherNumber of Additional Retained securities

shares of Common paid-in earnings Translation valuation TreasuryYears Ended March 31, 2004 and 2003 common stock stock capital (Note 10) adjustments difference stock

Balance, March 31, 2002 32,117,125 ¥9,771 ¥10,637 ¥28,794 ¥0(51) ¥058 ¥0(5)

Net income 382Cash dividends, ¥20 per share (642)Bonuses to directors (4)Increase due to issuance of common stock 874 2 2Purchase of treasury stock (4)Net change in translation adjustments (154)Decrease in other securities valuation difference (40)

Balance, March 31, 2003 32,117,999 9,773 10,639 28,530 (205) 18 (9)

Net income 3,095Cash dividends, ¥25 per share (803)Bonuses to directors (3)Increase due to change in scope of consolidation 158Increase due to issuance of common stock 12,712 23 25Purchase of treasury stock (10)Net change in translation adjustments (343)Increase in other securities valuation difference 120Other net change in retained earnings (6)

Balance, March 31, 2004 32,130,711 ¥9,796 ¥10,664 ¥30,971 ¥(548) ¥138 ¥(19)

Thousands of U.S. dollars (Note 3)

OtherNumber of Additional Retained securities

shares of Common paid-in earnings Translation valuation Treasurycommon stock stock capital (Note 10) adjustments difference stock

Balance, March 31, 2003 32,117,999 $92,469 $100,662 $269,940 $(1,940) $0,170 $0(85)

Net income 29,284Cash dividends, ¥25 ($0.24) per share (7,598)Bonuses to directors (28)Increase due to change in scope of consolidation 1,495Increase due to issuance of common stock 12,712 217 237Purchase of treasury stock (95)Net change in translation adjustments (3,245)Increase in other securities valuation difference 1,136Other net change in retained earnings (57)

Balance, March 31, 2004 32,130,711 $92,686 $100,899 $293,036 $(5,185) $1,306 $(180)


22

Consolidated Statements of Cash Flows



Years Ended March 31, 2004 and 2003 2004 2003 2004

Operating Activities:Net income ¥03,095 ¥00,382 $029,284Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 2,108 2,148 19,945(Gain) loss on sales or disposals of property, plant and equipment (28) 19 (265)Devaluation loss on investment securities 45 85 426Loss on disposal of inventories 19 20 180Equity in earnings of associated companies (19) (51) (180)Increase in notes and accounts receivable—trade (5,746) (2,775) (54,367)Decrease in inventories 1,043 1,031 9,868Increase in notes and accounts payable—trade 1,904 1,706 18,015Increase in accrued income taxes 1,587 287 15,016Increase in accrued bonus 316 144 2,990Decrease (increase) in prepaid expenses 291 (23) 2,753Increase in accounts payable—other 1,102 522 10,427Other, net 644 523 6,093

Net cash provided by operating activities 6,361 4,018 60,185

Investing Activities:Purchases of property, plant and equipment (3,063) (847) (28,981)Proceeds from sales of property, plant and equipment 118 194 1,117Purchases of investment securities (382) (313) (3,614)Proceeds from sales of investment securities — 201 —Increase in deposit (43) (16) (407)(Increase) decrease in other assets (216) 44 (2,044)

Net cash used in investing activities (3,586) (737) (33,929)

Financing Activities:Short-term bank loans, net (194) (4,340) (1,836)Proceeds from long-term debt 11,200 800 105,970Repayment of long-term debt (607) (66) (5,743)Cash dividends paid (807) (641) (7,636)Other 39 8 370

Net cash provided by (used in) financing activities 9,631 (4,239) 91,125

Effect of Translation Adjustments (282) (138) (2,668)

Net Change in Cash and Cash Equivalents 12,124 (1,096) 114,713

Cash and Cash Equivalents, Beginning of Year 6,667 7,763 63,080

Effect of Change in Scope of Consolidation 240 — 2,271

Cash and Cash Equivalents, End of Year ¥19,031 ¥06,667 $180,064



23

Notes to Consolidated Financial Statements

Disco Corporation and Consolidated SubsidiariesYears Ended March 31, 2004 and 2003

1. Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements have beenprepared in accordance with the provisions set forth in the Japa-nese Securities and Exchange Law and its related accountingregulations, and in conformity with accounting principles gener-ally accepted in Japan, which may differ in material respectsfrom accounting principles and practices generally accepted incountries and jurisdictions other than Japan.

In preparing the consolidated financial statements, certainreclassifications have been made to the consolidated financialstatements issued domestically in order to present them in a for-mat which is more familiar to readers outside Japan. In addition,the notes to the consolidated financial statements include informa-tion which is not required under accounting principles generally ac-cepted in Japan but is presented herein as additional information.

2. Summary of Significant Accounting Policies

a. Principles of Consolidation—The accompanying consoli-dated financial statements include the accounts of DISCOCORPORATION (the Company) and its significant subsid-iaries (collectively, the Companies). Consolidation of theremaining subsidiaries would not have a material effect onthe accompanying consolidated financial statements.

All significant intercompany accounts and transactions havebeen eliminated in consolidation. All material unrealizedprofits included in assets resulting from transactions withinthe Companies have been eliminated.

Investments in significant associated companies are statedat their underlying equity value, and an appropriate portion ofthe income or loss of such companies is included in consoli-dated income. Remaining investments in unconsolidated sub-sidiaries and associated companies are accounted for on a costbasis. The effect on the consolidated financial statements ofnot applying the equity method was immaterial.

The excess of cost over net assets of subsidiaries acquired ischarged to income in the period of acquisition.

b. Cash and Cash Equivalents—For purposes of the consoli-dated statements of cash flows, the Company considers allhighly liquid investments, including time deposits with amaturity of three months or less when purchased, to be cashequivalents.

c. Inventories—Inventories of the Company and its domesticsubsidiaries are stated at cost. The cost of finished goodsand work in process is determined principally by the job-identification-cost method or average cost method. The costof merchandise and raw materials of the Company and itsdomestic subsidiaries are determined principally by the averagecost method.

Merchandise and finished goods of foreign subsidiaries arestated at the lower of cost (determined by the average costmethod) or market value.

d. Marketable and Investment Securities—The Companiesclassify their debt and equity securities into one of the followingthree categories: trading, held-to-maturity, or other securities.All securities of the Companies are classified as other secu-rities. The Companies have no trading and held-to-maturitysecurities.

Other securities with fair market value are principally carriedat the fair market value. The difference between the acquisi-tion cost and the carrying value of other securities, net ofrelated tax effect, is recognized in “Other securities valuationdifference” as a separate component of shareholders’ equityuntil realized. Other investments are stated at cost. The costof other securities sold is principally computed based on themoving average method.

e. Derivatives—The Company is exposed to risks arising fromfluctuations in foreign currency exchange rates and interestrates. In order to manage those risks, the Company enters intocertain derivative contracts, including foreign exchange con-tracts. Foreign exchange contracts are utilized to manage risksarising from foreign currency receivables from export of fin-ished goods and forecasted foreign currency sales transactions.Interest rate swaps are utilized to manage interest rate risk ondebt. The Company has no derivatives for trading purposes.

f. Property, Plant and Equipment—Property, plant and equip-ment are stated at cost. Depreciation is computed principallyby the declining-balance method at rates based on the esti-mated useful lives of the assets. The straight-line method hasbeen applied to newly acquired buildings since April 1, 1998in accordance with Japanese tax regulations. The range of use-ful lives is principally from 3 to 38 years for buildings andstructures, from 3 to 10 years for machinery and equipment,and from 2 to 20 years for tools, furniture and fixtures.

g. Retirement Benefits—Employees of the Company and con-solidated domestic subsidiaries are covered by an unfunded,noncontributory, defined benefit retirement plan. In addition,the Company and three of the domestic subsidiaries havefunded, noncontributory, defined benefit pension plans, thefunds of which are placed in trust with a private life insurancecompany and a trust bank. Certain consolidated overseassubsidiaries have defined contribution retirement plans.

The annual provisions for the unfunded retirement benefitsto directors and statutory auditors of the Company and threeof the domestic consolidated subsidiaries were calculated toaccrue the liability required if all directors and statutory auditorsretired at each balance sheet date.

24

h. Research and Development Costs—Research and developmentcosts are charged to income when incurred.

i. Income Taxes—The Companies recognize deferred taxes forthe estimated tax effects of temporary differences between thefinancial reporting and the tax basis of assets and liabilities.Deferred tax assets and liabilities are measured using enactedtax rates applicable to the periods in which the temporarydifferences are expected to be recovered or settled.

j. Appropriations of Retained Earnings—Appropriations ofretained earnings at each year-end are reflected in the con-solidated financial statements in the following year aftershareholders’ approval has been obtained.

k. Per Share Information—The computation of net income pershare is based on the weighted average number of shares ofcommon stock outstanding during each year. The averagenumber of shares of common stock used in the computationwas 32,122,306 shares and 32,116,329 shares in 2004 and2003, respectively.

Cash dividends per share are based on cash dividendsdeclared with respect to income for the year.

l. Foreign Currency Translation—In accordance with theaccounting standards for foreign currency translation issuedby The Business Accounting Deliberation Council, foreigncurrency transactions are translated into Japanese yen at therates in effect at the transaction date.

As at the year-end, receivables and payables denominated inforeign currencies are translated into Japanese yen at exchangerates in effect at the balance sheet date. Resulting translationeffects, including gains and losses on settlement, are creditedor charged to current income.

Investment securities, investments in unconsolidated sub-sidiaries and associated companies denominated in foreigncurrencies are translated into yen at the historical rates pre-vailing at the date of transaction.

Foreign exchange contracts are marked to market andincluded in other assets and other liabilities, with offsetting

gain or loss included in other income or expense (the fairvalue method).

For consolidation purposes the financial statements of over-seas subsidiaries are translated into Japanese yen, the reportingcurrency, as follows: all assets and liabilities are translated atthe year-end exchange rates; shareholders’ equity accounts aretranslated at historical rates; and revenue and expense itemsare translated at average rates. Translation adjustments areincluded in the shareholders’ equity section of the consolidatedfinancial statements.

m. Leases—Leases are accounted principally as operating leases.Under Japanese accounting standards for leases, finance leasesthat do not transfer ownership of the leased property to thelessee are permitted to be accounted for as rental transactionsif certain “as if capitalized” information is disclosed in thenotes to the lessee’s consolidated financial statements.

n. Use of Estimates—The preparation of the consolidated finan-cial statements requires management of the Companies tomake a number of estimates and assumptions relating to thereported amount of assets and liabilities and the disclosure ofcontingent liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expensesduring the period. Significant items subject to such estimatesand assumptions include valuation allowances for receivables,inventories and deferred income tax assets and assets andobligations related to employee benefits. Actual results coulddiffer from those estimates.

o. Hedge Accounting—Interest rate swaps that meet certain cri-teria are accounted for under the special method, as regulatedin the accounting standard, as if the interest rates under inter-est rate swaps were originally applied to underlying borrow-ings. The Company hedges, within certain scopes, risksarising from changes in foreign currency exchange rates andinterest rates.

3. Financial Statement Translation

The consolidated financial statements presented herein areexpressed in yen and, solely for the convenience of the readers,have been translated into United States dollars at the rate of¥105.69=U.S.$1, the approximate exchange rate prevailing on

the Tokyo Exchange Market on March 31, 2004. This translationshould not be construed as a representation that the amounts showncould be converted into United States dollars at such rate.

25

4. Cash and Cash Equivalents

A reconciliation of the cash and cash equivalents as per the balance sheets to the statements of cash flows at March 31, 2004 and 2003 wasas follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Cash ¥18,849 ¥5,939 $178,342Time deposits 182 728 1,722

Cash and cash equivalents ¥19,031 ¥6,667 $180,064

5. Investment Securities

The cost and carrying amounts of securities with fair market values at March 31, 2004 and 2003 were as follows:Thousands of

Millions of yen U.S. dollars

2004 2003 2004

Cost ¥297 ¥252 $2,810Aggregate market value (carrying amount) 530 283 5,015

6. Inventories

Inventories at March 31, 2004 and 2003 consisted of the following:Thousands of


2004 2003 2004

Merchandise ¥01,725 ¥01,473 $016,321Finished goods 2,131 2,141 20,163Work in process 4,457 5,184 42,170Raw materials and supplies 5,380 7,156 50,904

Total ¥13,693 ¥15,954 $129,558

7. Investments in Unconsolidated Subsidiaries and Associated Companies

Investments in unconsolidated subsidiaries and associated companies at March 31, 2004 and 2003 were as follows:

EquityThousands of

ownershipMillions of yen U.S. dollars

percentage*1 2004 2003 2004

Unconsolidated subsidiaries:DISCO-SEA AMERICA, INC. 91.8% ¥275 ¥273 $2,602DISCO TECHNOLOGY (SHANGHAI) CO., LTD.*2 70.0 — 35 —DISCO HI-TEC (THAILAND) CO., LTD. 49.3 — — —DAS tech, Inc.*3 49.0 10 10 95DISCO HI-TEC MOROCCO SARL*4 100.0 1 — 9

Associated companies:DD DIAMOND CORPORATION 50.0 265 169 2,507S.E.A. UTENSILI DIAMANTATI S.p.A. 50.0 241 208 2,280DISCO-SEA EUROPE S.r.l.*5 50.0 — — —PRIME DIE TECHNOLOGIES, INC.*6 28.6 21 — 199Dura Systems Corporation*7 43.1 10 — 95

Total ¥823 ¥695 $7,787*1 Direct and indirect ownership at March 31, 2004*2 DISCO TECHNOLOGY (SHANGHAI) CO., LTD. was newly consolidated from April 1, 2003*3 DAS tech, Inc. was incorporated on January 1, 2002*4 DISCO HI-TEC MOROCCO SARL was incorporated on June 27, 2003*5 S.E.A. UTENSILI DIAMANTATI S.p.A. directly owns 100.0% of DISCO-SEA EUROPE S.r.l.*6 PRIME DIE TECHNOLOGIES, INC. was incorporated on February 24, 2003*7 DSD Ltd. directly owns 50.0% of Dura Systems Corporation incorporated on September 18, 2003

26

8. Short-Term Bank Loans and Long-Term Debt

Short-term bank loans at March 31, 2004 and 2003 consisted of notes to banks and bank overdrafts. The annual interest rates applicable tothe short-term bank loans ranged from 0.4% to 0.7% and from 0.4% to 1.5% at March 31, 2004 and 2003, respectively.

Long-term debt at March 31, 2004 and 2003 consisted of the following:Thousands of


2004 2003 2004

1.0% yen bond with warrant, due 2004 ¥00,312 ¥0,312 $002,952Zero coupon yen convertible debentures, due 2010 9,000 — 85,155Loans from banks and other financial institutions, due through 2009 with interest rates ranging from 1.0% to 1.6% and from 1.0% to 1.6% at March 31, 2004 and 2003, respectively 3,126 1,533 29,577

Total 12,438 1,845 117,684Less current portion (918) (567) (8,686)

Long-term debt, less current portion ¥11,520 ¥1,278 $108,998

Under most circumstances, the employees of the Company andthe consolidated domestic subsidiaries are entitled to lump-sumretirement benefits based on their rate of pay at the time of termi-nation, years of service and certain other factors. If the terminationis involuntary or caused by death, the employee is usually entitledto greater payments than in the case of voluntary termination.

Directors and statutory auditors are not covered by the aboveplan. Liability for retirement benefits to directors and corporateauditors of the Company and three of the consolidated subsidiar-ies included in the accompanying consolidated balance sheetsamounted to ¥913 million ($8,638 thousand) and ¥869 million atMarch 31, 2004 and 2003, respectively. Amounts payable to themupon retirement are subject to the approval of the shareholders.

Net periodic employee retirement benefit cost for the years ended March 31, 2004 and 2003 consisted of the following:


2004 2003 2004

Service cost—benefits earned during the year ¥404 ¥385 $3,823Interest cost on projected benefit obligation 112 105 1,060Expected return on plan assets (25) (22) (237)Amortization of actuarial loss 167 148 1,580

Net periodic costs ¥658 ¥616 $6,226

The warrant of the 1.0% yen bond at March 31, 2004 representedthe right to purchase common stock at an exercise price of ¥3,641.

Subsequent to the Board of Directors’ approval on May 20,2003, the Company issued ¥9,000 million of zero coupon yenconvertible debentures. The debentures are convertible into

1,764,000 shares of common stock, at a convertible price of¥5,100 per share, until May 28, 2010.

There were no collateralized bank loans at March 31, 2004and 2003.

9. Retirement Benefits

27

Reconciliations of ending balances of the benefit obligations and the fair value of the plan assets are as follows:Thousands of


2004 2003 2004

Benefit obligations at end of year ¥(4,785 ¥(4,476 $(45,274Fair value of plan assets at end of year (3,064) (2,526) (28,991)Unrecognized actuarial loss 2 (353) 19

Accrued retirement benefits ¥(1,723 ¥(1,597 $(16,302

Actuarial assumptions:Method of allocating benefit obligations Pro-rated on years of serviceDiscount rate 2.5%Expected rate of return on plan assets 1.0%Amortization term of actuarial loss 3 years starting from next year

10. Shareholders’ Equity

The Japanese Commercial Code provides that an amount equal toat least 10% of appropriations paid in cash be appropriated as alegal reserve until an aggregate amount of additional paid-incapital and legal reserve equals 25% of common stock. Thisreserve is not available for dividends but may be used to reducea deficit by resolution of the shareholders. The Code previouslyrequired companies to appropriate legal reserves from retainedearnings in an amount equal to at least 10% of all cash paymentsuntil such reserve equals 25% of stated capital.

The Company may transfer portions of additional paid-in capi-tal and legal reserves to stated capital by resolution of the Boardof Directors. The Company may also transfer portions of unap-propriated retained earnings, available for dividends, to statedcapital by resolution of the shareholders.

Under the Code, the Company may issue new common sharesto existing shareholders pursuant to resolution of the Board ofDirectors, without such issuance being considered as a stock split.

Dividends are approved by the shareholders at a meeting heldsubsequent to the fiscal year to which the dividends are applicable.Semiannual interim dividends may also be paid upon resolutionof the Board of Directors, subject to certain limitations imposedby the Code.

Retained earnings at March 31, 2004 includes ¥16,970 million($160,564 thousand) which is designated as general reserves, butis available for future dividends subject to approval by the share-holders and legal reserve requirements. The special taxation mea-sures law and corporate tax law permit companies to take as taxdeductions certain reserves if provided through appropriation ofretained earnings. Under Japanese tax laws, these reserves mustbe reversed to taxable income in future years.

These reserves, included in retained earnings at March 31, 2004 and 2003, were as follows:Thousands of


2004 2003 2004

Deferred gain on sales of property, plant and equipment ¥52 ¥55 $492Contribution gain from a local government 6 6 57

Total ¥58 ¥61 $549

28

11. Income Taxes

The Company and its consolidated domestic subsidiaries are sub-ject to a number of taxes based on income which, in the aggregate,resulted in a normal statutory tax rate of approximately 42.0% in2004 and 2003. Amendments to Japanese local tax regulationswere enacted into law on March 24, 2003. As a result of these

amendments, the normal statutory tax rate was reduced from42.0% to 40.7% effective from fiscal years beginning on or afterApril 1, 2004. Because of these tax rate changes noncurrentdeferred tax assets decreased by ¥55 million ($520 thousand) asof March 31, 2004.

Income taxes for the years ended March 31, 2004 and 2003 consisted of current and deferred income tax expense (benefit) as follows:


2004 2003 2004

Current ¥2,294 ¥0,590 $21,705Deferred (157) 579 (1,485)

¥2,137 ¥1,169 $20,220

Significant components of deferred tax assets and liabilities at March 31, 2004 and 2003 were as follows:Thousands of


2004 2003 2004

Deferred tax assets:Property, plant and equipment, leasehold land and other assets—intercompany profits ¥0,670 ¥0,670 $06,339Inventory—intercompany profits 395 445 3,737Retirement benefits for directors and statutory auditors 371 354 3,510Retirement benefits for employees 627 524 5,933Foreign tax credit in relation to dividends received from foreign subsidiaries 429 630 4,059Accrued business taxes 174 16 1,646Accrued bonus 550 376 5,204Net operating loss carryforwards 407 525 3,851Other 747 735 7,068

Total deferred tax assets 4,370 4,275 41,347Valuation allowance (665) (737) (6,292)

Net deferred tax assets 3,705 3,538 35,055

Deferred tax liabilities:Undistributed earnings of foreign subsidiaries 536 540 5,071Others 141 67 1,334

Total deferred tax liabilities 677 607 6,405

Net deferred tax assets ¥3,028 ¥2,931 $28,650

Net deferred tax assets were included in the following accounts:Thousands of


2004 2003 2004

Current assets—Deferred tax assets ¥0,809 ¥0,585 $07,654Noncurrent assets—Deferred tax assets 2,220 2,360 21,005Current liabilities—Other current liabilities (0) (0) (0)Long-term liabilities—Other long-term liabilities (1) (14) (9)

Total ¥3,028 ¥2,931 $28,650

29

The effective tax rate differs from the normal tax rate at March 31, 2004 and 2003 for the following reasons:2004 2003

Japanese normal income tax rate 42.0% 42.0%Increases (reductions) resulting from:

Taxes on undistributed earnings of foreign subsidiaries (0.1) 2.2Expenses not deductible/income not assessable for tax purposes 0.8 2.5Inhabitant tax per capita 0.5 1.7Taxes on consolidated adjustments on dividends received from subsidiaries 6.4 10.4Foreign tax credit in relation to dividends received from foreign subsidiaries (2.5) (9.1)Tax rate difference at foreign subsidiaries (6.1) (7.9)Reversal of prior year’s tax — (5.1)Effect of change in valuation allowance (1.3) 36.7Effect of change in income tax rate 0.5 3.3Other, net 0.2 1.5

Effective income tax rate 40.4% 78.2%

12. Research and Development Costs

Research and development costs charged to income for the years ended March 31, 2004 and 2003 were ¥2,653 million ($25,102 thousand)and ¥2,160 million, respectively.

13. Leases

Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessees are generally accounted for bythe method that is applicable to ordinary operating leases.

Acquisition costs, accumulated depreciation and net balance of leased tools, furniture and fixtures as of March 31, 2004 and 2003, ifthey had been capitalized, were as follows:


2004 2003 2004

Acquisition cost ¥2,422 ¥2,335 $22,916Accumulated depreciation 816 553 7,721

Net balance ¥1,606 ¥1,782 $15,195

The amount of acquisition costs, accumulated depreciation and net balance under finance leases includes an imputed interestexpense portion.

Obligations under finance leases as of March 31, 2004 and 2003 were as follows:Thousands of


2004 2003 2004

Due within one year ¥0,248 ¥0,241 $02,346Due after one year 1,358 1,541 12,849

Total ¥1,606 ¥1,782 $15,195

The amount of 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

¥275 million ($2,602 thousand) and ¥244 million for the years ended March 31, 2004 and 2003, respectively.

30

Obligations under operating leases as of March 31, 2004 and 2003 were as follows:Thousands of


2004 2003 2004

Due within one year ¥0,161 ¥0,157 $01,523Due after one year 1,203 1,337 11,383

Total ¥1,364 ¥1,494 $12,906

14. Derivatives

Contract amount and fair value of foreign exchange contracts and the interest rate swaps at March 31, 2004 and 2003 were as follows:


2004 2003 2004

Forward—to sell foreign currencies:U.S. dollar

Contract amount ¥868 ¥1,015 $8,213Estimated fair value 844 1,019 7,986Unrealized gain (loss) 24 (4) 227


2004 2003 2004

Fixed-pay interest rate swaps:Contract amount ¥— ¥2,000 $—Estimated fair value — (15) —Unrealized loss — (15) —

Interest rate swaps which are accounted for under the hedge accounting are not included in the above disclosure.

15. Supplemental Disclosures of Cash Flow Information

Cash paid during the year for:Thousands of


2004 2003 2004

Interest ¥029 ¥0,063 $0,274Income taxes 550 882 5,204

16. Contingent Liabilities

The Companies were contingently liable for trade notes endorsedwith recourse amounting to ¥80 million ($757 thousand) as ofMarch 31, 2004.

Contingent liabilities for guarantees of loans of DISCO-SEAAMERICA, INC. amounted to ¥66 million ($624 thousand) as ofMarch 31, 2004.

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17. Segment Information

a. Operations in Different IndustriesInformation about operations in different industries of the Companies for the years ended March 31, 2004 and 2003 is as follows:

(1) Sales and operating incomeMillions of yen

Industry Industry Industry EliminationsA B C (Corporate) Consolidated

Year Ended March 31, 2004Sales to customers ¥45,400 ¥2,605 ¥238 ¥ — ¥48,243Intersegment sales — 20 97 (117) —

Total sales 45,400 2,625 335 (117) 48,243Operating expenses 36,617 2,437 295 3,269 42,618

Operating income ¥08,783 ¥0,188 ¥040 ¥(3,386) ¥05,625

Millions of yen


Year Ended March 31, 2003Sales to customers ¥34,355 ¥2,614 ¥155 ¥ — ¥37,124Intersegment sales — 65 124 (189) —

Total sales 34,355 2,679 279 (189) 37,124Operating expenses 30,031 2,550 275 2,642 35,498

Operating income ¥04,324 ¥0,129 ¥004 ¥(2,831) ¥01,626

Thousands of U.S. dollars


Year Ended March 31, 2004Sales to customers $429,558 $24,648 $2,252 $ — $456,458Intersegment sales — 189 918 (1,107) —

Total sales 429,558 24,837 3,170 (1,107) 456,458Operating expenses 346,456 23,058 2,792 30,930 403,236

Operating income $083,102 $01,779 $0,378 $(32,037) $053,222

(2) Assets, depreciation and capital expendituresMillions of yen


Year Ended March 31, 2004Assets ¥49,110 ¥4,002 ¥181 ¥27,060 ¥80,353Depreciation 1,771 42 3 292 2,108Capital expenditures 1,480 15 5 1,799 3,299

Millions of yen


Year Ended March 31, 2003Assets ¥45,850 ¥3,938 ¥140 ¥11,981 ¥61,909Depreciation 1,715 53 3 377 2,148Capital expenditures 2,176 6 2 88 2,272

32



Year Ended March 31, 2004Assets $464,661 $37,865 $1,713 $256,032 $760,271Depreciation 16,757 397 28 2,763 19,945Capital expenditures 14,003 142 47 17,022 31,214

Notes: Industry A consists of dicing saws, grinders, polishers, laser saws and precision diamond wheels.Industry B consists of industrial diamond wheels and cut-off wheels.Industry C consists of software and processed natural stones.Unallocated operating expenses included in “Eliminations (Corporate)” consists principally of general corporate expenses incurred by the Administration Headquartersof the Company which amounted to ¥3,437 million ($32,520 thousand) and ¥2,889 million for the years ended March 31, 2004 and 2003, respectively.Corporate assets included in “Eliminations (Corporate)” amounted to ¥27,280 million ($258,113 thousand) and ¥12,037 million at March 31, 2004 and 2003, respectively.

b. Foreign OperationsThe foreign operations of the Companies for the years ended March 31, 2004 and 2003 are summarized as follows:

Millions of yen

North EliminationsJapan America Asia Europe (Corporate) Consolidated

Year Ended March 31, 2004Sales to outside customers ¥30,116 ¥4,431 ¥8,068 ¥5,628 ¥ — ¥48,243Interarea sales 11,413 — 32 96 (11,541) —

Total sales 41,529 4,431 8,100 5,724 (11,541) 48,243Operating expenses 34,220 4,357 6,972 5,325 (8,256) 42,618

Operating income (loss) ¥07,309 ¥0,074 ¥1,128 ¥0,399 ¥0(3,285) ¥05,625

Assets ¥47,651 ¥2,347 ¥4,627 ¥2,448 ¥(23,280 ¥80,353

Millions of yen


Year Ended March 31, 2003Sales to outside customers ¥23,797 ¥4,134 ¥3,723 ¥5,470 ¥ — ¥37,124Interarea sales 8,312 — 2 7 (8,321) —


Operating income (loss) ¥03,494 ¥0,046 ¥0,452 ¥0,428 ¥(2,794) ¥01,626

Assets ¥44,890 ¥2,228 ¥2,613 ¥2,691 ¥(9,487 ¥61,909



Year Ended March 31, 2004Sales to outside customers $284,947 $41,925 $76,336 $53,250 $ — $456,458Interarea sales 107,985 — 303 908 (109,196) —


Operating income (loss) $069,155 $00,700 $10,673 $03,775 $0(31,081) $053,222

Assets $450,856 $22,207 $43,779 $23,162 $(220,267 $760,271

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.

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c. Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2004 and 2003 are summarized as follows:

Millions of yen

NorthAmerica Asia Europe Total

Year Ended March 31, 2004Sales to foreign customers ¥3,467 ¥17,067 ¥5,693 ¥26,227

Total net sales to domestic and foreign customers ¥48,243

Sales to foreign customers as a percentage of total net sales 7.2% 35.4% 11.8% 54.4%

Year Ended March 31, 2003Sales to foreign customers ¥3,653 ¥11,251 ¥5,398 ¥20,302

Total net sales to domestic and foreign customers ¥37,124



NorthAmerica Asia Europe Total

Year Ended March 31, 2004Sales to foreign customers $32,803 $161,482 $53,865 $248,150

Total net sales to domestic and foreign customers $456,458


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.

18. Stock Compensation

On September 27, 2002, the Board of Directors approved thestock option plan. Under the terms of the plan, 660 units of newstock acquisition rights were granted on October 7, 2002 and66,000 new shares of common stock were made available forawards to certain directors and employees of the Companies.The stock option has a six-year term and vests and becomes fullyexercisable at ¥5,264 per share on October 16, 2004.

On November 5, 2003, the Board of Directors approved anotherstock option plan. Under the terms of the plan, 706 units of newstock acquisition rights were granted on November 13, 2003 and70,600 new shares of common stock were made available forawards to certain directors and employees of the Companies.

The stock option has a six-year term and vests and becomes fullyexercisable at ¥6,320 per share on November 14, 2005.

By resolution at the general shareholders’ meeting held onJune 24, 2004, the Company introduced two stock option plansin accordance with Article 280-20 and 280-21 of the CommercialCode in Japan. Under the terms of the plans, up to 100,000 sharesof common stock acquisition rights were granted to certain direc-tors and employees of the Companies, and 16,000 shares of com-mon stock acquisition rights were granted to certain directors.The stock acquisition rights of these two stock option plans canbe exercised at advantageous terms for the period of 10 years and20 years from the grant date, respectively.

19. Subsequent Events

Cash DividendsThe following appropriations of retained earnings of the Company at March 31, 2004 were approved at the annual meeting of shareholdersheld on June 24, 2004:


Year-end cash dividends, ¥15 ($0.14) per share ¥482 $4,561

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Independent Auditors’ Report

To the Board of Directors and Shareholders ofDISCO CORPORATION:

We have audited the accompanying consolidated balance sheet of DISCO CORPORATION and consolidated subsidiaries asof March 31, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year thenended, all expressed in yen. These consolidated financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financial statements.

We conducted our audit in accordance with auditing standards generally accepted in Japan. These auditing standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management aswell as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion. The consolidated balance sheet of DISCO CORPORATION and consolidated subsidiaries as of March 31, 2003, andthe related consolidated statements of income, shareholders’ equity and cash flows for the year then ended, were audited byother auditors whose report dated June 26, 2003 expressed an unqualified opinion on those statements.

In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly, in all material respects,the financial position of DISCO CORPORATION and consolidated subsidiaries at March 31, 2004, and the consolidatedresults of their operations and their cash flows for the year then ended in conformity with accounting principles and practicesgenerally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,2004 are presented solely for the convenience of the readers. Our audit also included the translation of yen amounts intoU.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidatedfinancial statements.

Tokyo, JapanJune 24, 2004

See Note 1 to the consolidated financial statements which explains the basis of preparing the consolidated financial statements of DISCO CORPORATIONand consolidated subsidiaries under Japanese accounting principles and practices.

35

Corporate Data

Company Name:DISCO CORPORATION

Registered Office:14-3, Higashi-Kojiya 2-chome, Ota-ku,Tokyo, Japan

Founded:May 5, 1937

Incorporated:March 2, 1940

Capitalization:¥9,795,677,111(32,130,711 shares)

Stock Listing:Tokyo Stock Exchange, First Section(Securities Identification Code: 6146)

Number of Employees(Non-Consolidated Basis):1,171

Offices:Head OfficeHiroshima Works

Kure PlantKuwabata PlantNagatani Plant

Domestic Network:Osaka Branch Office, Kyushu BranchOffice (Kumamoto), Sendai RegionalOffice, Nagoya Regional Office, SuwaRegional Office

Global Network:DISCO HI-TEC AMERICA, INC.

USA Head OfficeEastern Regional Sales & Service OfficeSoutheastern Regional Sales & Service OfficeCentral Regional Sales & Service OfficeSouthwestern Regional Sales & Service OfficeNorthwest Regional Sales & Service Office

DISCO HI-TEC EUROPE GmbHEurope Head Office

DISCO HI-TEC FRANCE SARL

DISCO HI-TEC UK LTD.

DISCO HI-TEC MOROCCO SARL

DISCO HI-TEC (SINGAPORE) PTE, LTD.South Asia Head Office

DISCO HI-TEC (MALAYSIA) SDN. BHD. Penang Regional Office

DISCO HI-TEC (THAILAND) CO., LTD.

DISCO TECHNOLOGY (SHANGHAI) CO., LTD.China Head OfficeBeijing Service OfficeGuangdong Service Office

Affiliated Companies:DISCO ENGINEERING SERVICE, Ltd.TECNISCO Ltd.DISCO ABRASIVE SYSTEMS K.K.DSD, Ltd.DAStech, Inc.DD DIAMOND CORPORATIONS.E.A. UTENSILI DIAMANTATI S.p.A.DISCO-SEA AMERICA, INC.DISCO-SEA EUROPE S.r.l.

(As of March 31, 2004)

Kenichi SekiyaChairman and CEO

Hitoshi MizorogiPresident and COO

Executive Directors

Keizo SekiyaKazuma Sekiya

Directors

Tsutomu NakayamaHideyuki SekiyaKeiichi KajiyamaTakao MizorogiTakao Tamura

Corporate Auditors

Susumu TamariFukashi Furukawa

Auditors

Yoshihisa AsaumiHajime Kitani

(As of June 24, 2004)

URL: http://www.disco.co.jp/

12,000

10,000

8,000

6,000

4,000

2,000

0

Commonstock price

(Yen) (Calendar years)

HighLow

10,9103,180

9,1903,250

6,6805,060

6,7203,510

Common Stock Price Range

Directors and Auditors

35

Printed in Japan

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