shima2003̲1020 03.10.29 11:07 AM ページ b

SHIMA SEIKI

2003

annual report

ProfileFinancial Highlights
Interview with the President

WHOLEGARMENT®

Bulletin Board
Network

Website Information
Five-Year Consolidated Financial Summary

Management’s Discussion and Analysis
Consolidated Financial Statements

Investor Information

shima2003AR̲pdf用 03.10.29 11:04 AM ページ 1

ResearchandDevelopment

ProfileProduction
SystemUser
Training

Network

Flatbed knitting machines

80.6%
SWG-FIRST®184

Ever Onward

We have the top world market share in flatbed knitting machines.
Our products range from the reputable SES, the world-standard
computerized flatbed knitting machine, to the SWG-series of
WHOLEGARMENT® flatbed knitting machines—a product line thatmeets just about every requirement imaginable.

Since Shima Seiki’s founding in 1961, we have remainedtrue to our corporate motto, Ever Onward. Applying
ingenuity and innovation to deliver economically priced,
high-performance products, we approach productWe develop sophisticatedsystems and equipment built on
the latest mechatronics
technology.

We constantly update its
production facilities to the stateof-the-art, producing hardware
and software in a verticallyintegrated environment.

development from the user’s perspective to come up withproducts that anticipate users’ needs.

1975

Today we continue working to develop originaltechnology designed to help the apparel industry make theshift from the traditional, labor-intensive model to a new,Development of a fully
automated jacquard pattern
glove knitting machine

We maintain a global sales andtechnical-support network thatspans the Americas, Europe,and Asia.

We provide the know-how tohelp users around the world get
the most out of the products
and systems they buy from us.

1988

1995

2002

Development and introduction of
the PGM-2 apparel CAD system

Development of the SWG, the world's firstcommercially productive computerized
WHOLEGARMENT® knitting machines

Holding of a fashion
show as part of the40th Anniversary of
the Company

knowledge-intensive one, as well as to benefit the industry
by bringing innovative product-development ideas andbusiness models to the table. We provide a comprehensive
package of hardware, software, services, and information

1996

1978

Publicly listed on the First Section of theTokyo Stock Exchange

Establishing itself in the flatbed knitting machine industry
with the release of the SNC Shimatronic computerizedjacquard flatbed knitting machinethat encompasses know-how and design, all intended to

1991

1982

create wholly new genres of apparel products by breathing

Improving the seamlessglove knitting machine
through computerizationand successes to makethe gloves as thecompleted products

renewed life into the fashion sector and other user
industries.
We have become the world’s leading manufacturer of2000's1997
Debut of the SWG-FIRST®, "Next Generation"
computerized flatbed knitting machine featuring the newly
developed Slide Needle, at the Sixth OTEMAS

1993

1980

Introduction of the SES122RT computerized flatbed
knitting machine with a 4-bed configuration

1970'sDevelopment and manufacturing the world's first fully
automated seamless glove knitting machines

1960's

1967

1981

1992

Development of the
SDS®-1000 Shimatronic
Design System

Publicly listed on the First Section of the Osaka Securities Exchange
Introduction of the SES122-S computer-controlled flatbed knitting machine with a full-time
spring-loaded sinker system
Development of the P-CAM computerized fabric cutting machine
Introduction of the high-definition Acrograph 482 high-end computer graphic design system,
HyperPaint II, with real-time processing capability

Beginning production of fully automated collar knitting machines,
and extends its business into the flatbed knitting machine area

1962

1965
1962

New SFG
Our share of the world market in glove/sock knitting machines now
exceeds 80%—as you might expect, since the products were ourfirst. Ultrafine-gauge gloves knitted with them are almost
imperceptible to the wearer, so much so that they are widely usedin areas where tactile sensitivity is crucial, such as in the handlingof electronic and precision products and in the healthcare sector. A
product knitted with our computerized sock knitting machines, thefive-toe sock, is also widely used in health, sports, and otherapplications.

Other Businesses

6.7%

1990

Successful production of a fully
automated glove knitting machine

Establishment of Shima Seiki Mfg., Ltd. in Wakayamacity, Wakayama Prefecture by the current president
Shima, with the goal to develop and produce completely
automated glove knitting machines

7.2%

Development of an all-new design
system, the SDS®-ONE, from our“All in One” concept

recognized in over 80 countries around the world.

1970

Glove/sock knitting machines

2000

1990's1980's1970

SDS®-ONEOur computer graphics technology is utilized in many fields. Our
CAD/CAM systems incorporate our Total Fashion System concept,
providing smooth and efficient workflow in the production ofgarments from design to programming and production. The SDS®ONE, developed from our All in One concept, combines userfriendly features for ease of operation even for beginners with thekind of advanced functionality demanded by professionals.

2000

1990

knitting machines. Our products, based on our

5.5%

Development of theSuperMicro SDS®

computerized flatbed knitting machines and glove/sock

WHOLEGARMENT® and other advanced technologies, are

Design systems

Publicly listed on the Second Section of
the Osaka Securities Exchange

1979
Development of the SEC thecomputerized flatbed knitting machine

1989

Other businesses segment includes sales of components for flatbed
knitting machines, glove/sock knitting machines, and design
systems; sales of thread for glove/sock knitting machines; machineand system repair and maintenance; and the operation of a hotel(Hotel Marquise).

Development of Shimatronic computerized
flatbed knitting machine the SES-series

http://www.shimaseiki.co.jp >>>1shima2003AR̲pdf用 03.10.29 11:04 AM ページ 2

Interview
withthe President

Financial
Highlights
As a member of the world apparel and fashion industries, the Shima Seiki Group has concentrated its management resources on advancing penetration andincreasing sales of WHOLEGARMENT® knitting machines as well as expanding the market share of existing models. Overseas, sales mainly of conventional
computerized flatbed knitting machine models were brisk in Turkey, China, and Hong Kong on strong local demand and active capital investment in these regions as
industrialized countries’ manufacturing bases. Although conditions remain challenging for the industry in Japan, progress in gaining penetration for WHOLEGARMENT®

were the most memorable
Q Whatevents of the past year ?
Amachines was steady thanks to their suitability for producing high value-added products.

In April 2002, Shima Seiki organized the largest

Consolidated

Consolidated

net sales grew

10.7%

operating income grewfrom fiscal 2001 to

67.5%¥43,288

from fiscal 2001 tointernational fashion show ever to be held in Japan at

million.

the Wakayama Big Whale to celebrate our 40th anniversary.
We showcased samples of a Shimaseiki-original and of an Italian-¥8,847brand WHOLEGARMENT®, which were well received by visitors frommillion.

Japan and overseas. Making it a hands-on event where visitors could

Consolidated

Consolidated

net income grew

59.4%

total assets grew

4.0%

from fiscal 2001 tofrom fiscal 2001 to¥4,878¥96,220

see WHOLEGARMENT® designs close up and feel the fabric proved to bemillion.

highly effective in demonstrating the superior qualities of
WHOLEGARMENT® apparel—three-dimensional knits that fit thewearer’s body shape, what we call “knitwear with woven-fabricmillion.

wearability.” Organizing the whole show ourselves—we did everything

Consolidated

total shareholders’ equity increased

3.3%

from fiscal 2001 to¥84,419

Net income per share increased from ¥81.61 in fiscal 2001 to¥129.61

Cash dividend per share increased from ¥30 in fiscal 2001 to¥35

from planning through to operation without using outside contractors—

million.

resulted in an event full of original ideas that we were able toincorporate in the program.

in fiscal 2002.

was the operating
Q How
environment for Shima Seikiin fiscal 2002.

in fiscal 2002 ?

A

The Asian economies were generally on a recovery
trend, while China recorded stable growthunderpinned by robust domestic demand, whereas the rest
Operating Income

Net Sales( ¥ Million )( ¥ Million )( ¥ Million )50,0004,000

98,046 99,068

In Japan, the economy remained in a state of uncertainty, plaguedby chronic deflation, falling share prices, financial turmoil, and a

60,0002,000

poor employment and income environment.

4,044

20,00040,000

4,000

1,000

10,0001999 2000 2001 2002 2003>>> http://www.shimaseiki.co.jp

40,000

(434)

2,000

20,0000-1,000001999 2000 2001 2002 2003

the war in Iraq.

80,00080,000

5,282
4,666

81,73596,22084,419

3,061
2,553

5,039

2

85,958 86,557
92,549

8,000

6,000

the slide in U.S. stock markets and tensions culminating in

100,000

120,000

91,0022,978

0of the world experienced economic slowdown triggered by( ¥ Million )( ¥ Million )102,072

3,000
30,000Total Shareholder's Equity

Total Assets

8,847

39,784 39,097
37,374 36,807

4,878

5,000

10,00043,28840,000Net Income (Loss)1999 2000 2001 2002 2003

001999 2000 2001 2002 2003

1999 2000 2001 2002 2003

http://www.shimaseiki.co.jp >>>3

shima2003AR̲pdf用 03.10.29 11:04 AM ページ 4

Interview
withthe President

Q Tell us about Shima Seiki’s medium-term management plan.
A

Q How are overseas market conditions ?
A

do you intend to enhance
Q How
shareholder value ?
A

Since Shima Seiki exports over 85% of its products and markets them worldwide, we calmly assessed the situation and devised the following management strategies toprimarily for conventional knitting machine models, on firmby growing together with them, our accomplishment achieves the

Production in the apparel and fashion industries is in the midst of a paradigm shift as developing countries see production expanding
and industrialized countries focus on making high value-added products.

China and Turkey, where sales increased sharply,

ensure sustained growth going forward.

1. Increase market share of computerized
flatbed knitting machines
We are adding further to our software range and strengthening our user support
structure, which utilizes our unique know-how to enhance product development andsales in a way adapted to product range and sales region. In industrialized countries,
our production structure for WHOLEGARMENT® flatbed knitting machines is based where
consumption takes place; in developing countries, we are pioneering new markets bysuggesting ways to improve knitwear productivity and produce best-selling knitwear
products. Our efforts to present creative ideas to WHOLEGARMENT® flatbed knitting
machine customers are being rewarded with growing awareness and appreciation of
the high value-added attributes of WHOLEGARMENT® machines/apparel. We are also
differentiating ourselves from our competitors by providing design information tocustomers.

2. Actively propose new ideas for design
systems to the knitwear/apparel and relatedindustries
We are providing a diverse range of visual communication tools that help enhanceuser industries’ earnings. These tools are developed from the hardware and software
technologies that Shima Seiki has acquired over the years. The performance andfunctionality of the SDS®-ONE design system are becoming increasingly
sophisticated, and we are actively marketing the system to expand sales to theknitwear/apparel industry in Japan and overseas. In doing this, we have positioned
SDS®-ONE as a business solutions tool suited for market-in, multi-product/small-lot
production and meeting quick-response requirements, stressing its features as an

3. Expand market for glove/sock knitting
machines
Our glove/sock knitting machines dominate the world
market with a share of over 80%. We are working toincrease sales further by extending the range of functions
and improving performance, as well as presenting new
ideas to user industries for producing gloves with greater
value-added. Such value-added includes the ability to
produce gloves with high tactile sensitivity for the wearer
for use in precision manufacture and healthcare, as wellas traditional protective and thermal gloves.

Our view is that enhancing shareholder value is founded ona relationship of trust between us and our customers, anddomestic knitwear demand.

end result of returning profits to shareholders.

We expect continued expansion of the growth potential of the ChineseThus our management target is net income per share of at least ¥150. To

economy and Chinese consumption trends and intend to maximize our

make this happen, we are strengthening and moving ahead with measuresbusiness opportunities in China going forward. Turkey has become ato build our know-how, patents, and human resources; develop new

production base for many industrialized countries, especially in Europe, as

models; reduce costs for the whole company; and minimize foreign-well as having relatively stable domestic demand. Product exports to

exchange risks. Also, we are developing a system that allows corporate

Europe, Russia, and the Middle East are brisk because of weakness of thegovernance to function properly by ensuring that our existing board of

Turkish currency. Although the outlook depends on political and economic

directors and auditors perform their duties correctly, and working totrends, both China and Turkey are important markets for Shima Seiki. We

improve the soundness and transparency of management and enhance thetherefore consider it a priority to set up regional training centers tomanagement structure to ensure that shareholders’ interests are lookedstrengthen human resources development at the earliest opportunity.

after. It is in this context that we continue to ask our shareholders for theirunderstanding and support of our business activities.

New SFGare your plans for
Q What
WHOLEGARMENT moving forward?
A®

4. Develop a high-margin earnings
structure

Apparel products have changed little over the past century.
When we developed the WHOLEGARMENT® knitting machine in 1995,

We are carrying out in-depth reviews of our earnings structure to improve margins.
Moves include reducing materials and processing costs by using common
components and achieving manufacturing-cost savings by improving production
efficiency at all group companies. Not only in our manufacturing operations but also
in development, sales, and administrative units, we are reviewing business processes
to improve cost competitiveness and build a high-margin earnings structure.

5. Enhance risk management

advanced design tool that offers excellent cost performance.
We are minimizing the impact of foreign-exchange risk by increasing the share of
yen-denominated transactions and actively hedging risk by increasing the liquidity ofElectric catalog/
Design detabase

The markets we are most interested in at present aretrade receivables and using forward contracts. We also diversify credit risk forselling in developing countries. With customers like overseas agencies for which
concentration of credit risk is inevitable, we ensure that we can act quickly to any
change in circumstances by staying abreast of such customers’ respective local
industry trends as well as the credit standing of agencies and end users.

knitwear makers could not fathom its advantages; but today there is

Q
A

What is your vision for the future of
Shima Seiki ?
I would like to continue developing revolutionary new
products that make a big impact on the market in the way

greater awareness of the superior performance of these machines. Ourthat WHOLEGARMENT® did in 1995; further refine our image-goal is to use the WHOLEGARMENT concept as a way of transforming theprocessing technology to consolidate our systems’ presence in theindustry structure from a labor-intensive to a knowledge-intensive model.

fashion industry; and foster a highly competent and talented work

Although many see the WHOLEGARMENT® concept as a technology thatforce.

eliminates waste and reduces cost in production, it is being taken up by

The high flyers that we’re looking for are globally minded with

big-name brands in Japan and overseas because of the smoothness of theentrepreneurial spirit, as well as having some artistic sensibility andseamless design, soft texture and lightness of the fabric, and extensive

creative flair. They are also multitalented individuals with something torange of designs it offers. We are working to bring the freshest ideas to ouroffer in addition to professional expertise—engineers with language skills,

customers by coming out with 60 new design proposals every week,

for instance. I believe we need many employees of this caliber if we are tosetting up a communication space for knitwear makers and apparelsustain growth over the longer term.

®

companies, and developing “visual hanger systems” that show off
WHOLEGARMENT® designs to their best advantage in a three-dimensional
representation and assist in sales clerk training. We are also enthusiastic

Visual communication
system for stores4>>> http://www.shimaseiki.co.jp

Virtual exhibition

about using fashion shows and other events to publicize the
WHOLEGARMENT® concept and increase public awareness of the brand.

Masahiro Shima, President
June 2003

http://www.shimaseiki.co.jp >>>5

shima2003AR̲pdf用 03.10.29 11:05 AM ページ 6

WHOLEGARMENT®

Shift from “apparel and fashion” to“fashion information” industry

Globally acclaimed
WHOLEGARMENT® outfits

Shima Seiki is presenting ideas for how to transform the traditionally

Comfortable to wear, WHOLEGARMENT® outfits offer many benefits to

In September 2002, SHIMA SEIKI U.S.A. entered a WHOLEGARMENT®

labor-intensive structure of the apparel and fashion industry into a

the consumer, including lightness, elasticity and durability of the fabricsample design at the femme exhibit in New York, the largest U.S.

knowledge-intensive fashion information industry by using ourand the natural way it drapes around the body. As a result, we areapparel trade show, held three times a year. It beat over 1,500 other

WHOLEGARMENT machines to greatest effect. As a supplier ofseeing an increase in repeat customers.

brands to win the Innovative Fashion Award for innovation in technology.

®

manufacturing equipment for the fashion industry, Shima Seiki is taking

Setting a new trend in knitwear fashion, WHOLEGARMENT® outfits arebeing received well in Japan and overseas, especially in Italy and Spain,

vision for the industry’s future and making sure that we are equipped towhere people are sensitive to the latest trends. WHOLEGARMENT knitwear

respond quickly to change.

is also being incorporated into leading brands in Japan, where it isAward, one of the Profile Awards for best garment design at the January

necessary to depart from the traditional industrial structure.

2003 femme exhibit. This time, the award was given in recognition of

WHOLEGARMENT® dramatically reduces the cutting and sewing

Natural
Wear

Judges were impressed by the seamless technology that produces

the initiative in raising employees’ awareness by presenting a clear®

Features of WHOLEGARMENT®

knitwear as one entire piece.

Eco-Friendly

A WHOLEGARMENT® design also won the coveted International Style
Soft and Light
Elasticity
Beautiful Silhouette

the elegant outline and natural flow of WHOLEGARMENT® knitwear.

processes from knitwear production by knitting the whole garment in a

Kniton
DemandSize and Taste ofEach Person
Timely Production of
the Right Stuff
Production in
Consuming Region

Minimum Yarn
Resource Saving
Ecology Items

single piece. This results in the cutback in the number of production
processes, shortens production time, lowers labor costs, and minimizes

Cut & Sewn vs. WHOLEGARMENT®

cut loss, the amount of scrap material generated when cutting out eachLosspattern. A revolutionary production system, WHOLEGARMENT® makes
outfits individually, rendering lead times irrelevant and paving the way
for on-demand production and mass customization. WHOLEGARMENT®
knitwear is designed as a three-dimensional outfit fitted to the shape of
Cut&Sewn

the body, producing garments of great appeal, creating high value-

WHOLEGARMENT ®

Knitwear is traditionally made with the body and sleeves knitted
separately, then cut and sewn together afterward. In contrast,
WHOLEGARMENT® knitwear can be seamless.

added, and inspiring a whole new way of making clothes.

WHOLEGARMENT® Tags
WHOLEGARMENT®, which is getting popular worldwide,
can be seen in clothing shops all over the world now.
WHOLEGARMENT® tags are attached to most of theknitwear produced on our WHOLEGARMENT® machines
and appeal the advantage of the complete-garment to
consumers.

The Future of WHOLEGARMENT®
WHOLEGARMENT® machines are the most innovative textile machinery

The Slide Needle

invention of recent years. Offering superior production efficiency,
economy of operation, and versatility of design, it embodies numerous
factors for ongoing technical innovation through further refinement.
Many in the industry regard it as the future of knitting, and it promises
to take over as the mainstay production method of the 21st century.

6>>> http://www.shimaseiki.co.jp

Latch needles

Slide Needle

Conventional latch needles
and Sinker offset in grooves
cause scuffing and yarn
breaks.

Slide Needles and Contra
Sinker centered in grooves
reduce scuffing and thereby
prevent yarn breaks.

http://www.shimaseiki.co.jp >>>7

shima2003AR̲pdf用 03.10.29 11:05 AM ページ 8

Bulletin
Board

Trade Fairs

Newsletter

Shima Seiki is enthusiastic about hosting

Our fashion technology report Assort is an

fashion shows and participating in trade fairs

industry newsletter widely distributed to users[IKME 2003
(INTERNATIONAL KNITTING MACHINE EXHIBITION)]
Milano, ITALY (October 16-20, 2003)

featuring flatbed knitting machines, computer
graphics systems, and CAD/CAM systems.

[2003 APPAREL SOLUTION FAIR]
Tokyo TOC, Tokyo, JAPAN (August 26-27, 2003)[WAKAYAMA COMMERCE AND INDUSTRY FESTIVAL]
Wakayama Big Whale, Wakayama, JAPAN (October 11-12, 2003)[CISMA 2003]
Shanghai, CHINA (October 21-24, 2003)

The fashion show held at the Wakayama
Big Whale in April 2002 to celebrate the[JAPAN CREATION 2004]
Tokyo BigSight, Tokyo, JAPAN (December 3-5, 2003)[A+A 2003]
Dusseldorf, GERMANY (October 27-30, 2003)

company’s 40th anniversary was one of thelargest international fashion shows ever held

[SHANGHAI TEX]
Shanghai, CHINA (December 10-13, 2003)

in Japan. We invited guests from Japan and[PITTI FILATI]
Firenze, ITALY (February 4-6, 2004)

in the fashion industry and related fields.
Assort covers a diverse range of fashion andrelated topics from knitwear, CAD/CAM
systems, and apparel.

[The 9th IFF INTERNATIONAL FASHION FAIR/The 2nd FASHION-PRODUCE BUSINESS FAIR]
Tokyo BigSight, Tokyo, JAPAN (January 14-16, 2004)

abroad, as well as members of the local
community, to publicize the exciting potentialof WHOLEGARMENT® to a diverse audience.

Knitwear Collection

Ap

002
ril 2

y
Ma

e
Jun

July

ust
Aug

ber
m
e
t
Sep

r
obe
t
c
O

er
mb
e
v
No

ber
m
e
c
De

3
200
ry
y
r
rua
ua
b
n
e
a
F
J

rch
Ma

At Shima Seiki’s Total Design Center, sample
knitwear outfits planned and designed inhouse are made available to customers.
A sample collection of carefully selected
WHOLEGARMENT® designs from the past year
is featured at right.

8>>> http://www.shimaseiki.co.jp

http://www.shimaseiki.co.jp >>>9shima2003AR̲pdf用 03.10.29 11:05 AM ページ 10

Five-Year
Consolidated
Financial Summary

Network

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31

Shima Seiki is pioneering new market needs and finding new customers through its global network. Our sales and marketing people are working to extend the
2003

2002

2001

2000

1999

Thousands of
U.S. dollars
2003

43,28823,20020,088
11,241
8,847
8,801
4,878
1,032

39,09722,93916,158
10,876
5,282
5,212
3,061
1,088

39,78424,20815,576
10,910
4,666
4,314
2,553
1,199

36,80722,22014,587
10,543
4,044
(521)
(434)
1,343

37,374
22,15915,215
10,176
5,039
5,086
2,978
1,491

360,133
193,012167,121
93,51973,602
73,22040,582
8,586

96,22084,41992,54981,73599,06886,557

98,04685,958102,072
91,002

800,499
702,321129.612,280.85

81.61
2,190.16

67.89
2,302.05(11.14)2,286.12

75.21
2,298.05

5.2
5.9
87.7

3.2
3.6
88.3

(0.4)
(0.5)
87.7

2.9
3.3
89.2

Millions of yen

penetration and increase sales of Shima Seiki products, which enjoy a solid reputation worldwide.

For the Year:SHIMA SEIKIEUROPE, LTD.
(U.K.)TOKYO BRANCH OFFICEOSAKA BRANCH OFFICE
Communication Space(JAPAN)SHIMA SEIKI
MEXICO S.A. DE C.V.
(MEXICO)Net Sales
Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Operating Income
Income (Loss) before Income Taxes and Minority Interests
Net Income (Loss)
Depreciation and Amortization

At Year-End:SHIMA SEIKI MFG., LTD.

Total Assets
Total Shareholders’ Equity(JAPAN)Per Share Data (in Yen and U.S. Dollars):
Net Income (Loss)
Shareholders’ Equity
SHIMA SEIKI
U.S.A., INC.
(U.S.A.)yen

Ratios:U.S. dollars

1.08
18.98

%

Return on Assets (%)
Return on Equity (%)
Equity Ratio (%)

2.6
3.0
87.4

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120.20 = U.S. $1,
the approximate Tokyo foreign exchange market rate as of March 31, 2003.

SHIMAX ITALIA S.R.L.
(ITALY)SHIMA SEIKI MFG., LTD.,TAIPEI BRANCH(TAIWAN):Consolidated
Subsidiary:Sales Agent

ROA

WebsiteInformation

ROE

( %)

>>> http://www.shimaseiki.co.jp

( %)

5.9

6.0

6.0

( %)

90

89.2

5.2

87.7

87.4

2000

2001

88.3

87.7

2002

2003

85
4.0

4.0

3.3

3.2

2.9

You can learn more about the company by visiting Shima Seiki’s
website. There you’ll find a company profile, news on the latest

Equity Ratio

3.0

3.6
80

2.6
2.0

2.0

75

products and knitwear design collections, news and document forinvestors, and other interesting information.

0

0

70

(0.4)
1999

10

>>> http://www.shimaseiki.co.jp

2000

2001

(0.5 )
2002

2003

1999

2000

2001

2002

2003

1999

http://www.shimaseiki.co.jp >>>11

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 12

Management’s
Discussion
and Analysis
Operating Results

Net Sales( ¥ Million )50,00043,28840,00039,784 39,097
37,374 36,807

Net Income (Loss)/Net Income (Loss) to Net Sales

In fiscal 2002, consolidated net sales grew 10.7% from the previous year to ¥43,288 million

knitwear demand. In Asian markets, which account for 50% of overseas demand for flatbed

in a tough operating environment. Sales of computerized flatbed knitting machines, led byknitting machines, China recorded strong sales growth as capital investment picked up inconventional models, increased strongly in overseas markets such as Turkey at Europe’s

response to brisk domestic knitwear demand and the country’s expanding role as a knitwear

southeastern edge and China and Hong Kong in Asia, where capital investment has been

production base for industrialized countries, and Hong Kong also experienced growth in the( ¥ Million )

11.3

6,000

20,000accelerating to meet robust domestic demand for knit products and these regions’second half. High sales levels in these two markets led to an increase in overseas net sales

expanding role as knitwear production bases for industrialized countries. As a result,from the previous year.

overseas net sales increased 9.9% to ¥36,956 million.

12

4,878
8.0

30,000

( %)

7.8
8

4,000

6.4
3,061

2,978
2,553

4

2,000

Sales in Japan were also higher than in the previous year as a result of promoting

10,000Although the business conditions remained adverse for the industry as a whole, net sales
0

1999

2000

2001

2002

2003

Flatbed Knitting Machines

Design Systems

Glove/Sock Knitting Machines

Other Businesses

in Japan grew 15.7% from the previous year to ¥6,332 million thanks to steady gains inCenter at Shima Seiki’s headquarters in cooperation with our Communication Spaces inpenetration of WHOLEGARMENT® machines, which are suited to making high value-added

Tokyo and Osaka.

products. Thus overseas sales accounted for 85.4% of consolidated net sales.
Cost of sales went up 1.1% from the previous year to ¥23,200 million. The cost-of-sales

SG&A Expenses/SG&A Ratio

consulting-style sales to revitalize the industry; these efforts were led by the Total Design

0

0

(434)
1999

(1.2)
2000 2001

2002

2003

The segment posted record sales volume with both domestic and overseas markets improving
their performance over the previous year: segment sales grew 23.8% to ¥34,872 million.

Net Income (Loss) per Shareratio fell 5.1 percentage points to 53.6%. Selling, general and administrative expenses( ¥ Million )15,000

11,250

30

27.8

27.5

27.2

(¥)

( %)

28.6

increased 3.4% to ¥11,241 million, but fell 1.8 percentage points as a proportion of sales to

Design systems

26.0%. Consequently, consolidated operating income grew 67.5% to ¥8,847 million as a

Our design systems segment focused on selling the SDS®-ONE communication tool for the

result of cost reductions in addition to an increase of net sales.

knitwear/apparel industry based on our All in One concept. Sales volume increased as users

150

129.61

26.0
10,543 10,910 10,876

11,241

10,176

Income before income taxes and minority interest rose 68.8% to ¥8,801 million. Income

100

81.61

75.21

awarded SDS®-ONE high marks for its superior performance and ease of use in design and

67.89

15

7,500

taxes also rose 83.4% to ¥3,945 million.

product-proposal presentation as well as in speeding up and automating production.

Net income increased 59.4% from the previous year to ¥4,878 million, despite a book50

Net sales were firm in Japan and overseas markets, increasing 10.9% overall to

3,750

loss posted on investment securities. Net income per share increased ¥48 to ¥129.61.

¥2,360 million.

(11.14)
0

0

0

1999

2000

2001

2002

Segment information follows.

Shima Seiki is also extending the product line in this segment by developing the P-CAM100
1999

2003

2000

2001

2002

2003

ultra-high speed, single-ply “made to measure” fabric cutting machine and the SIP-100F on-

Flatbed knitting machines
In the flatbed knitting machine segment, our core business, Shima Seiki experienced

Operating Income/Operating Income to Net Sales( ¥ Million )

( %)

20.4

10,000

20.0

8,847
8,000

16.0

11.0

6,000

11.7
12.0

5,282

5,039

growing appreciation of WHOLEGARMENT® in Japan and overseas after the WHOLEGARMENT®

Glove/sock knitting machines

Fashion Show held in April 2004 as part of Shima Seiki’s 40th anniversary celebrations, andSegment net sales declined 45.2% from the previous year to ¥3,135 million. Demand in

the number of leading apparel companies incorporating WHOLEGARMENT outfits into theiroverseas markets (mainly Asian countries like South Korea) had been brisk until fiscal 2001,

mainstay brands is on the rise. We worked to achieve greater penetration forbut the demand phase of the cycle had run full course in fiscal 2002. This combined with

WHOLEGARMENT® knitting machines by taking advantage of the comfortable feel ofthe continuing slump in Japan to pull sales down.

®

4,666
4,044

4,000

8.0

2,000

4.0

0.0

0

12

2000

>>> http://www.shimaseiki.co.jp

2001

2002

(¥)

40

35

35

35
30

30

2003

1,198

WHOLEGARMENT® knitwear to supply innovative sample garments, as well as original knowhow, designs, and data for total customer support.
In overseas markets, despite slowdowns in much of Europe (especially Italy) and the U.S.

1999

Cash Dividend per Share

30

13.5

13.5

demand, full-color inkjet printing system, which obviates printing film and plates.

due to weakening consumption, sales increased sharply in Turkey, primarily for conventional
knitting machine models, on brisk knitwear exports to Russia combined with firm domestic

Other businesses
Other businesses, which focuses on components, posted a 5.5% decline in net sales from

20

1,007

10

the previous year to ¥2,921 million.
0

1999

2000

2001

2002

2003

http://www.shimaseiki.co.jp >>>13

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 14

Management’s
Discussion
and Analysis
Current Ratio/Quick Ratio

Financial Position

Outlook for FY2003(%)

Total assets in fiscal 2002 increased 4.0% over the previous year to ¥96,220 million.

We expect the operating environment to remain challenging both in Japan and in overseas

Current assets grew 4.9% to ¥63,940 million as a result of increases in trade accounts

markets on continued economic uncertainty and little prospect of real economic recovery.

and notes receivable. Total investments and other assets rose 6.8% to ¥13,513 million

Despite these difficult conditions, Shima Seiki will continue to present ideas to customers formainly due to an increase in investments in securities. Property, plant and equipment

making innovative and appealing products based on its WHOLEGARMENT machines. This

was almost unchanged, but slightly dropped 0.9% to ¥18,767 million.

entails pioneering a new fashion market that breaks down the barriers between the knitwear

800

667.9

627.1
550.9

600

634.3

557.3
544.4

431.2

(¥)

2,500

447.2

2,286

2,302

1999

2000

2001

2,280

2,190

2,000

1,500

Current liabilities grew 10.5% from the previous year to ¥10,081 million as a result of an
200

2,298

®

526.6

508.5
400

Total Shareholders’ Equity per Shareand woven-fabric segments with knitwear featuring the woven-fabric wearability made1,000

increase in accrued income taxes. Long-term liabilities grew 4.9% to ¥1,542 million.

possible by WHOLEGARMENT® systems’ three-dimensional capability. WHOLEGARMENT® items

Minority interests declined 18.0% to ¥178 million.

are as lightweight, comfortable, and elegant in outline as similar items of cut fabric, and

500

0

1999

2000

Current Ratio

2001

2002

2003

Quick Ratio

Total shareholders’ equity grew 3.3% from the previous year to ¥84,419 million due tohighly fashionable in their own right as well. We will also step up our work to help breath0

an increase in retained earnings. Total shareholders’ equity ratio fell 0.6 percentage points

new life into the industry by expanding sales of SDS -ONE as a core system for bringing theto 87.7%. Total shareholders’ equity per share rose 4.1% to ¥2,280.85.

advantages of IT to the apparel industry by linking apparel makers and retailers into closer( ¥ Million )( ¥ Million )2,000

120,000

102,072

98,046 99,068

1,773
92,549 96,220

Cash Flow

80,000

1,500

1,491
1,342
1,198

1,174

Net cash provided by operating activities amounted to ¥3,677 million, down ¥282 million
from the previous year. Net income before taxes and other adjustments was higher than in
40,000the previous year, but this was more than offset by increases in trade receivables andinventory.

0

2003

Capital Investment/
Depreciation and Amortization

working relationships.

Total Assets

2002

®

1999

2000

2001

2002

2003

Net cash used in investing activities totaled ¥1,920 million, down ¥1,215 million from theprevious year due to acquisition of investment securities.
Net cash used in financing activities was ¥1,978 million, up ¥289 million from the

Total Shareholder's Equity

previous year due to share repurchase and payment of dividends.

1,087

Forward-looking Statements

1,000

1,031

946
1,007

929

References to future performance contained in this annual report, including
500

business plans, earnings forecasts, management strategies, and other forwardlooking statements, are based on management’s assessment of currently available

0

information. Readers are therefore advised not to rely solely on these forecasts for

1999

2000

2001

2002

2003

Capital Investment

their investment decisions. Changes in the operating environment could bring about

Depreciation and Amortization

earnings results and progress in management strategies that vary significantly from

Research and Development

the forecasts contained in this report.
( ¥ Million )( ¥ Million )2,500

100,000

91,002

85,958 86,557

81,73584,419

2,369

2,382

2002

2003

2,204

2,121

2,057

1999

2000

2,000

80,000

1,198
1,500

60,000

1,007
40,000

14

1,000

500

20,000

0

929

0

1999

2000

>>> http://www.shimaseiki.co.jp

2001

2002

2003

2001

http://www.shimaseiki.co.jp >>>15

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 16

Consolidated
Balance
SheetsSHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
March 31, 2003 and 2002

Millionsof yen2003

2002

Thousands of
U.S. dollars
2003

ASSETS
Current assets:
Cash and cash equivalents
Time deposits
Short-term investments (Note 3)
Trade accounts and notes receivable:
Unconsolidated subsidiaries
Other
Inventories (Note 4)
Deferred tax assets (Note 10)Prepaid expenses and other current assets
Less: allowance for doubtful accounts
Total current assets
Investments and other assets:
Investments in unconsolidated subsidiaries
and an affiliate
Investments in securities (Note 3)Long-term loans receivable
Deferred tax assets (Note 10)
Deferred tax assets for land revaluation (Note 5)
Other
Less: allowance for doubtful accounts
Total investments and other assets

Millionsof yen2003

2002

Thousands of
U.S. dollars
2003

¥30

$166

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:¥9,967207
200¥10,247
516
160$82,920
1,722
1,664

282
42,424
10,411752
871(1,174)63,940205
38,554
10,300
721
696
(442)
60,957

2,346
352,946
86,614
6,256
7,246(9,767)531,947

1,782
4,241
329
746
4,530
2,945
(1,060)13,513

1,788
3,064
343
1,175
4,677
3,362
(1,753)
12,656

14,82635,2832,737
6,206
37,68724,501(8,819)112,421

Short-term loans (Note 6)¥20

Trade accounts and notes payable:
Unconsolidated subsidiaries
Other
Accrued expenses
Accrued income taxes
Other current liabilities

18

16

150

4,504

4,457

37,471

865

876

7,196

2,411

1,553

20,058

2,263

2,194

18,827

10,081

9,126

83,868

Allowance for retirement benefits (Note 7)

1,542

1,471

12,829Total long-term liabilities

1,542

1,471

12,829

178

217

1,481

Total current liabilities
Long-term liabilities:

Minority interests
Contingent liabilities (Note 8)
Shareholders' equity:
Common stock:
Authorized- 142,000,000 shares

Property, plant and equipment:
Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Construction in progress
Less: accumulated depreciation
Property, plant and equipment, net
Total assets

10,265
19,208
3,788
5,463
32
38,756(19,989)
18,767¥96,220

10,267
18,987
3,669
5,587
11
38,521(19,585)
18,936¥92,549

85,400159,800
31,51445,449266
322,429(166,298)
156,131$800,499

Issued- 37,600,000 shares

14,86014,860123,627

Additional paid-in capital

21,724

21,724

180,732

Retained earnings (Notes 9 and 14)

56,24152,514

467,895

Land revaluation difference (Note 5)(6,675)(6,528)(55,532)

Net unrealized holding loss on securities

(165)

(262)

(1,373)Foreign currency translation adjustments

(85)

59

(707)

Treasury stock, at cost
(610,610 shares in 2003 and 280,950 shares in 2002)

Total shareholders' equity
Total liabilities and shareholders' equity

See the accompanying notes to the consolidated financial statements.

16>>> http://www.shimaseiki.co.jp(1,481)(632)(12,321)84,41981,735702,321¥96,220¥92,549$800,499

See the accompanying notes to the consolidated financial statements.

http://www.shimaseiki.co.jp >>>17

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 18

Consolidated
Statementsof IncomeSHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Millionsof yenNet sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 11)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Other, net
Income before income taxes and minority interests
Income taxes (Note 10):
Current
DeferredIncome before minority interests
Minority interests in losses of
consolidated subsidiaries
Net income

Per share:
Net income
Cash dividends applicable to the year

2003

2002

Thousands of
U.S. dollars
2003¥43,288
23,20020,088
11,241
8,847¥39,097
22,93916,158
10,876
5,282$360,133
193,012167,121
93,51973,602

240
(37)
(249)
8,801

356
(5)
(421)
5,212

1,998
(308)
(2,072)
73,220

3,656
289
3,945
4,856

2,471
(320)
2,151
3,061

30,4162,405
32,82140,39922¥4,8780¥3,061

183$40,582

Yen¥129.61
35.00

U.S. dollars¥81.61
30.00

$1.08
0.29

Consolidated
Statements ofShareholders’EquitySHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Thousands

Millions of yen

Number ofshares ofcommonCommonstock issued
stock

Balance at April 1, 2001
Net income
Cash dividends
Bonuses to directors andstatutory auditors
Land revaluation difference
Net unrealized holding
loss on securities
Foreign currencytranslation adjustments
Increase in treasury stock
Balance at March 31, 2002
Net income
Cash dividends
Bonuses to directors andstatutory auditors
Land revaluation difference
Net unrealized holding
loss on securities
Foreign currencytranslation adjustments
Increase in treasury stock
Balance at March 31, 2003

Additional
paid-in
capitalRetainedearnings

37,600 ¥14,860 ¥21,724 ¥50,611
–
–
–
3,061
–
–
– (1,128)Net
unrealized
ForeignLand
holding loss currency
revaluationontranslation Treasury
difference securities adjustments
stock

–
–
–

¥(321)––¥(317)
–
–

¥(0)
–
–

–
–

–
–

–
–

(30)
–

–
(6,528)

–
–

–
–

–
–

–

–

–

–

–

59

–

–

–
–
37,600––––14,860––––21,724––––52,514
4,878(1,120)––(6,528)
–
–

–
–
(262)
–
–

376
–
59
–
–

–
(632)
(632)
–
–

–
–

–
–

–
–

(31)
–

–
(147)

–
–

–
–

–
–

–

–

–

–

–

97

–

–

–
–
–
–
–
–
–
–
–
–
37,600 ¥14,860 ¥21,724 ¥56,241 ¥(6,675)––¥(165)

(144)
–
–
(849)
¥(85) ¥(1,481)

Thousands of U.S. dollars

Commonstock

Balance at March 31, 2002
Net income
Cash dividends
Bonuses to directors and statutory auditors
Land revaluation difference
Net unrealized holding loss on securities
Foreign currency translation adjustments
Increase in treasury stock
Balance at March 31, 2003

See the accompanying notes to the consolidated financial statements.

18>>> http://www.shimaseiki.co.jp

Additional
paid-in
capitalRetainedearnings

Net
unrealized
ForeignLand
holding loss currency
revaluationontranslation Treasury
difference securities adjustments
stock$123,627 $180,732 $436,889 $(54,309) $(2,180)–– 40,582–––– (9,318)
–
–
–
–
(258)
–
–
–
–
– (1,223)
–
–
–
–
–
807
–
–
–
–
–
–
–
–
–
–
$123,627 $180,732 $467,895 $(55,532) $(1,373)$491 $(5,258)
–
–
–
–
–
–
–
–
–
–
(1,198)–– (7,063)$(707) $(12,321)

See the accompanying notes to the consolidated financial statements.

http://www.shimaseiki.co.jp >>>19

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 20

Consolidated
Statements ofCash Flows
SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Notes to theConsolidated
Financial
Statements
1. Basis of presenting consolidated financial statements

Millionsof yenCash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization
Increase in allowance for doubtful accounts
Increase in allowance for retirement benefits
Interest and dividend income
Interest expense
Foreign currency exchange loss (gain)
Loss on sales and disposal of property,
plant and equipment, net
Increase in trade receivables
Decrease (Increase) in inventories
Increase (Decrease) in trade payables
Other
SubtotalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Decrease in time deposits, net
Purchases of short-term investments
Proceeds from sales of short-term investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of investments in securities
Proceeds from sales of investments in securities
Decrease (increase) in long-term loans receivable, net
OtherNet cash used in investing activities
Cash flows from financing activities:
Decrease in short-term loans, net
Repayments of long-term debt
Net of purchases and proceeds from sales of treasury stock
Cash dividends paid
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

See the accompanying notes to the consolidated financial statements.

20>>> http://www.shimaseiki.co.jp

2003

2002

Thousands of
U.S. dollars
2003¥8,801¥5,212$73,220

1,031
48
71
(240)
37
30

1,087
524
34
(356)
5
(20)

8,577
399
591
(1,997)308
250

39(4,078)
(192)
205
519
6,271
244
(37)
(2,801)
3,677

207
(589)
1,179
(1,008)
(17)
6,258
359
(5)
(2,653)
3,959

324(33,927)(1,597)
1,705
4,318
52,171
2,030(308)(23,302)30,591309(3,200)
3,160
(767)
6
(1,571)23(57)
177(1,920)248(1,360)
1,455
(797)
186
(276)
14
24
(199)
(705)

2,571
(26,622)
26,289(6,381)50(13,070)
191
(474)
1,473
(15,973)

(10)
(1)
(849)
(1,118)(1,978)(59)(280)
10,247¥9,967

(500)
(7)
(632)
(1,128)(2,267)
140
1,127
9,120
¥10,247(83)(9)(7,063)(9,301)(16,456)(492)(2,330)85,250$82,920SHIMA SEIKI MFG., Ltd. (the “Company”) and its domestic subsidiaries
maintain their accounts and records in accordance with the provisions
set forth in the Commercial Code of Japan (the “Code”) and the
Securities and Exchange Law of Japan, and in conformity withaccounting principles and practices generally accepted and applied inJapan, which are different from the accounting and disclosure
requirements of International Accounting Standards.
The Company’s foreign subsidiaries maintain their accounts andrecords in conformity with generally accepted accounting principles andpractices prevailing in their respective countries of domicile.
The accompanying consolidated financial statements are preparedbased on the consolidated financial statements of the Company and its
significant subsidiaries (the“Group”), which were filed with the Directorof Kanto Local Finance Bureau as required by the Securities andExchange Law.
In preparing the accompanying consolidated financial statements,
certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present
them in a form which is more familiar to readers outside of Japan.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of the readers, using the exchange
rate prevailing at March 31, 2003, which was ¥120.20 to US$1.00.
These convenience translations should not be construed as
representations that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S.dollars at this or any
other rate of exchange.

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries

and amortized over the periods of the respective contracts. Revenue
and expenses are translated at the rates of exchange prevailing whentransactions are recorded.
Assets and liabilities of foreign subsidiaries are translated into
Japanese yen at the exchange rates in effect at the respective balance
sheet dates. Shareholders’ equity is translated at historical rates.
Revenue and expenses accounts of foreign subsidiaries are translated at
the exchange rates in effect at the respective balance sheet dates.
Translation adjustments resulting from translation of foreign currency
financial statements are reported as “Foreign currency translation
adjustments” in a separate component of the shareholders’ equity.

(c) Cash and cash equivalents
Cash and cash equivalents are comprised of cash in hands, deposits
held at call with banks, net of overdrafts and all highly liquid
investments with maturities within three months.

(d) Short-term investments and investments in securities
Held-to-maturity securities are either amortized or accumulated to facevalue. Other securities with quoted market prices are carried at market
value. The difference between the acquisition costs and the carrying
value of other securities, including unrealized gains and losses, isrecognized as a component of shareholders’ equity and is reflected as“Net unrealized holding loss on securities.” The cost of other securities
sold is computed by the moving average method. Other securities without
quoted market prices are stated at cost based on the average method.

(e) Inventories

2. Summary of significant accounting policies(a) Principles of consolidation
The consolidated financial statements include the accounts of theCompany and its significant subsidiaries. All significant intercompany
balances and transactions are eliminated.
Unconsolidated subsidiaries, whose combined assets, net sales, net
income and retained earnings in aggregate are not significant in relation
to those of the consolidation with the Group.
Investments in unconsolidated subsidiaries and an affiliate are statedat cost, since those companies’ combined net income and retained
earnings in aggregate are not significant in relation to those of
consolidation with the Group.

(b) Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currencies aretranslated into yen at the rate of exchange in effect at the balance
sheet date, except for those hedged by forward foreign exchange
contracts which are translated at the contracted rates. Resulting
translation gains or losses are charged to income in the year in which
they are incurred, except for those arising from forward foreignexchange contracts pertaining to monetary assets, which are deferred

Inventories are stated at the lower of cost or market. The cost of finishedgoods, work in process and raw materials is determined principally by
the moving-average method. The cost of purchased goods held byforeign consolidated subsidiaries is determined by the specific method.
The cost of supplies is determined by the first-in first-out method.

(f) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Depreciation of theCompany and domestic consolidated subsidiaries are computed
principally by the declining-balance method based on the estimateduseful lives of assets, except that the straight-line method is applied tobuildings, but not to fixtures attached to the buildings, acquired after April
1, 1998. Depreciation of foreign consolidated subsidiaries are computedby the straight-line method on the estimated useful lives of assets.
The principal estimated useful lives are as follows:
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures

3 to 50 years
3 to 12 years
2 to 20 years

http://www.shimaseiki.co.jp >>>21

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 22

Notes to theConsolidated
Financial
Statements(g) Allowance for doubtful accounts

as operating lease transactions if certain “as if capitalized” information
is disclosed in the notes to the lessee’s financial statements.

The allowance for doubtful accounts is provided in amounts sufficient tocover possible losses on collection. The allowance for doubtful accountsof the Company and its domestic consolidated subsidiaries arecalculated based on their past credit loss experience and on an estimateof the individual uncollectible amounts. The allowance for doubtful
accounts of foreign consolidated subsidiaries is calculated based on an
estimate of the individual uncollectible amounts.

Other securities without quoted market prices at March 31, 2003 and2002 were as follows:

Amount recorded in the balance sheet
2003
2002
2003

Research and development costs are charged to income as incurred.

(k) Income taxes
Deferred income taxes are recognized by the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities
are determined based on difference of between financial reporting andthe tax basis of the assets and liabilities, and are measured using theenacted tax rates and laws that will be in effect when the differences
are expected to reverse.

(h) Allowance for retirement benefits
The Company and its certain domestic consolidated subsidiaries haveretirement benefit plans for their employees. Such benefits are provided
through the unfunded lump-sum severance indemnity plan and thefunded noncontributory pension plan. The amount of retirement benefits
are determined on the basis of length of service, basic salary and certain
other factors at the time of termination of employment.
Allowance for retirement benefits has been provided for employees’
retirement benefits, based on the amount of projected benefit obligation
reduced by pension plan assets at fair value at the balance sheet date.
The actuarial gains and losses recognized in the fiscal year under review
is being amortized over a ten-year period by the straight-line methodfrom the year subsequent to the year in which such gains and losses
are incurred.

(l) Appropriation of retained earnings
Cash dividends, transfers to legal reserve and bonuses to directors andstatutory auditors are recorded in the financial year in which a proposed
appropriation of retained earnings is approved by shareholders.

(i) Leases
All leases are accounted for as operating leases. Under Japanese
accounting standards for leases, finance leases that are deemed totransfer the ownership of the leased property to lessees are to becapitalized, while other finance leases are permitted to be accounted for

Held-to-maturity securities
Debt securities
Other securities
Unlisted equity securities

22>>> http://www.shimaseiki.co.jp$1,664¥2,041¥825$16,980

7. Allowance for retirement benefits

Inventories at March 31, 2003 and 2002 were as follows:
Millions of yen
2003
2002

Finished goods
Work in process
Raw materials
Supplies and others¥6,641
794
2,370
606
¥10,411¥6,602
742
2,344
612
¥10,300

Under the “Law of Land Revaluation”, the Company elected a one-timerevaluation of their own-use land to a value based on real estateappraisal information as of March 31, 2002. The resulting land
revaluation difference represents the net unrealized depreciation of land
values and is stated, net of income taxes, as a component ofshareholders’ equity. There was no effect on the statement of income.
The details of the one-time revaluation for land remaining as of March
31, 2003 were as follows:
Land before revaluation
Land after revaluation
Land revaluation difference¥21,201million¥9,996milion¥6,675million(net of deferred tax assets of ¥4,530)

Thousands of U.S. dollars

2003

2002

2003

Amountrecordedin the balance
sheet

Amountrecorded in
the balance
sheet

Amountrecorded in
the balance
sheet¥1,396149
729¥2,274¥2,477

¥203
50
¥253

¥1,151147
649¥1,947¥2,200¥50
0¥50¥(245)(2)(80)¥(327)¥(277)$55,250
6,606
19,717
5,041$86,614

5. Land revaluation

Acquisition
costs

Difference

Acquisitioncosts

6. Short-term loans and long-term debt
Difference

Short-term loans and long-term debt at March 31, 2003 and 2002 wereas follows:
Millions of yen
2003
2002

¥153
50
¥203

Thousands of
U.S.dollars
2003

Effective April 1, 2002, the Company adopted a new accounting
standard for earnings per share of common stock issued by the
Accounting Standards Board of Japan. Under the new standard, basic
net income per share is computed by dividing net income available tocommon shareholders, which is more precisely computed than underprevious practices, by the weighted-average number of common shares
outstanding for the period.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to therespective years including dividends to be paid after the end of year.

Millions of yen

Other securities whosemarket values recordedin the balance sheet exceed
their acquisition costs:
Equity securities
Other
Subtotal
Other securities whose market
values recorded in thebalance sheet do not exceed
their acquisition costs:
Equity securities
Debt securities
Other
Subtotal
Total

¥160

4. Inventories

Other securities with quoted market prices at March 31, 2003 and 2002 were as follows:

Difference¥200(m) Per share information

3. Short-term investments and investments in securities

Acquisition
costs

Thousands of
U.S.dollars

Millions of yen(j) Research and development costs

¥526
10
¥536

¥1,125100926¥2,151¥2,687

¥631
10
¥641

¥889
68
641
¥1,598¥2,239

¥105
0
¥105

¥(236)(32)(285)¥(553)¥(448)$1,273416$1,689$11,6141,240
6,064$18,918$20,607$1,689416$2,105$9,576
1,223
5,399$16,198$18,303

$416
0
$416

$(2,038)(17)(665)$(2,720)$(2,304)

Short-term loans:
2.00% to 2.12% unsecured loans
from banks
Long-term debt:
2.5% unsecured loans from banks
Less: current portion

provide collateral or guarantors (or additional collateral or guarantors, as
appropriate) with respect to such loans, and that all assets pledged ascollateral under such agreements be applicable to all present and futureindebtedness to the banks concerned. The general agreements further
provide that the banks have the right, as the indebtedness matures or
becomes due prematurely by reason of default, to offset deposits atsuch banks against any indebtedness due to the banks. However, theCompany has never received any such request from any bank.

Thousands of
U.S.dollars
2003

¥20

¥30

$166

–
–
–

¥1
(1)
–

–
–
–

The allowance for retirement benefits at March 31, 2003 and 2002
consisted of the following:
Retirement benefit obligation at March 31, 2003 and 2002:
Thousands of
U.S.dollars
2003

Millions of yen
2003
2002

Projected benefit obligation
Fair value of plan assets
Benefit obligation in excess ofplan assets
Unrecognized actuarial loss
Obligation recognized in the
consolidated balance sheets
Prepaid pension cost
Allowance for retirement benefits¥(3,794)
1,822¥(3,430)
1,749$(31,564)
15,158(1,972)430(1,681)
210(16,406)
3,577(1,542)–¥(1,542)(1,471)–¥(1,471)(12,829)–$(12,829)

Components of net periodic benefit cost for the year ended March 31,
2003 and 2002:
Thousands of
U.S.dollars
2003

Millions of yen
2003
2002

Service cost
Interest cost
Expected return on plan assets
Amortization:
Actuarial loss (gain)
Net periodic benefit cost

¥203
86
(20)

¥179
102
(19)

$1,689
715
(166)

19
¥288

(18)
¥244

158
$2,396

Assumption used in the accounting for the defined benefit plans for theyear ended March 31, 2003 and 2002 is as follows:
Method of attributing benefit
to periods of service
Discount rate
Expected rate of return onfund assets
Amortization period for
actuarial gain (loss)

2003

2002

straight-line
basis
2.5%

straight-line
basis
2.5%

1.15%

1.15%

10years

10years

As is customary in Japan, substantially all loans (including short-termloans) from banks are made under general agreements, which provide
that, at the request of the relevant banks, the Company be required tohttp://www.shimaseiki.co.jp >>>23

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 24

Notes to theConsolidated
Financial
Statements
8. Contingent liabilities

scheduled to be changed. The effect of this change was to decreasedeferred tax assets and deferred tax assets on land revaluation by ¥18
million ($150 thousand) and ¥147 million ($1,223 thousand),
respectively, and to increase income taxes-deferred, net unrealized
holding loss on securities and land revaluation difference by ¥15 million($125 thousand), ¥4 million ($33 thousand) and ¥147 million ($1,223
thousand), respectively, for the year ended March 31, 2003.

Contingent liabilities at March 31, 2003 and 2002 were as follows:

Trade notes discounted
Guarantees of customers’ loans
and lease obligations

Millions of yen
2003
2002

Thousands of
U.S.dollars
2003¥3,133¥4,721$26,065

4,750¥7,883

5,304¥10,025

39,517$65,582

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 2003 and 2002 were as
follows:

9. Retained earnings
The Code provides that an amount equal to at least 10% of the amounts
to be disbursed as distributions of earnings be appropriated to the legal
reserve until such reserve and additional paid-in capital equals 25% of
the common stock account. The Code also stipulates that, to the extent
that the sum of the additional paid-in capital and the legal reserve
exceeds 25% of the common stock account, the amount of any suchexcess is available for appropriation by resolution of the shareholders.
The retained earnings account in the accompanying consolidated
financial statements at March 31, 2003, included the Company’s legal
reserve of ¥2,124 million ($17,671 thousand).

Millions of yen
2003
2002

Deferred tax assets:
Allowance for retirement benefits¥408
Loss on write-down ofinvestments in securities–
Accrued bonuses to employees
223
Accrued enterprise tax
211
Tax loss carryforwards
354
112
Unrealized holding loss on securities
Intercompany profit
268
Other
238
Total gross deferred tax assets
1,814
Less valuation allowance(266)
Net deferred tax assets
1,548
Deferred tax liabilities:
Tax deductible reserves
(23)
Other
(27)
(50)
Total gross deferred tax liabilities
Net deferred tax assets¥1,498

10. Income taxes
The Company and its domestic subsidiaries are subject to several taxes
based on income, which in the aggregate resulted in a normal effective
statutory tax rates of approximately 41.7% for the years ended March
31, 2003 and 2002.
Due to a change in enterprise tax rate in Japan, effective for years
beginning April 1, 2004, the normal effective statutory tax rate is

Thousands of
U.S.dollars
2003

¥305

$3,394

246
163
135
361
187
269
369
2,035
(95)
1,940

–
1,855
1,755
2,945
932
2,230
1,980
15,091(2,213)
12,878

(28)
(16)
(44)
¥1,896

(191)
(225)
(416)
$12,462

Obligations under such finance leases as of March 31, 2003 and 2002
were as follows:

Due within one year
Due after one year
Total

Millions of yen
2003
2002

Thousands of
U.S.dollars
2003

¥609
1,464
¥2,073$5,066
12,180$17,246¥652
1,823¥2,475The amount of obligations and depreciation under finance leases for theyear ended March 31, 2003 was calculated excluding the imputed
interest portion due to the increase in the portion for obligations underfinance leases in the total amount of the obligations and property, plantand equipment as of March 31, 2003, while the amount of obligations
and depreciation for the years ended March 31, 2002 was calculated
including the imputed interest portion.

Depreciation expense and imputed interest expense for the years ended
March 31, 2003 and 2002 were as follows:
Millions of yen
2003
2002

Depreciation expense
Imputed interest expense

¥612
¥51

¥692
–

Thousands of
U.S.dollars
2003$5,092$424

13. Segment information
Business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2003 and 2002 was as follows:
Millions of yen

2003

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income
Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures

Flatbedknitting
machines

Designsystems

Glove andsock knitting
machines

Other

Total

Corporate /elimination

Consolidated¥34,872–
34,872
23,648¥11,224¥2,360
–
2,360
1,649
¥711

¥3,135
–
3,135
2,266
¥869

¥2,921
–
2,921
2,576
¥345

¥43,288–
43,28830,139¥13,149–––¥4,302¥(4,302)¥43,288–
43,28834,441¥8,847¥61,206477
468¥4,10218
6¥3,19336
21¥4,37141
35¥72,872572
530¥23,348460
400¥96,220
1,032
930

11. Research and development costs

Millions of yen

2002

Research and development costs charged to income were ¥2,383 million ($19,825 thousand) and ¥2,369 million for the years ended March 31, 2003 and2002, respectively.

12. Lease
Total lease payments under finance leases that are not deemed to transfer ownership of the leased property to the lessee were ¥670 million ($5,574
thousand) and ¥692 million for the years ended March 31, 2003 and 2002, respectively.
Pro forma information of leased property under finance leases that are not deemed to transfer ownership of the leased property to the lessee on an “as if
capitalized" basis for the years ended March 31, 2003 and 2002 were as follows:
Thousands ofMillions of yen

U.S. dollars

2003
Machinery and equipment
Tools, furniture and fixtures
Total

24

>>> http://www.shimaseiki.co.jp

Millions of yen

2003

2002

Acquisition cost

Accumulated
depreciation

Net leased
property

Net leased
property

Acquisition cost

Accumulated
depreciation

Net leased
property¥4,133175¥4,308¥2,188116¥2,304¥1,94559¥2,004$16,181491$16,672¥4,478161¥4,639¥2,08381¥2,164¥2,39580¥2,475

Flatbedknitting
machines

Designsystems

Glove andsock knitting
machines

Other

Total

Corporate /elimination

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income

Consolidated¥28,161–
28,161
20,714¥7,447¥2,128
–
2,128
2,069
¥59

¥5,718
–
5,718
4,027
¥1,691¥3,090
–
3,090
2,789
¥301

¥39,097–
39,09729,599¥9,498–––4,216¥(4,216)¥39,097–
39,09733,815¥5,282

Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures¥55,602474
343¥4,53322
13¥4,86876
55¥4,56855334¥69,571627
745¥22,978
461
262¥92,549
1,088
1,007

http://www.shimaseiki.co.jp >>>25

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 26

Notes to theConsolidated
Financial
Statements
Thousands of U.S. dollars

Overseas sales of the Company and its consolidated subsidiaries for the years ended March 31, 2003 and 2002 were as follows:

2003

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income
Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures

Millions of yen

Flatbedknitting
machines

Designsystems

Glove andsock knitting
machines

Other$290,116–
290,116
196,738$93,378$19,634–
19,634
13,719$5,915$26,082–
26,082
18,852$7,230$509,201
3,968
3,893

$34,127150
50$26,564
300
175

2003

Total

Corporate /elimination

Consolidated$24,301–
24,301
21,431$2,870$360,133–
360,133
250,740$109,393–––
35,791$(35,791)$360,133–
360,133
286,531$73,602$36,364
341
291$606,256
4,759
4,409

$194,243
3,827
3,328

$800,499
8,586
7,737

Overseas sales
Total sales
Ratio of overseas sales to total sales

EuropeThe Middle
EastSoutheast
Asia

Other areas

Total¥7,479¥8,522¥18,941¥2,014

17.3%

19.7%

43.8%

4.6%

¥36,956¥43,288
85.4%

Millions of yen

Note: Main products of each segment are as follows.
Flatbed knitting machines: Computerized flat knitting machine, computerized semi-jacquard flat knitting machine
Design systems: Computer graphic apparel design system, knitting CAD system, apparel CAD / CAM system
Glove and sock knitting machines: Computerized seamless glove and sock knitting machine
Other: Parts for flatbed knitting machines and design systems, yarn for glove knitting machines, machine repair and maintenance, hotel business

2002

Overseas sales
Total sales
Ratio of overseas sales to total sales

EuropeThe Middle
EastSoutheast
Asia

Other areas

Total¥9,401¥4,300¥16,731¥3,189

24.0%

11.0%

42.8%

8.2%

¥33,621¥39,097
86.0%

Thousands of U.S. dollars

2003

Geographical segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2003 and 2002 was as follows:
Millions of yen

2003

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income (loss)
AssetsJapan

EuropeNorth
America

Total

Corporate /elimination

Consolidated¥40,486
1,521
42,00729,012¥12,995¥71,393¥1,221
–
1,221
1,086
¥135
¥913

¥1,581
7
1,588
1,654
¥(66)
¥1,840¥43,288
1,528
44,81631,752¥13,064¥74,146–¥(1,528)(1,528)2,689¥(4,217)¥22,074¥43,288–
43,28834,441¥8,847¥96,220

2002

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income
Assets¥35,354
1,310
36,66427,401¥9,263¥67,628

Europe¥1,860
–
1,860
1,796
¥64
¥1,005North
America

Other areas

Total$62,221$70,899$157,579$16,755

17.3%

19.7%

43.8%

4.6%

$307,454$360,133
85.4%

Note: Significant countries or areas belonging to each area are as follows.
Europe: Italy, Spain, U.K.
The Middle East: Turkey, Syria
Southeast Asia: China, Korea, Taiwan
Other areas: Brazil, U.S.A.

Shareholders approved the following appropriation of retained earning at the annual meeting held on June 27, 2003.
Total¥1,883
44
1,927
1,920
¥7
¥1,773

EuropeSoutheast
Asia

14. Subsequent events

Millions of yen

JapanOverseas sales
Total sales
Ratio of overseas sales to total sales

The Middle
East¥39,097
1,354
40,451
31,117¥9,334¥70,406

Corporate /elimination

Consolidated–¥( 1,354)( 1,354)
2,698¥( 4,052)¥22,143¥39,097–
39,09733,815¥5,282¥92,549

Cash dividends
Bonuses to directors and statutory auditors

Millions of yen

Thousands of U.S. dollars

¥740
50

$6,156
416

Thousands of U.S. dollars

2003

Sales and operating income:Sales to customers
Intersegment sales
Total
Operating costs and expenses
Operating income (loss)
AssetsJapan

EuropeNorth
America$336,822
12,654349,476
241,365$108,111$593,951$10,158–
10,158
9,035$1,123$7,596$13,153
58
13,211
13,760$(549)$15,308

Total

Corporate /elimination

Consolidated$360,133
12,712372,845
264,160$108,685$616,855–$(12,712)(12,712)22,371$(35,083)$183,644$360,133–
360,133
286,531$73,602$800,499

Note: Significant country or area belonging to each segment is as follows.
Europe: U.K.
North America: U.S.A.

26>>> http://www.shimaseiki.co.jp

http://www.shimaseiki.co.jp >>>27

shima̲zaimu03̲pdf用 03.10.29 11:03 AM ページ 28

Report ofIndependent Certified
Public Accountants

Investor
Information
Corporate Information(As of March 31, 2003)

Company NameSHIMA SEIKI MFG., LTD.

Representative Director

Masahiro Shima, President

Headquarters

85 Sakata, Wakayama-city, Wakayama
641-8511, Japan
Telephone:+81-73-471-0511
Facsimile:+81-73-474-8267

Date of Establishment

February 4, 1962

Capital¥14,859,800,000

Total Number of Employees

1,004

URL

http://www.shimaseiki.co.jp

Stock Information(As of March 31, 2003)

Accounting

Year-End March 31

Month of General Shareholders’ Meeting

June

Authorized Common Stocks

142,000,000

Issued Common Stocks

37,600,000

Number of Shareholders

14,089Stock Exchange Listing

The First Section of Tokyo Stock Exchange
The First Section of Osaka Stock Exchange

Auditing Corporation28>>> http://www.shimaseiki.co.jp

Ohtemae Audit Corporation

http://www.shimaseiki.co.jp >>>29

shima2003̲1020 03.10.29 11:07 AM ページ a

SHIMA SEIKI MFG., LTD.
Headquarters/ 85 Sakata, Wakayama-city, Wakayama 641-8511, Japan
TEL: +81-73-471-0511 FAX:+81-73-474-8267

http://www.shimaseiki.co.jp/

SDS®, FIRST® and WHOLEGARMENT® are registeredtrademarks of SHIMA SEIKI MFG., LTD.

Printed in Japan