shima-AR2002 02.11.13 2:44 PM ページ 1

SHIMA SEIKI
Annual Report 2002

SHIMA SEIKI MFG., LTD.
Headquarters/ 85 Sakata, Wakayama City, 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shima-AR2002 02.11.13 2:45 PM ページ 3

ProfileConsolidated Financial Highlights

An essential part of our daily lives, textiles generally fall into one of two primarycategories: woven cloth and knitted fabrics. Shima Seiki specializes in the development,
manufacture, and marketing of computerized flatbed knitting machines for use in knitted
fabric production. Since our establishment in 1961, we have used ingenuity in productdevelopment with a focus on user needs to make available highly advanced products at
economical prices based on our corporate motto "Ever Onward."
In the field of apparel, a basic need in people’s lives, a shift is taking place fromlabor-intensive to knowledge-intensive industrial practices. It is becoming important not
only to produce comfortable, lightweight clothing, but also to introduce advantageous, newways to make products and bring a new business model to the industry, which we aredoing through the full-scale development of unique technologies. In addition to hardware
and software, Shima Seiki aims to provide information and comprehensive services that
extend to design and specialized expertise. Our contribution to the vitality of the fashionindustry and other users helps to raise interest in apparel, which in turn leads to steady
growth for the Company.
Today we maintain the top spot in market share for flatbed knitting machines andglove knitting machines. Business is vibrant, and our advanced technologies, such as
WHOLEGARMENT® knitting machines, are being used by customers not only in the Japaneseknitting industry, but in over 80 national markets, from Asia to Europe and the Americas.

Years ended March 31, 2002 and 2001

Thousands
ofU.S. dollars

Millions of yen

2002

2001

2002

Net Sales..........................................................................

39,09739,784

293,521

Operating Income...........................................................

5,282

4,666

39,655Net Income (Loss) ..........................................................

3,061

2,553

22,980Total Assets .....................................................................

92,54999,068694,812

Total Shareholders’ Equity .............................................

81,73586,557

613,626

Net Income (Loss) ..........................................................

81.61

67.89

0.61

Shareholders’ Equity.......................................................

2,190.16

2,302.05

16.44

For the Year:At Year-End:Per Share Data (in Yen and U.S. dollars):

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥133.20 = U.S. $1, the approximate Tokyo
foreign exchange market rate as of March 31, 2002.

Net Sales

Operating Income( ¥ Million )( ¥ Million )50,00010,000Net Income (Loss)( ¥ Million )5,500

46,688
8,881
4,661

Contents
ProfileConsolidated Financial Highlights
Message from the President
Focus
SHIMA SEIKI at a GlanceFive-Year Summary
Management Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

39,784 39,097

40,000

1
2
6
10
12
13
16
18
19
20
21

Report of Independent Certified Public Accountants
Corporate Data

4,400

8,000
37,374 36,807

28
29

3,300
30,000

3,061

2,978

6,000
5,282

5,038

2,553

4,666

A Note Regarding Cautionary Statement
on Forward-Looking Statements
The business plan, performance estimates, business strategy, and other areas thatinvolve projections in this annual report are based on decisions made by the
management at Shima Seiki from the data available at the time of writing.
As a result, we suggest it would be wise not to depend completely on theseprojections. Many factors in the business environment are in flux, which cangreatly affect the progress and results of business performance and strategies.

2,200
4,044

20,0004,000

10,000

2,000

1,100

(434)

0
0

- 500

0
1998

1999

2000

2001

2002

1998

1999

SHIMA SEIKI

2000

2001

01

2002

ANNUAL REPORT 2002

1998

1999

2000

2001

2002

shima-AR2002 02.11.13 2:45 PM ページ 5

Message from the President
Performance Review

Two factors affecting the business environment in theyear under review were the terrorist attacks on the
United States in September 2001 and a major
downturn in consumer spending on durable goods
such as automobiles. Fortunately, however, the US
economy did not drop off as much as expected,
stock prices rebounded quickly, and consumer
spending rose steadily again. Furthermore, the Asian
economy has remained strong, bolstered by growthin the Chinese market. In contrast, the Japanese
economy faces increasing severity in employment
and income levels as we head toward deflation.
Continued negative growth is being caused by a fallin consumer confidence, and lower capital
investment as a result of conservative management,
which harbors doubts about a quick economic
recovery.
In overseas markets, Shima Seiki has met withharsh conditions in Europe and North and SouthAmerica, but sales of computerized flatbed knitting
machines and glove- and sock-knitting machines
were strong in the Asian market, particularly in the
Republic of Korea and Hong Kong. Sales were alsostrong in the Middle East, with a focus on Turkey.
In the Japanese market, the use of WHOLEGARMENT®
knitting machines has spread, but tough conditions
prevailing in the knit and apparel businessenvironment overall have resulted in a decline in net
sales from the previous year.
As a result, consolidated net sales for the year
were ¥39,097 million, down 1.7% from the previous
year. But thanks to a recovery of retail prices andcompany-wide cost-cutting measures, operating
income rose 13.2% over the previous year to ¥5,282
million. Including calculations for the appraisal loss
on marketable securities, particularly in bank stocks,

SHIMA SEIKI

02

net income for the year still rose 19.9% to ¥3,061
million. Net income per share rose ¥13.72 from lastyear to ¥81.61. Total annual dividend was ¥30.00 per
share, which included an interim dividend of ¥15.00
per share.

Medium-Term Corporate Strategy

Eighty-five percent of Shima Seiki's net sales iscomposed of exports, which are susceptible to sales
unit cost fluctuations caused by price competition
with overseas manufacturers. Exchange rates andcredit risks also exist, creating a persistently toughbusiness environment.
On the one hand, our flatbed knitting-machine
division has a reputation for advanced technology
and creativity that has led to the development ofappealing, high-value-added products, and it has
further secured our position as the leading company
in the industry.
The following five points are areas that we shallemphasize as we work to improve the competitive
strength of our products and boost profits, principally
through the development of outstanding products.

ANNUAL REPORT 2002

1.Boosting share in the computerized flatbed
knitting-machine industry

The main players in this industry are Shima Seiki andseveral non-Japanese companies. In order to further
increase our share as the leading company in theindustry, we are working to strengthen our productdevelopment and sales systems to match our productlines well with sales regions around the world.
To accomplish this, we will strive to offer more robust
software solutions and improve our user support
system to take advantage of our unique expertise.
In industrial countries we are establishing production
bases close to regions of high consumer demand using
WHOLEGARMENT® flatbed knitting machines.
In developing countries and other regions we areworking to increase knitting productivity and propose
attractive knit products to make in order to develop
new markets.
In the last several years, with our WHOLEGARMENT®
knitting machines, beyond the exceptional hardware
and proven quality, Shima Seiki has added value
through the software, expertise, and design data that
we provide. This is part of our effort to distinguish theCompany from our competitors as we pursue evenfurther growth in sales.

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Message from the President
Current Term Outlook

2. An aggressive design system proposal
for knit- and apparel-related industries
Computer graphics has come to be widely used in
the business world in recent years in the field ofdesign. We are continuing its development based on
many years of accumulated experience in hardware
and software, and widely promoting the design
system as a visual communication tool that can bringhigher returns in users’ industries.
Our design system SDS®-ONE provides
integrated support for apparel goods from planningand design stages to production and sales promotion.
It also serves as a core system for the production of
attractive products that reflect fashion trends byproviding a full complement of IT and networking
functions and by improving operability andprocessing capabilities. Shima Seiki is proposing
SDS®-ONE and working to expand sales of thesystem particularly to the domestic and overseas knit
and apparel industry as a superb design system withhigh operating performance and cost performance.

3. Market expansion for glove- and sockknitting machines
Shima Seiki’s glove-knitting machines hold an
overwhelming share of more than 80% of the global
market. The demand for work gloves for domestic
consumption in the Asian region is growing, and thetightening of safety regulations is keeping demandhigh in major industries in western countries.
However, we anticipate the development andproduction of low-performance, low-cost knitting
machines by new companies in developing countries.
For this reason we are looking to expand thefunctions of our machines and look beyond the field

SHIMA SEIKI

04

of work gloves to developing products with new
added value such as medical use. We aim to boost
sales by providing ideas and know-how to the glove
knitting industry.

4. Establishing a high-profit businessstructure
In order to boost profitability, we are working to
reduce material and processing costs by consolidating
models and making parts interchangeable, andreduce manufacturing costs by improving production
efficiency throughout the Group.
We are reviewing all divisions in the company,
including development, sales, and management, in
addition to the production division, to establish amore cost competitive, high-profit business structure.

5. Risk management
We are pursuing foreign exchange risk hedges by
increasing the ratio of yen-based transactions,factoring of trade receivable, forwarding exchange
contracts, and other measures. In this manner weseek to reduce the impact of fluctuating exchange
rates.
To deal with credit risks, we are working to
distribute sales risks in developing countries, andwhere there is a heavy concentration of credit, suchas with overseas sales agents and other buyers
abroad we aim to look not only at the integrity ofthe buyer, but get a firm grasp of national andregional industry trends and examine the integrity ofthe end user to be able to respond with quick action.

ANNUAL REPORT 2002

Management Objectives

In overseas markets, the feeling is beginning tosurface that the economic downturn in Europe andthe United States has bottomed out, accompanied by
expectations for a gentle recovery in the Asianmarket.
In the Japanese market, strong concerns still
remain regarding a rebound of the Japanese
economy, and worsening income and employment
conditions are keeping personal consumption
stagnant. Combined with the high volume of importsof cheap foreign-made goods, the knit and apparelindustry needs to switch over rapidly to the model ofmanufacturing retailers called “SPA” (Specialty store
retailer of Private-label Apparel), and the use of
supply chain management.
In such business environment, we are
aggressively proposing to users an exceptional new
way to produce garments—using our
WHOLEGARMENT® knitting machines. Furthermore, weare trying to expand sales of SDS®-ONE as a core
information technology system for apparel and retail,aiming to invigorate the industry as a whole.
We will continue with risk hedges based on our
exchange rate risk management system, and do ourbest to ensure stable profits by streamlining
operations across the board within the Group, andby boosting efficiency and productivity to lower
production costs.

This company is run by a small, elite board of
directors, which enables us to quickly and accurately
assess situations and engage in flexible and rapid
decision-making. We will continue to follow thesebasic principles, striving to strengthen ourmanagement practices, conceive new ideas forbusiness development, and fully develop talent at the
managerial level.
Also, one of the most important issues for
management is returning profits for shareholders. We
are working to improve shareholder value andmaintain steady operations, and are actively
employing measures of returning of profits reflecting
to corporate earnings to shareholders with the goalof over ¥100 of net income per share this year as amanagerial index through robust business operations.
Finally, we humbly express our hopes for thecontinuing support and understanding of ourshareholders in the long term.

Masahiro Shima, President
June 2002

Ever Onward
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Focus
Introducing a New Concept:
New Prospects for the Fashion Industry
Shima Seiki has consistently worked to develop technologies recognized as “first in theworld” and today the Company enjoys the world’s top share in industrial flatbed knitting
machines and glove knitting machines. Yet we have not forgotten our founding spirit.
Using original knitwear technologies, we developed WHOLEGARMENT®, a seamlessknitting machine, around which our efforts are based, aiming to stimulate the knit andapparel industry. We are active at the forefront of the industry, enabling the shift awayfrom a labor-intensive textile and clothing industry model to a knowledge-intensive
fashion information industry model.

wear than conventionally stitched garments. Sewn
seams make the elasticity for which conventionalknits are known for uneven, but with seamless knits,
the entire garment demonstrates elasticity and abeautiful silhouette. The seamless, one-piece
construction gives the garment structural integrity thatis resilient and durable, able to resist fraying andother wear and tear. To make the most of theseproperties, we expect to create universal fashion
applications, including medical wear.
WHOLEGARMENT® is also environmentally friendly.

It leaves nothing to stitch together or sew up later,saving thread and material loss, and there is no moreneed to dispose unusable materials, thereby helping
to prevent air waste and save energy in the
production process.
Shima Seiki’s SWG-FIRST® series of flatbed
seamless knitting machines was developed to
produce WHOLEGARMENT® knitwear. In developing
this series of machines, we first redesigned theknitting needle. Instead of using a conventional latch
needle, in use for the last 150 years in the knitting

The Ultimate in Knitwear: WHOLEGARMENT®
New SWG-FIRST® Flatbed Knitting Machine
The WHOLEGARMENT® knitting machines developed
by Shima Seiki are able to knit an entire garment
from a single yarn three-dimensionally, eliminating
the need for stitching and sewing knitwear garments
such as sweaters and cardigans. This technology
benefits not only producers and consumers, but the
global environment as well in ways that conventional
clothing did not.

SHIMA SEIKI

06

The conventional method of producing textile
products required a post-production process ofsewing on the sleeves, body panels, collar, or othersections. But because WHOLEGARMENT® eliminates thesewing process, lead times can be greatly reduced,
less labor is required, and knits can be manufactured
more efficiently. Also, time is saved and costs are
reduced because there is no longer a need to moveand transport items for a sewing process. Production
volumes can also be managed easily to match
requirements for products. This helps to significantly
slash inventory, which is an important benefit for the
producer. WHOLEGARMENT® is an effective means forresponding quickly to consumer trends by enabling a
production and supply system to be built to respondeasily to the increasingly rapid changes taking placein the fashion industry in recent years.
WHOLEGARMENT® also provides many benefits forthe consumer. Since knitwear is produced without
seams, there is none of the bulk usually seen in theshoulders and underarms of sewn products. Items
have a more natural fit and are more comfortable to

ANNUAL REPORT 2002

Slide needle

For the last 150 years theconventional latch needle has
been used as the knitting
needle, the starting point ofknitting composition. However,
our company has developed
the slide needle, which has
doubles the number of knitting
techniques, thereby enabling
the formation of gentle and finestitches and boostingproduction efficiency.

Consideration
for the global
environment

Gentle for thewearerSince there are no sewn partsin the WHOLEGARMENT®, products
have outstanding elasticity, aresoft and comfortable to wear,
create a good-looking
silhouette, and are light. They
therefore have great merits forthe wearer.

SHIMA SEIKI

When making 1,000 wool
sweaters in the WHOLEGARMENT®
range, we save wool from 48
sheep that would be used forthe seam margins of knitted
garments as well as the energythat would be required in thisprocess.

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ANNUAL REPORT 2002

Shedding thelabor-intensive
approach
Shortening the sewing process
is an effective means ofbuilding a production andsupply setup that greatly
reduces the lead-time inproduction and enables quick
response to consumer trends inthe fashion industry.

shima-AR2002 02.11.13 2:49 PM ページ 11

Focus
Fashion Information Industry
Network

High Praises in Italy, the Home of Knitwear

Electric catalog/
Design detabase

SDS ®-ONE

Shima Seiki is prepared for the transformation of alabor-intensive textile and clothing industry into aknowledge-intensive fashion information industry.

Virtual exhibition
Visual communication
system for storesindustry, we developed the slide needle. The slide
needle quadruples the number of possible knitting
technique combinations. With the needle mounted in
the center of the needle groove, the yarn is treatedgently, and perfectly symmetrical loops are formed.
Also, half the number of needle strokes are required,resulting in better efficiency and higher productivity.
SDS®-ONE is the computer graphics appareldesign system we developed to bring out the best in
the FIRST’s capabilities. SDS®-ONE incorporates
WHOLEGARMENT® software, and creates the dataneeded automatically, simply entering the desired
dimensions. It also enables a database to be createdfor complex knitting styles, so the system can beused by both novices and experts. And its expanded
IT functions integrate computer graphics and apparel
CAD as a comprehensive, all-in-one system for the
fashion industry.

SHIMA SEIKI

08

Through the development of WHOLEGARMENT®
we have created an entirely new understanding andapproach within the company toward the clothing
industry. We recognize the need to act quickly as theseller of WHOLEGARMENT® to convert the industry
over to a knowledge-intensive model. For example,
the seamless construction that WHOLEGARMENT®
features will lead to considerable cost reductions, andbased on this advantage a large number of products
will follow. This will lead to the homogenization ofknitwear and ultimately to competition with Chinese
goods which can be produced more cheaply in
China due to lower labor costs. WHOLEGARMENT®
technology can produce a complete, threedimensionally shaped and fitted garment, a step inquality far above that of the production of twodimensional garments such as conventional sweaters.
It follows that we must take advantage of the uniquefeatures that WHOLEGARMENT® offers to create added
value for the price.
At the International Fashion Fair (IFF) held in July
2001, Shima Seiki avoided displaying conventional
products and announced new-concept garments suchas flared one-piece dresses to great acclaim from the
woven cloth industry. The boundaries between
knitted fabrics and woven cloth are now being swept
away, bringing to the end consumer the advantagesof lightweight, easy-to-wear clothing.
Shima Seiki plans to continue to assist in creating
new fashion trends through new products madeusing WHOLEGARMENT® technology, in the processestablishing a revolutionary business model in the
textile industry.

ANNUAL REPORT 2002

WHOLEGARMENT® has already been adopted by many
manufacturers and brands in Italy, the center of theworld for knitwear. The Italian Yarn Rendezvous, a
2002–2003 fall/winter season exhibition organized by
the fashion trend information company Pitti
Immagine and the Italian Trade Commission Tokyo,
was held in Japan and attended by 24 Italian knit
manufacturers.
Shima Seiki exhibited about 34 knitwear items
knitted using WHOLEGARMENT® and newly developed
yarns from Italian manufacturers. Visitors were able
to touch the fabrics, see how they look, and confirm
their quality. High interest was generated in the good
match between the yarns and WHOLEGARMENT®
technology and in the rich variety of exhibited
products.

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shima-AR2002 02.11.13 2:50 PM ページ 13

SHIMA SEIKI at a Glance
Flatbed Knitting Machine Business
Design System Business
Glove- and Sock-Knitting Machine Business
Other Businesses■ Flatbed Knitting Machine Business

72.0%

Our company was a latecomer in the field of flatbed knitting machines, but neverthelesswe have managed to acquire the top share in the global market by fusing the high level ofmechanics based on the technological strength that we nurtured in this field and computer
technology, which we were quick to apply to the business. Today flatbed knitting
machines account for 72% of our total sales. From the SFJ full jacquard flatbed knitting
machine to the SES, which has earned high praise as the world standard machine, and the
SWG-FIRST® series of WHOLEGARMENT® flatbed knitting machines, we have a productlineup to meet the various needs of users. From now on we will increasingly distinguishourselves from competitors, centered on our WHOLEGARMENT® machines, and build
production setups close to consumer areas in Europe ,U.S.A. and elsewhere.

SES122RT

Shima Seiki’s computer graphics technology started with the development of patterndesign devices for flatbed knitting machines. Because of their high-level functions andoutstanding operability, these devices are used in a wide range of industrial design fields,
including broadcasting, automobiles, and construction. Also, regarding apparel CAD/CAM(computer-aided design, computer-aided manufacturing) systems, we are endeavoring tobuild a “Total Fashion System” to respond to the needs of the apparel industry.
Furthermore, the SDS®-ONE, which we developed under the concept of “All in One,”combines both advanced functions required by the professional and easy operability forthe beginner. Through the expansion of IT functions, we are positively proposing the SDS®ONE as a core system for the visual communication in the fashion industry.

SDS-HP3 APEX

SWG-V
( ¥ Million )50,00046,68839,784 39,097

40,00037,37436,80730,000■ Design System Business
20,000

5.5%

P-CAM182
Computerized Cutting System
10,000

0
1998

1999

14.6%

2001

2002

Others8.2%■ Glove- and Sock-Knitting Machine Business
Regarding glove-knitting machines, the starting point of our company, we not only
achieved full automation, which was our founding goal, but also succeeded in
making seamless fingertips. We now have a world share of more than 80% in thisfield. Our superfine gauge gloves, whose fit and feel are comparable to that of barehands, are widely used in such fields as electronic and precision work and medicine.
Five-toe socks produced with our sock-knitting machines have attracted attention
for a variety of uses, including health and sports.

2000

Domestic

New SFG

14.0%

SJF

Southeast Asia

42.8%
Total
39,097■ Other Businesses

7.9%

SHIMA SEIKI

Other businesses include the sales of parts for flatbed knitting machines, glove- andsock-knitting machines, and design systems, the sales of yarn for glove-knitting
machines, machine repair and maintenance, and a hotel business.

24.0%
Europe●Domestic : 5,476●Overseas: 33,621(¥ million)

10

ANNUAL REPORT 2002

SHIMA SEIKI

10 1

ANNUAL REPORT 2002

11.0%
Middle Eastshima-AR2002-2 02.11.13 2:27 PM ページ 1

Five-Year Summary

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

2002

2001

Millionsof yen
2000

1999

1998

Thousands of
U.S. dollars
2002

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

46,68825,21821,47012,588
8,882
8,670
4,661
1,343

293,521
172,215
121,306
81,651
39,655
39,12922,9808,168

92,54981,73599,06886,557

98,04685,958102,072
91,002

102,352
89,740694,812613,62681.61
2,190.16

67.89
2,302.05(11.14)2,286.12

75.21
2,298.05

117.692,266.17

0.61
16.44

For the Year: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:Total Assets . . . . . . . . . .
Total Shareholders’ Equity . . . . .
Per Share Data (in Yen and U.S. Dollars):

Net Income (Loss) . . . . . . . .
Shareholders’ Equity . . . . . . .
Ratios:Return on Assets (%) . . . . . . .
Return on Equity (%) . . . . . . .
Equity Ratio (%) . . . . . . . .

3.2
3.6
88.3

2.6
3.0
87.4

(0.4)
(0.5)
87.7

2.9
3.3
89.2

4.6
5.3
87.7

–
–
–

Operating Results

Net Sales

Consolidated net sales for the year were ¥39,097 million, down 1.7% fromthe previous year. In overseas markets, operating environment was favorable
in the Asian region, but the Japanese market which was still feeling the ill
effects of a long recession resulted in the severe situation for the knit andapparel industry.
Cost of sales stood at ¥22,939 million, down 5.2% from the previous
year, while the sales cost ratio dropped 2.1 points to 58.7%.
Selling, general and administrative expenses (SG&A expenses) amounted
to ¥10,876 million, down 0.3% from the pervious year. The sales to SG&A
expenses ratio improved by 0.3 points to 27.8%.
As a result, operating income increased to ¥5,282 million, up 13.2% overthe previous year.
Income before income taxes and minority interest rose 20.8% to ¥5,212
million. Income taxes also rose 22.1% to ¥2,151 million.
Net income for the term rose 19.9% to ¥3,061 million despite thedeclaration of special losses, including an appraisal loss on marketablesecurities, particularly in bank stocks. Net income per share was ¥81.61, arise of 20.2% over the previous year.

(¥ Million)
50 000’46 688’40 000’37 374 36 807’’

39 784 39,097’

30 000’

20 000’

10 000’01998 1999

2000

2001

2002

SG&A Expenses/SG&A Ratio(¥ Million)
14 000
’

(%)
30

28.6
12 588’27.0
10 176’

10 500
’

27.5

27.2

10 543’27.8

10 910 10,876
’

7 000
’

15

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥133.20 = U.S. $1, the approximate Tokyo
foreign exchange market rate as of March 31, 2002.
3 500’

Segment Analysis
ROA

ROE

Equity Ratio

(%)

(%)

(%)

6

6

90.0

5.3
89.2

4.6
89.0

3.6

4

4

88.3

3.3

3.2

3.0

2.9

88.0

2.6

87.7

2

2

87.7
87.4

87.0

86.0

0

0

(0.4)
1998

1999

2000

(0.5)
2001

2002

1998

1999

2000

2001

2002

1998

1999

2000

2001

2002

Flatbed knitting machines
In the flatbed knitting machine business, which is Shima Seiki’s main
product, we participated in the 7th Osaka International Textile MachineryShow (OTEMAS), the International Fashion Fair (IFF), and other shows, tosignificant acclaim. By providing attractive new samples and supporting
users with our unique expertise, the company is working as a whole tospread the use of WHOLEGARMENT® (seamless) flatbed knitting machines in
the market. In the Japanese market, the number of visitors to communication
spaces established in Tokyo and Osaka is steadily on the rise, but theoperating environment for the industry as a whole has yet to recover,resulting in lower performance than the previous year.
In overseas markets, amidst increased competition primarily inconventional machines, for the Asian market we are seeing a high level ofsales in Hong Kong, the Republic of Korea, and China, as well as continued001998 1999 2000 2001 2002

Operating Income/Operating Income to Sales(¥ Million)
9 000
’

(%)

8 882
’

30

25

7 500
’
19.0

20

6 000
’
5 039
’
13.5
4 500
’

5,282
4 666
’

4 044
’
11.0

10

3 000
’
11.7

13.5
5

1 500
’

0

0

1998 1999 2000 2001 2002

SHIMA SEIKI

12

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shima-AR2002-2 02.11.13 2:27 PM ページ 3

Management Discussion and Analysis
Net Income/Net Income to Sales(¥ Million)
5,000

(%)
10

10.0

4,661
8.0

7.8

4,000

8

6.4
3,061

2,978

3,000

6

strong sales in Turkey for the Middle Eastern market. The European market,
notably Italy and Spain, is slowing, however, and the South American market
is similarly weak.
As a result, sales declined 3.3% from the pervious year to ¥28,161
million, but operating income rose 4.7% to ¥7,447 million.

2,553
2,000

4

1,000

2

0

0
(1.2)
(434)

-1,000-2

1998 1999 2000 2001 2002

Net Income per share(¥)
120

Design systems
In the design systems business, we put great effort into sales of our SDS®ONE system as a core system for the knit and apparel industry as it
incorporates IT capabilities, based on the "All in One" concept. The system
has received excellent feedback for its superb functionality and easy
operation, leading to strong sales in the overseas market. The Japanesemarket, however, has been hit by a decline in capital investment spending.
As a result, sales declined 7.1% to ¥2,128 million, but operating income rose
¥119 million over the pervious year to ¥59 million.

117.69

81.61
80

75.21
67.89

40

Glove- and sock-knitting machines
In the glove- and sock-knitting machine business, sales continued to stagnatein the Japanese market due to the prolonged recession, but in overseas
markets, striking growth in sales was seen in Asian countries, primarily in
the Republic of Korea. As a result, sales rose 10.9% to ¥5,718 million to thehighest levels ever, while operating income rose 36.2% over the pervious
year to ¥1,691 million.

0(11.14)-20

1998 1999 2000 2001 2002

Total Shareholders’ Equity per share
(¥)
2,500
2,266

2,298

2,286

Other businesses
Sales of parts for flatbed knitting machines and glove- and sock-knitting
machines and other products amounted to ¥3,090 million, down 3.9% fromthe previous year, while operating income for these items was ¥301 million,
down 18.4%.

2,302
2,190

2,000

1,500

1,000

500

Financial Position

Current Ratio/Quick Ratio(%)
800

Total assets at the end of March 2002 stood at ¥92,549 million, a decrease of
6.6% from the previous year.
Current assets amounted to ¥60,957, up 0.9%. This was the result of areduction in stock and an increase in cash and time deposits and short-term
investments.
Total investments and other assets rose 57.7% to ¥12,656 million mainly
due to an increase in deferred tax assets for land revaluation.
Property, plant and equipment dropped 38.2% to ¥18,936 million mainly due
to a decrease in land.
Current liabilities also decreased, by 15.8% from the pervious year to¥9,126 million. This was the result of a decrease in notes payable andaccounts payable, and short-term loans payable.
Long-term liabilities rose 2.0% to ¥1,471 million.
Minority interests dropped 4.0% to ¥217 million. Shareholders’ equity
dropped 5.6% to ¥81,735 million as a result of a declaration of difference inrevaluation. Equity ratio rose 0.9 points to 88.3%.
Shareholders’ equity per share was down 4.9% from the previous year to¥2,190.16.

667.9
627.1
600

543.8
550.9

557.3
544.4

508.5
400

444.9

431.2

447.2

200

0

1998 1999 2000 2001 2002

Total Assets(¥ Million)
120,000
102,352 102,072

98,046

99,06892,54980,00040,000Cash Flow
Cash flows from operating activities amounted to ¥3,959 million, down 28.0%
from the pervious year. The main reasons for this decrease were, despite anincrease in net income before income taxes, a decrease in capital due
primarily to decrease in trade payables and the payment of income taxes.
Cash flows from investing activities dropped 56.1% from the previous
year to ¥705 million yen. This was the result of outlays for capital investment
and investment securities.
Cash flows from financing activities dropped 34.4% over the previous
year to ¥2,267 million, largely as a result of the acquisition of treasury stockand the dividends paid out to shareholders.
As a result, cash and cash-equivalent at the end of the year were up
12.4% to ¥10,247 million.

001998 1999 2000 2001 2002

Shareholders’ Equity(¥ Million)
10,0000
89,74091,002
85,95886,557
81,73580,00060,00040,00020,00001998 1999 2000 2001 2002

1998 1999 2000 2001 2002

SHIMA SEIKI

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ANNUAL REPORT 2002

SHIMA SEIKI

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shima-AR2002-2 02.11.13 2:27 PM ページ 5

Consolidated Balance Sheets
SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
March 31, 2002 and 2001

Millionsof yen2002

2001

Thousands of
U.S. dollars
2002

ASSETS

Millionsof yen2002

2001

Thousands of
U.S. dollars
2002

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent 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......................................
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 ..................................................................................

¥10,247516
160¥9,120710
255$76,929
3,874
1,201

205
38,554
10,300
721
696
(442)
60,957

181
38,22011,140
729
367
(299)
60,423

1,539
289,445
77,327
5,413
5,225( 3,318)
457,635

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

1,788
3,287
367
841
–
3,544
(1,804)
8,023

13,42423,0032,575
8,821
35,11325,240(13,161)
95,015

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

21,454
18,626
3,898
5,688
257
49,923(19,301)
30,622

77,080142,545
27,54541,944
83
289,197(147,035)
142,162¥92,549¥99,068$694,812

See the accompanying notes to the consolidated financial statements.

SHIMA SEIKI

Current liabilities:
Short-term loans (Note 6)......................................................................
Trade accounts and notes payable:
Unconsolidated subsidiaries................................................................
Other ..................................................................................................
Accrued expenses ..................................................................................
Accrued income taxes ............................................................................
Other current liabilities..........................................................................
Total current liabilities..........................................................

¥30

¥530

$225

16
4,457
876
1,553
2,194
9,126

15
5,051
890
1,741
2,615
10,842

120
33,461
6,577
11,65916,471
68,513Long-term liabilities
Long-term debt, less current portion (Note 6) .......................................
Allowance for retirement benefits (Note 7) ............................................
Total long-term liabilities .....................................................
Minority interests..................................................................................

–
1,471
1,471
217

6
1,437
1,443
226

–
11,044
11,044
1,629

Contingent liabilities (Note 8)
Shareholders’ equity:
Common stock:
Authorized- 142,000,000 shares
Issued- 37,600,000 shares..................................................................
Additional paid-in capital .......................................................................
Land revaluation difference (Note 5) .....................................................
Retained earnings (Notes 9 and 14).......................................................
Net unrealized holding loss on securities ...............................................
Foreign currency translation adjustments...............................................
Less: treasury stock, at cost....................................................................
Total shareholders’ equity.....................................................
Total liabilities and shareholders’ equity ....................................

14,86021,724(6,528)52,514
(262)
59
(632)
81,735¥92,549

14,86021,724–50,611
(321)
(317)
(0)
86,557¥99,068

111,562
163,093(49,009)394,249(1,967)443(4,745)
613,626$694,812

See the accompanying notes to the consolidated financial statements.

16

ANNUAL REPORT 2002

SHIMA SEIKI

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shima-AR2002-2 02.11.13 2:27 PM ページ 7

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001

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 ................................................................................................
Deferred ..............................................................................................
Income before minority interests .........................................................
Minority interests in losses (earnings) of consolidated subsidiaries ............
Net income ........................................................................................

2002

2001

Thousands of
U.S. dollars
2002¥39,097
22,93916,158
10,876
5,282¥39,784
24,20815,576
10,9104,666$293,521
172,215
121,306
81,651
39,655

356
(5)
(421)
5,212

539
(139)
(752)
4,314

2,673
(38)
(3,161)
39,129

2,471
(320)
2,151
3,061
0
¥3,061

1,911
(155)
1,756
2,558
(5)
¥2,553

18,551(2,402)
16,14922,9800$22,980Yen

Per share:
Net income ............................................................................................
Cash dividends applicable to the year.....................................................

¥81.61
30.00

U.S. dollars¥67.89
30.00

$0.61
0.23

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001

Thousands
Number ofshares ofcommonstock issued

Balance at April1, 2000 ..................
Net income ...............................
Cash dividends............................
Bonuses to directors andstatutory auditors.....................
Net unrealized holding
loss on securities.....................
Foreign currencytranslation adjustments............
Increase in treasury stock...........
Balance at March 31, 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.............

Millions of yen

Commonstock

Additional
paid-in
capital37,600 ¥14,860 ¥21,724
–
–
–
–
–
–

Land
revaluationdifference

Retainedearnings

Net
unrealized
Foreignholding loss currencyontranslation
securities adjustments

Treasurystock– ¥49,374–
2,553– (1,316)

–
–
–

–
–
–

¥(0)
–
–

–

–

–

–

–

–

–

–

–

–

–

–

–

¥(321)––––
37,600––––14,860––––21,724
–
–

–
–
–
–
–

–
–
50,611
3,061(1,128)

–
–
(321)
–
–

¥(317)
–
(317)
–
–

–
(0)
(0)
–
–

–
–

–
–

–
–
– ¥(6,528)

(30)
–

–
–

–
–

–
–

–

–

–

–

59

–

–

–
–
–
–
–
–
–
–
–
–
37,600 ¥14,860 ¥21,724 ¥(6,528) ¥52,514––¥(262)

376
–
¥59

–
(632)
¥(632)–

Thousands of U.S. dollars

Commonstock

Balance at March 31, 2001..........................
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, 2002..........................

See the accompanying notes to the consolidated financial statements.

SHIMA SEIKI

Additional
paid-in
capitalLand
revaluationdifference

Retainedearnings$115,562 $163,093– $379,962 $(2,410) $(2,380)––– 22,980––––– (8,468)
–
–
–
–
–
(225)
–
–
–
– $(49,009)
–
–
–
–
–
–
–
443
–
–
–
–
–
–
2,823
–
–
–
–
–
–
$115,562 $163,093 $ (49,009) $394,249 $(1,967)$443

See the accompanying notes to the consolidated financial statements.

10 81

ANNUAL REPORT 2002

Net
unrealized
Foreignholding loss currencyontranslation
securities adjustments

SHIMA SEIKI

10 91

ANNUAL REPORT 2002

Treasury
stock

$(0)
–
–
–
–
–
–
(4,745)$(4,745)

shima-AR2002-2 02.11.13 2:27 PM ページ 9

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2002 and 2001

Millionsof yen2002

Cash 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 in inventories......................................................................
Decrease in trade payables ................................................................
Other .................................................................................................
Subtotal .........................................................................................
Interest 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 .........................
Other .....................................................................................................
Net 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 in cash and cash equivalents ........................................
Cash and cash equivalents at beginning of year...............................
Cash and cash equivalents at end of year..........................................

¥5,212¥4,314$39,129

1,087
524
34
(356)
5
(20)
207
(589)
1,179
(1,008)
(17)
6,258
359
(5)
(2,653)
3,959

1,199
1,154
447
(539)
139
137
32
(2,877)
1,071
(178)
335
5,234
541
(119)
(157)
5,499

8,161
3,934
255
(2,673)
38
(150)
1,554
(4,422)
8,851(7,568)(127)
46,982
2,695(38)(19,917)29,722248(1,360)
1,455
(797)
186
(276)
14
24
(199)
(705)

170
(1,504)
1,501(1,610)
38
(316)
63
(100)
151
(1,607)

1,862(10,210)
10,923(5,983)
1,396(2,072)105
180(1,494)(5,293)

(500)
(7)
(632)
(1,128)(2,267)
140
1,127
9,120
¥10,247(2,128)(14)
0(1,315)(3,457)
82
517
8,603
¥9,120(3,754)(53)(4,745)(8,468)(17,020)
1,052
8,461
68,468$76,929

See the accompanying notes to the consolidated financial statements.

SHIMA SEIKI

20 01

2001

Thousands of
U.S. dollars
2002

ANNUAL REPORT 2002

SHIMA SEIKI MFG., Ltd. and Consolidated Subsidiaries

1. Basis of presenting consolidated financial statements
SHIMA SEIKI MFG., Ltd. (the “Company”) and its domestic subsidiaries
maintain their accounts and records in accordance with the provisions set forthin the Commercial Code of Japan (the “Code”) and the Securities and Exchange
Law of Japan, and in conformity with accounting principles and practices
generally accepted and applied in Japan, which are different from theaccounting and disclosure requirements of International Accounting Standards.
The Company’s foreign subsidiaries maintain their accounts and records inconformity with generally accepted accounting principles and practices
prevailing in their respective countries of domicile.
The accompanying consolidated financial statements are prepared based on
the consolidated financial statements of the Company and its significant
subsidiaries (the“Group”), which were filed with the Director of Kanto Local
Finance Bureau as required by the Securities and Exchange Law.
In preparing the accompanying consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated
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 prevailingat March 31, 2002, which was ¥133.20 to US$1.00. These conveniencetranslations should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be, converted
into U.S.dollars at this or any other rate of exchange.

in a separate component of the shareholders’ equity.

2. Summary of significant accounting policies

Property, plant and equipment are stated at cost. Depreciation of the Company
and domestic consolidated subsidiaries are computed principally by the
declining-balance method based on the estimated useful lives of assets, exceptthat the straight-line method is applied to buildings, but not to fixturesattached to the buildings, acquired after April 1, 1998. Depreciation of foreign
consolidated subsidiaries are computed by the straight-line method on theestimated useful lives of assets.
The principal estimated useful lives are as follows:(a) Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its significant subsidiaries. All significant intercompany balances andtransactions 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 stated at cost,
since those companies’ combined net income and retained earnings in aggregate
are not significant in relation to those of consolidation with the Group.

(c) Cash and cash equivalents

Cash and cash equivalents are comprised of cash in hands, deposits held atcall with banks, net of overdrafts and all highly liquid investments withmaturities within three months.
(d) Short-term investments and investments in securities

Held-to-maturity securities are either amortized or accumulated to face value.
Other securities with quoted market prices are carried at market value. The
difference between the acquisition costs and the carrying value of othersecurities, including unrealized gains and losses, is recognized as a componentof 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 atcost based on the average method.
(e) Inventories

Inventories are stated at the lower of cost or market. The cost of finishedgoods, work in process and raw materials is determined principally by themoving-average method. The cost of purchased goods held by foreign
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

Buildings and structures
Machinery and equipment
Tools, furniture and fixtures

3 to 50 years
3 to 12 years
2 to 20 years(b) Foreign currency translation(g) Allowance for doubtful accounts

Monetary assets and liabilities denominated in foreign currencies are translated
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 toincome in the year in which they are incurred, except for those arising fromforward foreign exchange contracts pertaining to monetary assets, which aredeferred 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”

The allowance for doubtful accounts is provided in amounts sufficient to coverpossible losses on collection. The allowance for doubtful accounts of theCompany and its domestic consolidated subsidiaries are calculated based on
their past credit loss experience and on an estimate of the individual
uncollectible amounts. The allowance for doubtful accounts of foreign
consolidated subsidiaries is calculated based on an estimate of the individual
uncollectible amounts.

SHIMA SEIKI(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 the fundednoncontributory pension plan. The amount of retirement benefits are
determined on the basis of length of service, basic salary and certain otherfactors at the time of termination of employment.
Allowance for retirement benefits has been provided for employees’ retirement

20 1

ANNUAL REPORT 2002

shima-AR2002-2 02.11.13 2:27 PM ページ 11

Notes to the Consolidates Financial Statements
benefits, based on the amount of projected benefit obligation reduced bypension 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 overa ten-year period by the straight-line method from the year subsequent to theyear in which such gains and losses are incurred.

the asset and liability method, deferred tax assets and liabilities are determinedbased on difference of between financial reporting and the tax basis of theassets and liabilities, and are measured using the enacted tax rates and lawsthat will be in effect when the differences are expected to reverse.

Held-to-maturity securities
Debt securities
Other securities
Unlisted equity securities(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 to transfer the ownershipof the leased property to lessees are to be capitalized, while other financeleases are permitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes to the lessee’s
financial statements.

Research and development costs are charged to income as incurred.
(k) Income taxes(n) Consumption tax

Deferred income taxes are recognized by the asset and liability method. Under

The consumption tax is not included in the amount of net sales and cost of sales.

Finished goods
Work in process
Raw materials
Supplies and others

Held-to-maturity securities with quoted market prices
Millions of yen

2002

Held-to-maturity securities whose market values do not
exceed the amounts recorded in the balance sheet:
Debt securities

–

2001

–

Difference–

Amountrecorded in
the balance
sheet

¥155

Quotedmarket priceDifference

¥155

–

Other securities with quoted market prices
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

Thousands of U.S. dollars

2002

2001

2002

Acquisition
costs

Amountrecordedin the balance
sheet

Difference

Acquisition
costs

Amountrecorded in
the balance
sheet

Difference

Acquisition
costs

Amountrecorded in
the balance
sheet

Difference

¥526
10
¥536

¥631
10
¥641

¥105
0
¥105

¥408
10
¥418

¥513
10
¥523

¥105
0
¥105

$3,94975$4,024$4,73775$4,812

$788
0
$788

¥1,125100926¥2,151¥2,687¥889
68
641¥1,598¥2,239¥(236)(32)(285)¥(553)¥(448)SHIMA SEIKI¥1,637100
932¥2,669¥3,08722¥1,23278
704¥2,014¥2,537

ANNUAL REPORT 2002

$1,201¥825¥750$6,194

Millions of yen
2002
2001

3. Short-term investments and investments in securities
Securities with quoted market prices at March 31, 2002 and 2001 were as follows:

Quotedmarket price¥100

Inventories at March 31, 2002 and 2001 were as follows:

Net income per share is based on the weighted average number of shares ofcommon stock outstanding during the relevant year.
Cash dividends per share presented in the accompanying consolidated
statements of income are dividends applicable to the respective years
including dividends to be paid after the end of year.

Amountrecorded in
the balance
sheet

¥160

4. Inventories(m) Per share information(j) Research and development costs

Other securities without quoted market prices at March 31,2002 and2001 were as follows:
Thousands ofMillions of yen
U.S.dollars
Amount recorded in the balance sheet
2002
2001
2002

¥(405)(22)(228)¥(655)¥(550)$8,446751
6,952$16,149$20,173$6,674511
4,812$11,997$16,809¥6,602
742
2,344
612
¥10,300¥6,927
843
2,627
743
¥11,140

Thousands of
U.S.dollars
2002$49,565
5,570
17.597
4,595$77,327

5. Land revaluation
Under the “Law of Land Revaluation”, promulgated on March 31, 1998 andrevised on March 31,1999 and 2001, the Company elected a one-timerevaluation of their own-use land to a value based on real estate appraisal
information as of March 31,2002. The resulting land revaluation difference
represents the net unrealized depreciation of land values and is stated, net ofincome taxes, as a component of shareholders’ equity. There is no effect on
the statement of income. The details of the one-time revaluation as of March
31,2002 were as follows.
Millions of yen

Thousands of
U.S.dollars¥21,201
9,996
11,205
4,677¥6,528$159,167
75,045
84,12235,113$49,009Land before revaluation
Land after revaluation
Land revaluation difference
Deferred tax assets for land revaluation
Net land revaluation difference$(1,772)(240)(2,140)$(4,152)$(3,364)

7. Allowance for retirement benefits
The allowance for retirement benefits at March 31, 2002 and 2001
consisted of the following:
Retirement benefit obligation at March 31, 2002 and 2001:
Thousands ofMillions of yen
U.S.dollars
2002
2001
2002

Projected benefit obligation¥ (3,430)
Fair value of plan assets
1,749
Benefit obligation inexcess of plan assets(1,681)
Unrecognized actuarial loss (gain)
210
Obligation recognized in the
consolidated balance sheets(1,471)
Prepaid pension cost–
Allowance for retirement benefits ¥(1,471)¥(2,912)
1,657$(25,751)
13,131(1,255)(182)(12,620)
1,576(1,437)–¥(1,437)(11,044)–$(11,044)

Components of net periodic benefit cost for the year ended March 31,
2002 and 2001:
Thousands ofMillions of yen
U.S.dollars
2002
2001
2002

Service cost
Interest cost
Expected return on plan assets
Amortization:
Transition obligation
at date of adoption
Actuarial gain
Net periodic benefit cost

¥179
102
(19)

¥196
103
(18)

$1,344
766
(143)

–
(18)
¥244

345
–
¥626

–
(135)
$1,832

Assumption used in the accounting for the defined benefit plans for theyear ended March 31, 2002 and 2001 is as follows:

6. Short-term Loans and Long-term Debt
Short-term loans and long-term debt at March 31, 2002 and 2001 wereas follows:
Thousands ofMillions of yen
U.S.dollars
2002
2001
2002

Short-term loans:
0.64% to 2.12% unsecuredloans from banks
Long-term debt:
2.5% to 3.5% unsecuredloans from banks
Less: current portion

to such loans, and that all assets pledged as collateral under such agreements
be applicable to all present and future indebtedness to the banks concerned.
The general agreements further provide that the banks have the right, as theindebtedness matures or becomes due prematurely by reason of default, tooffset deposits at such banks against any indebtedness due to the banks.
However, the Company has never received any such request from any bank.

¥30

¥530

$225

¥1
(1)
–

¥8
(2)
¥6

$8
(8)
–

Method of attributing benefit
to periods of service
Discount rate
Expected rate of return on fund assets
Amortization period for actuarial gain (loss)

2002
straight-line
basis
2.5%
1.15%
10years

2001
straight-line
basis
3.5%
1.15%
10years

8. Contingent liabilities

As is customary in Japan, substantially all loans (including short-term loans)from banks are made under general agreements, which provide that, at therequest of the relevant banks, the Company be required to provide collateral or
guarantors (or additional collateral or guarantors, as appropriate) with respect

SHIMA SEIKI

Contingent liabilities at March31, 2002 and 2001were as follows:
Thousands ofMillions of yen
U.S.dollars
2002
2001
2002

Trade notes discounted
Guarantees of customers’loans and lease obligations

23

ANNUAL REPORT 2002

¥4,721¥994$35,443

5,304¥10,025

6,395¥7,38939,819$75,262

shima-AR2002-2 02.11.13 2:27 PM ページ 13

Notes to the Consolidates Financial Statements
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 theadditional paid-in capital and the legal reserve exceeds 25% of the common
stock account, the amount of any such excess is available for appropriation by
resolution of the shareholders.
The retained earnings account in the accompanying consolidated financial
statements at March 31, 2002, included the Company’s legal reserve of ¥2,124
million ($15,946 thousand).

10. Income Taxes
The Company and its domestic subsidiaries are subject to several taxes basedon income, which in the aggregate result in statutory tax rates ofapproximately 41.7% for the years ended March 31, 2002 and 2001.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 2002 and 2001 were as
follows:

Millions of yen

Deferred tax assets:
Allowance forretirement benefits
Loss on write-down ofinvestments in securities
Accrued bonuses to employees
Accrued enterprise tax
Tax loss carryforwards
Unrealized holding
loss on securities
Intercompany profit
Other
Total gross deferred
tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Tax deductible reserves
Other
Total gross deferred
tax liabilities
Net deferred tax assets

Thousands of
U.S.dollars

2002

2001

2002

¥305

¥273

$2,290

246
163
135
361

–
126
156
420

1,847
1,224
1,013
2,710

187
269
369

230
279
282

1,404
2,020
2,770

2,035
(95)
1,940

1,766
(155)
1,611

15,278(714)
14,564

(28)
(16)

(20)
(21)

(210)
(120)

13. Segment information
Business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2002 and 2001 was as follows:
Millions of yen

2002

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¥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¥55,602474
343¥4,53322
13¥4,86876
55¥4,56855334¥69,571627
745¥22,978
461
262¥92,549
1,088
1,007

Millions of yen(44)¥1,896(41)¥1,570(330)$14,234

11. Research and development costs
Research and development costs charged to income were ¥2,369 million ($17,785 thousand) and ¥2,204 million for the years ended March 31, 2002 and 2001, respectively.

12. Lease
Total lease payments under finance leases that are not deemed to transfer ownership of the leased property to the lessee were ¥692 million ($5,195 thousand) and¥752 million for the years ended March 31, 2002 and 2001, respectively.

2001

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

Flatbedknitting
machines

Designsystems

Glove andsock knitting
machines

Other

Total

Corporate /elimination

Consolidated¥29,120–
29,12022,007¥7,113¥2,291
–
2,291
2,351
¥(60)

¥5,157
–
5,157
3,915
¥1,242¥3,216
–
3,216
2,848
¥368

¥39,784–
39,784
31,121¥8,663–––¥3,997¥(3,997)¥39,784–
39,784
35,118¥4,666¥58,112546
1,246¥6,02023
89¥5,51476
189¥4,781
61
132¥74,427706
1,656¥24,641493
117¥99,068
1,199
1,773

Thousands of U.S. dollars

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, 2002 and 2001 were as follows:

Machinery and equipment
Tools, furniture and fixtures
Total

Millions of yen

Thousands of
U.S. dollars

Millions of yen

2002

2002

2001

Acquisition cost

Accumulated
depreciation

Net leased
property

Net leased
property

Acquisition cost

Accumulated
depreciation

Net leased
property¥4,478161¥4,639¥2,08381¥2,164¥2,39580¥2,475$17,980
601$18,581¥4,499255¥4,754¥2,195133¥2,328¥2,304122¥2,426

Obligations under such finance leases as of March 31, 2002 and 2001 were as follows:
Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

2002
¥652
1,823
¥2,475SHIMA SEIKI

2001
¥641
1,785
¥2,42624

ANNUAL REPORT 2002

2002
$4,895
13,686$18,581

2002

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$211,419–
211,419
155,511$55,908$15,976–
15,976
15,533$443$42,928–
42,92830,233$12,695$23,198–
23,19820,938$2,260$293,521–
293,521
222,215$71,306–––$31,651$(31,651)$293,521–
293,521
253,866$39,655$417,432
3,559
2,575

$34,032
165
98$36,547570
413$34,294413
2,507$522,305
4,707
5,593

$172,507
3,461
1,967

$694,812
8,168
7,560

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

SHIMA SEIKI

25

ANNUAL REPORT 2002

shima-AR2002-2 02.11.13 2:27 PM ページ 15

Notes to the Consolidates Financial Statements
Geographical segment information of the Company and its consolidated
subsidiaries for the years ended March 31, 2002 and 2001 was as follows:

Overseas sales of the Company and its consolidated subsidiaries
for the years ended March 31, 2002 and 2001 were as follows:
Millions of yen

Millions of yen

2002
Japan

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

2002
Total

¥1,883
44
1,927
1,920
¥7
¥1,773¥39,097
1,354
40,451
31,117¥9,334¥70,406

Corporate /elimination–¥( 1,354)( 1,354)
2,698¥( 4,052)¥22,143

Consolidated¥39,097–
39,09733,815¥5,282¥92,549

2001

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

Europe¥36,6392,366
39,00530,415¥8,590¥72,631¥1,119
4
1,123
1,087
¥36
¥1,636¥2,026
25
2,051
2,006
¥45
¥1,835

Total

Corporate /elimination

Consolidated¥39,784
2,395
42,17933,508¥8,671¥76,102–¥(2,395)(2,395)1,610¥(4,005)¥22,966¥39,784–
39,784
35,118¥4,666¥99,068

Thousands of U.S. dollars

2002

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

EuropeNorth
America

Total

Corporate /elimination

Consolidated$265,420
9,835
275,255
205,713$69,542$507,717$13,964–
13,964
13,483$481$7,545$14,137330
14,467
14,415$52$13,311$293,521
10,165
303,686
233,611$70,075$528,573–$(10,165)(10,165)
20,255$(30,420)$166,239$293,521–
293,521
253,866$39,655$694,812

EuropeSoutheast
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%

Millions of yen

2001

Overseas sales
Total sales
Ratio of overseas sales to total sales

Millions of yen
North
America

Overseas sales
Total sales
Ratio of overseas sales to total sales

The Middle
East

EuropeThe Middle
EastSoutheast
Asia

Other areas

Total¥9,776¥4,092¥15,063¥4,506

24.6%

10.3%

37.8%

11.3%

¥33,437¥39,784
84.0%

Thousands of U.S. dollars

2002

Overseas sales
Total sales
Ratio of overseas sales to total sales

EuropeThe Middle
EastSoutheast
Asia

Other areas

Total$70,578$32,282$125,608$23,942

24.0%

11.0%

42.8%

8.2%

$252,410$293,521
86.0%

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

14. Subsequent events
Shareholders approved the following appropriation of retained earning at the annual meeting held on June 27, 2002.
Millions of yen

Thousands of U.S. dollars

¥560
30

$4,204
225

Cash dividends
Bonuses to directors and statutory auditors

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

SHIMA SEIKI

26

ANNUAL REPORT 2002

SHIMA SEIKI

27

ANNUAL REPORT 2002

shima-AR2002-2 02.11.13 2:27 PM ページ 17

Report of Independent Certified Public Accountants

Corporate Data
(As of March 31, 2002)

To the Board of Directors of
SHIMA SEIKI MFG., Ltd.
We have examined the accompanying consolidated balance sheets of SHIMASEIKI MFG., Ltd. and its consolidated subsidiaries at March 31, 2002 and2001, and the related consolidated statements of income, shareholders’equity, and cash flows for the years then ended, all expressed in Japaneseyen. Our examinations were made in accordance with auditing standards,
procedures and practices generally accepted and applied in Japan and,accordingly, included such tests of the accounting records and such otherauditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above,
expressed in Japanese yen, present fairly the consolidated financial positionof SHIMA SEIKI MFG., Ltd. and its consolidated subsidiaries at March 31,
2002 and 2001, and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with accounting
principles and practices generally accepted in Japan applied on a consistentbasis.
The United States dollar amounts shown in the accompanying consolidated
financial statements have been translated solely for convenience. We havereviewed this translation and, in our opinion, the consolidated financial
statements expressed in Japanese yen have been translated into United States
dollars on the basis described in Note 1.

Osaka, Japan
June 27, 2002

Company Name
Date of Establishment
Capital
Number of Shares Outstanding
Accounting Year-End
Headquarters
Telephone
Facsimile
Representative Director
Total Number of Employees
Business Activities

Consolidated Subsidiaries

Main BanksSHIMA SEIKI MFG., LTD.
February 4, 1962
¥14,859,800,000
37,600,000 Shares
March 3185 Sakata, Wakayama City
641-8511, Japan
81-73-471-0511
81-73-474-8267
Masahiro Shima
President
1,011
Development, manufacturing and salesof computerized flatbed knitting machines,
computerized glove and sock knitting
machines and computerized design systems
Shima Fine Press Co., Ltd.
Knit Mac Co., Ltd.
T.S.M. Industrial Co., Ltd
Tsukada Sima Seiki Co., Ltd.
Marquise Co., Ltd.
Shima Seki U.S.A. Inc.
Shima Seiki Europe Ltd.
UFJ Bank Limited, The Senshu Bank, Ltd.
The Shoko Chukin Bank, The Kiyo Bank, Ltd.
The Bank of Tokyo-Mitsubishi, Ltd.
UFJ Trust Bank Limited
Sumitomo Mitsui Banking Corporation

Ohtemae Audit Corporation

SHIMA SEIKI

20 81

ANNUAL REPORT 2002

SHIMA SEIKI

20 91

ANNUAL REPORT 2002