ANNUAL REPORT 2006

FINANCIAL SECTION

CONTENTS
01

Report of Independent Auditors

02

Consolidated Balance Sheets

04

Consolidated Statements of Income

05

Consolidated Statements of Shareholders' Equity

06

Consolidated Statements of Cash Flows08

Notes to Consolidated Financial Statements

22

Supplemental Information

REPORT OF INDEPENDENT AUDITORS

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

01

CONSOLIDATED BALANCE SHEETSSHIBAURA MECHATRONICS CORPORATION AND SUBSIDIARIESMarch 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Note 1)

(Millions of yen)

AssetsCurrent assets:
Cash and bank deposits¥14,337¥ 7,455$122,046

Short-term investments

222

75

1,891

24,73424,295

210,559

(67)

(50)

(574)

Inventories (Note 4)

15,70017,093

133,652

Deferred tax assets (Note 7)

1,042

1,176

8,870

636

917

5,416

56,60450,961

481,860

162

280

1,384

Buildings and structures

27,812

27,061

236,755

Machinery and equipment

1,167

994

9,930

Notes and accounts receivable, trade
Allowance for doubtful accounts

Other current assets
Total current assets

Property, plant and equipment:
Land

125

289

1,063

Total

29,266

28,624249,132

Accumulated depreciation(14,067)(12,932)(119,749)

Property, plant and equipment, net

15,19915,692

129,383

401

931

3,413

2,096

2,077

17,842

851

750

7,245

3,348

3,758

28,500¥75,151¥ 70,411$639,743

Construction in progress

Investments and other assets:
Investments in securities (Note 3)
Deferred tax assets (Note 7)
Other assets
Total investments and other assets

Total assets

02

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONCONSOLIDATED BALANCE SHEETSMarch 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Note 1)

(Millions of yen)

Liabilities and shareholders' equity
Current liabilities:
Short-term bank loans (Note 5)

¥

793

¥

890

$

6,749

Current portion of long-term debt (Note 5)

2,670

1,953

22,731

Notes and accounts payable, trade21,62819,649184,116

Accrued expenses

3,355

3,644

28,563

Accrued income taxes (Note 7)

964

2,250

8,204

Accrued consumption taxes

79

177

669

2,560

1,117

21,79532,04929,680272,827

Long-term debt (Note 5)

6,420

9,875

54,649Retirement benefits (Note 8)

4,836

4,525

41,169Directors' retirement benefits

151

171

1,289

3,398

3,369

28,923

299

–

2,543

15,104

17,940128,573

328

–

2,796

6,762

5,868

57,559Additional paid-in capital (Note 9)

10,7399,848

91,421Retained earnings (Note 9)

10,224

7,228

87,032

125

60

1,067

Other current liabilities
Total current liabilities
Long-term liabilities:

Other long-term liabilities
Negative goodwill
Total long-term liabilities
Minority interest in consolidated subsidiaries
Contingent liabilities (Note 11)
Shareholders' equity:
Common stock:
Authorized:100,000,000 shares
Issued:51,926,194 shares at March 31, 2006
and 50,033,312 shares at March 31, 2005

Net unrealized holding gain on other securities

35

(20)

295

(215)

(193)

(1,827)

Total shareholders' equity

27,67022,791

235,547

Total liabilities and shareholders' equity¥75,151¥ 70,411$639,743

Foreign currency translation adjustments
Less treasury stock, at cost

The accompanying notes are an integral part of the consolidated financial statements.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

03

CONSOLIDATED STATEMENTS OF INCOME
SHIBAURA MECHATRONICS CORPORATION AND SUBSIDIARIES

Year ended
March 31,2006

Year ended
March 31,
2005

(Millions of yen)

Year ended
March 31,
2006
(Thousands of
U.S. dollars)(Note 1)

Net sales¥74,913¥ 88,513$637,716

Cost of sales

58,01567,492493,868

16,89821,021

143,848

11,71812,19799,755

5,180

8,824

44,093Gross profit
Selling, general and administrative expenses
Operating income

Other income (expenses):
Interest and dividend income
Interest expense
Equity in earnings of affiliates

28

17

241

(117)

(147)

(1,001)–

262–

Gain on sale of land

955

968

8,134

Loss on disposal of inventory(338)(1,468)(2,878)Loss on impairment of fixed assets

(111)

–

(943)

155

(196)

1,319

5,752

8,260

48,965Current

2,268

2,370

19,309Deferred

125

756

1,063

2,393

3,126

20,372

3,359

5,134

28,593

(34)

–

(295)

¥ 3,393¥ 5,134$ 28,888

Other, net
Income before income taxes and minority interest

Income taxes (Note 7):

Income before minority interest

Minority interest in losses of consolidated subsidiaries
Net income
The accompanying notes are an integral part of the consolidated financial statements.

04

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONCONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITYSHIBAURA MECHATRONICS CORPORATION AND SUBSIDIARIESNet
Foreignunrealized
currency
holding
gains on translation
adjustments
othersecurities

Number ofshares ofcommonstock

Commonstock

Additional
paid-in
capitalRetainedearnings

50,033,312¥ 5,868¥ 9,848¥ 2,531¥ 48¥ (20)¥ (184)¥ 18,091

–

–

–

5,134

–

–

–

5,134

Treasury
stock

Total

(Millions of yen)

Balance as of March 31, 2004
Net income
Cash dividends

–

–

–

(399)

–

–

–

(399)

Bonuses to directors and corporate auditors

–

–

–

(38)

–

–

–

(38)

–

–

–

–

12

–

–

12

Net increase in unrealized holding
gains on other securities
Foreign currency translation adjustments
Net increase in treasury stock

0

0

–

–

–

–

–

–

(9)

(9)

Balance as of March 31, 2005

50,033,312

5,868

9,848

7,228

60

(20)

(193)

22,791

Stock acquisition rights exercised

1,892,882

894

891

–

–

–

–

1,785

–

–

–

3,393

–

–

–

3,393

–

–

–

34

–

–

–

34

Net income
Addition to retained earnings upon
consolidation of subsidiaries
Cash dividends

–

–

–

(376)

–

–

–

(376)

Bonuses to directors and corporate auditors

–

–

–

(55)

–

–

–

(55)

–

–

–

–

65

–

–

65

Net increase in unrealized holding
gains on other securities
Foreign currency translation adjustments
Net increase in treasury stock
Balance as of March 31, 2006

55

55

–

–

–

–

–

–

(22)

(22)

51,926,194¥ 6,762¥10,739¥ 10,224

¥ 125

¥ 35

¥ (215)¥ 27,670

Net
Foreignunrealized
currency
holding
gains on translation
adjustments
othersecurities

Commonstock

Additional
paid-in
capitalRetainedearnings

Balance as of March 31, 2005

$ 49,954$ 83,831$ 61,533

Stock acquisition rights exercised

7,605

7,590

–

–

–

–

15,195––28,888–––28,888Treasury
stock

Total

$ (1,643)$ 194,018(Thousands of U.S. dollars) (Note 1)

Net income$ 510$ (167)

Addition to retained earnings upon
–

–

286

–

–

–

286

Cash dividends

consolidation of subsidiaries––(3,210)–––(3,210)Bonuses to directors and corporate auditors

–

–

(465)

–

–

–

(465)

–

–

–

557

–

–

557

Foreign currency translation adjustments

–

–

–

–

462

–

462

Net increase in treasury stock

–

–

–

–

–

(184)

(184)

$ 57,559$ 91,421$ 87,032$1,067$ 295$ (1,827)$ 235,547

Net increase in unrealized holding
gains on other securities

Balance as of March 31, 2006

The accompanying notes are an integral part of the consolidated financial statements.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

05

CONSOLIDATED STATEMENTS OF CASH FLOWSSHIBAURA MECHATRONICS CORPORATION AND SUBSIDIARIES

Year ended
March 31,2006

Year ended
March 31,
2005

(Millions of yen)

Year ended
March 31,
2006
(Thousands of
U.S. dollars)(Note 1)

Operating activities:
Income before income taxes¥ 5,752¥ 8,260$ 48,965

Depreciation and amortization

1,133

1,255

9,643

111

–

943

Reversal of allowance for doubtful accounts

(27)

(49)

(229)

Provision for retirement benefits

201

66

1,713

Loss on impairment of fixed assets

Interest and dividend income

(28)

(17)

(241)

Interest expense

117

147

1,001

Gain on sale of land

(955)

(967)

(8,134)

Loss on disposal of property, plant and equipment

79

24

673

Gain on sale of investment securities

(60)

–

(510)

(Gain) / loss translation

(1)

6

(6)

Equity in earnings of affiliates
Bonuses to directors and corporate auditors
Decrease (increase) in notes and accounts receivable, trade

(262)

–

(38)

(452)

2,947

(1,119)25,086

Decrease in inventories

1,963

1,535

16,715Decrease in notes and accounts payable, trade(2,002)(2,492)(17,043)

Decrease in accrued consumption taxes

(126)

–

(1,076)

Increase (decrease) in advances received

786(1,522)

6,688

Other, net

100

209

852

Subtotal

9,937

5,036

84,588

28

59

238

(117)

(151)

(997)

Interest and dividends received
Interest paid

06

–
(53)

Income taxes paid

(3,682)(596)(31,340)

Net cash provided by operating activities

6,166

4,348

52,489Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended
March 31,2006

Year ended
March 31,
2005

(Millions of yen)

Year ended
March 31,
2006
(Thousands of
U.S. dollars)(Note 1)

Investment activities:
Payments for time deposits

(309)

(75)

Proceeds from time deposits

277

14

(2,628)2,358

Purchases of property, plant and equipment

(958)

(593)

(8,152)

Proceeds from sale of property, plant and equipment

1,784

1,517

15,185

Payments for acquisition of business, net of cash acquired

(246)

–

(2,098)

–

(143)

–

Proceeds from sale of investment securities

114

–

969

Proceeds from acquisition of investment in an affiliate, net of cash acquired

385

–

3,280
(9)

Purchases of investment securities

Increase in long-term loans receivable(1)–

Collection of long-term loans receivable

1

15

9

Other, net

8

(31)

67

1,055

704

8,981

Net cash provided by investing activities
Financing activities:(97)(1,025)(825)

Proceeds from long-term debt

1,000

–

8,513

Repayment of long-term debt

(16,625)

Decrease in short-term bank loans(1,953)(670)

Purchases of treasury stock

(22)

(9)

(184)

Cash dividends paid

(377)

(399)

(3,210)(1,449)(2,103)(12,331)

104

0

882

Net increase in cash and cash equivalents

5,876

2,949

50,021

Cash and cash equivalents at beginning of year

7,455

4,506

63,462

Increase arising from inclusion of subsidiaries in consolidation

1,006

–

8,563

¥14,337¥ 7,455$122,046

Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at end of year
The accompanying notes are an integral part of the consolidated financial statements.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

07

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHIBAURA MECHATRONICS CORPORATION AND SUBSIDIARIESMARCH 31, 2006

1. Basis of Presentation
Shibaura Mechatronics Corporation (the "Company") and its

a format that is familiar to readers outside Japan. In addition,

consolidated subsidiaries (collectively, the "Companies")

the notes to the consolidated financial statements include non-maintain their accounting records and prepare their financial

consolidated financial statements as supplemental information.

statements in accordance with accounting principles generally
accepted in Japan. The accompanying consolidated financial

The accompanying consolidated financial statements arestatements have been prepared in accordance with accounting

stated in yen, the currency of the country in which theprinciples generally accepted in Japan, which differ in certain

Company is incorporated and operates. The translation of yen

respects from the application and disclosure requirements ofamounts into U.S. dollar amounts has been included solely forInternational Financial Reporting Standards, and have been

the convenience of readers outside Japan. The translation hascompiled from the consolidated financial statements preparedbeen made at the rate of ¥117.47 = U.S.$1.00, the approximate

by the Company as required by the Securities and Exchange

rate of exchange in effect on March 31, 2006. This translation

Law of Japan. Certain reclassifications have been made toshould not be construed as a representation that yen could bepresent the accompanying consolidated financial statements inconverted into U.S. dollars at the above or any other rate.

2. Summary of Significant Accounting Policies(a) Basis of consolidation

currency translation adjustments", a component of

The accompanying consolidated financial statements include

shareholders' equity in the accompanying consolidated

the accounts of Shibaura Mechatronics Corporation and sevenfinancial statements.

subsidiaries over which the Company exerts substantial
control, either through majority ownership of voting stock

All monetary assets and liabilities of the Company and its

and/or by other means. All assets and liabilities of thedomestic consolidated subsidiaries denominated in foreignsubsidiaries are revalued at fair value on acquisition, if

currencies are translated at the current exchange rates inapplicable. All significant intercompany balances andeffect at each balance sheet date. Gains and losses resulting

transactions have been eliminated in consolidation.

from the settlement of these items are credited or charged
currently to income.

Investments in unconsolidated subsidiaries that are notdeemed material to the consolidated financial statements arestated at cost.

(c) Cash and cash equivalents
The Company and its subsidiaries substantially consider all
highly liquid investments with a maturity of three months or(b) Foreign currency translation

less from their purchase dates to be cash equivalents.

The revenue and expense accounts of the overseas
consolidated subsidiaries are translated into yen at the rates of
exchange in effect at the balance sheet date. The balance(d) Securities

sheet accounts, except for the components of shareholders'Marketable securities categorized as other securities areequity, are also translated into yen at the rate of exchange incarried at fair value with changes in unrealized holding gain

effect at the balance sheet date. The components ofand loss, net of applicable income taxes, included directly inshareholders' equity are translated at their historical exchangeshareholders' equity. Non-marketable securities classified as

rates. Differences arising from translations where twoother securities are stated at cost. Cost of securities sold isexchange rates have been used are presented as "Foreign

computed based on the moving average method.

08

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(e) Derivatives
All derivatives are carried at fair value.

(i) Retirement benefits and pension plans
An allowance for employees' retirement benefits has been
provided, based on the projected retirement benefit obligation(f) Inventories

and the pension fund assets. Actuarial gain or loss is

Inventories are stated at cost, determined principally by theamortized effective the year subsequent to the year in which

following methods:

they arise by the straight-line method over a period of 10 years,

Finished goods and raw materials-moving average method

which is shorter than the average remaining years of service ofthe employees.

Semi-finished goods and work in process-individual cost method

The Companies also provide for retirement benefits to directors
and statutory auditors, based on the Companies' internal rules,at the amount that would be required to be paid if all directors(g) Depreciation and amortizationand statutory auditors retired or resigned at the balance sheet

Depreciation of property, plant and equipment is generally

date.

computed by the declining-balance method, based on theestimated useful lives of the respective assets. The straightline method is applied to a certain research facility acquired(j) Accrual for periodic repairs

during the year ended March 31, 1995, and buildings

A certain research facility acquired during the year ended

acquired after April 1, 1998. The following summarizes the

March 31, 1995 requires periodic repairs. An accrual for

estimated useful lives of property, plant and equipment by

these repair expenses is recorded based on the current portion

major category:of the total expenses estimated for such repairs.

Buildings and structures

3 – 60 years

Machinery and equipment

2 – 17 years(k) Leases
Finance leases other than those deemed to transfer the title ofIntangible assets are amortized by the straight-line method.

the leased assets to the lessee are not capitalized, but are

Capitalized software for internal use is amortized by theaccounted for by a method similar to that applicable tostraight-line method over a period of 5 years, based on theoperating leases.

estimated useful life of the software.
The Company amortizes negative goodwill over an estimated(l) Research and development costs

useful life of 5 years by the straight-line method.

Research and development costs are expensed as incurredand included in cost of sales and selling, general andadministrative expenses.

(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amountsufficient to cover possible losses on the collection of(m) Income taxes

receivables. For the Companies, the amount of the allowance

Deferred tax assets and liabilities are determined based on theis determined based on their historical experience with write-

differences between financial reporting and tax-based

offs, plus an estimate of specific probable doubtful accounts

reporting of the assets and liabilities, and are measured using

based on a review of the collectibility of individual receivables.

the statutory tax rates which will be in effect when the
differences are expected to be realized.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

09

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(n) Loss on impairment of fixed assets

the book value over the higher of (1) the fair market value of

Effective the year ended March 31, 2006, the Company and its

the asset, net of disposition costs or (2) the present value ofdomestic consolidated subsidiaries have adopted a new

future cash flows arising from ongoing utilization of the asset

accounting standard for the impairment of fixed assets which

and from its subsequent disposal. The standard covers land,

requires that tangible and intangible fixed assets be carried atfactories, buildings and other forms of property, plant andcost less depreciation, and be reviewed for impairment

equipment as well as intangible assets. Fixed assets are to bewhenever events or changes in circumstances indicate that thegrouped at the lowest level for which there is identifiable cash flows

carrying amount of an asset may not be recoverable.

that are independent of cash flows from other groups of assets.

Companies would be required to recognize an impairment loss
in their statement of income if certain indicators of asset

As a result of the adoption of this new accounting standard,

impairment exist and if the book value of an asset exceeds theloss on impairment of fixed assets of ¥111 million ($943

undiscounted sum of its future cash flows. The standard states

thousand) was recognized as other expenses for the yearthat an impairment loss should be measured as the excess ofended March 31, 2006.

3. Securities
At March 31, 2006 and 2005, marketable securities classified as other (available-for-sale) securities are summarized as follows:
March 31,2006

March 31,2005

March 31,
2006

AmountAcquisition recorded in
Difference
costs
the balance
sheet

AmountAcquisition recorded in
Difference
costs
the balance
sheet

AmountAcquisition recorded in
Difference
costs
the balance
sheet(Millions of yen)

(Millions of yen)(Thousands of U.S. dollars)

Other securities whose market
value recorded in
the balance sheet exceed
their acquisition costs:
Equity securities

¥139

¥348

¥209

¥ 143

¥ 252

¥ 109

$1,181$2,964$1,783

Debt securities

–

–

–

–

–

–

–

–

–

Other

–

–

–

–

–

–

–

–

–

¥139

¥348

¥209

¥ 143

¥ 252

¥ 109

$2,964$1,783

Total$1,181Marketable securities classified as other (available-for-sale) securities sold for the year ended March 31, 2006 are summarized as follows:Year ended March 31, 2006

Sales
Total of gain on sale of marketable securities

10

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION(Millions of yen)(Thousands of
U.S. dollars)

¥ 116

$ 994

59

510

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At March 31, 2006 and 2005, non-marketable securities carried at cost are summarized as follows:
March 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)

Investments in subsidiaries and affiliates:
Unlisted equity securities other than those traded on the over-the-counter market

¥ 52

¥ 637

$ 444

Other unlisted securities other than those traded on the over-the-counter market

1

42

5

4. Inventories
Inventories at March 31, 2006 and 2005 are summarized as follows:
March 31,2006

March 31,
2005

(Millions of yen)Finished products
Raw materials
Work in process
Total

March 31,
2006
(Thousands of
U.S. dollars)¥ 6,034¥ 7,810$ 51,366

147

129

1,251

9,519

9,154

81,035¥15,700¥ 17,093$133,652

5. Short-Term Bank Loans and Long-Term Debt
The annual interest rates of the Companies' short-term bank loans ranged principally from 0.50 percent to 2.50 percent at March 31,
2006, and from 0.50 percent to 3.00 percent at March 31, 2005.
Long-term debt at March 31, 2006 and 2005 are summarized as follows:
March 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)Unsecured:
Zero coupon Japanese yen convertible notes(notes with stock acquisition rights)¥3,215¥ 5,000$27,369

1.25 percent to 2.10 percent loans from banks due 2006 – 2009

5,870

6,823

49,970

5

5

41

Total

9,090

11,82877,380Less current portion(2,670)(1,953)(22,731)

Long-term debt ,net

¥6,420¥ 9,875$54,649

Loans from Pension Welfare Service Public Corporation due 2006 – 2034

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans from the Pension Welfare Service Public Corporation

On March 8, 2004, the Company issued ¥5,000 million Zerorepresent financing for housing loans to the Company's

coupon Japanese yen convertible notes (notes with stock

employees, and the same amount is stated as a portion of

acquisition rights) due March 8, 2009. These notes areother assets (loans to employees). The Company pays theconvertible during the period from March 22, 2004 to Februaryinterest on such loans to the lender and collects the same

20, 2009, at the option of the holder, into shares of common

amount from the employees as the borrowers.

stock at a price of ¥943 per share, subject to adjustment inspecific circumstances.

The long-term debt, subsequent to March 31, 2006, is summarized by maturity as follows:
March 31, 2006
(Millions of yen)(Thousands of
U.S. dollars)

2007¥ 2,670$ 22,731

2008

0

1

2009

6,415

54,611

5

37¥ 9,090$ 77,380

2010 and thereafter
Total

At March 31, 2006, the Company had unused committed lines of credit with seven banks for efficient financial arrangements for
operating funds aggregating ¥10,000 million ($85,128 thousand). These lines of credit have fee commitment requirements.

6. Research and Development Expenses
Research and development expenses charged to income for the years ended March 31, 2006 and 2005, respectively, were as follows:Year ended
March 31,2006

Year ended
March 31,
2005

(Thousands of
U.S. dollars)(Millions of yen)

¥2,851

12

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

Year ended
March 31,2006

¥ 2,337$24,269

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Income Taxes
Income taxes applicable to the Company and its domestic

40.6% for the years ended March 31, 2006 and 2005.

subsidiaries comprise corporation, inhabitants' and enterprise

Income taxes of the overseas subsidiaries are based on the tax

taxes which, in the aggregate, resulted in a statutory tax rate ofrates applicable in their countries of incorporation.

The major components of deferred tax assets and liabilities as of March 31, 2006 and 2005 are summarized as follows:
March 31,2006

March 31,
2005

(Millions of yen)March 31,
2006
(Thousands of
U.S. dollars)

Deferred tax assets:
Employees' retirement benefits¥1,917¥1,815$16,321

Accrued employees' bonuses

623

662

5,299

Accrual for periodic repairs

161

150

1,374

Enterprise tax payable

133

232

1,128

Tax loss carried forward

41

126

348

Other

482

409

4,106

3,357

3,394

28,576Gross deferred tax assets
Valuation allowance

(134)

(97)

(1,141)

Total deferred tax assets

3,223

3,297

27,435

(85)

(44)

(723)

(85)

(44)

(723)

¥3,138¥ 3,253$26,712Deferred tax liabilities:
Unrecognized holding gain on other securities
Total deferred tax liabilities
Net deferred tax assets

The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2006 and 2005 differ from thestatutory tax rate for the following reasons:Year ended
March 31,2006

Year ended
March 31,2005

40.6 %

40.6 %

Tax non-deductible expenses such as entertainment expenses

0.8

0.5

Per capita levy of inhabitants' taxes and other

0.4

0.2

Changes in valuation allowance

0.7

(0.4)

–

(1.3)

(3.5)

(2.0)

Statutory tax rate
Effect of:

Equity in earnings of unconsolidated subsidiaries and affiliates
Tax-deductible R&D credits
Other, net

2.6

0.2

Effective tax rates

41.6 %

37.8 %

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Retirement Benefits
The Companies have defined benefit pension plans and lump-sum retirement payment plans which cover substantially all employees
who retire from the Companies. Eligible employees may also receive additional payments under the plans.
The following is a summary of the plans:
March 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)

Projected benefit obligation¥ (9,761)¥ (8,591)$ (83,093)

Fair value of plan assets

3,339

2,796

28,422

Funded status(6,422)(5,795)(54,671)

Unrecognized actuarial loss

1,586

1,270

13,502¥ (4,836)¥ (4,525)$ (41,169)

Allowance for retirement benefits

The consolidated subsidiaries have adopted a simplified method, as permitted, to calculate the projected benefit obligation.
Components of net periodic pension cost for the years ended March 31, 2006 and 2005 are summarized as follows:Year ended
March 31,2006

Year ended
March 31,2005

Year ended
March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)

¥ 431

¥ 508

$3,670

168

226

1,428

Expected return on plan assets

(98)

(109)

(833)

Amortization of actuarial loss

207

216

1,764

Net periodic pension cost

¥ 708

¥ 841

$6,029Service cost
Interest cost on projected benefit obligation

The allowance for retirement benefits was determined by the simplified method by the consolidated subsidiaries and has been included
in service cost.
Assumptions used in the actuarial calculation for the years ended March 31, 2006 and 2005 are summarized as follows:
March 31,
2006
Actuarial cost method

March 31,
2005

Projected unit credit method

Discount rate

2.0% per annum

2.0% per annum

Expected rate of return on plan assets

3.5% per annum

3.5% per annum

Amortization period for actuarial loss

10 years (within the employees'
average remaining years of service)

14

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Legal Reserve and Additional Paid-In Capital
The Commercial Code of Japan (the "Code") provides that anshareholders. The Company's shares of common stock haveamount equal to at least 10% of the amount to be disbursed

no par value in accordance with the Code.

as distributions of earnings be appropriated to the legal reserve
until the sum of the legal reserve and the additional paid-in

The new Corporation Law of Japan (the "Law"), which

capital account equals 25% of the common stock account.

superseded most of the provisions of the Commercial Code of

The Code provides that neither additional paid-in capital nor

Japan, went into effect on May 1, 2006. The Law stipulates

the legal reserve is available for dividends, but both may besimilar requirements on distribution of earnings to those of theused to reduce or eliminate a deficit by resolution of theCode and that such distributions can be made at any time byshareholders or may be transferred to common stock upon

resolution of the shareholders, or by the Board of Directors if

approval by the Board of Directors. The Code further provides

certain conditions are met.

that if the total amount of additional paid-in capital and thelegal reserve exceeds 25% of the amount of common stock,

At March 31, 2006 the retained earnings account in thethe excess may be distributed to the shareholders either as aaccompanying consolidated financial statements includes areturn of capital or as dividends subject to the approval of thelegal reserve of ¥411 million ($3,501 thousand).

10. Leases(1) Finance leases
Leased property under finance leases that do not transfer the title of the leased property to the lessee on an as-if-capitalized-basis for theyears ended March 31, 2006 and 2005 are as follows:
March 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)

Machinery, equipment and other assets:
Acquisition cost

¥3,778¥ 2,688

Accumulated depreciation

1,459

1,196

12,426Net leased property¥2,319¥ 1,492$19,737$32,163

Non-cancelable lease transactions are primarily accounted forLease expenses relating to finance leases accounted for as

as operating leases (regardless of whether such leases areoperating leases amounted to ¥743 million ($6,326 thousand)classified as operating or finance leases) except that leaseand ¥693 million for the years ended March 31, 2006 andagreements which stipulate the transfer of the title of the2005, respectively.

leased asset to the lessee are accounted for as finance leases.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments subsequent to March 31, 2006 for finance lease transactions accounted for as operating leases are
summarized as follows:
March 31, 2006
(Millions of yen)

Due within one year¥810

$ 6,898

1,549

13,186¥ 2,359$20,084

Due after one year
Total

(Thousands of
U.S. dollars)(2) Operating leases
March 31, 2006

Due within one year

(Millions of yen)(Thousands of
U.S. dollars)

¥ 8

$ 66

7

60

¥ 15

$ 126

Due after one year
Total

11. Contingent Liabilities
The Company had the following contingent liability:
March 31, 2006

As guarantor for housing loans of employees(Millions of yen)(Thousands of
U.S. dollars)

¥ 66

$ 564

12. Significant Non-Cash Transactions
Significant Non-Cash Transactions for the year ended March 31, 2006 are as follows:Year ended March 31, 2006
(Millions of yen)

Increase in common stock upon exercise of stock acquisition rights
Increase in additional paid-in capital resulting from exercise of stock acquisition rights
Decrease in convertible notes (notes with stock acquisition rights)

16

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION¥

893(Thousands of
U.S. dollars)$ 7,606

892

7,589

1,785

15,195NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Derivatives and Hedging Activities
The Company has entered into interest-rate swap contracts totransactions are entered into under the decision-making rules

reduce the cost of borrowing. The Company uses theseapproved by the Management Strategy Committee of thecontracts to manage its exposure to interest-rate risk for

Company. The department which has the responsibility to

trading purposes. As a matter of policy, the Company does notenter into such contracts monitors and controls the inherent

enter into derivative transactions for trading purposes. The

risk and performance on a daily basis and reports these toCompany does not anticipate nonperformance by any of the

management of the Company, if and when necessary.

counterparties to the above transactions, all of whom aredomestic financial institutions with high credit ratings.

At March 31, 2006 and 2005, the fair value information forderivatives was not presented, since all derivatives were

In accordance with the Company's policy, derivative

accounted for as hedges.

14. Segment Information
The business segment information of the Companies for the years ended March 31, 2006 and 2005 is summarized as follows:Business segments
Year ended March 31, 2006
Fine
mechatronics

Electric &vacuumsystems

Vending
machines &systems

Real estateleasing

Total

Eliminations
orunallocatedamounts

Consolidated¥¥74,913(Millions of yen)

I. Sales and operating income
Sales to external customers¥53,826¥12,155¥ 7,054¥ 1,878¥74,913

–

–

–

–

–

(–)

–

53,826

12,155

7,054

1,878

74,913–74,913

Intersegment sales or transfers
Total sales
Operating expenses

50,49811,458Operating income¥ 3,328

¥

5,959

697

¥ 1,095

¥

–

1,200

69,115618

69,733678¥ 5,798¥(618)¥ 5,180

II.Total assets, depreciation and capital expenditures
Total assets¥42,994¥ 7,648¥ 3,072¥ 9,724¥63,438¥ 11,713¥75,151

Depreciation

353

103

101

576

1,133

–

1,133

Capital expenditures

531

69

100

8

708

–

708

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended March 31, 2005
Fine
mechatronics

Electric &vacuumsystems

Vending
machines &systems

Real estateleasing

Eliminations
orunallocatedamounts

Total

Consolidated(Millions of yen)

I. Sales and operating income
Sales to external customers¥61,987¥15,046¥ 9,496¥ 1,984¥ 88,513

–

–

–

–

–

Total sales

61,987

15,046

9,496

1,984

Operating expenses

56,701

13,810

7,520

1,251

Operating income¥ 5,286¥ 1,236¥ 1,976¥

Intersegment sales or transfers¥–¥88,513(–)–

88,513–88,51379,282407

79,689733¥ 9,231¥ (407)¥ 8,824

II.Total assets, depreciation and capital expenditures
Total assets¥38,260¥ 9,516¥ 8,296¥10,341¥ 66,413¥ 3,998¥70,411

Depreciation

393

164

103

595

1,255

–

1,255

Capital expenditures

306

115

166

–

587

–

587

Eliminations
orunallocatedamounts

Consolidated

Year ended March 31, 2006
Fine
mechatronics

Electric &vacuumsystems

Vending
machines &systems

Real estateleasing

Total(Thousands of U.S. dollars)

I.Sales and operating income
Sales to external customers$ 458,209

Intersegment sales or transfers$ 103,475$ 60,051$ 15,981$ 637,716$–$ 637,716

–

–

–

–

–

(–)

–

Total sales

458,209

103,475

60,051

15,981

637,716–

637,716

Operating expenses

429,882

97,53950,724

10,217588,3625,261

593,623

Operating income$ 28,327

5,936$ 9,327$ 5,764$ 49,354$ (5,261)$ 44,093$

II.Total assets, depreciation and capital expenditures
Total assets$ 366,004$ 65,105$ 26,152$ 82,774$ 540,035$ 99,708$ 639,743

Depreciation

3,001

874

862

4,906

9,643

–

9,643

Capital expenditures

4,518

591

849

72

6,030

–

6,030

18

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes:a) Basis of segmentation(3) Vending machines & systems

Business segments are divided into product categories by

Vending machines, ticket vending machines, andthe same criteria as applied for internal control purposes.

others.
(4) Real estate leasingb) Major products in each business segment(1) Fine mechatronics

Real estate leasing and management, and otherbusinesses.

FPD manufacturing equipment (wet cleaning
equipment, stripping equipment, etching equipment,
developing equipment, PI inkjet coater, cell assemblyc) Included in eliminations or unallocated amounts ofequipment, outer lead bonders), semiconductor

operating expenses are unallocable amounts relating to

manufacturing equipment (wet cleaning equipment,

research and development expenses incurred over theetching equipment, ashing equipment, die bonders,

entire Group as part of the Company's research andinner lead bonders, flip chip bonders, wafer inspection

development activities.

equipment), railroad maintenance equipment, nondestructive inspections, and other items.
d) Included in the eliminations or unallocated amounts of total(2) Electric & vacuum systems

assets were unallocable amounts totaling ¥11,713 million

Laser equipment, microwave equipment, media device($99,708 thousand) and ¥8,036 million for the years ended

manufacturing equipment (sputtering equipment,

March 31, 2006 and 2005, respectively, which primarily

vacuum bonding equipment), industrial vacuum

consisted of surplus funds (cash and bank deposits),

evaporation equipment, rechargeable battery

investment funds (investment securities) of the Company

manufacturing equipment, precision partsand deferred tax assets.

manufacturing equipment, other automationequipment, vacuum pumps, and other items.

Geographical segments
No information by geographical segment for the years ended March 31, 2006 and 2005 has been presented, due to the fact that the net
sales and total assets of the operations in Japan constituted more than 90% of the respective totals for all segments.

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Overseas sales
Year ended March 31, 2006
Northeastern
Asia

Other

Total

(Millions of yen)

I. Overseas sales¥ 26,079¥ 3,547

34.8%

4.7%

¥ 29,626

II. Consolidated net sales

74,913

III. % of consolidated net sales

39.5%

Year ended March 31, 2005
Northeastern
Asia

Other

Total

(Millions of yen)

I. Overseas sales¥ 42,026¥ 45,174¥ 3,148

II. Consolidated net sales

88,513

III. % of consolidated net sales

47.5%

3.5%

51.0%

Year ended March 31, 2006
Northeastern
Asia

Other

Total

(Thousands of U.S. dollars)

I. Overseas sales¥ 222,001¥30,196

34.8%

4.7%

¥ 252,197

II. Consolidated net sales

637,716

III. % of consolidated net sales

Notes:a) Overseas sales are sales recorded by the Company and its(2) Major countries or regions included in eachconsolidated subsidiaries in countries or regions other thangeographical area:

Japan.

Northeastern Asia – Taiwan, Korea, China
Otherb) The division of overseas sales into countries or regions isdetermined as follows:(1) Overseas sales by country or region:
Geographical areas are defined based on geographicalproximity.

20

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION– U.S.A., Hungary

39.5%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Related Party Transactions
Toshiba Corporation held 37.4% of the Company's voting¥4,037 million for the years ended March 31, 2006 and 2005,

rights as of March 31, 2006.

respectively.

The Company sold semiconductor manufacturing equipment

The Company purchased material from Toshiba Corporation

to Toshiba Corporation and received rent revenue fromtotaling ¥132 million ($1,130 thousand) and ¥1,084 million for

Toshiba Corporation. The aggregate amounts of these

the years ended March 31, 2006 and 2005, respectively.

transactions were ¥3,675 million ($31,291 thousand) andAmounts due from and to Toshiba Corporation at March 31, 2006 and 2005 were as follows:
March 31,2006

March 31,
2005

(Thousands of
U.S. dollars)(Millions of yen)Due from Toshiba Corporation¥ 149

Due to Toshiba Corporation

3,159

March 31,
2006

¥

806

$ 1,268

3,446

26,897

16. Per Share Information
Basic net income per share is computed based on the net

number of shares of common stock outstanding during each

income available for distribution to shareholders of common

year, assuming full dilution of common stock equivalents. Net

stock and the weighted-average number of shares of common

assets per share is computed based on the weighted-averagestock outstanding during each year. Diluted net income pernumber of shares of common stock outstanding at eachshare is computed based on the net income available forbalance sheet date.

distribution to the shareholders and the weighted-average
Year ended
March 31,2006

Year ended
March 31,2005

Year ended
March 31,2006
(U.S. dollars)(Yen)

Net income:– Basic– Diluted
Net assets¥ 101.92$ 0.57

62.30

92.12

0.53

534.03456.15

4.55¥ 66.52

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

21

SUPPLEMENTAL INFORMATIONNON-CONSOLIDATED BALANCE SHEETSMarch 31,2006

March 31,2005

March 31,
2006
(Thousands of
U.S. dollars)(Millions of yen)

AssetsCurrent assets:
Cash and bank deposits¥ 9,053¥ 4,398$ 77,063

Notes and accounts receivable, trade:
Notes
Accounts
Allowance for doubtful accounts
Inventories
Deferred tax assets
Other current assets
Total current assets

132

404

1,123

19,784

18,109168,416

(24)

(26)

(204)

13,353

15,316113,675

553

626

4,709

564

939

4,802

43,41539,766

369,584

68

79

580

26,87426,709228,775

681

734

5,792

Property, plant and equipment:
Land
Buildings and structures
Machinery and equipment

125

289

1,060

Total

27,74827,811

236,207

Accumulated depreciation(13,500)(12,571)(114,919)

Property, plant and equipment, net

14,24815,240121,288

Construction in progress

Investments and other assets:
328

276

2,790

Investments in subsidiaries and affiliates

1,415

987

12,049Deferred tax assets

1,836

1,912

15,626

785

590

6,684

4,364

3,765

37,149¥62,027¥ 58,771$528,021

Investments in securities

Other assets
Total investments and other assets

Total assets

22

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATIONNON-CONSOLIDATED BALANCE SHEETSMarch 31,2006

March 31,
2005

(Millions of yen)March 31,
2006
(Thousands of
U.S. dollars)

Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt

¥ 2,670¥ 1,920$ 22,730

Notes and accounts payable:
Notes

3,200

3,571

27,237

Accounts

13,158

11,175

112,010–

9–Advances from customers

1,016

500

8,645

Accrued expenses

2,923

3,142

24,883

Accrued income taxes

517

1,162

4,409

Other current liabilities

66

65

564

23,55021,544200,478

Long-term debt

6,420

9,875

54,649Allowance for retirement benefits

4,173

4,321

35,528

126

144

1,072

Other

Total current liabilities
Long-term liabilities:

Directors' retirement benefits
Accrual for periodic repairs

398

369

3,384

Other long-term liabilities

3,000

3,000

25,538

14,117

17,709120,171

6,761

5,868

57,55910,7399,848

91,421

354

353

3,005
56,217

Total long-term liabilities
Shareholders' equity:
Common stock:
Authorized : 100,000,000 shares
Issued: 51,926,194 shares at March 31, 2006
and 50,033,312 shares at March 31, 2005

Additional paid-in capital
Legal reserve
Retained earnings

6,604

3,587

Net unrealized holding gain on other securities

117

55

997

Less treasury stock, at cost

(215)

(193)

(1,827)

Total shareholders' equity

24,36019,518207,372

Total liabilities and shareholders' equity¥62,027¥ 58,771$528,021

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION

23

SUPPLEMENTAL INFORMATIONNON-CONSOLIDATED STATEMENTS OF INCOME

Year ended
March 31,2006

Year ended
March 31,
2005

(Millions of yen)

Year ended
March 31,
2006
(Thousands of
U.S. dollars)

Net sales¥58,663¥ 71,674$499,388

Cost of sales

48,491

58,391

412,800

10,172

13,28386,588

7,721

7,810

65,728

2,451

5,473

20,860Interest and dividend income

1,470

184

12,518Interest expense

(105)

(128)

(898)

Gain on sale of land

955

968

8,134

Gross profit
Selling, general and administrative expense
Operating income
Other income (expenses):

3(1,347)

23

4,774

5,150

40,637

Current

1,226

1,109

10,437

Deferred

112

800

952

Other, net
Income before income taxes
Income taxes:

Net income

1,338

1,909

11,389¥ 3,436¥ 3,241$ 29,248(Yen)(U.S. dollars)

Per share of common stock:
Net income
Cash dividends applicable to the year

24

Annual Report 2006 Financial Section
SHIBAURA MECHATRONICS CORPORATION¥ 67.58¥ 64.11$ 0.58

7.00

7.00

0.06

2-5-1, Kasama, Sakae-ku, Yokohama 247-8610, Japan
TEL:+81-45-897-2421
FAX:+81-45-897-2470
http://www.shibaura.co.jp/

SEA0307A 00 0608
06015