Annual Report 2004
For the year ended March 31, 2004

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

FAX : + 81-45-897-2470
Printed on Recycled Paper

SEA0305A 1T 0408 03101

Contents
Financial Highlights

1

To Our Shareholders

2

Financial Review

6Five-Year Summary

9

Topics 2003 in Shibaura

10

Environmental Activities 2003 in Shibaura

13

Corporate Governance

14

Board of Directors

15

Investor Information

16

ProfileShibaura Mechatronics Corporation commenced operations in 1939 under the name of Shibaura Engineering Works Co., Ltd. as an electric
power equipment manufacturer, mainly of electric motors. The Company significantly contributed to building the infrastructure of theindustrialized society in the 20th century.
In the last decade, however, the Company carried out a bold business restructuring and changed its name to Shibaura Mechatronics
Corporation to reflect its new objective of supplying electronic device manufacturing equipment. At the same time, the Company defined its
corporate identity as "The Provider of Infrastructure for the Digital Age".
The 21st century is the age of IT and of the environment. To fulfill the demands of this century, the Company has declared that it will become"e-Shibaura", a truly IT-based enterprise, as well as "E-Shibaura", an enterprise that places priority on the Earth's environment. In other words,
as "e & E-Shibaura" we will supply products and services that are suitable for the age of IT and of the environment while encouraging
innovative behavior and thinking among our employees in the pursuit of global business expansion.

History
1875

1939

1932

1949

1991 1996

Oct.,1998

Tokyo Electric Company
Tokyo Shibaura Electric Co., Ltd.
Shibaura Engineering Works Co., Ltd.

(Today,Toshiba Corporation)

Toshiba Corporation(Industrial Mechatronics Business Unit)

Toshiba Mechatronics Co., Ltd.
Toshiba Automation Co., Ltd. - Semiconductor manufacturing equipment, etc.
- Manufacturing automation equipment

Shibaura Engineering Works Co., Ltd.
- Electric motors

Tokuda Seisakusho Co., Ltd.

Shibaura Engineering Works Co., Ltd.
- Motors, FPD manufacturing equipment, etc.

- Vacuum applied equipment

Cover Photo :LCDs being manufactured using the OLB
The era of flat panel TVs has come. The OLB(outer lead bonder) is bonding equipment thatbuilds driver ICs on a liquid crystal panel.
Featuring high precision and high productivity,
Annual Report 2004
For the year ended March 31, 2004

our OLB is most widely used in the world. As LCD
TVs become larger in size, there is increasing
demand for large OLBs.

Forward - Looking Statements
This annual report contains forward-looking statements concerning Shibaura's future plans,
strategies and performance. These forward-looking statements are not historical facts, rather
they represent assumptions and beliefs based on data currently available. Furthermore, they
are subject to a number of risks and uncertainties that, without limitation, relate to economic
conditions, worldwide mega-competition in the electronics business, customer demand,
foreign currency exchange rates, tax rules, regulations and other factors. Shibaura therefore
wishes to caution readers that actual results may differ materially from our expectations.

Financial Highlights

Financial Highlights
Thousands of
U.S. dollars

Millions of yen
2004
2003
Years ended March 31

Consolidated
Net sales

2004¥ 67,521¥ 54,761$ 638,857

Operating income (loss)

3,168(1,502)

29,974

Net income (loss),979(1,416)

9,265

Total assets

69,24563,615655,174

Total shareholders' equity

18,091

17,066

171,168

Net income (loss) per share¥ 018.88¥ (28.40)$ 00 0.17¥ 56,108¥ 43,754$ 530,876

Operating income (loss)

2,092(1,742)

19,793

Net income (loss),859(1,455)

8,127

61,52057,646582,084

Non-consolidated
Net sales

Total assets
Total shareholders' equity

16,707

15,785

158,077

Net income (loss) per share¥ 16.62¥ 0(29.19)$ 0000.15

Note 1: The U.S. dollar amounts in this report represent translations of Japanese yen, for convenience only, at the rate of ¥105.69 =U.S.$1.00, as of March 31, 2004.

2000

Net Sales

Net Income

Total Shareholders' Equity

Net Income Per Share(¥ Billions)(¥ Billions)(¥ Billions)

(¥)

2001

2002

2003

2004

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

21

76

20

71
1.0
0.9

63
53

55

55
45

56

19
18
17

17

18.9
16.6

17
16

0.6

13.2

44
-0.2

-0.1
-4.7

-1.1
-1.2

-2.2

Consolidated

20
19

68

-1.4
-1.5

-2.8

-22.5
-23.4
-28.4
-29.2
-44.3

Non-consolidated01

To Our Shareholders

In October 1998, after a number of mergers and acquisitions,Shibaura Mechatronics sharply transformed itself from amanufacturer mostly specializing in motors into "The Provider ofInfrastructure for The Digital Age". In October 2003 we marked
the fifth anniversary of the transformation. Overcoming
difficulties such as the IT recession during the period, we havesteadily grown to be a provider of equipment for manufacturingliquid crystal and other flat panel displays (FPDs),
semiconductors, optical discs, and other products.
We expect that high growth will definitely continue in our
principal business field of providing various types of equipment
for manufacturing electronics components, and we will keep on
pouring our efforts into this field.

The corporate philosophies of Shibaura Mechatronics are"Innovative in All Things", "Pursuit of Rationality", and "Respect
Humanity". By endeavoring to ensure that these concepts will
permeate the Company and its subsidiaries and affiliates, we
are working hard at actualizing a global business group full of
speed and vitality. Under these corporate philosophies, we arecontinuously pursuing business activities that can ensure highHiroo Okuhara

growth and high profitability. These activities include fully

President and Chief Executive Officer

implementing the management innovation activity "SM2003",
which incorporates statistical management reform techniques;
adopting result-based personnel treatment programs designed
to help employees find greater satisfaction in their jobs and thus
enhance their morale, and further stepping up ourenvironmental preservation activities.

To Our Shareholders

02

To Our Shareholders

industry, equipment investment continues to be strong,In order to win recognition in Japan and in the rest of the world,

supported by brisk sales of digital home appliances and a

we need to accurately grasp and promptly respond to theturnaround in the demand for personal computers.

customer's voice and quickly changing needs and to steadily
carry our core initiatives. Our core initiatives are to shift to fields

Under these business circumstances, the FPD market isof growth, to strengthen our financial structure, and to pursue

growing rapidly. In particular, FPDs for large-screen TVs are ineven more efficient management. By carrying out these core

active demand, in addition to those for monitors. Reflecting

initiatives, we will strive to be the leading company that is reallythese conditions, the LCD manufacturing equipment market

reliable. At the same time, we will pursue commitment-based

fared strongly, supported by increased investment inmanagement in which all employees share our management

equipment ready for large glass substrates. After being inactive

visions and assume responsibility for achieving targets set. Allfor the past two years, the semiconductor manufacturingof us will work hard to achieve our management visions,equipment market began to see a recovery in equipment

complying with rules and sticking to fair business activities.

investment largely because of strong results from devices forcellular phones and digital cameras. In the optical disc industry,
active investment is being made in DVD-related equipment as

Performance in Fiscal 2003

users shift from video cassette recorders to DVD recorders on amajor scale. On the other hand, in the market for laser

When fiscal 2003 began, the Japanese economy wasapplication equipment and automatic machines, equipment

surrounded by a number of uncertainties, such as over theinvestment is still generally held back in Japan. The cigarette

impact of the war in Iraq on the U.S. economy and the effect ofvending machine market continued to shrink because of the

SARS (severe acute respiratory syndrome) on the Asian

global restraint on cigarette demand, but ticket vending

economy. In the second half of the year, equipment investment

machines fared strongly.

began to recover gradually and stock prices in Japan started tofollow a basically upward trend, indicating that the JapaneseIn this business environment, the Shibaura Group madeeconomy is now picking up. The economy is still under severe

concerted efforts, placing top priority on capturing orders. As acircumstances, but in the electronics industry, in which our

result, we recorded sales exceeding our initial plans for fiscal

major customers operate, there is continued active investment

2003. With respect to LCD manufacturing equipment of the Fine

in LCD manufacturers. With respect to the semiconductor

Mechatronics Segment, there was a high level of orders for wet

03

To Our Shareholders

cleaning equipment ready for next-generation large glass

Future Activities

substrates. The level of orders was also satisfactory forsemiconductor manufacturing equipment, especially bonding

In consideration of domestic and international business trends,

equipment. The Automation Systems & Vacuum Equipmentchanges in our business environment, and other factors, we

Segment recorded sales of media device manufacturing

have formulated a medium-term management plan covering theequipment that far exceeded the initial target, especiallythree years beginning with fiscal 2004. The basic idea of the

because of strong sales of DVD-related equipment. The

medium-term management plan is to refocus our efforts on aGroup's consolidated sales for fiscal 2003 totaled ¥67,521

more profitable structure and a growth path. Under the plan, we

million, showing an increase of 23% over the previous year.

are taking measures to expand business in growth fields andOrders received during the year reached an all-time high ofstrengthen our competitiveness in a deflationary environment. In¥83,033 million on a non-consolidated basis, representing an

addition, we will place priority on management that emphasizes

increase of 70% over the previous year, supported by favorable

cash flows. For this purpose, we will endeavor to further

levels of investment in equipment for manufacturing LCDs,

improve our financial structure through early collection of trade

semiconductors, and DVDs.

receivables, reduction of inventories, and so on. We will also
strive to establish a more stable earnings structure by

Faced by a number of adverse factors, including the negative

promoting "efficient management" through such measures as

impact of SARS in the first half of the fiscal year, we worked

reduction of fixed costs.

hard at improving the earnings performance by stepping up
streamlining and cost-cutting efforts in the management

Economic circumstances at home and abroad remain

innovation activity "SM2003" and implementing emergency

uncertain, though they are basically becoming brighter. In theaction plans, including the efforts to reduce fixed costs andfield of electronics, where our major customers operate, weother expenses. As a consequence of these efforts andexpect that they will steadily increase equipment investment inincreased gross profit resulting from larger-than-expectedview of brisk sales of digital home appliances and a turnaroundsales, consolidated ordinary income amounted to ¥2,068

in the demand for personal computers.

million, exceeding an initial planned amount and showing a04

year-on-year increase of ¥4,203 million. Consolidated net

In such a business environment, sales of LCD manufacturingincome stood at ¥979 million, an increase of ¥2,395 million overequipment are expected to increase because of the present

the previous year.

high level of orders, especially for next-generation equipment

To Our Shareholders

ready for large glass substrates and for bonding equipment for

manufacturing equipment makers that will lead the world

liquid crystal panels. In the field of semiconductors, demand for

manufacturing industry in the 21st century and thatback-end process equipment has recovered, and increases inmanufacturing equipment is the engine for the IT industry. Withorders and sales are projected for front-end process

this confidence and pride, we will carry on our business in theequipment, especially equipment ready for 300 mm wafers andfuture.

new processes. In the field of media device, there is acontinued strong demand for DVD-related equipment. We willIn the field of digital home appliances, such as DVDs, cellular

continue to place top priority on capturing orders by making

phones, digital cameras, and digital TVs, Japan has the powerstrenuous sales efforts at home and abroad, especially in theto develop the next generation of information technology. We

fields of new technologies.

are determined to provide manufacturing equipment that isrequired for such next-generation information technology

Furthermore, we will keep on taking measures to strengthen our

without delay.

business base and will further cut back on expenses and fixed
costs. We will endeavor to improve the profitability of our

We will keep on making incessant efforts to make ourselves thebusiness operation by fully implementing the management

only-one presence for customers as "The Provider ofinnovation activity "SM2005", which incorporates statistical

Infrastructure for The Digital Age".

management reform techniques (six sigma methodology) andthe management reform method BCM (Balanced CTQ

We hope that in expectation of further growth and prosperity ofManagement) that sets important tasks based on our

Shibaura Mechatronics, our shareholders will extend evenmanagement visions and strategies, implementing concrete

greater support and understanding to us.

measures.
July 2004

For the Future
Although Japanese companies are shifting more of their
manufacturing bases to foreign countries in the continuing
severe market environment, we are confident that it is Japanese

Hiroo Okuhara
President and Chief Executive Officer05

Financial Review

Financial Review
Shibaura Mechatronics Corporation and subsidiaries
Years ended March 31

Sales
Net Sales(¥ Billions)

2000
75.9

2001

2002

2003

2004

When fiscal 2003 began, the Japanese economy was surrounded by a number of uncertainties. In
the second half of the year, however, equipment investment began to recover gradually, and stock

71.1

67.5
54.9

54.8

prices in Japan started to follow a basically upward curve. It is considered that the Japanese
economy is now picking up.

Under these business circumstances, the flat panel display (FPD) market is growing rapidly.
Reflecting these conditions, the LCD manufacturing equipment market fared strongly, supported
by increased investment in manufacturing equipment for processing of large glass substrates. The
semiconductor manufacturing equipment market began to see a recovery in capital investment,
Operating Income

largely because of strong results from devices for cellular phones and digital cameras. In the(¥ Billions)

2000

2001

2002

2003

3.3

2004

optical disc industry, active investment is being made in DVD-related equipment. The cigarette

3.2

vending machine market continued to shrink because of the global restraint on cigarette demand,

2.7

but ticket vending machines fared strongly.

Under these severe business circumstances, the Group (the Company and its consolidated
subsidiaries) made concerted efforts, placing top priority on capturing orders. The Group's-1.5

consolidated sales in the year ended March 31, 2004, totaled ¥67,521 million, exceeding the-1.5

initially planned level and showing an increase of 23% over the previous year. Orders received
during the year reached an all-time high of ¥83,033 million on a non-consolidated basis,

Sales by Segment(¥ Billions)

2000
75.9

2001

2002

2003

54.9

54.8

71.1

2004

representing an increase of 70% over the previous year.

67.5

Profit and Loss Analysis
We worked hard at improving the earnings performance by stepping up streamlining and costcutting efforts in the management innovation activity "SM2003" and implementing emergency
Fine mechatronics
Automation systems & vacuum equipment
Vending machine & systems
Real estate leasing
Electric power components

action plans, including the efforts to reduce fixed costs and other expenses. As a consequence of
these efforts and increased gross profit resulting from larger-than-expected sales, consolidated
ordinary income amounted to ¥2,068 million, exceeding the initial planned amount and showing a
year-on-year increase of ¥4,203 million. Consolidated net income stood at ¥979 million, an
increase of ¥2,395 million over the previous year.

Overseas Sales by Region(¥ Billions)

2000

2001

27.5

27.9

2002

2003

2004

32.9
24.0

26.6

Segment Information(Fine Mechatronics Segment)
Orders for LCD manufacturing equipment came in at a steady pace, most significantly for wet

Major countries or regions
included in each geographical area ;Northeastern Asia - Korea, Taiwan
Other regions - U.S.A., Malaysia, etc.

06

cleaning equipment for next-generation large glass substrates and bonding equipment for liquid
crystal panels, especially in Japan, Taiwan and Korea. As a result, sales exceeded the initiallyplanned level. Orders for and sales of semiconductor manufacturing equipment increased,Financial Review

especially those for cellular phones and digital cameras devices and bonding equipment for the
manufacture of IC drivers of LCDs. With respect to front-end process equipment, we received

ROS
(%)

2000

increased inquiries for equipment ready for 300mm wafers and new technologies in Japan. As a

2001

2002

2003

2004

4.1

consequence, this segment recorded consolidated sales of ¥45,084 million, larger than the initially

3.1

planned amount and up 26% from the previous year. The segment's operating income amounted

2.0

to ¥1,730 million, a year-on-year increase of ¥2,380 million.

(Automation Systems & Vacuum Equipment Segment)
Media device manufacturing equipment recorded large increases in orders and sales because the

-3.4

-3.9

full-scale shift from video tape recorders to DVD recorders encouraged active investment inequipment related to write-once and rewritable DVDs. On the other hand, laser applicationequipment and automatic machines saw little increase in orders or sales because of a decrease ingeneral equipment investment reflecting stagnant business activity in Japan. This segment
recorded consolidated sales of ¥14,844 million, near the initially planned level and up 32% overthe previous year. The segment's operating income amounted to ¥436 million, showing an increase

ROE
(%)

2000

of ¥1,950 million over the previous year.

2001

2002

2003

2004

14.3

*Note 1

(Vending Machines & Systems Segment)

5.6

In the face of a continued severe business environment, including the shrinkage of the cigarette-1.2

vending machine market, the Vending Machines & Systems Segment succeeded in capturing a-0.7

larger market share through enhanced sales activities. The segment recorded consolidated sales

-5.9
-8.0

of ¥5,501 million, down 4% from the previous year, and an operating income of ¥445 million, up¥207 million from the previous year.

(Real Estate Leasing Segment)
The Real Estate Leasing Segment recorded consolidated sales of ¥2,092 million, down 2% fromthe previous year, and an operating income of ¥823 million, up ¥54 million from the previous year.

ROI
(%)

2000

2001

2002

2003

2004

8.9

*Note 1

6.3

Research and Development Expenses
The Group has been actively conducting research and development activities, ranging from basic
technologies to product development. At present, research and development is conducted by theCompany's Research & Development Division, development and design divisions at our

-1.2

-2.2
-4.4

-5.0

operations, and consolidated subsidiaries' engineering divisions. The Group has an R&D staff ofabout 280. The Companies' R&D expenses for the year ended March 31, 2004, totaled ¥1,415
million.

Note 1 : The dotted bar in 2001 indicates values
excluding the increase in retirement
benefit allowance.

Research results and R&D expenses at each operation are described below.

(1) Fine Mechatronics Segment
The segment worked on the development of LCD manufacturing equipment including wet cleaning07

Financial Review

Net Sales(¥ Billions)

2000

2001

2002

2003

2004

equipment and cell assembly equipment ready for substrates for large-screen TVs, and OLBs

75.9

71.1
R&D Expenses(¥ Billions)

2000

2001

54.9
2002

54.8
2003

67.5

(outer lead bonders) for large-screen TVs, and semiconductor manufacturing equipment including

2004

ashing equipment ready for 300mm next-generation devices, etching equipment, wet cleaning
equipment, and high-speed, high-precision FCBs (flip chip bonders). The segment's R&D

2.7
2.3

2.1

expenses totaled ¥731 million.
1.4

1.4

(2) Automation Systems & Vacuum Equipment Segment
The segment worked toward development of sputtering equipment and bonding equipment forOperating Income

DVD-ROM/R, phase change sputtering equipment for DVD-RAM/RW, sputtering equipment for(¥ Billions)

2000

2001

2002

2003

3.3

2004

photocatalysts, and so on. The segment's R&D expenses totaled ¥259 million.

3.2

2.7

(3) Vending Machines & Systems Segment
The segment worked on the development of the 2003 and 2004 models of cigarette vending
machines and on the model changeover of the KA series of ticket vending machines. The
segment's R&D expenses totaled ¥157 million.

Capital Expenditures(¥ Billions)

-1.5

-1.5
2003

2004

2003
0.6

0.7
2004

2000

2001

2002

1.0

1.0

1.0

Sales by Segment(¥ Billions)

2000
75.9

2001

2002

71.1

67.5
54.9

Financial Condition
As of March 31, 2004, total assets amounted to ¥69,245 million, an increase of ¥5,630 million overthe previous fiscal year-end. This increase is largely attributable to a year-on-year increase of

54.8¥9,567 million in current assets, which totaled ¥48,874 million at March 31, 2004. A breakdown of
the increase includes those from notes and receivable accounts resulting from larger sales,
inventories due to a larger backlog of orders, and cash and bank deposits. Property, plant andequipment decreased ¥3,936 million from a year earlier, standing at ¥20,371 million, partly
Fine mechatronics
Automation systems & vacuum equipment
Vending machine & systems
Real estate leasing
Electric power components
D/E Ratio
2000 Sales
2001 by Region
2002
2003
Overseas

2004

repayment of short-term debts, though notes and payable accounts increased because of an

2004

increase in received orders. Long-term liabilities increased by ¥6,843 million to ¥19,791 million,(¥ Billions)

2001

2002
114.8

2003

partly because of the issue of convertible bonds to meet future financial needs.

99.0

91.3
27.5

Total liabilities at March 31, 2004, amounted to ¥51,154 million, an increase of ¥4,605 million overthe previous fiscal year-end. Current liabilities decreased ¥2,237 million to ¥31,363 million, due to

(%)

132.7
2000

because we sold and leased back some property, plant, and equipment.

79.7
32.9

27.9
24.0

26.6

Total shareholders' equity at March 31, 2004, amounted to ¥18,091 million, up ¥1,025 million froma year earlier. This increase is largely attributable to the recording of a net income for the year andthat of a net unrealized holding gain on other securities.

Major countries or regions
included in each geographical area ;Northeastern Asia - Korea, Taiwan
Other regions - U.S.A., Malaysia, etc.

Cash Flows
Cash and cash equivalents (hereinafter called "funds") on a consolidated basis at March 31, 2004,
stood at ¥4,506 million, an increase of ¥1,163 million over a year earlier.

08

Financial Review

Free Cash Flows(¥ Billions)

2000(Cash Flow from Operating Activities)
Net cash provided by operating activities in the year ended March 31, 2004, amounted to ¥2,755

2001

2002

2003

2004

4.5

4.0

3.7

million, compared with ¥4,932 million provided in the previous fiscal year. This is largely
attributable to a net increase in cash due to an increase in current net income, depreciation
expense, and advance receipts, despite a decrease in cash due to an increase in accounts
receivable resulting from larger sales and an increase in inventories resulting from increased-3.0

orders that would be recorded as sales in the next fiscal year.

-4.2(Cash Flow from Investing Activities)
Net cash provided in investing activities in the year ended March 31, 2004, amounted to ¥915
million, compared with ¥469 million in net cash used in investing activities in the previous fiscal
year.

(Cash Flow from Financing Activities)
Net cash used in financing activities amounted to ¥2,506 million, compared with ¥4,373 million in
net cash used in financing activities in the previous year. This is due largely to the redemption of
convertible bonds, the repayment of short-term bank loans to strengthen our financial structure,and the issue of convertible bonds to raise funds to meet future financial needs.

Five -Year Summary
Thousands of
U.S. dollars

Millions of yen
2004

2003

¥ 67,521
54,308
3,168
1,958
979

¥ 54,761
45,428(1,502)(2,172)(1,416)

Depreciation and amortization
R&D expenses

1,756
1,415

2,080
1,409

2,144
2,313

Net income (loss) per share¥ 18.88¥ (28.40)

Total assets
Total shareholders' equity

69,24518,091

Number of employees

1,486

Consolidated
Net sales
Cost of sales
Operating income (loss)
Income (loss) before income taxes
Net income (loss)

2002
2001
Years ended March 31¥ 54,917¥ 71,117
44,51955,175(1,536)
3,262(1,810)(1,197)(1,118)
(141)

2000

2004

¥ 75,935
59,853
2,735
(968)
(215)

$ 638,857
513,843
29,974
18,524
9,265

2,065
2,685

3,302
2,115

16,61813,387¥ (22.46)¥ (2.83)¥ (4.65)$ 0.17

63,615
17,066

67,647
18,51475,394
19,704

83,09019,684655,174
171,168

1,586

1,719

1,756

2,446

1,486

09

Topics 2003 in Shibaura

Topics 2003 in Shibaura
FPD Manufacturing Equipment Opening a New Era

Following notebook computers and monitors, flat panel TVs are emerging as a big
market for LCDs. In pursuit of higher productivity, LCD manufacturers areendeavoring to manufacture larger mother glass substrates. They have successively
invested in the sixth, seventh, and eighth generations production systems. The
equipment investment to cope with the shift to larger glass substrates is making the
PI Ink Jet Coater

LCD manufacturing equipment market very active. Shibaura Mechatronics provides
LCD manufacturers at home and abroad with LCD manufacturing equipment ranging
from the front-end process to the back-end process.

With respect to wet cleaning equipment that cleans glass substrates in the front-end
process, we maintain the largest share of the worldwide market thanks to brisk salesof the fifth and subsequent generations of equipment supported by rich experienceand strong technological capabilities. In addition, we worked on the development of
new technologies, such as vertical or layered transfer and the mounting of newcleaning tools, and have succeeded in reducing equipment installation space,
ADY Award
At the FPD MANUFACTURING TECHNOLOGY

decreasing energy consumption, and cutting back necessary materials. We are

EXPO & CONFERENCE (FINETECH JAPAN), held

applying these results to the sixth and subsequent generations of equipment readyin June 2004, our cell process system, the PI ink

for large glass substrates.

jet coater was awarded this year's Advanced
Display of the Year Grand Prix in the
manufacturing equipment category. This
represents the recognition of the enormous
contribution Shibaura Mechatronics has made toWith respect to the back-end module process, we maintain the largest share of theworldwide market for OLBs (outer lead bonders) used for bonding driver ICs to

the development and practical use of innovative PI

panels, because of the high accuracy and high productivity of its product. Utilizing

ink jet technology as part of the FPD

the developed for an OLB technology for 60-inch class PDPs (plasma display

manufacturing technology.

panels), we have launched an OLB for 40-inch class large LC TVs onto the market
and thus meets the demand for increasingly larger LCDs.

In LCD cell assembly process, we have started selling a resource-saving system thatfeatures PI (polyimide) ink jet coating and LC dropping. This system is applied to thesixth and subsequent generations of equipment. Compared with conventional
systems, the PI ink jet coater has improved the material efficiency from 30% to over
70%, and is suitable for large glass substrates, partly because it does not require
printing plates. The LC drop fill system requires only one-30th of the processing timerequired by conventional systems. It has improved the liquid crystal utilization ratefrom 50 - 80 to 100%. These types of equipment in the cell assembly process help
LCD manufacturers improve production efficiency and cut back on product costs.

10

Topics 2003 in Shibaura

Orders Increasing as Productionof Digital Household Appliances Increases
Semiconductor demand is growing at an increasingly faster pace, reflecting rapidly
expanding production of digital home information appliances such as digital
cameras, DVD recorders, flat panel TVs, and camera-equipped cellular phones. For
the front-end process of semiconductor manufacture, we have etching, ashing, andwet cleaning equipment; for the back-end process, we have bonding equipment.

With respect to the front-end process, Shibaura Mechatronics is working with
Semiconductor Leading Edge Technologies, Inc. (Selete), a developer of device
process technologies, in the Asuka Project for the development of common key

Ashing/Etching Equipment for 300mm Wafer
with Common Platform

technologies for leading edge semiconductors. In May 2004, we were granted aperformance award for the development of high-temperature H 2 /He ashingtechnology. This reflects the recognition of the substantial contribution we made to
the practical use of the ultra-low-k technology by achieving ashing with no damage toultra-low-k material, which had been considered difficult thus so far. We will continue
to develop technologies to deal with the increasing sophistication of fine processes.

With respect to bonding equipment in the back-end process, our inner lead bonders
are used to manufacture IC drivers of LCDs of TVs and cellular phones, and our flip

Selete Award

chip bonders are used to manufacture of CMOS cameras of cellular phones. Orders

In May 2004 we won a performance award fromfor both products are increasing and these enjoy the top share of the worldwide.

Selete (Semiconductor Leading Edge Technologies,Inc.) for the development of ashing technology.

In the field of manufacture of IC drivers of LCDs, there is a growing trend toward
narrower pitches of TCPs (tape carrier packages) and COFs (chips on films). Ourbonding equipment has a highly stiff bonding head and stage and a high precision
positioning mechanism in order to provide stable positional and load precision evenin continuous operation under high temperatures and loads. Our bonding equipment
is highly trusted by users. We will strive for further increases in precision andthroughput, and will also make development efforts to deal with new bonding
processes such as ultrasonic bonding.

11Topics 2003 in Shibaura

Capturing the Largest Share of the World Market
by Dominating Taiwan
DVD recorders are coming into widespread use, and DVDs are replacing videotapes
on a major scale. It is predicted that shipments of DVD recorders will exceed those ofvideo tape recorders in units by fiscal 2005. The increasing use of DVD recorders is
causing an increase in demand for discs. It is projected that global demand for discs,
which exceeded 400 million discs in fiscal 2003, will surge to 2 billion in fiscal 2004
and 3 billion in fiscal 2005. Therefore, we expect continued active investment in DVD
Magnet-Optical Disc Sputtering Equipment

manufacturing equipment.

For the DVD manufacturing process, Shibaura Mechatronics provides sputtering
equipment and bonding equipment. We enjoy the top share of the market for
manufacturing equipment for DVD-R, DVD+R, and DVD-ROM, for which there is thelargest demand among all types of DVD. In particular, our bonding equipment does
its job in vacuum to do not make void and thus enables the production of discs ofmore stable quality. Hence our bonding equipment is highly rated by users.
Excellent Company AwardIn

January2004

ouraffiliate

Shibaura

Mechatronics Taiwan Corporation was presented

Shibaura Mechatronics has not so far sold an integrated DVD manufacturing line.

with an excellent company award by an optical

However, to take advantage of the fact that it has both sputtering equipment anddisc manufacturer for its equipments' performancebonding equipment, which together form the core of DVD manufacturing lines, we will

and high quality services.

aim for the top share by promoting business as an integrator in the fields of DVD-RW
and DVD-RAM.

There is progress in the standardization of BD (blu-ray disc) and HD DVD (highdefinition DVD) as the next generation of discs. Because the next-generation discs
are high in density, they must be free of air bubbles. This means that bonding in
vacuum is effective. At present, only our manufacturing equipment can bond 0.1 mm
thick films by BD standards in a vacuum. Providing experimental equipment andsmall-scale production lines for both BD and HD DVD manufacturers, we will develop
equipment together with our customers. Shibaura Mechatronics is responding toDVD-Dual which can record many hours of high-definition broadcast, will come into
wide use before BD and HD DVD.

At present, Taiwan is our main market. However, we will promote our business moreaggressively overseas, e.g. by pursuing a larger market share in India and entering
the Chinese market.

12

Environmental Activities 2003 in Shibaura

Environmental Activities 2003 in Shibaura
We achieved zero waste-emission two years earlier than scheduled.

Basic Environmental Concepts

Environmental Activities in 2003
ITo have our environmental preservation activities understood, we issued an environmental
report describing the results of our environmental activities during the year.
IIn fiscal 2003, we pursued zero waste-emission and achieved our voluntary plan target two
years earlier than scheduled.
IIn cooperation with Oita Prefectural Forestry Corporation, we planted trees on forest land (183, 000m3)
we own. As a conservation forest, it holds mountain water, helps prevent sediment discharge,
and helps reduce global warming by absorbing as much as about 1,000 tons of CO2 a year.
(Backdrop: Tree plantation)
IWe reduced CO2 emissions by saving on electric power, stepping up improvement activities,
and so on.

2002

2003
97.3

2004
99.8

83.6
75.3

1,044.3 1,055.8

1,133.6 1,148.9

790.5

2.7

30.9

75.7
205.1

292.2

Recycling(t)Voluntary Plans
IPrevention of global warming:. By fiscal 2010 we will cut the ratio of CO2 release to net sales by 28% in terms of fiscal 1990
base.
IZero waste-emission:. We launched a no-waste-emission drive in fiscal 2000 and will achieve the target of
reducing the quantity of final disposal to 1% or less of total discharge by fiscal 2005.
. By fiscal 2006 we will cut the total waste amount due to our business by 5% in terms of fiscal
2003 base.
IReducing the release of chemical substances:. By fiscal 2005 we will achieve a 30% reduction in terms of fiscal 2000 base.
IVoluntary restriction of total water and air pollutants and of noise and vibration:. We will strictly observe our self-imposed restrictions, which are based on legal restrictions.
IInformation disclosure and contribution to society:. We will disclose more environmental information and will expand our engagement in local
environmental preservation activities.
. In addition, we will continuously issue environmental reports and employ environmental
accounting.
IGreen procurement:. By fiscal 2005 we will set green procurement ratios in terms of fiscal 2000 base.
ICreation of environment-friendly designed products:. We will create environment-friendly designed products, such as by striving for weight
reduction and energy savings in our products, in consideration of product assessment.
. By fiscal 2005, in terms of fiscal 2000 base:- We will achieve 30% reductions in weight, power consumption, and so on per product function.
- We will ensure that environment-friendly designed products account for 50% or more of our sales.

2001

93.3

Waste

As The Provider of Infrastructure for The Digital Age, Shibaura Mechatronics is conscious of theenvironment in conducting production activities and aims to contribute to society by providing
environment-friendly designed products worldwide. It is one of our most important managementtasks to make efforts to protect the environment. We are working with the recognition that it is afundamental duty of mankind to pass the invaluable global environment intact on to the next
generation.

2000

Total output

Basic Policy for Environmental Protection

Zero Waste-Emission
Waste volume and growth of the recycling rate

Recycling

It is one of our most important management tasks to establish, the recycling society, in which
limited resources should be effectively used, and Shibaura Mechatronics emphasizes "EShibaura". Shibaura Mechatronics is working with three basic environmental concepts:
Environmental Mind Innovation, Production Activities Focusing on Environmental Protection, andEnvironment-Friendly Designed Products.

Waste(t)Recycling rate(%)

Prevention of Global Warming
The ratio of CO2 emissions production(t-CO2 / 100 millions of yen)
2000

2001

2002

2003

2004

73.8

72.6

71.5

70.3

69.1

48.0

51.3

53.8

Result

56.6

52.8

Plan

Transition of CO2 emissions(t-CO2)
2000

2001

2002

2003

2004

6,398.7
5,600.9

5,436.6 5,298.4

5,141.7

13

Corporate GovernanceCorporate GovernanceCorporate governance, as we define it, is the function of governing businessadministration in such a way as to increase medium-and long-term enterprise value forshareholders, customers, employees, and society. We have drawn up and are
implementing our "Code of Conduct" that provides the foundation for compliance withlaws, social norms, ethics, and the like and risk management by clearly stipulating what
all officers and all employees, who are the primary players in achieving an increase inenterprise value, should and should not do.

Shibaura Mechatronics' management team, consisting of 13 directors of the board,and the auditing team, consisting of four corporate auditors (two of them from outside
the Company) are fully displaying their decision-making and auditing functions,
respectively. These teams are always making studies to improve the existing systems.

The status of implementation of our measures related to corporate governance is asfollows:(1) We have two outside corporate auditors. Outside directors and outside corporate
auditors are supported by the General Affairs Division. We have not set up nonmandatory committees (such as a nominating, compensation, or audit committee).
(2) As a structure for monitoring the execution of business and for internal control, we
have formed a Management Audit Division, which reports directly to the President.
Its mission is to audit managerial propriety and efficiency, mainly on the basis ofbusiness performance. On the other hand, audits (especially compliance audits) bycorporate auditors and accounting audits by certified public accountants(accounting auditors) work in tandem with each other to play the auditing function
for legal issues. We have also built a system in which each division performs
voluntary audits under the supervision of the Management Audit Division.

General Meeting of Shareholders

Appoint / Dismiss

Board of Directors-----------------------Directors

Chief Executive Officer

Each Operation Division-----------------------Voluntary Audits

14

Appoint / Dismiss

Board of Corporate Auditors-----------------------Corporate Auditors

Accounting Auditors

Statutory Audits

Management Audits

Management Audit Division

Board of Directors

Board of Directors
As of June 17, 2004

16

12

14

13

11
8

6

10

5

15

7
9

3

1

2

4

Directors
President and Chief Executive Officer
1

Hiroo Okuhara

Executive Vice President
2

Toshimichi Sanada

3

Toshio Yokouchi

Senior Vice President
4

Choichi Kimura

5

Michirou Ishii

Vice President
6

Yasutomo Fujimori

7

Noboru Tamura

8

Mikio Haga

9

Nobuyuki Yamaura

10

Kunihiko Yokoyama

11

Masakazu Mori

12

Hiroshi Horioka

Corporate Auditors
Auditor
13

Michio Tsuruoka

14

Tsunemasa Tokura

Auditor(Outside)
15

Yasuaki Nakazawa

16

Noriaki Mori

15

Investor Information

Investor Information
As of March 31, 2004

Date Established

October 1939

Paid-in Capital

5,868 Million-Yen

Common Stock

Issued and outstanding : 50,033,312 shares

Number of Employees

Consolidated : 1,486

Shareholders

7,399

Stock Listings

The Tokyo Stock Exchange

Accounting Auditor

Shin Nihon & Co.

Common Stock Price Range(The Tokyo Stock Exchange)

Non-consolidated : 906

2004

2003

2002

2001

2000

High (yen)

985

604

710

1,330

1,885

Low (yen)

409

201

253

445

511

Principal Shareholders

16

Number of shares hold
Percentage of total(thousand shares)
shares outstanding (%)
Toshiba Corporation

18,977

37.9

Japan Trustee Service Bank, Ltd. (trust accounts)

2,773

5.5

The Master Trust Bank of Japan, Ltd. (trust accounts)

2,273

4.5

Trust and Custody Service Bank, Ltd. (securities investment trust) 1,276

2.6

017

Annual Report 2004
For the year ended March 31, 2004

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

FAX : + 81-45-897-2470
Printed on Recycled Paper

SEA0305A 1T 0408 03101