A BRIGHT FUTURE IN GLOBAL MARKETS
`
`2002 ANNUAL REPORT YEAR ENDED MARCH 31, 2002
`
`KOITO MANUFACTURING CO., LTD. 2002 ANNUAL REPORT
`
`SL Corporation v. Adaptive Headlamp Technologies, Inc.
`
`
`
`SL Corp. Exhibit 1046
`Case IPR2016-00193
`
`

`
`2002 ANNUAL REPORT CONTENTS
`
`PAGE 2
`
`TO OUR SHAREHOLDERS
`
`PAGE 6
`
`TECHNOLOGY
`
`PAGE 8
`
`REVIEW OF OPERATIONS AND OUTLOOK
`
`8
`10
`10
`11
`
`Japan
`
`North America
`
`Asia
`
`Europe
`
`PAGE 12
`
`RESEARCH AND DEVELOPMENT
`
`PAGE 13
`
`ENVIRONMENTAL ACTIVITIES
`
`PAGE 14
`
`BOARD OF DIRECTORS
`
`PAGE 15
`
`FINANCIAL SECTION
`
`PAGE 32
`
`NETWORK
`
`PAGE 33
`
`CORPORATE DIRECTORY
`
`PAGE 34
`
`INVESTOR REFERENCE
`
`

`
`KOITO MANUFACTURING CO., LTD. has led the way in optics since 1915, when it
`developed the fresnel lens for Japan’s first railway signals. Today, the Company’s
`integrated optical and electronic technologies—as applied in its lighting
`equipment for automobiles, aircraft parts, and other products—continue a
`tradition of global innovation for safety.
`
`CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
`This annual report contains forward-looking statements concerning KOITO MANUFACTURING CO., LTD. and consolidated subsidiaries’
`future plans, strategies and performance. These forward-looking statements are not historical facts, rather they represent assump-
`tions and beliefs based on economic, financial and competitive data currently available. Furthermore, they are subject to a number
`of risks and uncertainties that, without limitation, relate to economic conditions, worldwide competition in the automotive
`industry, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Koito therefore wishes to
`caution readers that actual results may differ materially from our expectations.
`Koito has published annual reports in Japanese from fiscal 2000 onward to ensure fair disclosure, in addition to an English
`annual report. A certified public accountant reviews the financial sections of Koito’s Japanese annual reports to ensure consistency
`in presentation between the Japanese and English versions. We hope the information presented in this annual report serves to
`deepen your understanding of Koito.
`
`

`
`The Koito Group has set its sights on becoming No. 1 in the global automotive lighting equip-
`ment market with a worldwide market share of 25%. To achieve this goal, we are enhancing our
`global manufacturing network in Japan, the U.S., Asia and Europe. This expansion is responsive
`to the needs of automakers, who are working to expand production overseas and looking to
`optimize procurement channels worldwide. The establishment of our Technical Center in China
`marked the completion of our quadrangular global network.
`
`The Year in Review
`In fiscal 2002, ended March 31, 2002, the
`global economy was weighed down by
`fears of a worldwide recession, as the U.S.
`economy slowed and impacted Asian
`economies suffered the reverberations. The
`events of September 11 dealt a further
`blow to global economic confidence.
`Japan’s economy saw capital expenditures
`dragged down by the IT downturn and
`corporate earnings deteriorate due to fall-
`ing production and sales levels. Further-
`more, a protracted upward trend in the
`jobless rate and mounting uncertainty in
`the labor markets dampened consumer
`sentiment. In all, prospects of an eco-
`nomic recovery remained faint.
`In the automotive industry, world auto-
`mobile production in calendar 2001 was
`down 3.9% at 55.8 million units accord-
`ing to the International Organization of
`Motor Vehicle Manufacturers (OICA) due
`to a decline in North America. In Japan,
`sluggish consumer spending held down
`domestic automobile sales, and exports also
`
`declined, particularly to Europe and Asia.
`In fiscal 2002, domestic automobile pro-
`duction was 9.8 million units, down 2.4%
`from last year’s level.
`In this challenging climate, the Koito
`Group posted net sales of ¥301.1 billion,
`an increase of 1.3% year on year. The
`increase was attributable to efforts to
`expand sales of new products, such as
`discharge headlamps, in our mainstay
`automotive lighting equipment business.
`However, operating income fell 11.0%
`to ¥9.8 billion, on account of develop-
`ment costs incurred to stay on top of
`frequent model changes, and start-up
`costs for new products. This result came
`despite various cost-cutting and ratio-
`nalization measures to combat escalat-
`ing price competition in our industry. Net
`income dropped 9.4% to ¥2.8 billion,
`partly due to unrealized losses on invest-
`ment securities resulting from falling
`stock prices on Japanese stock exchanges.
`
`Junsuke Kato, President
`
`Millions of yen
`(except per share amounts)
`2002
`2001
`297,280 301,141
`9,779
`10,991
`2,784
`3,072
`306,084 295,097
`
`102,532 101,738
`¥17.38
`¥19.11
`
`Net sales
`Operating income
`Net income
`Total assets
`Total shareholders’
`equity
`Net income per share
`
`2
`
`

`
`Management Policy
`The global automotive industry is likely
`to experience medium- to long-term
`growth in overall demand and production
`volumes, despite slim prospects for sharp
`increases in demand from Japan, the U.S.
`and Western European countries. Higher
`demand is forecast in the EU as a whole,
`especially in Eastern Europe, and Southeast
`Asia as economic development progresses
`in those regions. Fast-growing China is
`also poised for expansion, although its
`accession to the WTO will likely be followed
`by a transitional period before growth can
`fully take hold.
`Under its corporate banner of “Entrust-
`ing Safety to Light,” the Koito Group is
`committed to creating new value for cus-
`tomers by delivering needed technologies
`and fostering relationships of trust, as a
`first-rate manufacturer of automotive
`lighting equipment as well as electrical
`equipment for railway, traffic and aircraft.
`We will advance the following strategies
`to build an even stronger Koito Group.
`
`(1) Capture a 25% share of the global
`automotive lighting equipment
`market
`Automobile manufacturers are trying
`to fashion optimal global production,
`procurement and supply networks. We
`have responded to their needs with
`the establishment of the global prod-
`uct development and manufacturing
`framework I mentioned earlier. Using
`this network to capture new orders,
`we aim to eventually stake claim to
`25% of the global market for auto-
`motive lighting equipment.
`
`(2) Develop and expand new businesses
`and products
`At Koito, delivering products with
`value rooted in cutting-edge technol-
`ogy that anticipates customer and
`market trends is a key priority. In
`automotive lighting equipment, we
`have promoted the adoption of
`discharge headlamps worldwide.
`Furthermore, Koito is at the vanguard
`
`TO OUR SHAREHOLDERS
`
`3
`
`

`
`of next-generation headlamp systems.
`Developing new businesses is also a
`key activity to respond to emerging
`needs in a timely and accurate fash-
`ion. One example is ITS-related fields.
`
`(3) Enhance Group-wide management
`We are constantly looking to use the
`collective resources of the Group more
`efficiently. Key to this is a two-track
`approach that seeks to optimally
`allocate resources and enable Group
`companies to compensate for each
`other’s shortcomings. This dual
`approach will raise Group-wide oper-
`ating efficiency and renew our
`organization, ultimately building a
`profit structure capable of support-
`ing higher earnings.
`
`(4) Pursue quality and environmental
`preservation
`Through regular QS 9000 activities,
`we are working to cement and en-
`hance our quality assurance system.
`Equally important are regular ISO
`14001 activities—recycling, energy
`
`conservation, and eliminating the use
`of hazardous materials. These activi-
`ties are all directed toward raising our
`stature as a corporate citizen by
`contributing to the creation of a
`recycling-oriented society.
`
`Guided by these basic strategies, Koito
`and its Group companies will make
`every effort to implement concrete
`measures to deliver a high level of
`satisfaction for shareholders, employ-
`ees and customers.
`
`Outlook
`The macroeconomic environment is
`expected to present even more challenges
`to moving forward. The U.S. economy is
`shrouded in uncertainty. And in Japan a
`recovery in consumer spending remains a
`distant prospect in view of deteriorating
`levels of corporate earnings, employment
`and personal income.
`Meanwhile, the outlook for the auto-
`motive industry is mixed. Automobile sales
`in Japan will likely remain flat, but there
`is some hope that automobile sales in the
`
`4
`
`

`
`U.S. may pick up again, lifted by attractive
`financing terms offered by local automobile
`manufacturers. Meanwhile, the aviation
`industry is experiencing a continuing drop-
`off in aircraft production, prompted by
`weak demand for air travel in the after-
`math of the events of September 11.
`In this climate, the Koito Group is work-
`ing to strengthen product development,
`which is essential to capturing a greater
`volume of orders in the automotive light-
`ing equipment business over the medium-
`to long-term. As mentioned earlier, the
`completion of the new Technical Center
`in China, run by Shanghai Koito Automo-
`tive Lamp, marked the completion of a
`global product development framework
`based in four regions around the world.
`Our three other global R&D bases include
`a Technical Center in the U.S., operated
`by North America Lighting, Inc. (NAL), the
`Koito Europe Technical Center in Belgium,
`and Koito Manufacturing’s Technical Cen-
`ter in Japan. On the manufacturing front,
`Koito is significantly expanding produc-
`tion capacity through the opening of new
`plants around the world. July 2002 saw
`the completion of NAL’s third plant, and
`
`in September of 2002 another new factory
`to be operated by Koito Czech s.r.o. was
`completed. We are also redoubling efforts
`in other areas to ensure long-term growth
`for the entire Koito Group. This involves
`strengthening our competitiveness by
`shortening development periods and
`implementing various cost-cutting mea-
`sures, as well as expanding our share of
`the global market to secure overseas
`earnings streams.
`
`JUNSUKE KATO, President
`September 2002
`
`5
`
`

`
`TECHNOLOGY
`
`Together with expanding its production bases as a truly global au-
`tomobile parts supplier, Koito has a quadrangular R&D system with
`research facilities in Japan, the United States, Europe and Asia.
`The nucleus of this framework is the Technical Center in Japan. This
`system facilitates surveys and analysis of technical and regulatory
`requirements in the United States and Europe, as well as techno-
`logical trends and the needs of the rapidly motorizing Asian mar-
`ket. The results of these surveys and analyses help the Company to
`develop proprietary technologies and products and propose lamps
`and other products that remain a step ahead of the competition.
`
`BL-1
`
`BL-2
`
`BL-3
`
`±5%
`HL
`
`AFS (Adaptive Front Lighting System)
`
`Koito offers a wide product range, from incandescent lamps to halogen and discharge bulbs. Cur-
`rently, the Company is concentrating on an AFS, an ideal headlamp system borne out of the desire to
`provide safety through lighting. This system automatically controls the intensity of light to suit
`changes in weather, road and other driving conditions. The AFS system not only makes driving
`easier, but is designed with oncoming traffic and pedestrians in mind.
`BL-1: Cornering under normal conditions/rainy weather
`BL-2: Low-speed cornering
`BL-3: Illumination at intersections
`
`(BL: Bending Lamp)
`
`66
`
`

`
`EUROPE
`
`ASIA
`
`JAPAN
`
`NORTH AMERICA
`
`Koito Europe Technical Center
`Location: Zaventem, Belgium
`Established: July 1999
`Employees: 40
`
`Shanghai Koito Technical Center
`Location: Shanghai, China
`Established: May 2002
`Employees: 60
`
`Koito Technical Center
`Location: Shimizu City,
`Shizuoka Prefecture
`Established: May 1997
`Employees: 1,010
`
`North American Lighting
`(NAL) Technical Center
`Location: Farmington Hills,
`Michigan, U.S.A.
`Established: April 1993
`Employees: 190
`
`7
`
`

`
`JAPAN
`
`Review of Operations and Outlook
`
`쏋Automotive Lighting Equipment Segment
`Expanding Sales of Gas Discharge Headlamps (GDHLs)
`The Koito Group continues to post strong sales of GDHLs. These
`headlamps are brighter than existing halogen lamps, but have a
`relatively high unit price. We have made every effort to expand
`sales further with the development of a two-lamp GDHL system.
`Our GDHLs are steadily finding their way into compact cars and
`light vehicles as a result.
`In fiscal 2002, automobile production in Japan decreased
`2.4% year on year to 9.8 million units. However, the share of
`new cars equipped with GDHLs rose to 12%, from 9% in the
`preceding fiscal year. Toyota Motor Corporation, in particular,
`actively adopted GDHLs for use in model changes. In all, Koito
`shipped 1,588,000 GDHLs during the year, 54% more than in
`the previous fiscal year. This made a sizable contribution to
`sales growth. In fiscal 2002, Koito headlamps were installed in
`55% of new vehicles manufactured in Japan. Looking at GDHLs
`only, Koito captured a high market share of 68%. This strong
`showing prompted us to start construction of a new wing at the
`Shizuoka Plant dedicated to GDHLs in July 2001. This wing has
`played a key role in enhancing quality and lowering costs. We
`anticipate the share of vehicles equipped with GDHLs to rise
`steadily in coming years. Specifically, we project the percent-
`age of GDHL-equipped vehicles to reach 34% by fiscal 2005.
`Although domestic automobile production is projected to con-
`tinue on a downward path, Koito intends to maintain a consis-
`tent level of sales by expanding GDHL shipments.
`
`NET SALES
`(Millions of yen)
`
`213,880 220,425 220,967
`
`
`
`88
`
`2000
`
`2001
`
`2002
`
`

`
`in public-works projects. Another factor was
`the separation of washlet toilet operations.
`KOITO INDUSTRIES had supplied washlet
`toilets to TOTO, LTD. on an OEM basis. In
`October 2001, this business was separated
`from KOITO INDUSTRIES and merged into
`a new joint-venture company called Pan
`Washlet Co., Ltd., which was established with
`Tokyo Stock Exchange-listed company TOTO
`and Nagoya Stock Exchange-listed Aichi
`Electric Co., Ltd. Pan Washlet is accounted
`for by the equity method by Koito Manufac-
`turing Co., Ltd.
`
`쏋Other Products Segment
`Segment sales rose 4.8% year on year to
`¥22.3 billion. The Koito Group recorded
`strong sales of card readers for convenience
`stores, Shinkansen seats and airplane seats,
`mainly exports. These were partly offset
`by lower sales of power-window regulators
`and headlamp cleaners, which reflected a
`fall in production of vehicles that employ
`those products.
`
`New Signaling Lamp Products
`Signaling lamps, particularly rear combi-
`nation lamps (RCLs), perform a vital safety
`role by indicating the driver’s intention
`to following cars. At the same time, sig-
`naling lamps are a key design element.
`Emphasizing the design aspect of these
`lamps, we have proposed replacing the
`miniature light bulbs that have served as
`traditional RCL light sources with light-
`emitting diodes (LEDs) in order to enhance
`vehicle appearance. These proposals have
`been well received, and LED-source RCLs
`were adopted for use in the Toyota Estima
`Hybrid and the Nissan Skyline during the
`fiscal year under review. Koito expects
`these new products to rapidly penetrate
`the market, owing to their elegant
`design, improved visibility and energy
`efficiency.
`
`Quality Assurance
`Koito is working to “assure quality so as
`to secure the confidence of customers and
`guarantee customer satisfaction.” With
`this in mind, the Company has imple-
`mented a variety of quality assurance pro-
`grams. In July 2001, Koito’s Haibara Plant
`and Sagara Plant obtained the QS 9000
`and ISO 9001 international certifications
`for quality assurance systems. All Koito
`manufacturing facilities located in Japan
`are now QS 9000- and ISO 9001-certified
`as a result. Of course, Koito views full cer-
`tification as only a beginning. From here,
`we intend to redouble our efforts to
`enhance quality assurance.
`
`Shortening Development Time-Frames
`Automobile manufacturers are embroiled
`in fierce competition in the quest to roll
`out new, strong-selling models at the low-
`est possible cost, based on a precise
`understanding of market needs. In par-
`ticular, shortening the time required to
`develop new models is vital. This is natu-
`rally a major theme for automotive com-
`ponents suppliers, too. Automobile lamps
`in particular are a critical component of
`new cars, developed together with auto-
`mobile manufacturers, right from the
`concept stage. Koito aims to shorten
`development periods, first to 10 months
`or less, and eventually to 6 months. This
`will be accomplished by extending the
`application of an existing proprietary sys-
`tem called “evolution—KOITO Innovation
`of Neo-Digital System (e-KINDS).” Bran-
`dishing a framework that permits short
`development periods, Koito looks to cap-
`ture even more orders in the years ahead.
`
`쏋Non-Automotive Electrical Equip-
`ment Segment
`Subsidiary KOITO INDUSTRIES, LIMITED
`(“KOITO INDUSTRIES”) is responsible for
`manufacturing and sales in this segment.
`Sales in this segment were down 5.8%
`year on year at ¥57.1 billion.
`Fiscal 2002 saw sales growth in traffic
`information devices, thanks to efforts to
`expand sales of new products. However,
`these gains were outweighed by a fall in
`sales of traffic signals, streetlights and
`stadium lighting, which reflected cutbacks
`
`9
`
`

`
`Automotive Lighting Equipment Segment by Region
`
`NORTH AMERICA
`
`ASIA
`
`In North America, Illinois-based North
`American Lighting, Inc. (NAL), a con-
`solidated subsidiary, manufactures
`and supplies automotive lighting
`equipment to automobile manufactur-
`ers based in the region. Located in
`Flora, Illinois, the company’s Flora
`Plant mainly manufactures headlamps,
`while its Salem Plant specializes in
`signaling lamps. In the fiscal year
`ended March 31, 2002, NAL recorded
`net sales of ¥40,979 million, an
`increase of 2.9% year on year. Sales
`to Japanese automobile manufactur-
`ers accounted for approximately 70%
`of NAL’s net sales.
`NAL operates a Technical Center in
`Farmington Hills, a suburb of Detroit.
`The Technical Center and marketing
`divisions are working together to cap-
`ture orders. In fact, some orders from
`North American automobile manufac-
`turers run several years into the
`future. For example, NAL won a major
`order from General Motors Corporation
`for large standard fog lamps that far
`exceeded production capacity at the
`time. This led NAL to build a new plant
`for headlamps and fog lamps in Paris,
`Illinois. Completed in July 2002, the
`plant has already begun operations,
`significantly enhancing NAL’s produc-
`tion capacity. Looking ahead, NAL will
`continue to build on its standing as
`North America’s largest automotive
`lighting equipment manufacturer by
`expanding production capacity further.
`
`NET SALES
` [North America]
`(Millions of yen)
`
`39,830
`
`40,979
`
`35,384
`
`2000
`
`2001
`
`2002
`
`NET SALES
` [Asia]
`(Millions of yen)
`
`32,370
`
`33,927
`
`25,302
`
`2000
`
`2001
`
`2002
`
`China:
`China’s automotive industry has made
`significant progress, spurred on by a
`national motorization project. Today,
`China has over 20,000km of highway,
`ranking it second in the world. In cal-
`endar 2001, automobile production
`topped 2 million vehicles and high
`growth is forecast for the years ahead.
`Shanghai Koito Automotive Lamp Co.,
`Ltd., our local subsidiary, is steadily
`expanding its volume of business in
`China. Its major customers include
`Shanghai Volkswagen Automotive
`Company Ltd. and Shanghai General
`Motors Co., Ltd. In the fiscal year
`ended March 31, 2002, net sales
`climbed 11.0% year on year to
`¥9,198 million with lighting equip-
`ment for new models, such as the
`VWB5 Passat and GM Corsa, contrib-
`uting significantly to sales growth.
`Shanghai Koito Automotive Lamp’s
`unrivaled technological expertise and
`production facilities, which outshine
`local competitors—combined with the
`country’s growth potential—spells
`promising opportunities for the com-
`pany to significantly expand orders.
`Fueling expectations are Japanese
`automobile manufacturers’ plans to
`begin production in China. Toyota has
`already led the way with production
`at Tianjin Toyota Motor Co., Ltd.
`Koito is encouraging its overseas
`Group companies to conduct product
`and technological development
`activities independently. Shanghai
`Koito Automotive Lamp is firmly
`positioned for the next stage of
`
`growth with a larger technical staff
`and the completion of a new Techni-
`cal Center in April 2002. China’s
`accession to the WTO in December
`2001 is likely to trigger fierce com-
`petition among China-based automo-
`bile manufacturers. Shanghai Koito
`Automotive Lamp will make use of its
`Technical Center to respond precisely
`to their needs.
`Thailand:
`Automobile production in Thailand is
`steadily expanding, having overcome
`a temporary setback in the wake of
`the events of September 11 and the
`economic malaise in the U.S. and
`Europe. Production has recovered to
`approximately 80% of 1996’s peak
`level. THAI KOITO COMPANY LIMITED
`is responsible for manufacturing and
`sales of automotive lighting equip-
`ment in Thailand and elsewhere in
`Southeast Asia.
`In fiscal 2002, THAI KOITO reported
`net sales of ¥4,154 million, an
`increase of 15.0% year on year. This
`mainly reflected a steady increase in
`sales to Siam Nissan Automobile Co.,
`Ltd. and Toyota Motor Thailand Co.,
`Ltd. as well as new orders from Honda
`Automobile (Thailand) Co., Ltd. for
`lighting equipment for motorcycles.
`In fiscal 2003, ending March 2003,
`THAI KOITO will begin supplying
`GDHLs to Toyota Motor Thailand Co.,
`Ltd. for use in the Toyota Camry.
`
`North America
`To cope with a steady increase in orders from North
`American automobile manufacturers, NAL has built
`its third plant in Paris, Illinois. The plant came
`online in July 2002. Plans call for the annual pro-
`duction of 2 million headlamps by 2004 at NAL’s
`new Paris Plant.
`
`10
`
`

`
`EUROPE
`
`UK-based Koito Europe Limited
`(KEL) is responsible for supplying
`automotive lighting equipment in
`this region. In fiscal 2002, KEL
`reported sales of ¥5,267 million, an
`increase of 13.2% year on year,
`mainly reflecting shipments of rear
`combination lamps to Toyota Motor
`Manufacturing France S.A.S. for the
`Yaris model, and headlamps to
`Renault S.A. for the Velsatis model.
`However, the company’s operating
`loss widened to ¥1,322 million due
`to fierce price competition. But KEL
`began producing GDHLs in the year
`under review and began shipments
`to Volvo for use in trucks in November
`2001 and to Renault for the Velsatis
`model the following March. Mean-
`while, with full support from Koito
`Manufacturing, KEL has secured
`orders for new models, which should
`lift sales in the near future. To
`expand production capacity in
`Europe, Koito Czech s.r.o. was
`established in March 2001 as a sec-
`ond European production base in the
`Czech Republic. Immediately after-
`wards, construction of an automo-
`tive lighting equipment plant began.
`The new plant was completed in
`September 2002. Koito is realign-
`ing its operating structure in Europe
`by transferring headlamp production
`from KEL to the new plant in the Czech
`Republic in order to improve earnings.
`
`directly to sales growth in automotive
`lighting equipment, because the local
`automobile market is fairly limited in
`size. However, Ta Yih Industrial will
`work to improve its operating results
`by supplying molds, for instance, to
`other Koito Group companies.
`India:
`Although India’s economy remains
`sluggish, automobile production is
`thriving as Japanese, European and
`Korean automobile manufacturers
`begin full-scale production of new
`models. Nonetheless, the automotive
`lighting industry is embroiled in
`heated price competition. India Japan
`Lighting Ltd. is responsible for Koito’s
`production of automotive lighting
`equipment in the country. Main cus-
`tomers include Maruti Udyog Ltd.,
`Toyota Kirloskar Motor Ltd., TATA
`ENGINEERING & LOCOMOTIVE CO. LTD.
`and Honda Siel Cars India Ltd. India
`Japan Lighting also welcomed a host
`of new customers during the year,
`including Fiat India Automobiles Ltd.
`and Ford India Ltd. In the fiscal year
`ended March 31, 2002, however, India
`Japan Lighting’s sales were held to
`¥909 million, a year-on-year increase
`of 3.0%. Looking ahead, India Japan
`Lighting will try to capture new orders,
`while working to trim costs in order
`to deliver improved operating results.
`
`Korea:
`Korea’s economy has been slowing
`recently, despite having overcome the
`1997 currency crisis. In the Korean
`automotive industry, production is
`increasingly centered on the Hyundai/
`Kia Group. In fiscal 2002, Inhee Light-
`ing Co., Ltd. recorded net sales of
`¥12,854 million, an increase of 13.0%
`year on year. This increase mainly
`reflected higher production levels at
`the Hyundai Group, and new orders
`for large headlamps, high-end rear
`combination lamps and foglamps.
`Inhee Lighting has grown into a major
`overseas subsidiary, second only to
`NAL in the U.S. Inhee Lighting is com-
`mitted to enhancing marketing and
`product development in an effort to
`increase orders.
`Taiwan:
`Taiwan’s economy is facing mounting
`difficulties after being thrown into a
`tailspin by the downturn in the IT
`industry. The automotive industry is
`also in a crunch, as seen in slumping
`automobile production. In Taiwan, our
`local subsidiary Ta Yih Industrial Co.,
`Ltd. has nearly cornered the entire
`market. In fiscal 2002, Ta Yih Indus-
`trial reported net sales of ¥7,578 mil-
`lion, down 14.0% year on year due
`mainly to declines in automobile
`production and the effects of the eco-
`nomic slowdown. In March 2002, the
`company began delivering GDHLs to
`Kokuzui Motors, Ltd. for use in the
`Toyota Camry. Koito does not foresee
`substantial increases in local auto-
`mobile production, which relate
`
`NET SALES
` [Europe]
`(Millions of yen)
`
`5,267
`
`4,466
`
`4,652
`
`2000
`
`2001
`
`2002
`
`Europe
`In September 2002, Koito Czech s.r.o. completed
`the construction of a new plant in the Czech Repub-
`lic. The plant will serve as a second European pro-
`duction base for Koito and will respond to a greater
`volume of orders from the European market. Plans
`call for annual production of 1.6 million headlamps
`by 2005 and 1 million signal lamps by 2007.
`
`

`
`RESEARCH AND DEVELOPMENT
`
`The Koito Group is engaged in the creation
`of original systems and products capable of
`ensuring the highest degree of safety. These
`systems and products incorporate the latest
`ideas in electronics as well as other tech-
`nologies. The Group’s technological devel-
`opment activities rest on two main pillars:
`R&D for the creation of new technologies,
`and R&D for the commercialization of new
`products. Aiding the environment is another
`research theme. The Group is actively
`engaged in development activities connected
`with recycling, non-polluting materials and
`manufacturing methods that have a lower
`environmental impact.
`In Japan, the Koito Group’s technology
`development in the area of automotive
`lighting equipment is carried out at Koito
`
`Non-automotive lighting equipment
`Main R&D themes were:
`(1) Image transmission technologies for rail-
`way rolling stock
`(2) System development for ITS-related
`machinery and materials
`(3) Internet-based systems
`
`Others
`Main R&D themes were:
`(1) Non-lighting automotive components
`(2) Aircraft components and seats
`(3) New products in new business domains
`
`Japan’s Ministry of Land, Infrastructure and
`Transport has announced plans to begin draft-
`ing amendments to standards governing AFS,
`for enactment in October 2002. Koito is
`focusing sharply on implementing R&D
`advances in AFS, targeting commercialization
`of products as early as 2003 to coincide with
`the proposed new regulatory framework.
`
`Manufacturing’s Engineering Headquarters
`and Research Laboratory. KOITO INDUSTRIES,
`LIMITED, on the other hand, mainly undertakes
`development in the field of non-automotive
`electronic equipment. Overseas, the Koito Group
`has three global R&D bases: a Technical Center
`in the U.S. run by North American Lighting;
`the Koito Europe Technical Center in
`Belgium; and a Technical Center in China
`run by Shanghai Koito Automotive Lamp. In
`all, the Koito Group has four R&D bases around
`the world that support a close-knit R&D frame-
`work. The Koito Group has 1,760 R&D per-
`sonnel worldwide.
`In fiscal 2002, R&D costs totaled ¥19,174
`million, equivalent to 6.4% of consolidated
`net sales. This breaks down into ¥15,672
`million in the automotive lighting segment,
`¥1,692 million in the non-automotive light-
`ing segment and ¥1,810 million in the oth-
`ers segment.
`
`The main research themes in each segment
`in fiscal 2002 are outlined below.
`
`Automotive lighting equipment
`Main R&D themes were:
`(1) Next-generation automotive lighting
`equipment
`(Adaptive Front Lighting System (AFS),
`Adaptive Rear Lighting System (ARS) and
`others)
`(2) Production technologies
`(3) Simulation technologies
`
`12
`
`

`
`As a result, Koito reduced the volume of
`waste sent to landfills to 308 m3, a 49.0%
`decrease year on year, assisted by the
`development and installation of a new Bio-
`boost System that uses bacteria to reduce
`the weight of paint flakes. CO2 emissions per
`net sales improved 2.4% to 121.8 grams per
`¥1,000. In fiscal 2002, Koito also eliminated
`all dioxin-emitting incinerators and made
`steady progress in Pollutant Release and
`Transfer Register (PRTR) activities.
`Koito remains committed to developing
`technologies in an environmentally sound
`manner, while pursuing active disclosure
`through regular environmental reports and the
`introduction of environmental accounting.
`
`As the 21st century dawns, Koito is keenly
`aware that mitigating the impact of
`industrial activity on the environment is a
`priority issue for management. Automobile
`manufacturers are actively engaged in envi-
`ronmental issues, particularly in the areas
`of recycling and the development of fuel-
`cell cars. As a leading player in the automo-
`tive industry, Koito performs Life Cycle
`Assessments of all its manufactured prod-
`ucts. At the same time, Koito is vigorously
`working to resolve environmental issues
`posed by non-manufacturing operations. The
`Environmental Committee was established
`in September 1998 to centralize the man-
`agement of environmental activities per-
`formed by each division and business office,
`and to motivate all employees. The goal is
`to build a framework that unites the envi-
`ronmental activities of the entire Company.
`Indeed, the entire Koito Group is actively
`engaged in reducing its impact on the natu-
`ral environment. The parent company has
`extended its environmental practices to
`Group companies, and assists in implement-
`ing environmental safeguards appropriate to
`a given region or country.
`
`The Koito Environmental Management Sys-
`tem comprises a cycle of daily environmental
`activities geared to meeting environmental
`goals and targets formulated based on envi-
`ronmental policy, review and modification of
`environmental systems by management, and
`the setting of new environmental targets and
`plans for the following year based on this
`review. Under the banner of “contributing to
`the recycling society by extensively imple-
`menting ISO 14001,” Koito conducted envi-
`ronmental activities encompassing recycling,
`energy conservation, and elimination of haz-
`ardous substances in fiscal 2002.
`
`The Koito Group pursued the following
`environmental activities during the year:
`1. Legal compliance with all regulations on
`hazardous materials and enhanced self-
`assessment procedures
`2. Reduction of the volume of waste sent to
`landfills, with the aim of achieving zero
`waste and emissions
`3. Effective use of resources
`4. Promotion of energy conservation measures
`
`ENVIRONMENTAL ACTIVITIES
`
`13
`
`

`
`BOARD OF DIRECTORS
`
`IWAO OKIJIMA
`Chairman
`
`JUNSUKE KATO
`President
`
`TAKASHI OHTAKE
`Executive Vice President
`
`AKIRA KOITO
`Executive Vice President
`
`Chairman
`Iwao Okijima
`
`President
`Junsuke Kato
`
`Executive Vice Presidents
`Takashi Ohtake
`Akira Koito
`
`Executive Senior
`Managing Directors
`Masahiro Ohtake
`Toyofumi Nakagawa
`Noriaki Yonezawa
`
`Executive Managing
`Directors
`Takao Sato
`Shuichi Goto
`Yutaka Furuyama
`Koichi Katase
`Keiji Kato
`Hiroshi Koishihara
`
`Directors
`Haruo Ueno
`Shigeo Mine
`Mizuo Yamamuro
`Isao Sano
`Mitsuo Kikuchi
`Shigeki Okuma
`Yoshihisa Ogawa
`Mikio Tsuruta
`Toshiharu Suzuki
`Koichi Sakakibara
`
`Standing Corporate
`Auditors
`Akira Kamada
`Akira Nagasawa
`
`Corporate Auditors
`Koichi Kusano
`Nobuyoshi Kawashima
`
`14
`
`

`
`FINANCIAL SECTION
`FINANCIAL SECTION
`
`PAGE 16
`PAGE 16
`
`SIX-YEAR SUM MARY
`SIX-YEAR SUMMARY
`
`MANAGEMENT'S DISCUSSION AND ANALYSIS
`PAGE 17
`PAGE 17 MANAGEMENT’S DISCUSSION AND ANALYSIS
`
`PAGE 20
`PAGE 20
`
`CONSOLIDATED BALANCE SHEETS
`CONSOLIDATED BALANCE SHEETS
`
`PAGE 22
`PAGE 22
`
`CONSOLIDATED STATEMENTS OF INCOME
`CONSOLIDATED STATEMENTS OF INCOME
`
`PAGE 23
`PAGE 23
`
`CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
`CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
`
`PAGE 24
`PAGE 24
`
`CONSOLIDATED STATEMENTS OF CASH FLOWS
`CONSOLIDATED STATEMENTS OF CASH FLOWS
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`PAGE 25
`PAGE 25 NOTES TO CONS