Annual Repor t 2014
Fiscal Year Ended March 31, 2014
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
4
D
A
I
K
I
N
I
N
D
U
S
T
R
I
E
S
,
L
T
D
.
On Daikin’s 90th Anniversary, Toward a New
Phase of Development as a Global Company
Based on Long Years of History and Experience
Founded in 1924, Daikin has become a global company with its air-conditioning systems and fluorochem-
istry businesses at the core. The year 2014 is the 90th anniversary of its founding, and today the Daikin
Group does business in 145 countries with 74 production facilities.
Preventing global warming and raising energy efficiency are key topics shared by developed countries
and emerging ones. Air conditioners use electricity and gas, and emit CO2. The Daikin Group believes that
energy control is an important part of its mission. Offering products and solutions that bring about both
comfortable living and environmental friendliness to a high level, going forward, the Group will strive to raise
corporate value even higher and further contribute to society.
Based on its 90 years of history and experience, the Daikin Group will continue to earn the trust and meet
the expectations of investors and the global community, and aim for a new phase of development.
Contents
Our Group Philosophy ............................ 1
Financial Highlights ................................. 2
At a Glance ............................................ 3
A Message from the CEO ....................... 4
Interview with the CEO ........................... 6
Review of Operations
Air Conditioning—
the Japanese Market ...................... 12
Air Conditioning—
the Global Market ........................... 14
Chemicals ......................................... 16
DAIKIN INDUSTRIES, LTD.
Oil Hydraulics .................................... 18
Defense ............................................ 19
Corporate Governance ......................... 20
Directors, Audit and Supervisory Board
Members, and Executive Officers........ 22
CSR (Corporate Social Responsibility).... 23
Financial Section
Eleven-Year Financial Highlights ........ 28
Financial Review ............................... 30
Consolidated Balance Sheet ............. 36
Consolidated Statement of Income ... 38
Consolidated Statement of
Comprehensive Income .................. 39
Consolidated Statement of
Changes in Equity ........................... 39
Consolidated Statement of
Cash Flows ..................................... 40
Notes to Consolidated
Financial Statements ....................... 41
Independent Auditors’ Report ........... 63
Corporate Data ................................. 64
Our Group Philosophy
1. Create New Value by Anticipating the Future Needs of Customers
2. Contribute to Society with World-Leading Technologies
3. Realize Future Dreams by Maximizing Corporate Value
4. Think and Act Globally
5. Be a Flexible and Dynamic Group
1. Flexible Group Harmony
2. Build Friendly yet Competitive Relations with Our Business Partners to Achieve
Mutual Benefit
6. Be a Company that Leads in Applying Environmentally Friendly Practices
7. With Our Relationship with Society in Mind, Take Action and Earn Society’s Trust
1. Be Open, Fair, and Known to Society
2. Make Contributions that Are Unique to Daikin to Local Communities
8. The Pride and Enthusiasm of Each Employee Are the Driving Forces of Our Group
1. The Cumulative Growth of All Group Members Serves
as the Foundation for the Group’s Development
2. Pride and Loyalty
3. Passion and Perseverance
9. Be Recognized Worldwide by Optimally Managing the Organization and its
Human Resources, under Our Fast & Flat Management System
1. Participate, Understand, and Act
2. Offer Increased Opportunities to Those who Take on Challenges
3. Demonstrate Our Strength as a Team Composed of Diverse Professionals
10. An Atmosphere of Freedom, Boldness, and “Best Practice, Our Way”
Forward-Looking Statements
This annual review contains statements regarding the future plans and strategies of Daikin Industries, Ltd. (the Company), as well as the Company’s future perfor-
mance. These statements are not statements of past facts but are based on judgments made by the Company on the basis of information known at the time.
Therefore, readers should refrain from drawing conclusions based only on these statements regarding the future performance of the Company. The actual future
performance of the Company may be influenced by economic trends, strong competition in the industrial sectors where it conducts its operations, foreign currency
exchange rates, and changes in taxation and other systems. For these reasons, these forward-looking statements are subject to latent risk and uncertainty.
1
ANNUAL REPORT 2014
Financial Highlights
Daikin Industries, Ltd. and Consolidated Subsidiaries
Years Ended March 31
Operating Results (for the year):
Net sales
Gross profit
Operating income
Net income
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note)
Net cash provided by (used in) financing activities
Financial Position (at year-end):
Total assets
Total shareholders’ equity
Per Share Data (yen):
Net income (basic)
Shareholders’ equity
Cash dividends
Cash flow per share
Ratios (%):
Gross profit margin
Operating income margin
Return on shareholders’ equity (ROE)
Shareholders’ equity ratio
Note: Free cash flow = Net cash provided by operating activities + net cash used in investing activities.
Millions of yen
2013
2014
¥1,290,903
388,046
88,627
43,585
¥1,783,077
566,861
155,075
91,880
¥103,161
(218,386)
(115,225)
143,520
¥179,713
(80,835)
98,878
(38,249)
¥1,735,836
618,118
¥2,012,531
802,344
¥ 149.73
2,123.10
36.00
(396)
¥ 315.21
2,749.76
50.00
339
30.06%
6.87
7.78
35.61
31.79%
8.70
12.94
39.87
Net Sales, Gross Profit,
and Gross Profit Margin
(¥ billion)
1,800
1,500
1,200
900
600
300
0
(%)
36
30
24
18
12
6
0
Operating Income and
Operating Income Margin
(¥ billion)
180
150
120
90
60
30
0
ROE
(%)
15
12
9
6
3
0
(%)
12
10
8
6
4
2
0
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Net Sales
Gross Profit
Gross Profit Margin
Operating Income
Operating Income Margin
2
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section At a Glance
Percentage of Net Sales
Air-Conditioning 89.3%
Chemicals 7.9%
Defense 1.0%
Air-Conditioning
Net Sales and Operating Income (Loss)
Major Products
• Room air-conditioning systems
• Heat-pump hot-water-supply and room-heating
systems
• Packaged air-conditioning systems
• Multiple air-conditioning systems for office buildings
• Air-conditioning systems for facilities and plants
• Medium- and low-temperature air-conditioning
systems
• Absorption refrigerators
• Humidity-adjusting external air-processing units
• Air purifiers • Water chillers
• Air-handling units
• Marine-type container refrigeration
• Fluorocarbons
• Fluoroplastics
• Fluoroelastomers
• Fluoropaints
• Fluoro coatings
• Fluorinated oils
• Oil- and water-repellent products
• Mold release agents
• Pharmaceuticals and intermediates
• Semiconductor-etching products
• Dry air suppliers
• Oil hydraulic pumps
• Oil hydraulic units
• Oil hydraulic valves
• Cooling equipment and systems
• Hydrostatic transmissions
• Centralized lubrication units and systems
• Warheads for Japan’s Ministry of Defense
• Warhead parts for guided missiles
• Home-use oxygen therapy equipment
(¥ billion)
1,600
1,200
800
400
0
138.5
1,592.9
(¥ billion)
160
120
80
40
0
2010
2011
2012
2013
2014
Chemicals
(¥ billion)
(¥ billion)
160
120
80
40
0
14.2
140.2
24
18
12
6
0
2010
2011
2012
2013
2014
Oil Hydraulics
(¥ billion)
(¥ billion)
30
20
10
0
1.4
29.0
30
20
10
0
-10
-40
2010
2011
2012
2013
2014
Defense
(¥ billion)
20
15
10
5
0
0.5
17.3
(¥ billion)
0.8
0.6
0.4
0.2
0
2010
2011
2012
2013
2014
Oil Hydraulics 1.6%
Description
Since becoming the first in
Japan to manufacture
packaged air-conditioning
systems in 1951, Daikin
has supported comfortable
living based on the
strengths of technologies
that it has itself nurtured as
the world’s sole manufac-
turer to create a full line of
products from refrigerants
to air conditioners.
In 1933, Daikin was the first
in Japan to engage in
research on fluorinated
refrigerants. Today, our
activities range from
research and development
to commercialization, and
we offer a lineup of more
than 1,800 fluorine com-
pounds.
Daikin’s unique hydraulic
technologies offer out-
standing energy-conserva-
tion performance and are
contributing to the devel-
opment of industry by
unleashing the potential of
power control.
Daikin’s superior machining
and quality control technol-
ogies are used in the pro-
duction of defense-related
products and other indus-
tries where high levels of
precision and performance
are critical.
3
ANNUAL REPORT 2014 A Message from the CEO
Aiming for Sustainable Growth
Continuing the momentum of record results in fiscal 2014, Daikin has
welcomed fiscal 2015, which is the 90th anniversary of our founding. Going
forward, the Daikin Group will expand business globally while reforming its
business model and improving the environmental performance of its
products and technologies.
Fiscal 2014 (ended March 31, 2014) saw record levels of net sales, operating income, ordinary
income, and net income. The year also welcomed fiscal 2015, which is our 90th anniversary.
The Daikin Group continues to place all efforts for sustained growth by responding speedily
and flexibly to a changing market environment.
Specifically, under the FUSION 15 strategic management plan, aiming for a large expansion in
net sales, we will increase our sales capabilities by reinforcing our sales network and developing
new sales outlets in all markets, including in emerging countries. Also, Daikin will work to further
develop its solutions business, including service, maintenance, installation, and control, and
expand its environmental innovations business, which places next-generation refrigerants and
heating systems as core business lines. Together with this growth strategy, the Group will carefully
manage investments and fundamentally reduce fixed costs to further build a business structure
with high profitability. Furthermore, we will raise quality assurance and compliance systems, and
strengthen our human resources, which are the core of global Group management, to further
put in place the business structure needed for sustainable growth.
In 2012, the Daikin Group adopted the new refrigerant R32, which reduces the global warming
factor by two-thirds over traditional refrigerants. Since then, aiming for R32 to be adopted global-
ly, we have actively worked with environmental and air-conditioning-related parties in each country
and region on setting a new global standard. Through this, we are meeting our role as a top
maker of air-conditioning systems. Moreover, we think it is pressing to work quickly to switch sys-
tems in emerging markets. Daikin is also introducing energy-efficient inverter system air condition-
ers in mass market price ranges in emerging markets, and, through this and other efforts, we will
both contribute to preventing global warming and expand business.
I have always believed that the key to corporate growth is above all responding flexibly and with
agility to changing times, and sparking innovation. Looking forward to our 100th anniversary, I aim
for further development of the Daikin Group, striving to continue to win the support of the global
markets and meet the expectations of our shareholders and other stakeholders.
4
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
June 2014
Masanori Togawa
President and CEO
5
ANNUAL REPORT 2014 Interview with the CEO
Overcoming Global Competition
Fiscal 2014 was the middle year of the five-year FUSION 15 strategic management
plan, and Daikin reached business results that surpassed quantitative targets for the
first half of the FUSION 15 plan. At the same time, we made a running start to the three
years in the second half of the plan, which is a great success. In fiscal 2015, the Daikin
Group will turn its focus on meeting the second-half targets of FUSION 15 and on
making Daikin a “Truly Global and Excellent Company.” To this end, we will overcome
fierce competition and win.
June 2014
Masanori Togawa
President and CEO
6
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section Q1 Please explain the market environment
in fiscal 2014 and Daikin’s business
results, which were at record highs.
Q2 Three years have passed since the start
of the FUSION 15 strategic management
plan, and fiscal 2014 marked the middle year.
Please discuss the results of those three years
Togawa: In fiscal 2014, the global economy recovered
and progress on FUSION 15.
from the depths, and we saw a bright market environment.
Using this opportunity, under the FUSION 15 strategic
Togawa: Fiscal 2012, the first year of the FUSION 15 plan,
management plan, which covers fiscal 2012–2016, we
started right after the March 2011 earthquake in Japan,
worked to fundamentally strengthen profitability and
and, as such, the business outlook was very unclear.
further accelerate growth.
Recovery in the global economy also slowed. However,
In the air-conditioner business in Japan, Europe, the
to overcome this period of paradigm shift and further
United States, China, and other markets around the world,
become a “Truly Global and Excellent Company,” the
we put in place unique actions before competitors. Also,
Group steadily implemented the core strategies of FUSION
effects from the Goodman Group, which Daikin acquired
15 of a “new growth strategy,” “reorganizing the manage-
in November 2012, moving into consolidation and the
ment structure,” and “strengthening human resources.”
impact of the weakened yen brought air-conditioning and
Based on this, in the first three years of FUSION 15,
refrigeration business sales 42% higher than the previous
we expanded our business solidly.
year, to ¥1,592.9 billion. Operating income increased 95%
For example, in fiscal 2014, air-conditioner system busi-
year on year, to ¥138.5 billion.
ness sales in emerging markets reached ¥155.0 billion, about
In the chemicals business, sales grew in auto-related
three times the fiscal 2011 level. Also in Japan, we have
applications, the semiconductor sector—which is
raised business results in the energy efficiency solutions busi-
recovering—and infrastructure applications in China.
ness and introduced a series of high environmental-perfor-
Sales reached ¥140.2 billion, up 13% over the previous
mance air conditioners. Our strategy in the North American
year. However, operating income decreased 14% year on
air-conditioner market via the Goodman Group acquisition
year, to ¥14.2 billion, as falling sales prices on increases
has been another example of our successes.
in market supply had a large impact.
In other businesses, sales for oil hydraulics, defense,
and electronic systems combined totaled ¥50.0 billion,
and operating income came to ¥2.4 billion. Both sales
and operating income increased over the previous year.
Overall, consolidated sales totaled ¥1,783.1 billion
(a 38.1% increase year on year), and operating income
reached ¥155.1 billion (up 75.0% year on year). Net
income increased to ¥91.9 billion (up 110.8% year on
year) as losses on valuation of investment securities were
far less than those booked in the previous period. Sales
and all profit levels were at record highs.
L Quantitative Targets for FY2016
L Group-wide Sales and Profit Targets
(¥ billion)
FY2011
actual results
FY2014
initial plan
FY2014
actual results
FY2016
goals
Net sales
¥1,160.3
¥1,600.0
¥1,783.1
¥2,050.0
Operating income
(Operating income
margin)
75.5
(6.5%)
130.0
(8.1%)
155.1
(8.7%)
190.0
(9.3%)
L Financial Targets
ROA
ROE
FY2011
actual results
FY2014
initial plan
FY2014
actual results
FY2016
goals
1.7%
4.0%
5.0%
4.9%
11.0%
12.9%
6.0%
13.0%
L Investment Plan
3-year cumulative
(¥ billion)
FY2014–2016
¥250.0
Note: Assumed exchange rates in FY2016: $1=¥95, 1=¥125
7
ANNUAL REPORT 2014
Fiscal 2014 marked four straight years of increasing
Second, we worked to improve profitability by reinforc-
sales and profits, and we managed to surpass by a large
ing cost-competitiveness. Through building local produc-
margin the targets for fiscal 2014 laid out in the FUSION
tion and sales systems in markets globally, we are able
15 plan (consolidated sales of ¥1,600 billion and consoli-
to respond flexibly to changes in demand and minimize
dated operating income of ¥130 billion). In this period of
foreign exchange fluctuation risks. Also, by adopting the
unprecedented speed of change, we have made a running
Goodman Group’s procurement practices globally, we
start toward our quantitative targets for the final year of
lowered procurement costs via a global centralized sys-
FUSION 15: consolidated sales of ¥2,050 billion and
tem. In our Suzhou plant in China, in addition to econo-
consolidated operating income of ¥190 billion.
mies of scale in room-type air-conditioner production, we
Q3 Please tell us what Daikin built in these
three years.
bolstered cost-competitiveness by greatly increasing local
materials procurement and making components in-house.
Third, Daikin continued to build a strong sales network
in each region that is unaffected by the external market
environment. For instance, in China, we expanded the
Togawa: In these three years, the Daikin Group imple-
sales network for air conditioners in interior regions.
mented policies toward further building a profitable busi-
Through this, we strengthened retail sales by being even
ness structure. First, we strived to increase the added
closer to the customer. We managed to increase the num-
value of our products. For example, in the Japanese
ber of Daikin outlets to about 14,000 in fiscal 2014, from
air-conditioner market, continuing on from our room-type
about 6,000 in fiscal 2010. In North America, using the
air-conditioner products, we launched the first commercial
Goodman Group’s sales network of over 900 locations
air conditioners to use the new R32 refrigerant. We have
with about 60,000 dealers, we are working for a large-
continued to introduce highly differentiated products into
scale sales increase. In India, we segmented the diverse
the market.
needs of customers, and continued to develop optimal
sales outlets in each region.
8
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section Fourth, Daikin focused on further strengthening its busi-
In the final three years of FUSION 15, I want to further
ness foundation to further speed up the global develop-
quicken growth and enter the stage where we reap the
ment of its business. Through alliances, cooperative
fruits of our efforts. Through the speedy rollout of our core
agreements, and M&A, Daikin has put in place a network
strategy, we will further build a strong corporate foundation
to increase business in the North American market via syn-
and raise profitability.
ergies gained from the Goodman Group, and to increase
business in Turkey and Central Asia via the acquisition of
Airfel. In production, we have expanded at a high pitch,
particularly in emerging markets, such as Turkey, Brazil,
and Mexico. Furthermore, to bolster R&D in air condition-
Q4 A core strategy of FUSION 15 is four
new growth themes. First, please
explain what measures Daikin will take in the
ers, with Japan as the mother R&D center, we have estab-
final three years of FUSION 15 in the themes
lished a network of seven R&D centers (Japan, the United
“Fully enter emerging and high-volume markets”
States, China, Belgium, Thailand, India, and Australia),
and “Develop solutions business that meets
where centers conduct development locally. At the centers
customer needs.”
in China and Belgium, we greatly increased the number of
development engineers. Also, looking toward the next 10
Togawa: For the “Fully enter emerging and high-volume
years, to raise productivity in product R&D, speed up pro-
markets” theme, Daikin will introduce air-conditioner prod-
cesses, and create innovative new products and business
ucts that rival makers cannot match, and further expand
lines by melding technologies from other fields, in autumn
sales. In residential air conditioners, we will develop and
2015, Daikin will open the Technology Innovation Center.
launch differentiated products speedily, such as inverter air
In addition to strengthening our foundations for business
conditioners, which specialize in cooling functions, and
expansion, to build an even stronger management founda-
high-volume-price-range multi-type air conditioners. In com-
tion, we are working to minimize fixed costs across the
mercial air conditioners, we will reinforce our product lineup
Group as a percentage of net sales, and aim to lower the
of high-value-added VRV products (multi-type air condition-
fixed cost ratio to 26% by fiscal 2016.
ers for buildings), improve cost-competitiveness, develop
L FUSION 15: Approaches to Latter-Half 3-Year Plan
While generating further results and implementing plans striving to achieve targets, looking ahead to the next development
direction, the latter-half plan incorporates themes designed to yield results after 2015. Reinforcement of profitability and
framework will be continuously undertaken to establish a robust corporate framework.
1) Accelerate core
• Launch products for emerging and high-volume markets in advanced countries and regions (Japan, China,
strategies leveraging
environmental changes
2) Reform corporate
framework to reinforce
profitability
3) Further expand existing
businesses and current
regions of business
Europe, etc.)
• Establish distribution networks in regions where air-conditioning demand is growing (Russia, Middle East,
Latin America, etc.)
• Accelerate sales expansion of commercial-use air-conditioning equipment (VRV, Applied products) in Asia
• Expand revenue in cyclical business (from installation to controls, service, and maintenance), including in
Daikin’s core equipment strengths
• Pursue energy-saving performance that leads the industry, better air quality environments (purification, humidifi-
cation/dehumidification, ventilation), expand the number of products compatible with energy diversification, etc.
• Improve earnings capacity and maximize FCF through Group-wide variable- and fixed-cost reductions
• Streamline entire SCM process by learning from Goodman, etc. (inventory turnover: -9 days)
• Europe: Expand sales outpacing economic recovery in key countries (France, Italy, etc.) and expand business
in neighboring emerging countries
• Revive Chemicals business to a highly profitable framework through sales expansion incorporating growing
markets such as the automobile industry, development of new products, including hybrid materials, expansion
of high-value-added products, etc.
9
ANNUAL REPORT 2014
service engineers and other staff, and enter new markets in
global market changes flexibly. Energy sources are
Asia and elsewhere. Furthermore, in the Middle East, Asia,
becoming more diverse, and energy efficiency and air
Oceania, Central and South America, and other regions,
quality are increasing in consciousness among the world’s
Daikin will take advantage of higher infrastructure spending
population. Countries across the globe are strengthening
and corporate investment, and take measures to expand
environmental regulations. In step with this, growth oppor-
applied solutions business sales. The Group plans to
tunities in such new businesses as refrigerant gasses, heat
expand air-conditioner sales in emerging markets to ¥300
pumps, fire heaters, air purifiers, and filters will appear, and
billion by fiscal 2016, roughly twice the fiscal 2014 level.
we will bolster efforts toward this growth using the full
Moreover, Daikin will bring to the high-volume segment
power of the Daikin Group. Specifically, as Daikin is the
of developed markets the cost-competitive products
only corporate group in the world with both air-condition-
developed to meet the diverse needs and win over fierce
ing and refrigerant gas technologies, we will lead the way
competition in emerging markets. We will work to quickly
and expand our lineup of products adopting the new
bring this reverse innovation to reality, and be the first in
refrigerant R32 and launch R32 products in more markets
the air-conditioning industry to do so.
and regions. We will also roll out the air-ventilation busi-
For the “Develop solutions business that meets customer
ness, which handles issues including PM2.5, or particulate
needs” theme, we have a big aim to move away from a
matter of 2.5 micrometers or less, globally. By fiscal 2016,
“hard” or physical products-focused business model in the
we will target environment-related innovation business
air-conditioning business. Combining needs in different
sales of over ¥300 billion.
countries, regions, and applications, Daikin will offer energy
Finally, in the “Develop synergies and expand business
control solutions, including service, installation, and equip-
through the Goodman Group acquisition” theme, primarily
ment control. Through this, we will build a self-sustaining
by combining procurement and administrative functions,
business model where we capture replacement demand for
improving logistics, and other rationalization efforts, we
equipment. In the final three years of FUSION 15, Daikin
were able to realize ¥3 billion in synergy effects, much larg-
will polish its strengths in both the “hard” (energy-efficient
er than the ¥1.5 billion targeted for fiscal 2014. In the final
equipment) and “soft” (air-conditioner-related services) busi-
three years of FUSION 15, in procurement alone, Daikin
nesses. Via this, we will bring the solutions business, which
plans for synergy savings of ¥15 billion–¥20 billion cumula-
offers energy efficiency and comfort that cannot be
tively.
achieved with equipment alone, primarily to developed mar-
Strengthening the North American business in earnest
kets in short order. Moreover, particularly in the commercial
also continues apace. In sales, we worked to further increase
air-conditioner systems markets, we will focus on high-
market share of unitary ducted air conditioners, which are
margin service and parts businesses, and bring business
the Goodman Group’s main products, and launched new
expansion and higher profitability to reality. By fiscal 2016,
premium air conditioners that feature energy-efficient inverter
we target solutions business sales of over ¥300 billion.
technology. Furthermore, taking advantage of Goodman’s
sales network, we introduced Daikin’s ductless air condition-
ers that feature superior energy efficiency.
In production, local VRV unit production started in North
America on schedule in February 2014.
To strengthen the business foundation toward taking
the No. 1 market position in the North American air-
conditioner market in short order, in fiscal 2015, Daikin will
make investments needed for a large increase in sales.
Q5 Next, please explain what measures
Daikin will take in the themes “Expand
environment-related innovation business” and
“Develop synergies and expand business
through the Goodman Group acquisition.”
Togawa: For the “Expand environment-related innovation
business” theme, it is critical that Daikin can respond to
10
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Q6 Please explain your outlook for fiscal
2015 earnings for the Daikin Group.
and reducing total costs. Aiming for sustainable growth,
the Daikin Group will actively contribute to solving global
warming, improve the soundness and transparency of
Togawa: In fiscal 2015, we expect the global air-condi-
management, speed up decision making, and strengthen
tioner market to continue to grow, but the impact from the
governance. Through these measures, we will maximize
consumption tax rise in Japan and macroeconomic trends
corporate value and bring our goal of being a “Truly Global
in China and other emerging markets are causes of
and Excellent Company” to reality.
concern. Global competition will certainly continue to grow
Fiscal 2015 marks the 90th anniversary of Daikin. In this
fiercer, and, to overcome the competition and continue the
milestone year, to progress to a new stage of growth and
momentum Daikin has in earnings growth, sales and mar-
development, we strengthened our corporate governance
keting capabilities must be strengthened. First, Daikin will
system.
set independent sales strategies per region. In product
The Daikin Group’s business areas and overall scale
strategy, we are working to develop and introduce unique
continue to grow rapidly globally. The Group does busi-
and appealing products both speedily and timely.
ness in 145 countries, with overseas sales making up over
Moreover, by working to preserve and increase sales pric-
70% of total net sales, and non-Japanese accounting for
es, and increase market share, Daikin will expand sales
80% of staff. In line with this quickening pace of global
and income.
expansion, we must build a governance system that
On the other hand, periods with robust earnings are a
makes even more-sophisticated Group management
great chance to improve our profitability structure. Daikin
possible. As part of this, we created the Chief Global
will fully explore ways to cut fixed costs and reduce vari-
Group Officer position. Via this new position, Daikin aims
able costs as much as possible via global centralized pro-
to build an organization management and governance
curement and other measures. These efforts will raise the
system as a truly multinational company.
reinforcement of our business foundations into a higher
Also, we increased the number of non-Japanese on the
gear, and will be linked to higher growth.
Board of Directors to two people, up from one, to reinforce
In fiscal 2015, the Daikin Group targets consolidated net
our governance system to meet our globalization needs.
sales of ¥1,980.0 billion (up 11.0% year on year), consoli-
For shareholder returns, going forward as a fundamental
dated operating income of ¥170.0 billion (up 9.6% year on
policy, Daikin will provide stable and continuing dividends,
year), consolidated ordinary income of ¥166.0 billion (up
and we are raising our target for the dividends on equity
7.7% year on year), and consolidated net income of ¥98.0
(DOE) ratio to 2.5%, from the previous 2.0% target.
billion (up 6.7% year on year). With these targets, we will
Together with this, keeping our consolidated dividend
progress strongly toward FUSION 15’s final year targets.
payout ratio well in mind, we will work to further increase
Q7 Please describe your policies and struc-
tures toward becoming a “Truly Global
and Excellent Company,” and please explain your
dividends.
In fiscal 2014, Daikin paid ¥50 per share, an increase of
¥14 over the previous year. In fiscal 2015, we plan to offer
¥60 per share, an increase of ¥10 year on year, and also
pay a commemorative ¥10 per share to mark our 90th
philosophy on returns to shareholders.
anniversary, bringing the total to ¥70 per share.
Fiscal 2014 was the fourth consecutive year of
Togawa: Going forward, Daikin will continue to reform its
increasing sales and profits. We also reached record highs
management foundation and strengthen its financial base,
for sales and all profit levels and welcomed our 90th
making strategic investments in its core air-conditioning
anniversary year. We ask for the continued support
and fluorochemistry segments and expanding business,
and understanding of our shareholders.
11
ANNUAL REPORT 2014
Review of Operations
Air Conditioning—the Japanese Market
Expand sales of high-value-added products with superior energy efficiency and environmental performance
Current
Solidly Raised Profitability
In fiscal 2014, industrial demand was robust in Japan’s
In Japan’s residential air-conditioning market, unit ship-
commercial air-conditioning equipment market owing to
ments were at record high levels thanks to strong demand
strong demand ahead of Japan’s consumption tax rise,
ahead of the consumption tax rise, growth in new housing
recovery in capital expenditure, and higher construction
starts, hot weather, and replacement demand for energy-
starts. In November 2013, Daikin launched FIVE STAR ZEAS,
efficient products due to energy saving increasing in con-
an air-conditioning system for stores and offices that is the
sciousness. Centered on the Urusara 7 room air conditioner,
first commercial air conditioner to use the new refrigerant
Daikin increased unit sales, particularly of energy-efficient
HFC32 (R32). This product was awarded the Director
products. This caused an overall increase in residential
General Prize of the Agency of Natural Resources and
air-conditioning business sales over the previous year.
Energy for excellent energy conservation equipment in the
In fiscal 2014, the rapid depreciation of the yen led to large
fiscal year ended March 2013. Centered on this product,
increases in procurement costs. However, high-value-added
Daikin worked to expand sales of high-value-added
products with superior energy-efficiency features performed
products that feature superior energy efficiency and
strongly. Also, Daikin thoroughly enforced pricing policies,
environmental friendliness, which drove commercial
worked against weakening demand, lowered design costs,
air-conditioning equipment sales higher over the previous
and promoted total cost reductions via global procurement.
fiscal year.
12
Combined, Daikin was able to raise profitability.
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Develop solutions business that goes beyond device sales
Future
Expand Business of Daikin’s Unique Solutions
The domestic air-conditioner market is maturing, and
business base in business lines related to air conditioners,
Daikin is working to fundamentally strengthen sales capa-
and expand solutions in installation, instrumentation and
bilities. Measures will include expanding the sales network
control, and service.
via developing new sales outlets, end-user marketing, and
In the final three years of the FUSION 15 strategic man-
efforts to have Daikin products specified in to new con-
agement plan, Daikin is targeting sales of one million units
struction. Daikin will also continue to enforce pricing
for the VRV multi-split type air conditioner for buildings,
policies, and work to increase sales and profits.
which is spreading throughout Japan. Also, Daikin will
For residential air conditioners, Daikin aims to increase
expand business in maintenance and other solutions for
its market share by expanding sales of high-value-added
energy efficiency and comfortable spaces that cannot be
products with the flagship Urusara 7 model at the core.
achieved with air-conditioner units alone. Furthermore,
For commercial air conditioners, Daikin will develop new
through close-relationship sales efforts with clients, Daikin
sales locations and expand sales of products with superior
will aim to capture replacement demand and expand
energy efficiency, centered on the FIVE STAR ZEAS and Eco-
revenues.
ZEAS80 models. Also, Daikin will work to further build its
13
ANNUAL REPORT 2014
Air Conditioning—the Global Market
Developed room-type
air conditioner for European market with
high design features that meets local needs
Goodman’s Houston plant launched local production of VRV units.
Current
Expanded Business Steadily in All Countries
and Regions
Profitability expanded steadily in all global air-conditioner
In Asia and Oceania, macroeconomic conditions
markets in fiscal 2014, growing markedly over the previous
weakened due to political instability and slower growth.
fiscal year.
However, Daikin made steady progress in expanding its
In Europe, demand remains weak in the main EU
sales network and expanded sales firmly in the overall
country markets, but Daikin worked to reorganize its
region. In Australia and Singapore, key markets for Daikin,
sales network and improve product competitiveness,
sales capabilities were further strengthened. In India,
and strengthened sales in new volume zones. In central
Malaysia, Vietnam, and Indonesia, bolstering the sales
Europe, Turkey, and other emerging markets, Daikin
network yielded a large sales increase in room-type
strengthened its sales network for room-type and VRV
and commercial air conditioners.
(multi-split type units for buildings) air conditioners.
In North America, using the strong sales network of the
In China, due to tightened monetary policy, market con-
Goodman Group, purchased in fiscal 2013, sales in resi-
ditions remained severe. However, by strengthening retail
dential and commercial air conditioners grew. In applied
sales, which are relatively resistant to macroeconomic
solutions as well, expanding the service business raised
conditions, conducting full model changes for all models,
profitability. Sales for the region overall expanded strongly,
and cost reductions, Daikin improved profitability. In the
due in part to the Goodman Group moving into consolida-
applied solutions business (large-scale air conditioners)
tion and the cultivation of synergies between Goodman
as well, business grew and sales increased strongly.
and Daikin.
14
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Further expand commercial air-conditioner business in Indonesia,
where the market is growing rapidly
Continue developing retail sales outlets in all regions in China
Future
Grow Globally and Strengthen Business Base
In the final three years of the FUSION 15 strategic man-
quicken local R&D for new products. Through this, Daikin
agement plan, Daikin will move fully into the high volume
will work for stable growth.
zone in emerging markets, develop the solutions business,
In Asia and Oceania, the Group will accelerate business
and expand the environmental innovations business. As
expansion by developing new sales outlets, launching new
the Group puts these new growth strategies into place,
products that meet the diverse needs in each country, and
Daikin will also work to reinforce sales capabilities in each
cultivating demand for high-value-added products, such
country and region.
as VRV. Also, along with carefully selecting and executing
In Europe, market conditions are expected to remain
the needed investment for business growth, Daikin will
harsh. Through developing more sales outlets and
work to lower total cost and strengthen profitability.
strengthening sales based on offering solutions packages
In North America, aiming for a large sales increase in the
that include services, however, Daikin will work to reach
United States, where the economy is recovering, Daikin
the No.1 market position and reorganize its sales network
will bolster sales of residential unitary air conditioners and
so that it can react quickly when the market recovers. The
expand the solutions business in the applied solutions
Group will bring total costs down by restructuring its fixed
business line. The Group will also enter the premium seg-
costs and strengthen its business base.
ment of the residential unitary air-conditioner market as a
In China, Daikin will continue to build its own retail sales
new business line, and fully enter the mid-size building
network, focusing on developing outlets across the coun-
market, for which VRV products are the focus. Through
try, including suburbs of large cities, the interior regions
these efforts, Daikin will work to attain the No.1 market
as well as the central western region. The Group will also
position in short order.
15
ANNUAL REPORT 2014
Chemicals
Water and oil repellent agents for clothing applications
Current
Increased Sales in the United States, China,
and Other Asian Markets
In fiscal 2014, chemicals business sales in Japan did not
well, demand was robust in the auto sector in China and
perform well; however, sales expanded in the United
other overseas markets. Overall sales in this business line
States, China, and other Asian markets. Combined with
grew year on year.
tailwind effects from the weakened yen, overall segment
In the chemical products business, sales of OPTOOL,
sales grew over the previous fiscal year. Operating income
an anti-smudge surface coating agent for touch screens,
decreased, however, as the supply-demand balance
failed to grow, but water and oil repellent agents for cloth-
worsened due to supply increases, causing price drops
ing applications in China and other Asian markets per-
that had a large adverse effect on Daikin.
formed well. Overall, business line sales increased over the
In fluorochemical resins, demand in China related to rail-
previous year.
way and telecommunications infrastructure investments
In fluorocarbon gas, competition grew fiercer in China,
recovered, and demand in the United States for auto and
but sales grew in other Asian markets. Business line sales
aerospace applications was strong. In fluoroelastomers as
were maintained from levels of the previous year.
16
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Speed up application development in leading-edge fields
Fluoropaint “Zeffle” with high weather resistance properties for painting
ferry decks
Future
Cultivate New Demand Centered
on New Application Development
In the final three years of the FUSION 15 strategic man-
across the globe. Doing so, Daikin will further establish a
agement plan, Daikin will quicken development of new
high- profitability business structure.
applications in the global growth fields of the auto and
In fiscal 2015, taking advantage of the recovery trend
information device sectors. The Group will also speed up
in demand, the Group will work to expand sales in auto,
R&D of new energy field applications, such as new refrig-
semiconductor, and infrastructure field applications. Daikin
erants, Li-ion battery applications, and paint for wind tur-
will also make efforts to improve competitiveness in its
bines. With these measures, Daikin will work to expand
solutions business, working closely with customers, with
demand for its products. Furthermore, the Group will culti-
an aim to strengthen overall sales capabilities.
vate the environmental products market, using composite
As sales prices continue to fall, Daikin will focus efforts
technologies to combine fluorochemistry products with
on securing profitability. In addition to cost reductions, in
other materials, by applying, coating, or mixing. Daikin will
high-value-added products, the Group will introduce fea-
also use surface materials, including fluoropaints and fluo-
tures not found in competing products, such as ease of
roresin films in these environmental product development
processing. In volume-zone products, the Group will
efforts. Combined, Daikin will work to increase competi-
launch low-cost, differentiated products that meet
tiveness by localizing raw materials development and
customers’ functional needs.
procurement and by producing locally as well in markets
17
ANNUAL REPORT 2014
Oil Hydraulics
Energy-efficient oil hydraulic drive unit “EcoRich”
Oil hydraulics provide drive power to construction equipment
and vehicles.
Current
Grew Business in the
United States and China
Future
Continue to Develop
Global Markets
In the oil hydraulics business, Daikin offers equipment
Aiming for growth globally, in China, the Group will re -
to convert small power into larger power, and control
inforce sales capabilities, cost-competitiveness, and its
strength, speed, and direction smoothly in a variety of
product lineup, mainly in molding- and general-industrial
machinery and vehicles.
machinery applications. In the United States, Daikin will
Sales in this business segment increased in fiscal 2014
expand business, focusing on maintenance, repair, and
over the previous year. Oil hydraulics equipment for indus-
operations (“MRO”) solutions, with the recovery in the U.S.
trial machinery performed strongly in Japan, and also in
manufacturing sector as a tailwind. In Europe, Central and
the United States as Daikin expanded its U.S. sales net-
South America, and other Asian markets, Daikin will enter
work. In construction equipment and vehicles, sales and
new markets and work to improve profitability via develop-
production have been combined in a single unit globally,
ing the MRO solutions business.
raising sales in Japan, the United States, and China.
In Japan, Daikin will take measures to increase market
share and profitability not only via unit sales, but also the
solutions business. Due to recovery in capital expenditure
at factories and increasing energy-saving needs due to
power production issues, the Group will offer high-value-
added services in technology consulting for customers,
after-sales services, unit design, and other areas in the
solutions business.
18
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Defense
Expand sales of home-use oxygen therapy equipment in Japan and China
Current
Continued Shift to
Civil Sector
Future
Expand Home-Use Oxygen
Therapy Equipment in China
In fiscal 2014, Japan’s Ministry of Defense continued to
Going forward, Daikin expects Japan’s defense budget
cut its budget, and orders for guided missile components
to continue to be under pressure. As such, the Group is
and artillery shells in the defense business decreased.
working to restructure its business and improve efficiency
Sales, thus, fell over the previous fiscal year.
and profitability. Also, based on the Japanese govern-
Daikin continued its steady shift to civil-sector products
ment’s National Defense Program Guidelines, announced
and in the home-use oxygen therapy equipment business.
in December 2013, Daikin will work to capture new
Daikin’s five-liter unit features the same small size and light
demand from the Ministry of Defense in line with changing
weight as a three-liter unit, and, thus, is highly praised.
needs.
Sales of this unit are robust.
In civil-sector products, the Group will strengthen its
product lineup by improving energy efficiency, ease of
maintenance, and other product features in the oxygen
therapy equipment business. Doing so, Daikin will make
efforts to further expand sales of these products. Also, the
Group will roll out these products, which will be launched
in China in fiscal 2015, in other global markets.
19
ANNUAL REPORT 2014
Corporate Governance
Fundamental Corporate Governance Concept
The Daikin Group’s corporate governance systems are
designed to help accelerate decision making and operational
execution work in anticipation of and response to changes in
management tasks and the management environment while
concurrently promoting consistently high levels of manage-
ment transparency and soundness, thereby seeking to
increase the Group’s corporate value. Going forward, the
Group will be striving to ensure the increasing sophistication
of speedy management, the strengthening of consolidated
management, and still-higher levels of soundness and trans-
parency. In addition, to realize an increase in corporate value,
the Group will continually consider and reevaluate its con-
cepts regarding the most-appropriate forms of corporate gov-
ernance as it pursues a diverse range of Group-level initiatives
aimed at ensuring best practices throughout the Group.
Management and Operational Execution Systems
Rather than adopt a U.S.-style “committees system” that
completely separates decision making from operational exe-
cution, the Group has adopted an “integrated management”
system that calls for directors to bear responsibility for man-
agement responsibilities as well as for operational execution
responsibilities. In view of the special characteristics of the
Group’s business, it was judged that this is a more-effective
means of accelerating decision making and operational exe-
cution. In addition, the Group has introduced an Executive
Officer System to accelerate the speed of execution based on
autonomous judgments and decisions in units handling each
region, division, and function.
To facilitate speedy decision making based on substantive
discussions, the Board of Directors has been designed to
include a small number of members. As of June 2014, the
Board of Directors included 12 members, including one
female and two non-Japanese directors. The Board of
Directors is making speedy strategic decisions and perform-
ing sound supervision for the entire Group.
Daikin’s Board of Directors included two external directors
as of June 2014. Daikin seeks to recruit external directors
who have abundant experience and deep insight and can,
therefore, offer a sophisticated perspective on a broad range
of issues as they participate in decision making and supervise
management. Accordingly, experience as a top manager in a
listed enterprise is a principal nomination criterion for external
director recruitment.
To ensure that the external directors can effectively contrib-
ute to Daikin’s corporate governance system, the external
directors are assigned assistants in the Management Planning
Office who strive to provide the external directors with early
notice of Board of Directors meetings. In addition, in the case
that an external director is not able to attend a Board of
Directors meeting, the assistants provide the external director
with related materials and subsequently provide the external
20
director with an explanation of the proceedings of the meeting
and provide other assistance.
To further raise corporate governance and Group manage-
ment as a multinational company, Daikin has put a Chief
Global Group Officer position in place. Under this position, the
Group strives to further improve cohesiveness across global
operations.
Shareholders’ Meeting
Appointment, dismissal
Audit
Board of Directors
Accounting
Auditor
Audit &
Supervisory
Board
Appointment,
supervision
Audit &
Supervisory
Board Members
Group
Auditors
Meeting
CSR Committee, Corporate
Ethics and Risk Management
Committee, Development
Committee for Operational
Adequacy Promotion System,
Independent Committee,
Information Disclosure Committee
Member of the Advisory Council
HRM and
Compensation Advisory Committee
Group Steering
Meeting
Executive Officers
Meeting
Group
Management
Meeting
Executive Officers
(The rest is abbreviated)
Activities by External Directors
Name
Principal Activities
Chiyono
Terada
Kosuke
Ikebuchi
Attended 15 out of 16 meetings of the Board of Directors this fiscal
year, Chiyono Terada offered timely proposals as needed, based on her
abundant experience and deep insight as a corporate manager and
especially from her broad and advanced perspective, including propos-
als concerning management based on the viewpoints of consumers,
such as the importance of the brand of the Company and measures to
further promote achievements of female employees.
Attended 14 out of 16 meetings of the Board of Directors this fiscal
year, Kosuke Ikebuchi provided timely proposals as needed, based on
his abundant experience and deep insight as a corporate manager and
especially from his broad and advanced perspective, including view-
points concerning manufacturing, such as production innovation, cost
reduction, and enhancement of reliability and productivity.
Systems for Supporting Speedy Management
The top deliberative unit in the Group’s management system is
the Group Steering Meeting. This unit determines the direction
of important management policies and strategies in a rapid and
timely manner, thereby accelerating the resolution of issues.
In addition, the Group Management Meeting aims to thor-
oughly share information on important management policies
and the basic strategies of the Group and support and expedite
Group companies’ problem-solving efforts. To further increase
the Group’s overall corporate value and ensure the Group lives
up to its responsibilities to society, the Group Management
Meeting strives to ensure that the Group is characterized by a
unified understanding and speedy corporate operations.
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
The Group’s management system also includes such units
as an Executive Officers Meeting as well as an Advisory
Council that offers opinions and advice regarding manage-
ment issues from an independent standpoint.
Audit System
Daikin employs an Audit and Supervisory Board and seeks
to nominate two or more outside members to its Audit and
Supervisory Board. The principal nomination criteria for exter-
nal Audit and Supervisory Board members are the same as
those for external directors and include independence from
the Company in terms of not having a relationship of interest
with the Company. As of June 2014, Daikin’s four Audit and
Supervisory Board members included two external Audit
and Supervisory Board members. The external Audit and
Supervisory Board members attend meetings of the Board of
Directors as well as other important meetings and receive
reports. In addition, they are able to express diverse opinions.
To ensure effective audit functions, the Audit and
Supervisory Board receives reports on important issues relat-
ed to management and performance when necessary and
also investigates relevant units, confirms approval of docu-
ments, and regularly exchanges opinions with representative
directors, executive officers, and the independent auditors. To
strengthen Groupwide auditing and auditing functions for all
Group companies, including overseas subsidiaries, principal
Group companies appoint Group auditors. The Audit and
Supervisory Board members and Group auditors regularly
hold Group Auditors’ meetings and otherwise work
to increase the smoothness of information flows.
Activities by External Audit
and Supervisory Board Members
Name
Principal Activities
Yoshiyuki
Kaneda
Ryu Yano
Attending all 16 meetings of the Board of Directors and all 15 meet-
ings for the Audit and Supervisory Board this fiscal year. From his
broad and advanced perspective, Yoshiyuki Kaneda offered timely pro-
posals as needed, especially in technology development, based on his
abundant experience and deep insight as a corporate manager.
Appointed on June 27, 2013, Ryu Yano attended 12 of the 13 meet-
ings of the Board of Directors held since his appointment and all 10
meetings for the Audit and Supervisory Board. From his broad and
advanced perspective, he offered timely proposals as needed, particu-
larly with respect to overseas business, based on his abundant experi-
ence overseas and deep insight as a corporate manager.
Corporate Officer Remuneration, Etc.
To ensure the transparent management of its corporate officer
personnel and remuneration processes, Daikin has estab-
lished the Compensation Advisory Committee. This commit-
tee engages in discussions and deliberations regarding issues
including corporate officer nomination criteria, corporate offi-
cer candidates, and remuneration. The Committee consists of
four members, including two external directors and two
in-house directors, with the committee chair being chosen
from the external directors. The remuneration of directors and
corporate auditors is determined so as to fall within the aggre-
gate remuneration ceiling for directors and corporate auditors
as set by a resolution at the general shareholders’ meeting.
Based on a report from the Compensation Advisory
Committee, the directors’ remuneration is determined by a
resolution of the Board of Directors while the corporate audi-
tors’ remuneration is determined by a resolution of the Audit
and Supervisory Board.
Daikin’s corporate officer remuneration system is designed
to accord with the Group’s management policy and responds
to shareholders’ expectations by increasing corporate officers’
motivation to promote a sustained increase in Group perfor-
mance over the medium-to-long term and thereby
contributing to a rise in the Group’s corporate value.
Directors’ remuneration includes “fixed compensation,”
“performance-linked compensation” that reflects the Group’s
short-term performance (net sales and operating income) and
each director’s job responsibilities, and “stock options” that
reflect the Group’s medium- to long-term performance. The
performance-linked compensation of Daikin directors is given
a somewhat higher ratio of linkage with performance than
average to ensure that the incentive effect of that compensa-
tion is sufficient.
The remuneration of external directors and corporate
auditors includes “fixed compensation” only.
Compensation levels are determined based on consider-
ation of Daikin’s performance and remuneration levels com-
pared to those of other leading manufacturing companies in
Japan after analyzing and comparing data from an outside
specialized institution on the remuneration of corporate
officers active in approximately 200 Japanese companies
listed on the First Section of the Tokyo Stock Exchange.
Total Compensation for Directors
and Audit and Supervisory Board Members
Position
Number of Individuals
Total Compensation
(Millions of yen)
Directors
Audit and Supervisory
Board Members
Total
12
6
18
979
89
1,069
Total Compensation for External Directors
and External Corporate Auditors
Position
Number of Individuals
Total Compensation
(Millions of yen)
Total Compensation for
External Directors and
External Audit and
Supervisory Board
Members
5
59
21
ANNUAL REPORT 2014 Directors, Audit and Supervisory Board Members, and Executive Officers (As of June 27, 2014)
Position(s)
Responsibilities & Principal Jobs
Name
Chairman of the Board
and Chief Global Group Officer
Noriyuki Inoue
President and CEO,
Member of the Board
Masanori Togawa
Member of the Board (external) Chiyono Terada
President and CEO of Art Corporation
Member of the Board (external) Kosuke Ikebuchi
Senior Advisor to the Board and Senior Technical Executive of Toyota Motor Corporation
Member of the Board
and Senior Executive Officer
Member of the Board
and Senior Executive Officer
Member of the Board
and Senior Executive Officer
Member of the Board
and Senior Executive Officer
Member of the Board
and Senior Executive Officer
Member of the Board
and Senior Executive Officer
Member of the Board
(non-resident)
Member of the Board
(non-resident)
Audit and Supervisory Board
Member (external)
Audit and Supervisory Board
Member (external)
Audit and Supervisory Board
Member
Audit and Supervisory Board
Member
Guntaro Kawamura Responsible for Chemicals Business and General Manager of Yodogawa Plant
Ken Tayano
Responsible for Domestic Air-Conditioning Business, Representative of China Region, Chairman and
President of Daikin (China) Investment Co., Ltd., and Member of Global Air-Conditioning Committee
Masatsugu Minaka Representative of Air-Conditioning Operations in the Europe/Middle East/Africa Region, President of Daikin Europe N.V.,
and Member of Global Air-Conditioning Committee
Jiro Tomita
General Manager of Air-Conditioning Manufacturing Division, Chairman of PD Alliance Promotion Committee,
General Manager of Sakai Plant, Member of Technology and Innovation Center Preparation Office
Takashi Matsuzaki
Responsible for Air-Conditioning Research and Development (including Applied Solution Business and Refrigeration Business)
and Global Procurement, General Manager of Shiga Plant, and Member of Technology and Innovation Center Preparation Office
Koichi Takahashi
Responsible for Accounting, Finance, Budget Operations and IT Development, General Manager of the Finance and Accounting
Division, Chairman of Information Disclosure Committee, Chairman of Development Committee for Operational Adequacy
Promotion System
Frans Hoorelbeke
Chairman of Daikin Europe N.V.
David Swift
Yoshiyuki Kaneda
Former Officer of Sony Corporation
Ryu Yano
Chairman of the Board of Sumitomo Forestry Co., Ltd.
Shigeru Murakami
Kenji Fukunaga
Senior Executive Officer
Junichi Sato
Representative of Air-Conditioning Operations in Central America and South America (including American Air Filter)
and Member of Global Air-Conditioning Committee
Senior Executive Officer
Yukio Hayashi
Responsible for Liaison Business and Defense Systems Business and General Manager of Tokyo Office
Senior Executive Officer
Kosei Uematsu
Responsible for Global Air-Conditioning Business (excluding Japan) and Refrigeration Business
and Member of Global Air-Conditioning Committee
Senior Executive Officer
Shigeki Hagiwara
Responsible for Applied Solution Business, Service Operations and Training,
and General Manager of Applied Solution Business Division
Senior Executive Officer
Hiroo Yoshioka
Senior Executive Officer
Susumu Okano
Responsible for Manufacturing Technology and Oil Hydraulics Business,
Deputy General Manager of Air-Conditioning Manufacturing Division, and Member of Global Air-Conditioning Committee
Responsible for CSR and Corporate Communication, Corporate Ethics, Compliance, Legal Affairs, Department Manager of
Corporate Communication Department and Department Manager of Corporate IR Group, and Chairman of CSR Committee,
Chairman of Corporate Ethics and Risk Management Committee
Senior Executive Officer
Shinya Okada
Responsible for Global Environment Affairs
Senior Executive Officer
Yoshikazu Tayama
General Manager of Budget and Administration Group, Finance and Accounting Division
Senior Executive Officer
Yoshiyuki Uemura
Director of Goodman Global Group, Inc., EVP for Cooperation and Strengthening Technological Capabilities, and
President of Daikin Holdings (Houston), Inc.
Senior Executive Officer
Masayuki Moriyama Responsible for Applied Solutions Business in China, ASEAN and Oceania Regions, Director and Vice President of Daikin (China)
Investment Co., Ltd., COO of McQuay China, Chairman (non-resident) of Daikin Refrigeration (Suzhou) Co., Ltd.
Senior Executive Officer
Yasushi Yamada
Responsible for Safety
Executive Officer
Executive Officer
Executive Officer
Katsuyuki Sawai
Responsible for Human Resources and General Affairs
Toshitaka Tsubouchi General Manager of Air-Conditioning Sales Division
Hiroo Sakai
Responsible for Chemicals Research/Technology Product Commercialization Promotion/Environment/Safety and General
Manager of Chemicals Division
Executive Officer
Yoshihiro Mineno
Executive Officer
Hitoshi Jinno
Executive Officer
Kota Miyazumi
General Manager of Global Operations Division, Director (non-resident) of Goodman Global Group, Inc., Director of Daikin
Holdings (Houston), Inc.
Responsible for PL/Quality, Air-Conditioning/Refrigeration/Applied, Manufacturing Excellence in the Emerging Countries, and
Deputy General Manager of Air-Conditioning Manufacturing Division
Responsible for Corporate Planning, General Manager of Marketing Research Division, Director of Planning Group in Marketing
Research Division
Executive Officer
Executive Officer
Tsutomu Morimoto Responsible for Executive Secretarial Department, Goodman Group Business
Yuji Yoneda
Deputy General Manager of Air-Conditioning Manufacturing Division (Responsible for R&D), Executive Leader of R&D Quality in
Air-Conditioning Manufacturing Division
Executive Officer
Masaki Saji
General Manager of Human Resources Division
22
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section CSR (Corporate Social Responsibility)
The Daikin Group considers CSR to be fully living up to
its Group Philosophy,*1 and works to do so each and
every day. Also, the Group considers corporate ethics
and legal compliance to be fundamental to CSR, and
has put in place a global system to this end. Specific
programs are enacted based on the ISO26000 interna-
tional standard for CSR. This section of the Annual
Report 2014 highlights the Group’s efforts in the seven
pillars of ISO26000 (corporate governance,*2 compli-
ance, human rights, labor practices, environment, quality
and customer satisfaction, and contribution to society).
*1 Please see page 1.
*2 Please see page 20.
Compliance and Risk Management
L Compliance
Daikin has established the Corporate Ethics and Risk Man age-
ment Committee, with the senior executive in charge of compli-
ance and corporate ethics as chair, as an organ for promoting
corporate ethics throughout the Group. This Committee meets
twice each year, in principle, with the purpose of undertaking
the integrated promotion of compliance (business ethics and
legal compliance) and risk management throughout the Group.
Regarding compliance, each division and Group company
(including principal overseas Group companies) appoint
“compliance and risk management leaders” (CRLs) who play
a central role in the daily gathering of up-to-date information
on relevant laws and regulations. The CRLs also adjust inter-
nal regulations and manuals to reflect the new information and
play a central role in “daily triple check” activities to confirm
that compliance with respect to the regulations and manuals
is rigorous. The results of checks are reported at monthly CRL
meetings, and related information is shared at those meet-
ings. In addition, each employee annually performs a
“compliance self-assessment check” to confirm that his or
her behavior is in accordance with the behavior guidelines
articulated in Daikin’s Handbook for Corporate Ethics.
L Risk Management
Regarding risk management, in light of the Daikin Group’s
rapid business expansion, Daikin is endeavoring to accurately
and quickly execute comprehensive risk assessments (related
to such issues as product liability, product quality, safety,
manufacturing, marketing, and disasters) from a global per-
spective and institute Groupwide systems for alleviating risks.
Each year, after each division conducts its own risk assess-
ment to identify major risks, Daikin drafts and implements
individual divisional counter measures as well as
Companywide countermeasures.
Strengthening Overseas Operations: In step with rapid
overseas expansion, the Daikin Group places great emphasis
on compliance and risk management overseas. In accordance
with conditions in each region and at each Group company,
Daikin establishes compliance committees, drafts and
distributes corporate ethics handbooks, conducts risk
assessments, and supports employees in self-assessments.
Also, risk management staff from headquarters regularly visit
overseas Group companies to confirm progress of efforts in
each region and share information. Daikin also works to incor-
porate best practices from overseas Group companies to the
parent company to raise sophistication across the Group.
Reorganizing Earthquake Risk Measures: Daikin has set
earthquake risk measures as themes of the utmost impor-
tance, and has established teams to implement policy for
each issue to tackle. Based on disaster damage scenarios
(extremely strong earthquakes, extremely high tsunamis, etc.)
from Japan’s Central Disaster Prevention Council, Daikin has
reinforced production facilities for earthquake resistance,
implemented tsunami plans for chemicals facilities, and for-
mulated and held evacuation drills at locations susceptible to
tsunamis. Daikin is also further building its business continuity
planning (BCP) system, assessing many risks, and formulating
and enacting action policies in this process. Group companies
are also taking similar measures regarding natural disaster
risks.
Strengthening Policies on Client Entertainment and Gift
Giving: The Daikin Group has set a compliance policy regard-
ing client entertainment and gift giving of “Client entertainment
and gift giving in moderation and according to social norms,
following all national and regional regulations.” The Group has
also set policies on “Maintaining fair and transparent relation-
ships with government officials,” “Complying with the Political
Funds Control Act and Public Offices Election Act,” and
“Entertainment and gift giving in moderation to business part-
ners.” The Group implements in-house training to ensure thor-
ough compliance with these rules. In fiscal 2015, the Group
plans to draft behavioral guidelines for entertainment and gift
giving for public officials both domestically and overseas, and
circulate these guidelines across the Group globally.
Responsibility to Shareholders and Investors
To live up to the expectations of shareholders and investors,
the Daikin Group believes that it must increase its corporate
value. It, therefore, emphasizes free cash flow as a source of
corporate value and works to augment its profitability while
lowering the levels of its trade receivables and inventories.
Stable Levels of Cash Dividends: Daikin has a fundamental
policy of maintaining the ratio of cash dividends to net assets
(consolidated basis) at 2.5% or higher and is seeking to set
stable levels of dividends based on a comprehensive consid-
eration of such factors as the Company’s consolidated
performance, financial position, and funding requirements.
23
ANNUAL REPORT 2014 Respect for the Exercise of Voting Rights: To enable share-
holders to exercise voting rights after due consideration of
resolution items, Daikin provides shareholders with invitations
to general shareholders’ meetings and ancillary materials a
week in advance of the statutory deadline. Non-Japanese
institutional investors are provided with English-language
versions of the invitations and ancillary materials, and both
English- and Japanese-language versions of the invitations
and ancillary materials are posted on the Company’s website.
Furthermore, Daikin has established systems that enable
shareholders to exercise their voting rights via personal
computers and mobile phones.
Information Disclosure: Recognizing that it has an important
responsibility to increase its management transparency from
the perspectives of shareholders and investors, Daikin is pro-
actively working to disclose relevant information by executing
diverse kinds of IR activities.
For analysts and institutional investors, Daikin holds
performance explanation briefings when announcing its
second-quarter and full-year financial results, and telephone
conference briefings are organized when announcing
first-quarter and third-quarter financial results. The Company
also undertakes visits to institutional investors in Japan and
overseas and organizes meetings with individual investors.
Daikin’s website offers access to such legally mandated
materials as securities reports (yuka shoken hokoku-sho)
as well as other corporate performance-related materials
that are posted as soon as they are prepared. Daikin
endeavors to post these reports and materials in a fair
and timely manner.
Daikin has also undertaken diverse management
measures in response to the feedback that it receives
from its shareholders and investors.
Human Rights
In October 2008, the Daikin Group joined the UN’s Global
Compact, which is a strategic policy initiative representing
universal principles on human rights, treatment of labor, and
environmental protection. Through this, the Group works to
educate staff on and promote human rights, and strives to
build an organization rich in diversity, creativity, and respect for
all people. To bring these ideals into being, Daikin conducts
human rights training for different employee ranks, centered
on senior executives. Daikin also supports employees in
self-assessments on whether they have violated human rights,
and conducts human rights seminars at Daikin divisions as
needed.
Respect for Human Rights: The Daikin Group Compliance
Guidelines call for “Respecting human rights and diversity in
the workplace and complying with all labor regulations.”
Under a Respect for Human Rights policy, via which the
24
Group strives for a fair, cheerful, and lively workplace, the
Group prohibits child labor and forced labor.
• Group Compliance Guidelines (formulated 2008)
http://www.daikin.com/csr/company/idea.html
Human Rights Education: As part of efforts to promote
human rights understanding, the Daikin Group conducts
human rights education for different levels of staff, including
senior executives, newly appointed managers, and newcomers
to the Group. Also, Daikin’s employee newsletter contains arti-
cles on human rights, and production facilities have held human
rights catchphrase contests. Through this, Daikin is working to
improve human rights consciousness amongst employees.
Labor Practices
The Daikin Group considers people to be the source of com-
petitive strength. The Group works toward an organization
that accepts, respects, and seeks harmony from all members
regardless of sex, nationality, or ethnicity, and brings out each
person’s abilities to the maximum.
Evaluation and Working Conditions: Daikin seeks to build
a workplace with equality of opportunity and fairness of
outcome where people with the desire to grow are rewarded
for taking opportunities and producing results.
Promoting Diversity: Daikin is an organization that employs
diverse people who respect different value systems regardless
of age, gender, nationality, race, temporary or permanent
employment status, and traditional or mid-career joining sta-
tus. Daikin employees use this diversity and improve organiza-
tion strength, and endeavor toward large goals. Daikin
believes that this kind of organization serves as a primary
source of the Group’s dynamic strength. In accordance with
this concept, the Group Compliance Guidelines state “We
shall respect the diversity in values and approach to work of
all employees, accept differences, seek harmony, and gather
strengths so that each and every employee can pursue his or
her dreams boldly with passion and tenacity.”
The Daikin Group also actively employs people with disabili-
ties. In Japan, Daikin has established Daikin Sunrise Setsu,
Inc., and as of the end of March 2014, people with disabilities
account for 2.07% of domestic employees, which is above
the legal requirement. In China, Daikin Air-conditioning
(Shanghai) Co., Ltd. also actively employs people with disabili-
ties; currently, 66 such persons are at the company. In fiscal
2014, Daikin invited family members of employees with disabili-
ties to factory tours and social events, and made a sign-
language brochure to facilitate communication between disabled
persons and those without disabilities. Also, Daikin Industries
(Thailand) Ltd. employs 23 people with disabilities, and Daikin
Compressor Industries, Ltd. employs such 25 persons.
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section Work-Life Balance: Daikin emphasizes measures for optimal
work-life balances for employees. Daikin has introduced
diverse work policies that offer flexible work modes and time
schedules suitable for diverse employees. Also, as a company
that has signed on to the Act on Advancement of Measures
to Support Raising Next-Generation Children, Daikin has set
action plans to build a workplace where employees with chil-
dren can concurrently handle work and child-raising tasks
with confidence and peace of mind. In particular, Daikin has
strengthened its childcare leave and childcare support sys-
tem, and encourages male employees to use these systems
as well.
In fiscal 2014, to support a smooth transition back to
the workplace after childcare leave, Daikin established the
“Hokatsu*1 Concierge.” From April 2014, the fourth action
plan under the Act on Advancement of Measures to Support
Raising Next-Generation Children is in execution. The Group
is working to expand childcare support by introducing even
more flexible work systems for early returners from childcare
leave. Daikin is also expanding support by further bolstering
the childcare support cafeteria plan system,*2 increasing the
menu choices in this plan and increasing subsidies for early
returners.
*1 Hokatsu: “finding a daycare”
*2 Childcare support cafeteria plan system: subsidy system for childcare services used
when employees with children work overtime, go on business trips, or when the
children are sick
Labor Relations: The Daikin Group believes good labor rela-
tions to be fundamental in management. As such, the Group
considers the management-labor partnership and manage-
ment-labor mutual trust to be highly important. At Daikin, all
employees except for manager-class and contract employees
are union members. Daikin and the union hold dynamic
discussions, and when business plans are formulated, Daikin
holds meetings to explain the new plans to the union. In fiscal
2014, such meetings were held 20 times.
Occupational Safety and Health: In accordance with the
Group Compliance Guidelines, which state “We shall take all
possible precautions for safe operations so that we all can
work in safety,” Daikin endeavors to ensure all employees and
employees of subcontractors have safe work environments.
To this end, and to promote the peace of mind of people in
communities near Group facilities, Daikin strives to realize a
“zero accident” workplace at each of its facilities. Daikin also
focuses on raising awareness of workplace safety via training
involving simulated dangers associated with accidents. Daikin
has built devices and systems where participants can see,
touch, and feel what it is like to be caught in machines in
which accidents are prevalent in machine manufacturing.
Participants can also experience how scary heat and pressure
resulting from chemical reactions is in chemicals manufacturing.
Combined with principles-based knowledge education,
Daikin holds effective training programs. Overseas as well,
Daikin aims for zero work accidents through safety training
and safety patrols. Daikin Industries Czech Republic s.r.o.
holds the Green Cross Competition to compete for zero work-
place injuries, and Daikin Compressor Industries, Ltd. in
Thailand has constructed a training center inside the factory
for safety training.
Human Resource Development: Daikin considers enacting
its management philosophy of “The pride and enthusiasm of
each employee is the driving force of our Group,” and people-
centered management to be essential for the Group to grow.
The Group’s corporate philosophy states that “The combined
growth of all Group employees, regardless of nationality or
specific Group unit they are with, is the basis for the Group’s
advancement.” Based on the concept that “people grow by
means of work experience,” Daikin believes that on-the-job
training (OJT)*1 is fundamental in human resource develop-
ment to discovering the characteristics of each employee and
assigning jobs that will bring motivation. To supplement the
OJT, Daikin is bolstering various off-the-job-training (Off-JT)*2
programs, including the Daikin Managers’ School for develop-
ing managers for the front lines of the Group’s global business.
Overseas office training for younger employees is another
example. From fiscal 2014, to improve management capabili-
ties of manager-class employees, Daikin launched the Man-
agement Dojo (for 450 people over two years). Training at this
Dojo in fiscal 2014 focused on department general managers.
*1 OJT: at-the-workplace learning of skills, knowledge, technologies, and attitudes
needed for the job
*2 Off-JT: off-site learning of skills, knowledge, technologies, and attitudes needed for
the job
Environmental Protection
The largest societal problem that Daikin must contribute to
solving is climate change resulting from greenhouse gas emis-
sion. Daikin will use its strength in technology to contribute to
this solution.
Providing Energy-Saving Products: Through its products,
Daikin is working to reduce CO2 emissions via 1) promoting
the widespread use of energy-saving inverter products, 2)
promoting the widespread use of heat pump solutions, which
emit less CO2 than previous combustion-type heating devices,
3) growing its energy-saving solutions business, and 4) devel-
oping next-generation refrigerants. For inverters, Daikin’s fac-
tory in Suzhou, China launched production in April 2012 with
annual capacity of 1.5 million units, and is manufacturing
inverter air conditioners which are sold globally. In the Chinese
market, residential-use inverter air conditioners have
increased from 7% of the market in 2009 to about 60%
(Daikin’s estimate). Via increased use of inverter products,
25
ANNUAL REPORT 2014
Daikin is aiming to reduce its emerging countries’ annual CO2
emissions by 30 million tons by fiscal 2016. As of fiscal 2014,
the Group estimates that emissions have been reduced by 23
million tons. Going forward, Daikin will promote inverter prod-
ucts in North America along with new emerging markets.
For heat pump heating solutions, Daikin is undertaking
a large-scale verification project for effectiveness in energy
saving for heating and water heating in the U.K. This project,
taken at the behest of the New Energy and Industrial
Technology Development Organization, is scheduled for com-
pletion in March 2017. Using this project, Daikin is working
with national and local governments, and energy providers, to
promote heat pump product usage. Daikin is also working
with governments and industry participants across the globe
in promoting the next-generation refrigerant R32, which great-
ly contributes to ozone layer protection and preventing global
warming.
Developing and Marketing Low Global-Warming Factor
Refrigerant: Freon, which traditionally has been the refriger-
ant in air conditioners, has a greenhouse effect of several
hundred times to 2,000 times the effect of CO2. As an air-
conditioner manufacturer, the Daikin Group considers working
toward developing and commercializing low global-warming
factor refrigerants to be its duty. Daikin determined the
next-generation refrigerant R32 to be optimal, and launched
the refrigerant first in Japan in fiscal 2013. R32 features a
global-warming factor of about one-third of the traditional
refrigerant. R32 also has superior energy efficiency, with less
refrigerant needed per air- conditioner unit, and is easily recy-
clable and reusable. In November 2013, Daikin Europe N.V.
launched sales of residential-use air conditioners that use
R32. Sales in Australia were launched in January 2014, and,
going forward, Daikin will launch in more markets to further
expand market presence.
To promote adoption of R32 in emerging markets, where
air-conditioner demand is growing strongly, Daikin is providing
the basic patents needed to manufacture and sell air condi-
tioners that use R32 free of charge to emerging countries.
Daikin also participates in support programs for emerging
markets run by Japan’s Ministry of Economy, Trade, and
Industry and the Japan International Cooperation Agency.
Furthermore, the Group receives research groups from
emerging countries and offers technology support for local
manufacturers and dealers.
Minimizing Environmental Impact of Production: With a
view to reducing greenhouse gas emissions from production
to one-fourth the fiscal 2006 level by 2020, in the FUSION 15
strategic management plan, Daikin aims to reduce emissions
to one-third (67% below) of the fiscal 2006 level by fiscal
2016. As of fiscal 2014, a 69% reduction has been achieved.
26
Daikin is also making efforts to reduce water usage. In fiscal
2014, water (unit basis) usage at domestic Group companies
was 5% lower than fiscal 2011 levels and 9% lower at over-
seas Group companies. For reducing chemical compounds,
in fiscal 2014, emissions of chemicals subject to PRTR
regulations were 19% lower than fiscal 2011 levels.
In fiscal 2006, Daikin established the “Super Green Heart
Factory” in-house standards to certify factories with advanced
environmental friendliness. As of fiscal 2014, 18 Daikin plants
in Japan, China, Thailand, the United States, and other coun-
tries have been certified as Super Green Heart Factories.
Quality and Customer Satisfaction
The Daikin Group seeks customer satisfaction by offering high-
quality products anticipating society’s needs in each region.
Ensuring Product Quality and Safety: As a manufacturer,
Daikin considers its social mission to be providing products
and services that not only satisfy customers, but that are safe,
high quality, and friendly to the environment. Daikin has
obtained ISO 9001 certification of its quality management
systems in both its air-conditioning and chemicals businesses
and is sustaining efforts at the R&D and manufacturing stages
to further elevate product quality levels. Daikin discloses infor-
mation with the goal of ensuring the safety of customers when
they use Daikin products. In addition, Daikin collects informa-
tion on products after sales and seeks to employ this informa-
tion for further product quality improvements. In fiscal 2014,
Daikin set thoroughly ensuring product quality as an issue of
top importance and is making great efforts in policies for
speeding up corrections to quality problems, reducing quality
risks, and preventing problems from recurring.
Pursuing Customer Satisfaction: To further raise customer
satisfaction levels, it is critical to quickly and accurately grasp
needs in each market overseas, and incorporate this into
product R&D. In this, Daikin is moving from a unipolar R&D
system in Japan to one where regional offices also conduct
R&D themselves according to local strengths. Marketing
research functions globally are also being strengthened.
Furthermore, Daikin continuously runs customer satisfaction
surveys domestically and abroad at all Group companies, and
the results of these surveys are highly useful in further raising
product and service quality.
Customer Support: In Japan, for the air-conditioning
business, the Daikin Contact Center accepts inquiries from all
customers, 24 hours a day, 365 days a year. In fiscal 2014, to
prevent customers getting different responses to questions or
service requests from different Contact Center staff, Daikin
systematized the practical know-how and rules of thumb of
Contact Center staff, and made this system browseable by all
DAIKIN INDUSTRIES, LTD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
staff. Overseas as well, Daikin has put a strong after-sales
service system in place, and under a policy of “fast, accurate,
and kind,” meets customers’ diverse requests according to
conditions in each country and region. Daikin has Contact
centers in major countries, and via this support system strives
to increase customer satisfaction.
Social Contributions
Aiming to be a company with deep roots in the many commu-
nities throughout the world where it does business, Daikin
organizes numerous kinds of activities that enable employees
to lead the way in contributing to local societies. These activi-
ties center on the themes of “environmental protection,” “art
and culture,” “promoting sports,” and “support for education.”
Environmental Protection: Daikin promotes reforestation
programs throughout the world to contribute to protecting
biodiversity and reducing atmospheric CO2 levels. The Group
undertakes a variety of efforts to restore the natural environ-
ment to vitality and maintain balance in the ecosystem, part-
nering with governments, local communities, and NGOs.
Examples include a reforestation program in Indonesia and
environmental protection and renovation programs on Japan’s
Shiretoko Peninsula.
In Indonesia, in partnership with international NGO
Conservation International, Daikin launched the Reforestation
Project in June 2008 in Gunung Gede Pangrango National
Park to restore deforested areas and help the ecosystem
recover. From fiscal 2015, Daikin will expand these efforts to
Brazil, Cambodia, India, China, and Liberia, and contribute
globally to sustainable reforestation and community develop-
ment.
In Japan, since July 2011, Daikin has worked with the
Shiretoko Nature Foundation, Shari Town, and Shiretoko
Rausu-Town in supporting efforts in preserving and restoring
the natural environment of the Shiretoko Peninsula, a
UNESCO World Heritage Site. For the five years until March
2016, via financial support and employees volunteering,
Daikin is working to restore the forests and waterways of
Shiretoko, and supporting programs for people and bears
to coexist. In May and September of fiscal 2014, 25 people
volunteered in maintaining and expanding barriers to protect
saplings from deer and cutting underbrush to help saplings
grow.
Art and Culture: To promote art and culture, Daikin has
established the Daikin Foundation for Contemporary Arts,
which supports exhibitions, lectures, academic research, pub-
lishing programs, and other activities of the National Museum
of Art, Osaka. In April 2013, the foundation became a public
interest incorporated foundation, and is actively pursuing its
areas of activity. Through this, Daikin aims to further invigorate
the arts and culture in Osaka, Daikin’s birthplace. Daikin also
supports the Kansai Philharmonic Orchestra, which is based
in Osaka. From 2004, Daikin’s Chairman has served as
Chairman of the Orchestra. Overseas also, Daikin sponsors
music events and other events and is fostering local culture.
Promoting Sports: Daikin sponsors the Daikin Orchid
Ladies Golf Tournament, an LPGA of Japan Tour event held
in Okinawa each spring. Daikin’s aim is for the event to be a
bridge between Okinawa and mainland Japan through golf.
Support for Education: Daikin provides support for the
education of young people in each region where it has a facili-
ty. In fiscal 2014, Daikin signed on to the “Program to Raise
Creative Children that Like Science” run by Sakai City’s Board
of Education. Daikin employees served as teachers in science
experiment classes for about 990 students at 11 elementary
schools.
R&D and Intellectual Property
Respect for Intellectual Property Rights: Daikin considers
intellectual property (IP) to be a critical corporate asset, and
striving to protect it and use it effectively is made clear in
Daikin’s Group Compliance Guidelines. The guidelines also
make clear that other firms’ IP is to be respected and not
infringed upon. With this in mind, Daikin has incorporated
specific compliance points in its Compliance Policies. The
policies call for R&D managers to realize that they are respon-
sible for patents, and for R&D staff to realize that “IP activities
are the essence of R&D efforts,” and proactively obtain
patents, use them, and prevent infringement.
Daikin has a patent and compliance review system in place
as part of the design review process for new product and
technology development. Also, when cooperating with other
companies in R&D, Daikin works to separate technologies
and know-how into those that must be kept secret and those
that need not be. Those determined to be secret are shown in
black-box form.
To actively support R&D staff, IP efforts at Daikin are
undertaken mainly by the legal and compliance teams, and
the IP Center. IP officers are also placed in R&D teams in all
business lines. These IP managers work together to handle
day-to-day IP work (including patent applications, application
follow-ups, analyzing infringement risk of other companies’
patents, and dealing with infringements on Daikin patents).
The officers also hold IP training for Daikin employees in
different functions and at different seniority levels, promote
new inventions, and promote strategic use of IP. To this end,
together with R&D staff, the IP officers are strengthening func-
tions to build an effective patent network as well as functions
in Daikin’s global patent research.
27
ANNUAL REPORT 2014
Eleven-Year Financial Highlights
Daikin Industries, Ltd. and Consolidated Subsidiaries
Years Ended March 31
Operating Results (for the year):
Net sales
Gross profit
Selling, general and administrative expenses
Research and development expenses (Note 1)
Operating income
EBITDA (Note 2)
Net income
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note 3)
Net cash provided by (used in) financing
activities
Financial Position (at year-end):
Total assets
Total interest-bearing liabilities
Total shareholders’ equity
Per Share Data (yen):
Net income (basic)
Shareholders’ equity
Cash dividends
Ratios (%):
Gross profit margin
Operating income margin
EBITDA margin
Return on shareholders’ equity (ROE)
Shareholders’ equity ratio
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Millions of yen
¥625,080
212,402
165,482
23,817
46,920
68,835
26,869
¥40,306
(31,594)
8,711
2,182
¥534,726
148,949
234,029
¥101.57
888.29
14.00
33.98%
7.51
11.01
12.24
43.77
¥729,414
256,289
196,083
24,583
60,206
83,630
38,083
¥ 43,970
(42,091)
1,879
3,534
¥615,596
166,442
271,716
¥ 144.24
1,031.73
18.00
35.14%
8.25
11.47
15.06
44.14
¥792,837
269,906
203,359
26,648
66,547
95,816
40,146
¥ 63,511
(63,420)
91
(4,284)
¥716,440
172,995
340,523
¥ 152.11
1,293.41
22.00
34.04%
8.39
12.09
13.11
47.53
¥911,749
312,688
231,934
27,204
80,754
115,315
45,420
¥ 83,725
(305,251)
(221,526)
245,975
¥1,161,364
456,074
397,542
¥ 172.66
1,511.47
28.00
34.30%
8.86
12.65
12.31
34.23
¥1,291,081
¥1,202,420
¥1,023,964
¥1,160,331
¥1,218,701
¥1,290,903
¥1,783,077
¥103,329
¥ 62,238
¥129,227
441,549
313,451
32,075
128,098
179,469
74,822
(76,428)
26,902
3,367
356,928
545,641
¥ 262.24
1,867.79
38.00
9.92
13.90
15.87
45.09
363,660
302,266
30,535
61,394
118,325
21,755
(99,302)
(37,065)
48,382
417,919
471,686
¥ 74.51
1,615.98
38.00
5.11
9.84
4.28
42.21
319,301
275,263
28,220
44,038
96,462
19,391
(39,848)
89,379
(34,942)
399,313
496,179
¥ 66.44
1,701.29
32.00
4.30
9.42
4.01
43.54
361,665
286,210
30,771
75,455
127,168
19,873
¥78,411
(23,306)
55,105
(37,623)
371,902
290,709
32,987
81,193
131,719
41,172
¥44,967
(62,955)
(17,988)
(1,113)
388,046
299,419
33,569
88,627
140,151
43,585
¥103,161
(218,386)
(115,225)
143,520
566,861
411,786
40,177
155,075
233,976
91,880
¥179,713
(80,835)
98,878
(38,249)
372,481
487,876
389,891
502,309
705,871
618,118
693,943
802,344
¥ 68.14
1,672.74
36.00
¥ 141.37
1,725.64
36.00
¥ 149.73
2,123.10
36.00
¥ 315.21
2,749.76
50.00
6.50
10.96
4.04
43.08
6.66
10.81
8.30
43.28
6.87
10.86
7.78
35.61
8.70
13.12
12.94
39.87
34.20%
30.24%
31.19%
31.17%
30.52%
30.06%
31.79%
¥1,210,094
¥1,117,418
¥1,139,656
¥1,132,507
¥1,160,564
¥1,735,836
¥2,012,531
Notes:
1. R&D expenses are included within general administrative expenses and manufacturing expenses.
2. EBITDA = Operating income + depreciation and amortization.
3. Free cash flow = Net cash provided by operating activities + net cash used in investing activities.
Net Sales
Operating Income
Net Income
(¥ billion)
160
120
80
40
0
(¥ billion)
100
80
60
40
20
0
04 05 06 07 08 09 10 11 12 13 14
04 05 06 07 08 09 10 11 12 13 14
04 05 06 07 08 09 10 11 12 13 14
(¥ billion)
1,800
1,500
1,200
900
600
300
0
28
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Millions of yen
Operating Results (for the year):
Net sales
Gross profit
Selling, general and administrative expenses
Research and development expenses (Note 1)
Operating income
EBITDA (Note 2)
Net income
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note 3)
Net cash provided by (used in) financing
activities
Total assets
Financial Position (at year-end):
Total interest-bearing liabilities
Total shareholders’ equity
Per Share Data (yen):
Net income (basic)
Shareholders’ equity
Cash dividends
Ratios (%):
Gross profit margin
Operating income margin
EBITDA margin
Return on shareholders’ equity (ROE)
Shareholders’ equity ratio
Notes:
¥625,080
212,402
165,482
23,817
46,920
68,835
26,869
¥40,306
(31,594)
8,711
2,182
¥534,726
148,949
234,029
¥101.57
888.29
14.00
7.51
11.01
12.24
43.77
¥729,414
256,289
196,083
24,583
60,206
83,630
38,083
¥ 43,970
(42,091)
1,879
3,534
¥615,596
166,442
271,716
¥ 144.24
1,031.73
18.00
8.25
11.47
15.06
44.14
¥792,837
269,906
203,359
26,648
66,547
95,816
40,146
¥ 63,511
(63,420)
91
(4,284)
172,995
340,523
¥ 152.11
1,293.41
22.00
8.39
12.09
13.11
47.53
¥911,749
312,688
231,934
27,204
80,754
115,315
45,420
¥ 83,725
(305,251)
(221,526)
245,975
456,074
397,542
¥ 172.66
1,511.47
28.00
8.86
12.65
12.31
34.23
33.98%
35.14%
34.04%
34.30%
1. R&D expenses are included within general administrative expenses and manufacturing expenses.
2. EBITDA = Operating income + depreciation and amortization.
3. Free cash flow = Net cash provided by operating activities + net cash used in investing activities.
¥1,291,081
441,549
313,451
32,075
128,098
179,469
74,822
¥103,329
(76,428)
26,902
3,367
¥1,202,420
363,660
302,266
30,535
61,394
118,325
21,755
¥ 62,238
(99,302)
(37,065)
48,382
¥1,023,964
319,301
275,263
28,220
44,038
96,462
19,391
¥129,227
(39,848)
89,379
(34,942)
¥1,160,331
361,665
286,210
30,771
75,455
127,168
19,873
¥78,411
(23,306)
55,105
(37,623)
¥1,218,701
371,902
290,709
32,987
81,193
131,719
41,172
¥44,967
(62,955)
(17,988)
(1,113)
¥1,290,903
388,046
299,419
33,569
88,627
140,151
43,585
¥103,161
(218,386)
(115,225)
143,520
¥1,783,077
566,861
411,786
40,177
155,075
233,976
91,880
¥179,713
(80,835)
98,878
(38,249)
¥716,440
¥1,161,364
¥1,210,094
356,928
545,641
¥1,117,418
417,919
471,686
¥1,139,656
399,313
496,179
¥1,132,507
372,481
487,876
¥1,160,564
389,891
502,309
¥1,735,836
705,871
618,118
¥2,012,531
693,943
802,344
¥ 262.24
1,867.79
38.00
¥ 74.51
1,615.98
38.00
¥ 66.44
1,701.29
32.00
¥ 68.14
1,672.74
36.00
¥ 141.37
1,725.64
36.00
¥ 149.73
2,123.10
36.00
¥ 315.21
2,749.76
50.00
34.20%
9.92
13.90
15.87
45.09
30.24%
5.11
9.84
4.28
42.21
31.19%
4.30
9.42
4.01
43.54
31.17%
6.50
10.96
4.04
43.08
30.52%
6.66
10.81
8.30
43.28
30.06%
6.87
10.86
7.78
35.61
31.79%
8.70
13.12
12.94
39.87
Research and Development
Expenses
Shareholders’ Equity
Total Assets
(¥ billion)
50
40
30
20
10
0
(¥ billion)
1,000
800
600
400
200
0
(¥ billion)
2,500
2,000
1,500
1,000
500
0
04 05 06 07 08 09 10 11 12 13 14
04 05 06 07 08 09 10 11 12 13 14
04 05 06 07 08 09 10 11 12 13 14
29
ANNUAL REPORT 2014
Financial Review
Overview of Net Sales
Looking at economic conditions throughout the world during fiscal 2014, the
U.S. economy recovered steadily supported by strong consumer spending and
a recovering housing market. The European economy remained weak due to
fiscal austerity measures, high unemployment, and weak economies in
southern Europe. Growth in emerging economies slowed down steadily.
In Japan, due to effects from the government and Bank of Japan policies,
corporate profits and capital expenditures are recovering, and the economy is
improving steadily. Consumer spending, in particular, was strong on the back
of high demand before the consumption tax rise.
Overall in fiscal 2014, the Group was able to boost its consolidated net
sales and profits thanks to the growth of air-conditioner refrigeration equip-
ment business sales in Japan, China, elsewhere in Asia, and other regions.
The weakened yen also was a positive factor. Furthermore, the Goodman
Group of the United States, acquired in November 2012, was brought into
consolidation from the first quarter of the year, which brought Goodman’s sales
and profits into accretion. Overall, consolidated net sales set a new record at
¥1,783.1 billion, up 38.1% from the level in the previous fiscal year. Cost of
goods sold as a percentage of net sales improved 1.7 percentage points, to
68.2%. Gross profit amounted to ¥566.9 billion, up ¥178.8 billion, and the
gross margin for the fiscal year was 31.8%. Consolidated operating income
increased 75.0% year on year, to ¥155.1 billion.
Currency Exchange Rates
The yen depreciated substantially against the U.S. dollar and euro compared to
the previous year’s levels, and the average currency exchange rate during the
fiscal year was ¥100 to one U.S. dollar and ¥134 to one euro. As a result of
these movements in foreign currency exchange rates, Daikin consolidated net
sales were estimated to be ¥161.0 billion higher and operating income ¥16.0
billion higher than they would have been without movements in exchange
rates.
Yen-U.S. dollar rate
Yen-euro rate
Fiscal 2013
¥ 83
¥107
Fiscal 2014
¥100
¥134
SG&A Expenses and Operating Income
As a result of a rise in personnel expenses and product warranty allowances
associated with business expansion in the air-conditioner refrigeration
equipment business, SG&A expenses increased to ¥411.8 billion (37.5%
higher year on year). The ratio of SG&A expenses to net sales was 23.1%,
almost the same level as in the previous fiscal year.
Operating income grew 75.0%, to ¥155.1 billion, and the operating income
margin rose 1.8 percentage points, to 8.7%.
R&D Expenses
R&D expenses included in cost of goods sold and SG&A expenses amounted to
¥40.2 billion and corresponded to 2.3% of net sales.
• Air-Conditioning and Refrigeration Equipment
R&D expenses for air-conditioning and refrigeration equipment operations
totaled ¥35.0 billion.
Daikin launched the Urusara 7 residential-use air conditioner in November
2012. This product received the Prime Minister’s Award in the Fifth Japan
Craftsmanship Awards held by the Ministry of Economy, Trade and Industry,
the first home appliance product to win this award.
In industrial heating and cooling systems, Daikin launched FIVE STAR ZEAS,
an air-conditioning system for stores and offices that is the first commercial air
conditioner to use the new refrigerant HFC32 (R32).
In residential-use air purifiers, Daikin launched Clear Force Z, a premium air
purifier capable of controlling room humidity and purifying the air in a single
unit.
Domestic and Overseas Sales
Operating Income
and Operating Income Margin
(¥ billion)
1,800
1,500
1,200
900
600
300
0
(¥ billion)
180
150
120
90
60
30
0
Net Income
(¥ billion)
100
80
60
40
20
0
(%)
12
10
8
6
4
2
0
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Domestic
Overseas sales
Operating income
Operating income margin
30
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
In North America, Daikin launched sales of a high-efficiency compact
Other Income (Expenses) and Net Income
air-cooled scroll chiller (30-70 ton) in November 2013.
In China, the Group introduced a DC brushless inverter fan coil unit capable
Reflecting record-high sales and operating income, and a much smaller
of cutting energy use by 30%-60% over standard fan coil units sold by Daikin.
write-down of investment securities than what was recorded in the previous
In Europe, Daikin developed an ultra-large 3,000-ton turbo cooling system
year, net income amounted to ¥91.9 billion, 110.8% higher than in the
that features a two-stage compressor and that can cool large spaces in the
previous fiscal year.
Middle East and other areas. To answer calls for greater environmental
friendliness in products, the Group also introduced an air-cooled DC inverter
Dividend Policy and Dividends Applicable
multi-scroll chiller that can greatly reduce part load power usage.
to the Fiscal Year
• Chemicals
Daikin strives to continue to make strategic investments and expand its busi-
R&D expenses for Chemicals operations totaled ¥4.3 billion.
ness, and improve operations, including reducing overall costs and strengthen-
Daikin’s chemicals business conducts R&D for new products and new
ing its financial position. Through these efforts, Daikin seeks to be a truly global
applications based on rich experience in fluorine products and fluorochemical
excellent company, raise corporate value, and improve shareholder returns.
technology. In fluoropolymer resins and fluororubbers, using fluorochemicals’
The Group seeks to provide a stable and continuous return to shareholders.
good properties in heat resistance, low drug reactivity, and dielectric proper-
Previously, Daikin set a policy of maintaining at least a 2.0% consolidated ratio
ties, Daikin is developing new differentiated products for automotive, semicon-
of dividends on equity (DOE). Going forward, the Group will raise this target to
ductor, and wire and cable (IT field) applications. Also, in recent years, demand
2.5% in a stepwise fashion. Always keeping dividend payouts in mind, the
for the fluorocoating OPTOOL for preventing fingerprint contamination for touch
Group will work to further strengthen shareholder returns.
screens on IT devices has grown strongly. Sales, R&D, and production divisions
Internal reserves will be applied to strategic investments aimed at expanding
are working closely to develop and manufacture products ideal for the market
business operations and increasing competitiveness by such means as further
in a speedy manner and actively meet this great change in demand.
strengthening management systems, accelerating the development of global
businesses, and accelerating the development of environmentally conscious
• Other operations
products.
R&D expenses for oil hydraulics, defense systems, and other operations totaled
For the year ended March 31, 2014, Daikin distributed a total annual cash
¥913 million.
dividend of ¥50 per share (interim dividend of ¥23 per share and a year-end
In oil hydraulics, Daikin is commercializing a large-capacity series of
dividend of ¥27 per share), a ¥14 increase from the previous fiscal year. The
products and developing new applications. The Group is doing so using its high
DOE ratio was 2.1%.
energy-efficiency and high-functionality hybrid oil hydraulic system technology
that combines oil hydraulic technology and inverter technology. In defense
Performance by Business Segment
systems, Daikin conducts R&D for components for guided missiles and artillery
shells for Japan’s Ministry of Defense.
• Air-Conditioning
Total sales of the air-conditioning and refrigeration equipment segment
increased to ¥1,592.9 billion, up 42.2% from the previous fiscal year.
Operating income increased 95.3%, to ¥138.5 billion.
Selling, General
and Administrative Expenses
Revenues by Segment
Segment Profit (Loss)
(¥ billion)
480
360
240
120
0
(¥ billion)
1,800
1,500
1,200
900
600
300
0
(¥ billion)
160
120
80
40
0
-40
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Air conditioning
Chemicals
Other
Air conditioning
Chemicals
Other
31
ANNUAL REPORT 2014
Unit Sales of Air-Conditioning Systems in the Japanese Air-Conditioning Industry (Fiscal 2014)
(1,000 units)
Residential use
Commercial use
First half
5,788
438
Year on year
104%
100%
Second half
3,634
397
Year on year
124%
116%
Full year
9,422
835
Year on year
111%
107%
Japan
launch of highly cost-competitive air conditioners for stores in emerging
Industry demand was robust in Japan’s commercial air-conditioning equipment
markets, and increased sales of multi-unit air conditioners for buildings in
market, owing to strong demand ahead of the consumption tax rise and higher
Turkey. The residential heat pump water and room heating system business
construction starts. In November 2013, Daikin launched FIVE STAR ZEAS, an
expanded year on year. Demand fell in the major market of France, but store
air-conditioning system for stores and offices that is the first commercial air
development in central Europe, Italy, and Spain drove overall results
conditioner to use the new refrigerant HFC32 (R32). This product was awarded
higher.
the Director General Prize of the Agency of Natural Resources and Energy for
excellent energy conservation equipment in the fiscal year ended March 2013.
• China
Centered on this product, Daikin worked to expand sales of high-value-added
In China, due to tightened monetary policy, new large-scale real estate and
products that feature superior energy efficiency and environmental friendliness,
building projects decreased, although consumer demand remained robust.
which drove commercial air- conditioning equipment sales higher over the
Daikin has long focused on retail sales in China, and thus effects of macro-
previous fiscal year.
economic conditions are lessened. Therefore, the Group was able to achieve
In Japan’s residential air-conditioning market, industry demand was at
year-on-year growth in sales of both residential and commercial air-condition-
record high levels thanks to favorable weather, strong demand ahead of the
ing systems. In 2013, full model changes were undertaken for all products to
consumption tax rise, and growth in new housing starts. Centered on the
quicken product differentiation, particularly in the commercial air-conditioning
Urusara 7 room air conditioner, Daikin increased unit sales, particularly of
systems market. Also, the product lineup aimed at regional cities was strength-
energy-efficient products. This caused an overall increase in residential
ened, and the sales network was expanded across the country. Within this, via
air-conditioning business sales.
Overseas
• Europe Region
the rollout of the Group’s PROSHOP network of exclusive retail sales outlets,
Daikin is promoting sales tailored to local needs and winning new customers.
Together with a product strategy that added multi-type air conditioners to room
units, market share in the residential air-conditioning market expanded.
In Europe, the EU area economy showed signs of recovery, and demand was
Sales of air purifiers also grew as that market continues to expand on the
relatively strong in emerging markets. Overall sales in the region grew over the
back of increased consciousness of environmental and air quality. In large-
previous year. Sales of residential air-conditioning systems grew year on year,
scale (applied) air-conditioning systems, growth in new construction and
thanks to strengthened marketing of low-cost room air conditioners and
government projects slowed, but sales of chillers and air-handling units to
increased sales in Turkey.
private-sector customers increased. Maintenance and service business sales
In commercial air-conditioning systems, Daikin’s sales expanded over the
in these systems also increased, driving sales higher in this business line.
previous year, due to construction demand bottoming in EU countries, the
Composition of Sales
Others 2.8%
Chemicals 7.9%
32
Research and
Development Expenses
Air-Conditioning
89.3%
(¥ billion)
48
36
24
12
0
2010 2011 2012 2013 2014
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
• Asia/Oceania Region
over the previous year. Demand in Japan from the semiconductor and auto
The residential housing market in Thailand was weak due to slowing growth
sectors started to recover; however, sales slipped year on year. Sales of
and instability in the government; thus, sales were flat year on year. However,
fluororubber products were up year on year, owing to strong demand mainly
results in Australia, Malaysia, and Singapore were robust. Moreover, in India,
from the auto sector in China and other overseas markets. As a result, total
Vietnam, Indonesia, and other emerging markets, thanks to expansion of the
sales of fluoropolymers were above the level of the previous year.
sales network, sales of residential and commercial air-conditioning systems
In the chemical products sector, demand for water and oil repellents fell
both experienced double-digit growth. Thus, overall, sales in this region grew
in Japan, but demand from apparel applications in China recovered. Thus,
markedly over the previous year.
• Americas Region
sales in this business line expanded over the previous year. R&D work for
new applications in anti-smudge surface coating agents for touch screens
progressed, but existing demand dropped. Therefore, sales in this business
Non-residential building starts are on a recovery trend in North America, but
declined year on year. In other chemical products, demand for etching
competition remains fierce in large-scale (applied) air-conditioning systems.
solutions for semiconductors did not improve; thus, sales were flat year on
However, sales increased year on year in the region stemming from expanded
year. Driven by overseas sales of water and oil repellents, overall chemical
unit volume thanks to a strengthened store network, expanded after-sales
products sales increased year on year.
service business, and strong exports to Central and South America.
Sales of fluorocarbon gas products were flat compared to the level in the
In the residential air-conditioning systems market, shipments were strong
previous fiscal year as demand did not significantly change globally.
in step with the recovery in residential housing starts. In the commercial
air-conditioning systems market, sales grew year on year, thanks to recovery
• Others
in the construction sector. Orders were particularly strong for school and other
Total sales in the others segment amounted to ¥50.0 billion, up 7.6% from the
government-related projects. Overall, regional sales were up strongly over
previous fiscal year. The segment’s operating income increased 96.4%, to
the previous year due to such factors as Goodman becoming a consolidated
¥2.4 billion.
subsidiary.
• Chemicals
Daikin’s oil hydraulic equipment business for industrial machinery main-
tained robust sales in Japan and the United States; thus, sales in this business
line grew year on year. Sales of oil hydraulic equipment used in construction
In the chemicals segment, despite positive effects from a weaker yen, the
machinery and motor vehicles were also strong, reflecting healthy demand
supply-demand balance worsened due to increased supply, which pushed
from key customers in Japan and also from overseas.
prices down. The Daikin Group’s total sales in the segment increased 12.7%
Sales in the defense business sector declined over the previous year, owing
from the previous year, to ¥140.2 billion, but operating income fell to ¥14.2
to a fall in orders from Japan’s Ministry of Defense for artillery shells and
billion, down 14.0% from the previous year.
guided missile components. Sales of home-use oxygen therapy equipment
Sales of fluoropolymer resins grew year on year, thanks to recovery in
were strong.
infrastructure spending in China, centered on railways and telecommunica-
Electronic systems business sales exceeded the level in the previous year
tions, and also thanks to strong demand from the auto sector. In the U.S.
on sales growth in database systems for design and development applications,
market, sales for LAN cable applications were stagnant, but demand from the
together with moderate recovery in IT investments.
auto and aerospace sectors was relatively robust. Thus, revenues increased
Total Assets
Working Capital and Current Ratio
Total Shareholders’ Equity
and Shareholders’ Equity Ratio
(¥ billion)
2,400
1,800
1,200
600
0
(¥ billion)
500
400
300
200
100
0
(%)
250
200
150
100
50
0
(¥ billion)
1,000
800
600
400
200
0
(%)
50
40
30
20
10
0
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Working capital
Current ratio
Shareholders’ equity
Shareholders’ equity ratio
33
ANNUAL REPORT 2014
Outlook for Fiscal 2015
Assets, Liabilities, and Total Equity
In the global macroeconomy, it appears that the pace of recovery in the United
• Assets
States is quickening centered on private demand, and European economies
At the end of fiscal 2014, current assets amounted to ¥967.9 billion, up
appear to have bottomed out. Growth in emerging markets, China and India in
¥164.5 billion from the end of the previous fiscal year, owing to factors
particular, is expected to continue slowing.
including an increase in cash and cash equivalents and trade receivables.
In Japan, the economy is expected to temporarily slow down in reaction to
Noncurrent assets were ¥112.2 billion higher than at the end of the previous
the high demand immediately before the consumption tax rise in April 2014.
fiscal year, at ¥1,044.7 billion, due to purchases and valuation changes of
However, supported by government economic policy and recovery in exports,
investment securities as well as other factors. Total assets amounted to
the economy is expected to continue expanding, albeit at a slower pace. Using
¥2,012.5 billion, up ¥276.7 billion from the end of the previous fiscal year.
the plan formulated last year for the final three years of the FUSION 15
strategic management plan as a pillar, for fiscal 2015, ending March 31,
• Liabilities and Total Equity
2015, Daikin has instituted the Group policy “Combine the Group’s strengths
Total liabilities rose to ¥1,188.2 billion, up ¥88.3 billion from the end of the
and follow through.” In accordance with this policy, the Group is striving to
previous fiscal year, partially owing to an increase in trade payables. The
flexibly and quickly respond to changes in its operating environment as it seeks
interest-bearing debt to total assets ratio improved to 34.5%, from 40.7% at
to maintain a balanced emphasis on both medium- to long-term corporate
the end of the previous fiscal year.
development and short-term profitability going forward.
Despite a decrease due to cash dividend payments, net assets increased
Specifically, the Daikin Group will strive to increase sales by fundamentally
¥188.4 billion, to ¥824.3 billion, due to factors including net income for the
strengthening sales capabilities by developing new markets and expanding its
year and foreign currency translation adjustments booked in equity.
sales network in China and other regions. The Group will also work to build a
solutions business by strengthening service and maintenance offerings. Daikin,
Capital Investment and Depreciation
furthermore, will make efforts to grow its environmental innovations business,
including developing next-generation refrigerants and building a heating
In accordance with the Daikin Group’s fundamental strategy of concentrating
equipment business. With these measures, Daikin will vigorously push forward
management assets in business fields that offer high profitability, the Group
its growth strategy. At the same time, the Group will carefully select invest-
made total capital investments of ¥59.4 billion in fiscal 2014, largely in the
ments and strive to increase efficiency in administrative departments to
air-conditioning and chemicals business fields. In the air-conditioning field,
fundamentally lower fixed costs. Through this, Daikin will make initiatives to
Daikin invested ¥10.3 billion, mainly for R&D related to room air conditioners
further build a profitable business structure and aim to increase sales and
and package air conditioners and for rationalization objectives. At Goodman
profits.
Global Group, Inc., investments of ¥4.8 billion were made primarily to increase
Daikin’s performance outlook on a consolidated basis for fiscal 2015 is
capacity. In the chemicals field, the Group invested ¥7.7 billion, mainly for
for an 11.0% increase in net sales, to ¥1,980.0 billion, a 9.6% increase in
increasing production capacity and for rationalization objectives, and Daikin
operating income, to ¥170.0 billion, and a 6.7% increase in net income, to
Fluorochemicals (China) Co., Ltd., implemented ¥6.6 billion in capital invest-
¥98.0 billion. Foreign currency exchange rates assumed for fiscal 2015 are
ments, mainly for increasing its production capabilities. The main sources of
¥132/euro and ¥98/U.S. dollar.
funds for these investments were bank borrowings and retained earnings.
The depreciation expense amounted to ¥55.1 billion, up ¥15.7 billion from
the previous fiscal year.
Capital Investments
and Depreciation and Amortization
(¥ billion)
75
60
45
30
15
0
ROA
(%)
5
4
3
2
1
0
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
Capital investment
Depreciation and amortization
(excluding amortization of goodwill)
ROE
(%)
15
12
9
6
3
0
34
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Cash Flows
By means of this acquisition, Daikin intends to reinforce Goodman’s sales
network—the largest sales network in the U.S. residential and commercial
Net cash provided by operating activities amounted to ¥179.7 billion, up ¥76.6
air-conditioning equipment market—through the launch of environment-friendly
billion compared with the previous fiscal year, due to factors including the
products incorporating Daikin’s state-of-the-art environmental technologies. Doing
increase in income before income taxes and minority interests. Net cash used
this, Daikin aims to bring about new trends in the U.S. air-conditioner market that
in investing activities amounted to ¥80.8 billion, ¥137.6 billion less than that
will enable the Group to realize business expansion and contribute to environmen-
used in the previous fiscal year. In fiscal 2013, Daikin acquired Goodman,
tal protection. Furthermore, Daikin hopes to further improve its competitiveness by
which accounted for the cash outlay in that year. Net cash used in financing
leveraging Goodman’s low-cost management know-how to develop business in
activities amounted to ¥38.2 billion. Cash flow in this category fell ¥181.8
emerging economies and volume-zone markets. Daikin also hopes to use this
billion from the cash provided in the previous year, as funds were borrowed
know-how to reform the Group’s earnings structure, including at operations in
and bonds issued to finance the Goodman acquisition. As a result of these
advanced economies. There is a possibility that the degree of progress toward
changes, cash and cash equivalents as of March 31, 2014 amounted to
realizing those objectives could impact the Daikin Group’s performance.
¥257.3 billion, up ¥71.7 billion from the previous fiscal year-end.
Principal Risks Associated
with the Daikin Group’s Operations
• Cold summer weather and other unusual weather patterns
accompanied by changes in demand for air conditioners
Air-conditioning and refrigeration operations accounted for 89.3% of the Daikin
Group’s consolidated net sales in fiscal 2014. Therefore, the Group strives to
• Sharp changes in politico-economic conditions
accurately monitor weather information and weather-related demand trends in
or supply-demand relationships in principal markets
the world’s principal markets. It also employs flexible manufacturing methods
The Group provides goods and services throughout the world, and there is a
and marketing policies designed to minimize the impact of those demand
possibility that Group performance could be impacted if politico-economic
trends on its performance. However, depending on the magnitude of demand
changes occur in such markets as Japan, Europe, North America, China, and
changes resulting from cold summer weather or other unusual weather
other countries in the Asian region.
patterns, there is a possibility that the Group’s performance could be impacted.
In particular, the Group is proactively developing business operations
outside Japan through measures including constructing new air-conditioning
• Large fluctuations in currency exchange rates
equipment manufacturing facilities and acquiring air-conditioning equipment
Overseas sales accounted for 71.2% of the Daikin Group’s consolidated net
dealers in Europe as well as establishing manufacturing and marketing
sales in fiscal 2014. The acceleration of global business development going
companies in China. There is, thus, a possibility that the Group’s performance
forward is expected to further elevate this overseas sales ratio. Consolidated
could be impacted by business environment changes in one or more global
financial statements are prepared by translating local currency-denominated
regions. These changes could include the deterioration of economic conditions,
items for Group operations in each global region, including sales, expenses,
raw material price surges, and/or the intensification of competition with other
and assets. Accordingly, depending on currency exchange rates at the time of
companies. In the United States, on November 1, 2012, Daikin completed all
the currency translation, there may be an impact on yen translation values
procedures for the acquisition of Goodman Global Group, Inc. (Head Office:
even when there has been no change in local currency-denominated figures.
Houston, Texas—hereinafter, “Goodman”) for a purchase price of US$3.7
In addition, because the Group engages in foreign currency-denominated
billion (including the refinancing of Goodman’s existing debt).
transactions in raw materials and component procurement and in the sale of
Free Cash Flow
(¥ billion)
120
60
0
-60
-120
2010 2011 2012 2013 2014
goods and services, there is a possibility that changes in currency exchange
rates could impact manufacturing costs and sales performance. To avoid such
currency exchange rate-related risks, the Group undertakes short-term risk
hedging via forward exchange contracts and similar instruments. Daikin also
undertakes medium- to long-term measures to continuously adjust procure-
ment and manufacturing operations and optimize them for changing currency
exchange-rate trends, and to balance imports and exports in each currency.
Through this, the Group works to realize a business structure that is not greatly
impacted by changes in currency exchange rates. However, currency exchange
rate-related risks cannot be completely avoided.
The Group also recognizes significant risks associated with the following items.
• Major product quality claims
• Major problems in manufacturing
• Major changes in the market prices of securities and other assets
• Impairment of long-lived assets
• Natural disasters
35
ANNUAL REPORT 2014
Consolidated Balance Sheet
Daikin Industries, Ltd. and Consolidated Subsidiaries
March 31, 2014
ASSETS
Current assets:
Cash and cash equivalents (Notes 7 and 15)
Trade receivables (Notes 6, 7 and 15):
Notes
Accounts
Allowance for doubtful receivables
Inventories (Notes 3 and 7)
Deferred tax assets (Note 11)
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment (Note 7):
Land
Buildings and structures
Machinery and equipment
Furniture and fixtures
Lease assets (Note 14)
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
Investments and other assets:
Investment securities (Notes 4 and 15)
Investments in and advances to unconsolidated subsidiaries and associated companies
Goodwill (Note 5)
Customer relationships
Other intangible assets
Deferred tax assets (Note 11)
Assets for retirement benefits (Note 8)
Other assets
Total investments and other assets
Total
See notes to consolidated financial statements.
36
Millions of yen
2014
2013
¥ 257,295
¥ 185,571
59,984
259,465
(6,598)
316,656
29,598
51,471
967,871
33,624
235,076
450,213
148,450
6,139
21,899
895,401
(595,684)
299,717
154,360
17,175
361,667
123,700
60,389
6,236
10,070
11,346
43,464
219,859
(6,227)
285,169
21,782
53,708
803,326
33,121
216,148
414,716
131,921
6,279
18,111
820,296
(546,095)
274,201
102,588
14,831
348,411
109,723
52,754
3,570
10,569
15,863
744,943
658,309
¥2,012,531
¥1,735,836
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings (Notes 7 and 15)
Current portion of long-term debt (Notes 7 and 15)
Current portion of long-term lease obligations (Note 14)
Trade payables (Note 15):
Notes
Accounts
Income taxes payable (Note 15)
Deferred tax liabilities (Note 11)
Provision for product warranties
Accrued expenses
Other current liabilities (Note 6)
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 7 and 15)
Long-term lease obligations (Note 14)
Liabilities for retirement benefits (Note 8)
Deferred tax liabilities (Note 11)
Other long-term liabilities
Total long-term liabilities
Commitments and contingent liabilities (Notes 14 and 16)
Equity (Notes 9, 10 and 20):
Common stock—authorized, 500,000,000 shares; issued 293,113,973 shares in 2014 and 2013
Capital surplus
Stock acquisition rights
Retained earnings
Treasury stock, at cost: 1,326,704 shares in 2014 and 1,974,043 shares in 2013
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Subtotal
Minority interests
Total equity
Total
Millions of yen
2014
2013
¥ 43,325
¥ 65,335
95,886
1,731
9,380
152,704
17,429
13,356
46,113
84,618
69,095
4,126
1,464
7,377
119,987
14,694
5,518
40,235
67,089
56,802
533,637
382,627
550,475
633,033
2,526
9,975
73,300
18,269
1,912
3,960
54,362
23,945
654,545
717,212
85,032
83,550
842
514,584
(4,549)
40,066
606
87,938
(4,883)
803,186
21,163
824,349
85,032
83,017
1,335
438,671
(6,772)
18,431
(146)
(115)
619,453
16,544
635,997
¥2,012,531
¥1,735,836
37
ANNUAL REPORT 2014
Consolidated Statement of Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2014
Net sales (Note 6)
Cost of sales (Note 13)
Gross profit
Selling, general and administrative expenses (Notes 5, 6 and 13)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Exchange gains
Gain on sales of land
Loss on disposals of property, plant and equipment and other intangible assets
Gain on sales of investment securities (Note 4)
Impairment losses on investment securities (Notes 4 and 15)
Equity in earnings of unconsolidated subsidiaries and associated companies
Gain on reversal of stock acquisition rights
Gain on insurance adjustment
Gain on sales of shares of an associated company
Loss on restructuring of a subsidiary
Other—net (Note 8)
Other expenses—net
Income before income taxes and minority interests
Income taxes (Note 11):
Current
Prior years
Deferred
Total income taxes
Net income before minority interests
Minority interests in net income
Net income
Amounts per common share (Note 18):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.
Millions of yen
2014
¥1,783,077
1,216,216
566,861
411,786
155,075
2013
¥1,290,903
902,857
388,046
299,419
88,627
6,478
(9,454)
483
159
(335)
54
(1,531)
1,652
209
(137)
(2,422)
152,653
50,390
5,014
55,404
97,249
(5,369)
4,690
(7,081)
6,849
38
(497)
117
(12,651)
1,063
310
166
986
(783)
(357)
(7,150)
81,477
32,677
(1,841)
3,500
34,336
47,141
(3,556)
¥ 91,880
¥ 43,585
Yen
¥315.21
314.83
50.00
¥149.73
149.71
36.00
38
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Consolidated Statement of Comprehensive Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2014
Net income before minority interests
Other comprehensive income (Note 17):
Unrealized gains on available-for-sale securities
Deferred gains (losses) on derivatives under hedge accounting
Foreign currency translation adjustments
Share of other comprehensive income in affiliates accounted for using the equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:
The Company’s shareholders
Minority interests
See notes to consolidated financial statements.
Consolidated Statement of Changes in Equity
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2014
Millions of yen
2014
¥ 97,249
2013
¥ 47,141
21,632
1,218
59,499
2,823
85,172
18,434
(72)
64,782
1,483
84,627
¥182,421
¥131,768
¥175,572
6,849
¥126,233
5,535
Outstanding
Number of
Common
Shares Issued
291,085,165
Stock
Acqui-
sition
Common
Stock
Rights
¥85,032 ¥82,977 ¥1,501 ¥415,231 ¥(6,961)
Retained
Earnings
Treasury
Stock
Capital
Surplus
Millions of yen
Accumulated Other Comprehensive Income (Loss)
Unrealized
Gain (Loss)
on Available-
for-Sale
Securities
¥ (2)
Deferred
Gain (Loss)
on Derivatives
under Hedge
Accounting
¥ (74)
Foreign
Currency
Translation
Adjustments
¥(73,894)
Remeasure-
ment of
Defined
Benefit
Plans
(9,666)
43,585
(10,479)
(310)
55,075
40
189
291,139,930
85,032
83,017
(166)
1,335
438,671
(6,772)
18,433
18,431
(72)
(146)
73,779
(115)
(4,021)
91,880
(11,946)
(663)
648,002
533
(4)
2,227
291,787,269
(493)
¥85,032 ¥83,550 ¥ 842 ¥514,584 ¥(4,549)
21,635
¥40,066
752
¥606
88,053
¥(87,938)
¥(4,883)
¥(4,883)
Balance, April 1, 2012
Effect of change of the
fiscal year-end of certain
consolidated subsidiaries
Net income
Cash dividends,
¥36 per share
Repurchase of
treasury stock
Disposal of treasury stock
Net change in the year
Balance, March 31, 2013
Effect of change of the
fiscal year-end of certain
consolidated subsidiaries
(Note 2)
Net income
Cash dividends,
¥50 per share
Repurchase of
treasury stock
Disposal of treasury stock
Net change in the year
Balance, March 31, 2014
See notes to consolidated financial statements.
Total
Minority
Interests
¥503,810 ¥12,111 ¥515,921
Total
Equity
(9,666)
43,585
(9,666)
43,585
(10,479)
(10,479)
229
91,974
619,453
229
96,407
4,433
16,544 635,997
(4,021)
91,880
(4,021)
91,880
(11,946)
(11,946)
(4)
(4)
2,760
2,760
105,064
4,619 109,683
¥803,186 ¥21,163 ¥824,349
39
ANNUAL REPORT 2014
Consolidated Statement of Cash Flows
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2014
Operating activities:
Income before income taxes and minority interests
¥152,653
¥ 81,477
Millions of yen
2014
2013
Adjustments for:
Income taxes—paid
Depreciation and amortization
Gain on sales of investment securities
Impairment losses on investment securities
Loss on disposals of property, plant and equipment and other intangible assets
Equity in earnings of unconsolidated subsidiaries and associated companies
Changes in assets and liabilities, net of effects of the purchase of subsidiaries:
Trade notes and accounts receivable
Inventories
Other current assets
Assets for retirement benefits
Trade notes and accounts payable
Accrued expenses
Other current liabilities
Liabilities for retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities
Investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for acquisition of shares of newly consolidated subsidiaries,
net of cash and cash equivalents acquired (Note 12)
Payments for acquisition of investment securities
Proceeds from sales of investment securities (Note 4)
Proceeds from sales of shares of an associated company
Payment for transfer of business
Other—net
Net cash used in investing activities
Financing activities:
Net decrease in short-term borrowings
Increase in long-term debt
Repayments of long-term debt
Cash dividends paid to the Company’s shareholders
Cash dividends paid to minority interests
Proceeds from issuance of shares to minority interests
Other—net
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Effect of change of the fiscal year-end of consolidated subsidiaries
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See notes to consolidated financial statements.
40
(45,874)
78,901
(54)
1,531
335
(1,652)
(31,510)
(8,228)
(1,315)
499
19,140
12,846
9,238
5,512
(12,309)
27,060
179,713
(53,647)
1,738
(857)
(26,742)
84
(410)
(1,001)
(80,835)
(19,180)
15
(5,024)
(11,946)
(2,604)
297
193
(38,249)
10,896
71,525
199
185,571
¥257,295
(29,688)
51,524
(117)
12,651
497
(1,063)
(22,587)
10,299
(3,924)
(306)
343
1,801
1,672
(204)
786
21,684
103,161
(53,046)
1,146
(163,652)
(4,877)
518
1,883
(358)
(218,386)
(42,868)
383,246
(183,354)
(10,479)
(1,232)
674
(2,467)
143,520
19,740
48,035
2,109
135,427
¥185,571
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Notes to Consolidated Financial Statements
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2014
1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Daikin Industries, Ltd. (the “Company”) have been prepared in accordance
with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in
accordance with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as
to the application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the
Company’s consolidated financial statements issued domestically in order to present them in a form which is more familiar to read-
ers outside Japan.
In addition, certain reclassifications have been made in the 2013 consolidated financial statements to conform to the
classification used in 2014.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries
and Associated Companies
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries
(collectively, the “Group”).
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control
are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for
by the equity method.
The Group applies the equity method of accounting for investments in unconsolidated subsidiaries and associated companies
except for certain insignificant companies. Investments in such insignificant companies are stated at cost except that appropriate
write-downs are recorded for investments for which the value has been permanently impaired. If these subsidiaries and associated
companies had been consolidated or accounted for using the equity method, respectively, the effect on the accompanying con-
solidated financial statements would not have been material.
For the year ended March 31, 2014, Goodman Global Group, Inc. and 21 other companies changed their fiscal year-end from
December 31 to March 31.
The Company included the subsidiaries’ operating results for the 12-month period in the consolidated statement of income and
included their operating results for the 3-month period in the consolidated statement of changes in equity by directly charging to
retained earnings as an effect of the change of the fiscal year-end of certain consolidated subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit includ-
ed in assets resulting from transactions within the Group is eliminated.
Unification of Accounting Policies Applied to Foreign Subsidiaries
for the Consolidated Financial Statements
In accordance with the Accounting Standards Board of Japan (“ASBJ”) Practical Issues Task Force No. 18, “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” the accounting poli-
cies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circum-
stances should, in principle, be unified for the preparation of the consolidated financial statements. However, financial statements
prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted
accounting principles in the United States of America tentatively may be used for the consolidation process, except for the follow-
ing items which should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese
GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions
that has been directly recorded in equity; (c) expensing capitalized development costs of research and development; (d) cancella-
tion of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the
cost model of accounting; and (e) exclusion of minority interests from net income, if contained in net income.
Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method
In accordance with ASBJ Statement No. 16, “Accounting Standard for Equity Method of Accounting for Investments,” adjust-
ments to be made to conform the associate’s accounting policies for similar transactions and events under similar circumstances
to those of the parent company when the associate’s financial statements are used in applying the equity method unless it is
impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in
accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United
States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is
accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amorti-
zation of actuarial gain or loss of pensions that has been directly recorded in the equity; (c) expensing capitalized development
costs of research and development; (d) cancellation of the fair value model of accounting for property, plant and equipment and
investment properties and incorporation of the cost model of accounting; and (e) exclusion of minority interests from net income, if
contained in net income.
41
ANNUAL REPORT 2014
Business Combinations
The Group acquired Goodman Global Group, Inc. and its subsidiaries on November 1, 2012. The Group accounted for business
combinations by the purchase method in accordance with ASBJ Statement No. 21, “Accounting Standard for Business
Combinations.”
Cash Equivalents
Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of
changes in value.
Cash equivalents include time deposits, which mature within three months of the date of acquisition. Time deposits that mature
in more than three months, but within a year of the date of acquisition, are recorded as short-term investments. The Group had no
short-term investments at March 31, 2014 and 2013.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the past credit loss experience
and an evaluation of potential losses in receivables outstanding.
Inventories
Inventories of the Company and its consolidated domestic subsidiaries are stated at the lower of cost, principally determined
by the average method, or net selling value. Inventories of consolidated foreign subsidiaries are stated at the lower of cost, princi-
pally determined by the average method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its consoli-
dated domestic subsidiaries is principally computed by the declining-balance method while the straight-line method is applied to
buildings acquired after April 1, 1998. Depreciation of property, plant and equipment of the consolidated foreign subsidiaries is
principally computed by the straight-line method at rates based on the estimated useful lives of the assets.
The range of useful lives is from 15 to 50 years for buildings and structures, and from 5 to 15 years for machinery and
equipment. The useful lives for lease assets are the terms of the respective leases.
Asset Retirement Obligations
In accordance with ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21,
“Guidance on Accounting Standard for Asset Retirement Obligations,” an asset retirement obligation is defined as a legal obliga-
tion imposed either by law or contract that results from the acquisition, construction, development and normal operation of a tan-
gible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as
the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation
is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the
period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement
obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capital-
ized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subse-
quently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to
its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash
flows are reflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related asset retire-
ment cost.
Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount
of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset
group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition
of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset
exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition
of the asset or the net selling price at disposition.
Leases
In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the
previous accounting standard for lease transactions.
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to
the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions
if certain “as if capitalized” information was disclosed in the note to the lessee’s financial statements. The revised accounting stan-
dard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance
sheet. In addition, the accounting standard permits leases that existed at the transition date and do not transfer ownership of the
leased property to the lessee to continue to be accounted for as operating lease transactions.
42
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section The Company and its consolidated domestic subsidiaries applied the revised accounting standard effective April 1, 2008.
In addition, the Company and its consolidated domestic subsidiaries continue to account for leases that existed at the transition
date and do not transfer ownership of the leased property to the lessee as operating lease transactions.
All other leases are accounted for as operating leases.
Investment Securities
All marketable securities held by the Group are classified as available-for-sale securities and are reported at fair value, with
unrealized gains and losses, net of appli cable taxes, reported in a separate component of equity. The cost of securities sold is
principally determined based on the moving-average method.
Non-marketable available-for-sale securities are stated at cost principally determined by the moving- average method.
For other-than-temporary declines in fair value, available-for-sale securities are reduced to net realizable value by charging such
losses to income.
Goodwill and Intangible Assets
Goodwill and intangible assets arise principally from business combinations. Goodwill represents the excess of the purchase price
over the fair value of the identifiable net assets acquired. Goodwill is amortized over a period of 9 to 20 years. Intangible assets
include primarily customer relationships. Customer relationships are amortized using the straight-line method over the estimated
useful lives (mainly 30 years).
Provision for Product Warranties
The Group repairs or exchanges certain products without charge under specific circumstances. The provision for product warran-
ties is stated in amounts considered to be appropriate based on the past experience and an evaluation of potential losses on the
product warranties.
Employees’ Retirement Benefits
The Company and its consolidated domestic subsidiaries have non-contributory funded pension plans covering substantially all
of their employees. Certain consolidated foreign subsidiaries have pension plans. The method of attributing expected benefit to
the current period in calculation of projected benefit obligation is based on straight-line attribution. Actuarial gains and losses are
amortized by the straight-line method over certain periods (mainly 10 years), which is within the average remaining service period
of employees at the time of recognition. Past service costs are amortized by the straight-line method over certain periods (mainly
10 years), which is within the average remaining service period of employees at the time of recognition.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No.
25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement benefits
that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the related practical
guidance, and were followed by partial amendments from time to time through 2009. The Group applied these accounting stan-
dard and guidance from the end of the annual period beginning on April 1, 2013 (except for the regulations stipulated under Article
35 of the Accounting Standard for Retirement Benefits and Article 67 of Guidance on Accounting Standard for Retirement Benefits).
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit
or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting
deficit or surplus is recognized as a liability (liabilities for retirement benefits) or asset (assets for retirement benefits).
The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit
or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining work-
ing lives of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have
not yet been recognized in profit or loss are included in other comprehensive income and actuarial gains and losses and past ser-
vice costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current
period shall be treated as reclassification adjustments (see Note New Accounting Pronouncements).
In accordance with the transitional measure stipulated under Article No. 37 of the standard, the amount of financial impact
caused by this change in accounting policy is added to or subtracted from remeasurements of the defined benefit plan under
accumulated other comprehensive income.
As a result, net defined benefit assets of ¥10,070 million and net defined benefit liability of ¥9,975 million were recorded as
of March 31, 2014, and accumulated other comprehensive income and minority interest for the year ended March 31, 2014
decreased by ¥4,883 million and ¥14 million, respectively.
Stock Options
In accordance with ASBJ Statement No. 8, “Accounting Standard for Stock Options,” the Company measures the cost of employ-
ee stock options based on the fair value at the date of grant and recognizes compensation expense over the vesting period as
consideration for receiving goods or services. The Company accounts for stock options granted to nonemployees based on the
fair value of either the stock option or the goods or services received. In the consolidated balance sheets, the stock option is
presented as a stock acquisition right as a separate component of equity until exercised.
Foreign Currency Transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese
yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the
consolidated statement of income to the extent that they are not hedged by forward exchange contracts.
43
ANNUAL REPORT 2014
Foreign Currency Financial Statements
The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate
as of the balance sheet date except for equity, which is translated at the historical rate. Revenue and expense accounts of the
consolidated foreign subsidiaries are translated into Japanese yen at the average exchange rate. Differences arising from such
translations are shown as “foreign currency translation adjustments” under accumulated other comprehensive income in a sepa-
rate component of equity.
Bonuses to Directors and Audit & Supervisory Board Members
Bonuses to directors and auditors & supervisory board members are accrued at the year-end to which such bonuses are attribut-
able. Accrued bonuses are included in accrued expenses.
Income Taxes
The provision for current income taxes is computed based on the income before income taxes and minority interests included in
the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.
Derivative Financial Instruments
The Group uses foreign exchange forward contracts, currency swaps and currency options to manage foreign exchange risk
associated with certain assets and liabilities denominated in foreign currencies.
The Group uses mainly interest rate swaps and interest rate options to manage its exposures to fluctuations in interest rates.
The Group uses commodity future contracts to manage the risk of fluctuation of commodity prices for materials.
The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (1) derivatives are principally recognized as either
assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated
statement of income and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because
of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses are deferred until
maturity of the hedged transactions.
The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market
value but the differential paid or received under the swap agreements is recognized and included in interest expense or income.
Amounts Per Common Share
Basic net income per common share is computed by dividing net income available to common shareholders by the weighted-
average number of common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share of common stock assumes full exercise of the outstanding stock options which have dilutive effect
at the beginning of the year (or at the time of issuance).
Cash dividends per share presented in the accompanying consolidated statement of income are dividends appli cable to the
respective years including dividends to be paid after the end of the year.
New Accounting Pronouncements
Accounting Standard for Retirement Benefits
On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits,” and ASBJ Guidance
No. 25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced the Accounting Standard for Retirement
Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other
related practical guidance, and followed by partial amendments from time to time through 2009.
Major changes are as follows:
(a) Treatment in the balance sheet
Under the previous requirements, actuarial gains and losses and past service costs that were yet to be recognized in profit or loss
were not recognized in the balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter,
“deficit or surplus”), adjusted by such unrecognized amounts, was recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit
or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any result-
ing deficit or surplus shall be recognized as a liability (liabilities for retirement benefits) or asset (assets for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or
loss. Those amounts would be recognized in profit or loss over a certain period no longer than the expected average remaining
working lives of the employees. However, actuarial gains and losses and past service costs that arose in the current period and
have not yet been recognized in profit or loss shall be included in other comprehensive income and actuarial gains and losses and
past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the
current period shall be treated as reclassification adjustments.
44
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section (c) Amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected
future salary increases
The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods
and relating to the discount rate and expected future salary increases.
The accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or
after April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for
the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier
application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective
application of this accounting standard to consolidated financial statements in prior periods is required.
The Group adopted the revised accounting standard for (a) and (b) above effective April 1, 2013, and expects to adopt (c) above
from April 1, 2014.
The adoption of (c) above will cause increases of the beginning balance of net defined benefit assets and retained earnings in
the consolidated balance sheet by ¥3,064 million and ¥4,788 million, respectively, at April 1, 2014. The effect of this adoption will
not have a material impact on the Group’s consolidated financial statement for the year ending March 31, 2015.
3. Inventories
Inventories at March 31, 2014 and 2013 consisted of the following:
Finished products and merchandise
Semifinished products and work in process
Raw materials and supplies
Total
Millions of yen
2014
2013
¥217,186
¥191,195
41,557
57,913
41,381
52,593
¥316,656
¥285,169
4. Marketable and Investment Securities
The acquisition costs and aggregate fair values of marketable available-for-sale securities included in investment securities
at March 31, 2014 and 2013 were as follows:
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
Millions of yen
2014
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥54,030
2
¥54,032
¥(432)
¥(432)
¥145,514
102
¥145,616
Millions of yen
2013
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥29,193
4
¥29,197
¥(2,415)
¥(2,415)
¥93,611
129
¥93,740
Cost
¥91,916
100
¥92,016
Cost
¥66,833
125
¥66,958
The information of available-for-sale securities which were sold during the years ended March 31, 2014 and 2013 was as
follows:
March 31, 2014
Available-for-sale:
Equity securities
Millions of yen
Proceeds
Realized
Gains
Realized
Losses
¥84
¥55
(1)
45
ANNUAL REPORT 2014
March 31, 2013
Available-for-sale:
Equity securities
Millions of yen
Proceeds
Realized
Gains
Realized
Losses
¥518
¥117
The impairment losses on marketable available-for-sale securities for the years ended March 31, 2014 and 2013 were
¥1,529 million and ¥12,651 million, respectively.
5. Goodwill
Amortization expenses for goodwill were ¥23,784 million and ¥12,077 million for the years ended March 31, 2014 and 2013,
respectively, which were included in selling, general and administrative expenses.
6. Related Party Transactions
Material transactions and balances with related parties for the years ended March 31, 2014 and 2013 were as follows:
(1) 2014
(a) The Company
Name
Description of Post
Chiyono Terada
Outside Director/CEO
and President of
Art Corporation
(b) The Company’s consolidated subsidiaries
Name
Description of Post
Chiyono Terada
Outside Director/CEO
and President of
Art Corporation
Ownership of
the Company
(%)
0.00
Ownership of
the Company
(%)
0.00
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving
business and delivery business
2014
¥435
Account
Other current
liabilities
2014
¥39
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving
business and delivery business
2014
¥64
Account
Other current
liabilities
2014
¥ 4
Sales of products and other
88
Accounts receivable
24
The terms and conditions applicable to the above-mentioned transactions have been determined on an arm’s length basis and
by reference to the normal market price.
(2) 2013
(a) The Company
Name
Description of Post
Chiyono Terada
Outside Director/CEO
and President of
Art Corporation
(b) The Company’s consolidated subsidiaries
Name
Description of Post
Chiyono Terada
Outside Director/CEO
and President of
Art Corporation
Ownership of
the Company
(%)
0.00
Ownership of
the Company
(%)
0.00
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving
business and delivery business
2013
¥488
Account
Other current
liabilities
2013
¥39
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving
business and delivery business
2013
¥70
Account
Other current
liabilities
2013
¥ 4
Sales of products and other
77
Accounts receivable
16
The terms and conditions applicable to the above-mentioned transactions have been determined on an arm’s length basis and
by reference to the normal market price.
46
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section 7. Short-Term Borrowings and Long-Term Debt
Short-term borrowings of the Group at March 31, 2014 and 2013 consisted of the following:
Bank overdrafts and notes to banks
Commercial paper
Total
Millions of yen
2014
¥43,325
¥43,325
2013
¥63,408
1,927
¥65,335
Unused short-term bank credit lines were ¥150,000 million at March 31, 2014. Weighted-average interest rates of bank
overdrafts and notes to banks at March 31, 2014 and 2013 were 1.67% and 1.37%, respectively.
The weighted-average interest rate of commercial paper at March 31, 2013 was 0.25%.
Long-term debt at March 31, 2014 and 2013 consisted of the following:
1.00% unsecured bonds, due 2014
1.42% unsecured bonds, due 2016
0.46% unsecured bonds, due 2017
1.86% unsecured bonds, due 2019
0.72% unsecured bonds, due 2019
1.20% unsecured bonds, due 2022
Unsecured loans from government-sponsored banks, with interest of 1.75%, due through 2019
Collateralized loans from banks and others, payable in foreign currencies, with interest of
4.75% (2013), due through 2013
Unsecured loans from banks and others, payable in foreign currencies, with interest ranging from
0.59% to 5.90% (2014) and from 0.71% to 5.90% (2013), due through 2022
Unsecured loans from banks and others with interest ranging from 0.26% to 3.59% (2014) and from
0.30% to 3.59% (2013), due through 2023
Total
Less current portion
Long-term debt, less current portion
Annual maturities of long-term debt outstanding at March 31, 2014, were as follows:
Year Ending March 31
2015
2016
2017
2018
2019
2020 and thereafter
Total
Millions of yen
2014
¥ 30,000
30,000
10,000
40,000
10,000
30,000
20,000
2013
¥ 30,000
30,000
10,000
40,000
10,000
30,000
20,000
28
161,334
152,088
315,027
646,361
(95,886)
¥550,475
315,043
637,159
(4,126)
¥633,033
Millions of yen
¥ 95,886
36,338
71,895
66,436
72,235
303,571
¥646,361
At March 31, 2014, property, plant and equipment; time deposits; trade accounts receivables; inventories; and others with book
values of ¥2,663 million, ¥107 million, ¥11,755 million ¥8,127 million and ¥5,711 million, respectively, were pledged as collateral
for short-term borrowings.
Certain loan agreements provide that the lender may require the Group to submit proposals for paying dividends, issuing addi-
tional long-term debt and certain other matters, for prior approval. As is customary in Japan, security must be given if requested
by a lending bank. Certain banks have the right to offset cash deposited with them against any debt or obligation that becomes
due, or, in case of default and certain other specified events, against all other debt payable to them. To date, none of the lenders
has ever exercised these rights with respect to debt of the Group.
47
ANNUAL REPORT 2014
8. Severance Indemnities and Pension Plans
Under the Group’s severance indemnities and pension plans, employees terminating their employment are, in most circum stances,
entitled to severance and pension payments based on their average pay during their employment, length of service and certain
other factors.
The Group accounts for part of the defined benefit obligation and benefit costs for retirement lump-sum payment using the
simplified method.
Year ended March 31, 2014
1. Defined benefit plans
(1) The changes in defined benefit obligation for the year ended March 31, 2014 were as follows (excluding the benefit
plan for which the simplified method was applied):
Balance at beginning of year
Service cost
Interest cost
Net actuarial gains
Past service cost
Benefits paid
Effect of changes in the scope of consolidation
Effect of change of the fiscal year-end
Foreign currency translation adjustments
Others
Balance at end of year
Millions of yen
2014
¥83,770
4,098
1,919
(993)
8
(4,065)
72
(121)
5,079
(134)
¥89,633
(2) The changes in plan assets for the year ended March 31, 2014 were as follows (excluding the benefit plan for
which the simplified method was applied):
Balance at beginning of year
Expected return on plan assets
Net actuarial gains
Contributions from the employer
Benefits paid
Effect of changes in accounting period
Foreign currency translation adjustments
Others
Balance at end of year
Millions of yen
2014
¥80,088
3,057
3,908
4,839
(3,733)
168
3,845
57
¥92,229
(3) The changes in defined benefit obligation for the year ended March 31, 2014 using the simplified method were as
follows:
Balance at beginning of year
Periodic benefit cost
Benefits paid
Balance at end of year
Millions of yen
2014
¥ 301
2,963
(763)
¥2,501
48
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
(4) Reconciliation between the liabilities recorded in the consolidated balance sheet and the balances of defined ben-
efit obligation and plan assets at March 31, 2014 was as follows (including the benefit plan for which the simplified
method was applied):
Funded defined benefit obligation
Plan assets
Unfunded defined benefit obligation
Net amount of liabilities and assets recorded in consolidated balance sheet
Liabilities for retirement benefits
Assets for retirement benefits
Net amount of liabilities and assets recorded in consolidated balance sheet
(5) The components of net periodic benefit costs for the year ended March 31, 2014 were as follows:
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial gains
Amortization of past service cost
Periodic benefit cost calculated by the simplified method
Others
Total
Millions of yen
2014
¥(88,051)
92,229
4,178
(4,083)
¥ 95
¥ (9,975)
10,070
¥ 95
Millions of yen
2014
¥4,098
1,919
(3,057)
(113)
(42)
2,963
70
¥5,838
(6) The components of accumulated other comprehensive income (amount before income tax effect) for the year
ended March 31, 2014 were as follows:
Unrecognized past service cost
Unrecognized net actuarial losses
Total
(7) Plan assets
(a) Components of plan assets
Plan assets consisted of the following:
Domestic debt securities
Domestic equity securities
Foreign debt securities
Foreign equity securities
Insurance assets (general account)
Cash and cash equivalents
Real estate
Others
Total
Millions of yen
2014
¥ (18)
6,801
¥6,783
%
2014
6%
8
24
18
17
2
2
23
100%
(b) Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently
and in the future from the various components of the plan assets.
(8) Assumptions used for the year ended March 31, 2014 were set forth as follows:
Discount rate
Expected rate of return on plan assets
2014
Mainly 1.2%
Mainly 2.5%
2. Defined contribution plan
The amount of contribution required to defined contribution plan paid by the Company and its subsidiaries was ¥4,181 million for
the year ended March 31, 2014.
49
ANNUAL REPORT 2014 Year ended March 31, 2013
For the year ended March 31, 2013, one domestic consolidated subsidiary implemented a defined contribution pension plan and
then terminated a part of its defined benefit pension plan. In addition, the subsidiary withdrew from the employees’ pension fund.
The effect of this implementation and this withdrawal were to decrease income before taxes and minority interests by ¥346 million
and were included in other-net of other expenses of the consolidated statement of income for the year ended March 31, 2013.
The liabilities for employees’ retirement benefits at March 31, 2013, consisted of the following:
Projected benefit obligation
Fair value of plan assets
Unrecognized past service cost
Unrecognized actuarial gains
Net assets
Assets for retirement benefits
Liabilities for retirement benefits
The components of net periodic benefit costs for the years ended March 31, 2013 were as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of past service cost
Recognized actuarial losses
Net periodic benefit costs
Contribution to defined contribution pension plan and other
Total
Assumptions used for the years ended March 31, 2013, were set forth as follows:
Discount rate
Expected rate of return on plan assets
Amortization period of past service cost
Recognition period of actuarial gains/losses
9. Equity
Millions of yen
2013
¥84,070
(80,088)
225
(10,816)
(6,609)
(10,569)
¥3,960
Millions of yen
2013
¥4,015
1,856
(2,210)
(46)
557
4,172
2,922
¥7,094
2013
Mainly 1.2%
Mainly 2.5%
Mainly 10 years
Mainly 10 years
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the
Companies Act that affect financial and accounting matters are summarized below:
(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders’ meeting. For companies that meet certain criteria including (1) having a Board of Directors, (2)
having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors is prescribed as
one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except
for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However,
the Company cannot do so because it does not meet all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain
limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incor-
poration of the Company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the
amount of net assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of
retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account that was charged
upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the
common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without
limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus
and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
50
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section (c) Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution
of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to
the shareholders which is determined by specific formula.
Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock
acquisition rights.
10. Stock Options
The stock options outstanding for the year ended March 31, 2014, were as follows:
Number of
Options Granted
292,000 shares
Date of Grant
Exercise Price
Exercise Period
2007.7.17
¥4,640
Stock Option
2007 Stock Option
2008 Stock Option
2009 Stock Option
2010 Stock Option
2011 Stock Option
2012 Stock Option
2013 Stock Option
Persons
Granted
9 directors
42 employees
8 directors
44 employees
8 directors
42 employees
8 directors
41 employees
10 directors
39 employees
10 directors
41 employees
10 directors
38 employees
The stock option activity was as follows:
308,000 shares
2008.7.14
¥5,924
294,000 shares
2009.7.13
¥3,250
290,000 shares
2010.7.14
¥3,050
296,000 shares
2011.7.14
¥2,970
300,000 shares
2012.7.13
¥2,186
286,000 shares
2013.7.12
¥4,500
From July 18, 2009
to July 17, 2013
From July 15, 2010
to July 14, 2014
From July 14, 2011
to July 13, 2015
From July 15, 2012
to July 14, 2016
From July 15, 2013
to July 14, 2017
From July 14, 2014
to July 13, 2018
From July 13, 2015
to July 12, 2019
2006
Stock
Option
2007
Stock
Option
2008
Stock
Option
Shares
2009
Stock
Option
2010
Stock
Option
2011
Stock
Option
2012
Stock
Option
2013
Stock
Option
234,700
266,000
242,000
(234,700)
(40,000)
202,000
(46,000)
220,000
Year Ended March 31, 2013
Vested
April 1, 2012—Outstanding
Granted
Exercised
Canceled
March 31, 2013—Outstanding
Year Ended March 31, 2014
Vested
April 1, 2013—Outstanding
Granted
Exercised
Canceled
March 31, 2014—Outstanding
Exercise price
Average stock price at exercise
Fair value price at grant date
The assumptions used to measure fair value of 2013 Stock Option
Black-Scholes option pricing model
Estimate method:
Volatility of stock price:
34.6%
Estimated remaining outstanding period: 4 years
Estimated dividend:
Risk-free interest rate:
(40,000)
(10,000)
170,000
¥5,924
¥6,246
¥ 803
¥36 per share
0.2%
¥4,640
¥4,397
¥1,035
(8,000)
(194,000)
202,000
220,000
¥ 736
¥3,790
294,000
(16,000)
(66,000)
212,000
212,000
(186,000)
26,000
¥3,250
¥4,924
¥ 899
290,000
296,000
300,000
(39,000)
251,000
296,000
300,000
251,000
296,000
300,000
286,000
(219,000)
(195,000)
32,000
¥3,050
¥5,036
¥1,113
101,000
¥2,970
¥5,350
¥ 935
300,000
¥2,186
286,000
¥4,500
¥ 676
¥1,220
51
ANNUAL REPORT 2014 11. Income Taxes
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in the aggregate, result-
ed in a normal effective statutory tax rate of approximately 37.9% for the years ended March 31, 2014 and 2013.
The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets and liabilities,
at March 31, 2014 and 2013 were as follows:
Deferred tax assets:
Provision for product warranties
Inventories
Investment securities
Tax loss carryforwards
Software and other intangible assets
Accrued bonus
Liabilities for retirement benefits
Foreign income tax credit
Allowance for doubtful receivables
Other
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Undistributed earnings of consolidated subsidiaries
Unrealized gain on available-for-sale securities
Assets for retirement benefits
Deferred gains on sales of property
Other
Total deferred tax liabilities
Net deferred tax liabilities
Millions of yen
2014
2013
¥ 13,857
13,798
8,105
7,169
4,083
4,012
2,439
1,736
1,160
20,284
(20,056)
¥ 56,587
¥ 58,123
21,084
13,561
3,586
1,906
9,149
¥107,409
¥ (50,822)
¥ 11,583
9,474
7,434
15,325
3,243
3,430
878
1,436
1,352
17,112
(21,927)
¥ 49,340
¥ 47,895
14,197
8,346
3,697
1,961
7,772
¥ 83,868
¥(34,528)
A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statement of income for the year ended March 31, 2013 was as follows:
Normal effective statutory income tax rate
Difference in foreign subsidiaries’ tax rates
Taxes and tax effects on dividends from foreign subsidiaries
Amortization of goodwill
Consolidation adjustment for gain on sales of shares of a subsidiary
Valuation allowance
Income taxes—prior years
Unrecognized tax effect on unrealized profit
Unrecognized tax effect on foreign income tax credit
Other—net
Actual effective income tax rate
2013
37.9%
(13.5)
7.0
5.2
5.0
3.2
(2.1)
(1.8)
1.3
(0.1)
42.1%
A reconciliation of difference between the normal effective statutory tax rates and the actual effective tax rates is not disclosed
since the difference is less than 5% of the normal effective statutory income tax rate for the year ended March 31, 2014.
On March 31, 2014, new tax reform laws were enacted in Japan, which changed the effective statutory tax rate from approxi-
mately 37.9% to 35.6% effective for the fiscal year beginning on or after April 1, 2014. The effect of this change on the consolidat-
ed financial statements is not material.
During the previous year, the Company received a refund notice from the Japanese tax authority informing that they reached an
agreement with the Chinese tax authority regarding the taxation of the Company’s intercompany transactions. The refund amount-
ed to ¥1,841 million and was presented as income taxes-prior years in the consolidated statement of income for the year ended
March 31, 2013.
52
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
At March 31, 2014, the Company and certain consolidated subsidiaries had tax loss carryforwards aggregating approximately
¥16,665 million, which are available to be offset against taxable income of the Company and such subsidiaries in future years.
These tax loss carryforwards, if not utilized, will expire as follows:
Year Ending March 31
Millions of yen
2015
2016
2017
2018
2019
2020 and thereafter
Total
¥ 334
1,104
700
2,328
980
11,219
¥16,665
12. Supplemental Cash Flow Information
The Group acquired Goodman Global Group, Inc. and its consolidated subsidiaries during the year ended March 31, 2013.
A reconciliation between cash paid for the shares of Goodman Global Group, Inc. and payment for the acquisition of these newly
consolidated subsidiaries, net of cash and cash equivalents acquired, was as follows:
Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Foreign currency translation adjustments
Cash paid for the shares
Cash and cash equivalents of consolidated subsidiary
Payment for acquisition of shares of newly consolidated subsidiary, net of cash and cash equivalents acquired
Millions of yen
2013
¥ 68,866
166,943
195,711
(173,607)
(64,386)
(17,879)
175,648
(11,996)
¥163,652
13. Research and Development Costs
Research and development costs included in cost of sales and selling, general and administrative expenses were ¥40,177 million
and ¥33,569 million for the years ended March 31, 2014 and 2013, respectively.
14. Leases
The Group leases certain computer equipment and other assets.
Obligations under finance leases and future minimum payments under noncancelable operating leases as of March 31, 2014,
were as follows:
Due within one year
Due after one year
Total
Millions of yen
Finance Leases
Operating Leases
¥1,731
2,526
¥4,257
¥13,669
20,746
¥34,415
53
ANNUAL REPORT 2014 Millions of yen
2014
¥17
8
¥25
2013
¥27
25
¥52
Millions of yen
2014
¥25
25
2013
¥87
87
Pro Forma Information for the Years ended March 31, 2014 and 2013
As discussed in Note 2, the Company and its consolidated domestic subsidiaries account for leases which existed at the transition
date of ASBJ Statement No. 13 and do not transfer ownership of the leased property to the lessee as operating lease transac-
tions. Pro forma information of such leases existing at the transition date, such as acquisition cost, accumulated depreciation, obli-
gations under finance leases and depreciation expense on an “as if capitalized” basis for the years ended March 31, 2014 and
2013 were as follows:
Furniture
and Fixtures
¥98
87
¥11
2014
Others
¥95
81
¥14
Millions of yen
Total
¥193
168
¥ 25
Furniture
and Fixtures
¥147
120
¥ 27
2013
Others
¥111
86
¥ 25
Total
¥258
206
¥ 52
Acquisition cost
Accumulated depreciation
Net leased property
Obligations under finance leases:
Due within one year
Due after one year
Total
The amounts of acquisition cost and obligations under finance leases include the imputed interest expense.
Lease payments and depreciation expense under finance leases:
Lease payments
Depreciation expense
Depreciation expense, which is not reflected in the accompanying consolidated statement of income, was computed using the
straight-line method.
15. Financial Instruments and Related Disclosures
Group Policy for Financial Instruments
The Group uses financial instruments, mainly bank loans and bonds, based on its capital financing plan. Short-term bank loans
and commercial paper are used to fund the Group’s ongoing operations, and cash surpluses are invested in low-risk financial
assets. Derivatives are used not for speculative purposes, but to manage exposure to financial risks as described below.
Nature and Extent of Risks Arising from Financial Instruments and Risk Management
for Financial Instruments
Receivables, such as trade notes and trade accounts are exposed to customer credit risk. The Group manages its credit risk from
receivables on the basis of the internal policies, which include monitoring of payment term and balances of major customers to
identify the default risk of the customers.
Payment terms of payables, such as trade notes and trade accounts, are less than one year.
Although receivables and payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency
exchange rates, the net position of receivables and payables in each foreign currency is hedged by using mainly forward foreign
currency contracts and currency swaps. In addition, receivables and payables in foreign currencies which are expected from
forecasted transactions are hedged by using forward foreign currency contracts and currency swaps.
Investment securities, mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price
fluctuations. Investment securities are periodically managed by monitoring market values and financial position of issuers.
54
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Short-term bank loans and commercial paper are mainly used to fund the Group’s ongoing operations. Long-term bank loans
and bonds are used mainly for capital expenditures. Although the payables such as trade notes and trade accounts, bank loans
and bonds, are exposed to liquidity risk, the Group manages the liquidity risk along with adequate financial planning by the corpo-
rate finance department. In addition, the Group has short-term bank credit lines. A part of long-term bank loans, which are
exposed to market risks from change in interest rates, is hedged by using mainly interest rate swaps.
Derivatives mainly include forward foreign currency contracts, interest rate swaps and commodity future contracts, which are
used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables, from
changes in interest rates of bank loans, and from changes in market value fluctuation of raw materials.
Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the
authorization and credit limit amount.
Because the counterparties to these derivatives are limited to financial institutions with high creditworthiness, the Group does
not anticipate any losses arising from credit risk.
Fair Values of Financial Instruments
The carrying amount, fair value and unrealized loss of significant financial instruments were as follows. Fair values of financial instru-
ments are based on quoted price in active markets. If a quoted price is not available, another rational valuation technique is used
instead. Instruments whose fair value cannot be readily determined are not included in the following:
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities
Total
Trade notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt
Total
Derivatives
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities
Total
Trade notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt
Total
Derivatives
Millions of yen
March 31, 2014
Fair
Value
¥257,295
319,449
145,616
¥722,360
¥162,084
43,325
17,429
654,516
¥877,354
¥ 751
Millions of yen
March 31, 2013
Fair
Value
¥185,571
263,323
93,740
¥542,634
¥127,364
65,335
14,694
647,497
¥854,890
¥ 893
Carrying
Amount
¥257,295
319,449
145,616
¥722,360
¥162,084
43,325
17,429
646,361
¥869,199
¥ 751
Carrying
Amount
¥185,571
263,323
93,740
¥542,634
¥127,364
65,335
14,694
637,159
¥844,552
¥ 893
Unrealized
Loss
¥8,155
¥8,155
Unrealized
Loss
¥10,338
¥10,338
Assets
Cash and cash equivalents
The carrying values of cash and cash equivalents approximate fair value because of their short maturities.
Trade notes and accounts receivable
The carrying values of trade notes and accounts receivable approximate fair values because of their short maturities.
Investment securities
The fair values of equity securities are measured at the quoted market price of the stock exchange for the equity instruments,
the fair value of debt securities are measured at the amount to be received through maturity discounted at the Group’s assumed
corporate discount rate. Fair value information of the investment securities by classification is included in Note 4.
55
ANNUAL REPORT 2014 Liabilities
Trade notes and accounts payable, short-term borrowings and income taxes payable
The carrying values of trade notes and accounts payable, short-term borrowings and income taxes payable approximate fair val-
ues because of their short maturities.
Long-term debt
The fair values of bonds are determined at the quoted market price of the over-the-counter market for the corporate bonds,
and the fair values of long-term loans are determined by discounting the cash flows related to the loans at the Group’s assumed
corporate borrowing rate. The fair values of long-term loans with floating interest rates, which are hedged by the interest rate
swaps which qualify for hedge accounting and meet specific matching criteria, are determined by discounting the cash flows relat-
ed to the loans and the interest rate swaps at the Group’s assumed corporate borrowing rate.
Derivatives
The fair values of derivatives are measured at the quoted price obtained from the financial institution.
The contracts or notional amounts of derivatives that are shown in the table below do not represent the amounts exchanged by
the parties and do not measure the Group’s exposure to credit or market risk.
Derivative transactions to which hedge accounting is not applied
Millions of yen
March 31, 2014
Contract
Amount
Due after
One Year
Fair
Value
Unrealized
Gain (Loss)
¥ (21)
(126)
147
(82)
42
(15)
29
1
(9)
(10)
(310)
(3)
(29)
2
¥ (21)
(126)
147
(82)
42
(15)
29
1
(9)
(10)
(310)
(3)
(29)
2
¥ (70)
¥ (70)
Contract
Amount
¥ 3,108
43,964
18,473
4,879
321
1,893
4,957
26
1,279
2,495
1,447
8,288
231
1,337
1,580
¥ 628
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
NZD
ZAR
CZK
NOK
HKD
SGD
MYR
TRY
BRL
INR
Buying: CNY
Commodity future contracts:
Buying: Metal
56
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
NZD
ZAR
CZK
HKD
PLN
SGD
MYR
TRY
BRL
Buying: EUR
CNY
USD
Commodity future contracts:
Buying: Metal
Millions of yen
March 31, 2013
Contract
Amount
Due after
One Year
Fair
Value
Unrealized
Gain (Loss)
¥ 29
(169)
970
42
(12)
(9)
78
29
53
(4)
(127)
27
(8)
70
¥ 29
(169)
970
42
(12)
(9)
78
29
53
(4)
(127)
27
(8)
70
¥ (47)
¥ (47)
Contract
Amount
¥ 920
42,962
17,233
3,887
1,556
866
5,457
1,215
188
2,183
1,667
8,826
1,692
164
303
752
¥ 1,278
Derivative transactions to which hedge accounting is applied
Forward exchange contracts:
Selling: GBP
EUR
USD
ZAR
CZK
PLN
TRY
Buying: CNY
Commodity future contracts:
Buying: Metal
Interest rate swaps:
Fixed rate payment, floating rate receipt
Fixed rate payment, floating rate receipt*
Millions of yen
March 31, 2014
Contract
Amount
Due after
One Year
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Contract
Amount
¥ 7,465
32,906
545
1,025
8,110
1,051
3,580
7,864
Raw materials
¥ 1,310
Long-term debt
Long-term debt
¥188,024
215,000
¥177,222
165,000
Fair
Value
¥ (70)
(311)
3
3
17
(8)
15
(161)
¥ 27
¥1,690
57
ANNUAL REPORT 2014
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
ZAR
CZK
PLN
TRY
Buying: CNY
USD
Millions of yen
March 31, 2013
Contract
Amount
Due after
One Year
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Payables
Contract
Amount
¥ 5,953
25,013
630
630
588
8,469
893
4,650
32
12,550
Interest rate swaps:
Fixed rate payment, floating rate receipt
Fixed rate payment, floating rate receipt*
Long-term debt
Long-term debt
¥ 80,000
215,000
¥ 80,000
215,000
Fair
Value
¥ 21
(426)
(16)
(50)
(7)
247
(2)
(105)
(7)
440
¥(126)
* The above interest rate swaps that qualify for hedge accounting and meet specific matching criterion are not remeasured at market value, but the differential paid or received
under the swap agreements is recognized and included in interest expense or income. In addition, the fair values of such interest rate swaps are included in long-term debt.
Financial instruments whose fair value cannot be reliably determined
Nonlisted equity securities
Investments in limited partnerships and other investments
Total
The impairment losses on nonlisted equity securities for the year ended March 31, 2014 were ¥2 million.
Maturity analysis for financial assets and securities with contractual maturities
Millions of yen
Carrying Amount
2014
¥8,178
566
¥8,744
2013
¥8,180
668
¥8,848
Millions of yen
March 31, 2014
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
Due after
Ten Years
¥318
75
¥393
Millions of yen
March 31, 2013
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
Due after
Ten Years
¥ 33
100
¥133
Due in
One Year
or Less
¥257,295
319,131
25
¥576,451
Due in
One Year
or Less
¥185,571
263,290
25
¥448,886
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities:
Available-for-sale securities with contractual maturities
(corporate bonds)
Total
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities:
Available-for-sale securities with contractual maturities
(corporate bonds)
Total
Please see Note 7 for annual maturities of long-term debt.
58
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
16. Commitments and Contingent Liabilities
Commitments for capital expenditures outstanding at March 31, 2014 totaled approximately ¥41,794 million.
At March 31, 2014, contingent liabilities for trade notes endorsed and repurchase obligation for liquidation of notes receivables
totaled ¥4,452 million and ¥1,237 million, respectively.
17. Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2014 and 2013 were as follows:
Unrealized gains on available-for-sale securities:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred gains (losses) on derivatives under hedge accounting:
Gains (losses) arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Foreign currency translation adjustments:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Share of other comprehensive income in affiliates accounted for using the equity method:
Adjustments arising during the year
Total other comprehensive income
18. Net Income Per Share
Millions of yen
2014
2013
¥25,373
1,474
26,847
(5,215)
¥21,632
¥ 4,152
(2,366)
1,786
(568)
¥ 1,218
¥59,500
(1)
59,499
¥14,173
12,534
26,707
(8,273)
¥18,434
¥ (191)
90
(101)
29
¥ (72)
¥64,782
64,782
¥59,499
¥64,782
¥ 2,823
¥ 1,483
¥85,172
¥84,627
Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2014 and
2013, was as follows:
Year Ended March 31, 2014
Basic EPS:
Net income available to common shareholders
Effect of dilutive securities
Stock options
Diluted EPS:
Net income for computation
Millions of yen
Thousands of shares
Net Income
Weighted
Average Shares
Yen
EPS
¥91,800
291,485
¥351.21
353
¥91,800
291,838
¥314.83
59
ANNUAL REPORT 2014
Year Ended March 31, 2013
Basic EPS:
Net income available to common shareholders
Effect of dilutive securities
Stock options
Diluted EPS:
Net income for computation
19. Segment Information
Millions of yen
Thousands of shares
Net Income
Weighted
Average Shares
Yen
EPS
¥43,585
291,089
¥149.73
39
¥43,585
291,128
¥149.71
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ Guidance No. 20,
“Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive
information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments
that meet specified criteria. Operating segments are components of an entity about which separate financial information is avail-
able and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for eval-
uating operating segment performance and deciding how to allocate resources to operating segments.
1. Description of Reportable Segments
The Group’s reportable segments are those for which separate financial information is available and regularly evaluated by the
Company’s Board of Directors in order to decide how resources are allocated among the Group. Therefore, the Group’s reportable
segments consist of the “Air Conditioning” segment and the “Chemicals” segment.
The Air Conditioning segment manufactures, distributes and installs air conditioning and refrigeration equipment. The Chemicals
segment manufactures and distributes chemicals.
2. Methods of Measurement for the Amounts of Sales, Profit, Assets and Other Items
for Each Reportable Segment
The accounting policies of each reportable segment are generally consistent with those disclosed in Note 2, “Summary of
Significant Accounting Policies”.
3. Information about Sales, Profit, Assets and Other Items
Reportable Segment
Millions of yen
March 31, 2014
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations Consolidated
¥1,592,885
842
1,593,727
138,478
1,618,355
¥140,178
7,453
147,631
14,189
176,020
¥1,733,063 ¥50,014
407
50,421
2,414
30,840
8,295
1,741,358
152,667
1,794,375
¥ 41,304
23,767
¥ 12,111
17
¥ 53,415 ¥ 1,671
23,784
¥1,783,077
8,702
1,791,779
155,081
1,825,215
¥ 55,086
23,784
¥ (8,702)
(8,702)
(6)
187,316
¥1,783,077
1,783,077
155,075
2,012,531
¥ 55,086
23,784
10,880
5,605
16,485
16,485
16,485
37,113
20,359
57,472
1,878
59,350
59,350
Sales:
Sales to external customers
Intersegment sales
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
Investment balance in
unconsolidated subsidiaries
and associated companies
accounted for using
the equity method
Investment in property,
plant and equipment
and intangible assets
60
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section
Reportable Segment
Millions of yen
March 31, 2013
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations Consolidated
¥1,119,972
855
1,120,827
70,905
1,445,186
¥124,436
5,804
130,240
16,491
150,099
¥1,244,408 ¥46,495
225
46,720
1,229
29,719
6,659
1,251,067
87,396
1,595,285
¥ 27,614
12,051
¥ 9,696
26
¥ 37,310 ¥ 2,099
12,077
¥1,290,903
6,884
1,297,787
88,625
1,625,004
¥ 39,409
12,077
¥ (6,884)
(6,884)
2
110,832
¥1,290,903
1,290,903
88,627
1,735,836
¥ 39,409
12,077
8,436
5,605
14,041
14,041
14,041
36,944
15,549
52,493
1,830
54,323
54,323
Sales:
Sales to external customers
Intersegment sales
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
Investment balance in
unconsolidated subsidiaries
and associated companies
accounted for using
the equity method
Investment in property,
plant and equipment
and intangible assets
Notes: 1. The “Other” segment is the aggregation of other operating segments which are not included in the reportable segments and consists of “Oil Hydraulics” segment,
“Defense” segment and “Electronics” segment.
2. “Reconciliations” include unallocated items and intersegment eliminations. The unallocated corporate assets included in “Reconciliations” amounted to ¥196,125
million and ¥118,702 million at March 31, 2014 and 2013, respectively, which consisted mainly of the Company’s cash, time deposits and investment securities.
3. The aggregated amount of segment profit equals operating income in the consolidated statement of income.
4. Intersegment sales are recorded at values that approximate market prices.
4. Supplemental Information
(1) Information about Geographical Areas
(a) Sales
Millions of yen
March 31, 2014
Japan
USA
China
Europe
Asia and
Oceania
Other
Consolidated
¥512,754
¥359,122
¥322,884
¥247,059
¥239,633
¥101,625
¥1,783,077
Millions of yen
March 31, 2013
Japan
USA
China
Europe
Asia and
Oceania
Other
¥494,284
¥113,253
¥234,774
¥195,053
¥186,219
¥67,320
Consolidated
¥1,290,903
Note: Sales are classified by country or region based on location of customers.
(b) Property, Plant and Equipment
Millions of yen
March 31, 2014
Japan
¥95,318
China
USA
¥80,119
¥52,375
Europe
¥34,485
Millions of yen
March 31, 2013
Japan
¥91,759
China
USA
¥69,951
¥42,717
Europe
¥31,460
Asia and
Oceania
¥31,595
Asia and
Oceania
¥32,615
Other
¥5,825
Consolidated
¥299,717
Other
¥5,699
Consolidated
¥274,201
61
ANNUAL REPORT 2014
(2) Information about Goodwill
(a) Balance of Goodwill by Reportable Segment
Goodwill for each reportable segment at March 31, 2014 and 2013 was as follows:
Goodwill
Goodwill
Millions of yen
2014
Chemicals
Other
Eliminations
and Corporate
Millions of yen
2013
Chemicals
Other
Eliminations
and Corporate
Air
Conditioning
¥361,667
Air
Conditioning
¥348,411
Consolidated
¥361,667
Consolidated
¥348,411
20. Subsequent Events
Resolutions approved by the Company’s Board of Directors at the meeting held on May 8, 2014, are subject to approval
at the general shareholders’ meeting planned to be held on June 27, 2014.
Appropriations of Retained Earnings
Payment of a year-end cash dividend of ¥27 per share to shareholders at March 31, 2014, totaling ¥7,878 million was approved.
62
Daikin inDustries, LtD.Financial Highlights/At a GlanceA Message from the CEOInterview with the CEOReview of OperationsCorporate GovernanceFinancial Section Independent Auditors’ Report
63
ANNUAL REPORT 2014 Corporate Data
(As of March 31, 2014)
Head Office
Umeda Center Bldg., 2-4-12, Nakazaki-Nishi, Kita-ku, Osaka 530-8323, Japan
Phone: 81-6-6373-4312
URL: http://www.daikin.com/
Tokyo Office
JR Shinagawa East Bldg., 2-18-1, Konan, Minato-ku, Tokyo 108-0075, Japan
Fiscal Year-End Date
March 31 on an annual basis
Phone: 81-3-6716-0111
Date of Founding
Date of Establishment
Paid-in Capital
October 25, 1924
February 11, 1934
¥85,032 million
Number of Shares of Common
293,113 thousand
Stock Issued
Number of Shareholders
34,798
Major Shareholders
• The Master Trust Bank of Japan, Ltd. (Trust account)
• Japan Trustee Services Bank, Ltd. (Trust account)
• Sumitomo Mitsui Banking Corporation
• Japan Trustee Services Bank, Ltd. Retirement Benefit Trust Account for Nippon Steel
& Sumitomo Metal Industries, Ltd.
• Japan Trustee Services Bank, Ltd. Retirement Benefit Trust Account
for The Norinchukin Bank
• The Bank of Tokyo-Mitsubishi UFJ, Ltd.
• State Street Bank and Trust Company 505225
• Japan Trustee Services Bank, Ltd. (Trust account 4)
• Sumitomo Life Insurance Company
• BNP Paribas Securities (Japan) Limited
Number of Subsidiaries and
Subsidiaries: 209 Affiliates: 9
Affiliated Companies
Number of Employees
56,240 (Consolidated)
Stock Exchange Listing
Tokyo
Advertising Method
The Company uses the electronic advertising method, posting advertisements on its
website (http://www.daikin.co.jp/e-koukoku/). However, when electronic advertising is
not possible due to technical problems or other circumstances, the Company will post
advertisements in the Nikkei Shimbun.
Shareholder Register
Mitsubishi UFJ Trust and Banking Corporation
Administrator
3-6-3, Fushimicho, Chuo-ku, Osaka 541-8502, Japan
Ordinary General Meeting of
June
Shareholders
Auditor
Deloitte Touche Tohmatsu LLC
64
e
c
n
a
G
a
l
t
A
/
s
t
h
g
i
l
h
g
H
i
l
i
a
c
n
a
n
F
i
O
E
C
e
h
t
m
o
r
f
e
g
a
s
s
e
M
A
O
E
C
e
h
t
h
t
i
w
w
e
i
v
r
e
t
n
I
s
n
o
i
t
a
r
e
p
O
f
o
w
e
i
v
e
R
e
c
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
n
o
i
t
c
e
S
l
i
a
c
n
a
n
F
i
DAIKIN INDUSTRIES, LTD.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
4
D
A
I
K
I
N
I
N
D
U
S
T
R
I
E
S
,
L
T
D
.
This report is printed on paper certified by the Forest Stewardship Council (FSC)—an inter-
national labeling scheme that provides a credible guarantee that the raw materials used in
the product come from an environmentally well-managed forest—and with vegetable ink for
waterless printing (non-VOC ink) that does not contain volatile organic compounds.
Printed in Japan
http://www.daikin.co.jp
CC-A2A(14-09-003)IB