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Annual Report 2016
Fiscal Year Ended March 31, 2016
Daikin—Working to Increase Its
Corporate Value through Business
Expansion and Contributing to the
Sustainable Development of Society
Daikin Industries aims to become a Truly Global Excellent Company
and is accelerating its global business development. Along with this,
Daikin is drawing on the environment-related technologies it has accumulated to date
to expand its business activities and contribute to environmental preservation.
Beginning this fiscal year, Daikin has begun to implement its “FUSION 20”
strategic management plan. Under this plan, we will bring together our knowledge and
passion, and, by working to create new value for the atmosphere and the natural environment,
we will offer products and services that enrich the lives of our customers.
The world today confronts a wide range of issues, including the expansion in demand
for air-conditioning systems, especially in the newly emerging countries,
and the impact of this and other factors on climate change. Looking ahead,
by working toward the substantially wider use of products and services that conserve energy
and bring greater comfort to our lives, Daikin is endeavoring to find solutions
to social issues as it continues to grow and develop its business activities.
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 ........................10
Chemicals .................................14
Oil Hydraulics ............................16
Defense .....................................17
Contents
Corporate Governance..................18
Directors, Audit and Supervisory
Board Members, and
Executive Officers ....................21
CSR
(Corporate Social Responsibility) ...22
Financial Section
Eleven-Year Financial Highlights ...30
Financial Review ........................32
Consolidated Balance Sheet ......40
Consolidated Statement of
Income ....................................42
Consolidated Statement of
Comprehensive Income ...........43
Consolidated Statement of
Changes in Equity ...................43
Consolidated Statement of
Cash Flows ..............................44
Notes to Consolidated
Financial Statements ................45
Independent Auditors’ Report ...72
Corporate Data .........................73
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 performance. 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.
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”
1
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 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 attributable to owners of parent
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note)
Net cash 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
2015
2016
¥1,915,014
¥2,043,691
649,902
190,588
119,675
¥160,423
(77,331)
83,092
(83,073)
711,576
217,872
136,987
¥226,186
(105,493)
120,693
(85,422)
¥2,263,990
1,024,725
¥2,191,105
1,014,409
¥ 410.19
3,511.34
100.00
285
¥ 469.23
3,473.54
120.00
413
33.94%
34.82%
9.95
13.10
45.26
10.66
13.44
46.30
Net Sales, Gross Profit,
and Gross Profit Margin
Operating Income and
Operating Income Margin
ROE
(¥ billion)
2,400
1,800
1,200
600
0
(%)
40
30
20
10
0
(¥ billion)
240
180
120
60
0
(%)
12
9
6
3
0
(%)
15
12
9
6
3
0
2012 2013 2014
2015 2016
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Net Sales
Gross Profit
Gross Profit Margin
Operating Income
Operating Income Margin
2
At a Glance
Percentage of Net Sales E
Air-Conditioning
Air-Conditioning 89.5%
Chemicals 7.9%
Defense 0.8%
Oil Hydraulics 1.6%
Net Sales and Operating Income
Major Products
Description
(¥ billion)
2,000
1,500
1,000
500
0
193.8
1,828.0
(¥ billion)
200
150
100
50
0
2012
2013
2014
2015
2016
• 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 • Air filters
• Marine-type container refrigeration
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 manu-
facturer to create a full line of products
from refrigerants to air conditioners.
(¥ billion)
180
120
60
0
20.6
162.3
(¥ billion)
24
16
8
0
• Fluorocarbons
• Fluoroplastics
• Fluoroelastomers
• Fluoropaints
• Fluoro coating agents
• Semiconductor-etching products
• Water and oil repellent agents
• Mold release agents
• Fluorinated oils
• Pharmaceuticals and intermediates
• Dry air suppliers
In 1933, Daikin was the first in Japan to
engage in research on fluorinated refrig-
erants. Today, our activities range from
research and development to commer-
cialization, and we offer a lineup of
more than 1,800 fluorine compounds.
Chemicals
2012
2013
2014
2015
2016
Oil Hydraulics
(¥ billion)
(¥ billion)
40
30
20
10
0
2.4
32.4
4
3
2
1
0
Defense
2012
2013
2014
2015
2016
(¥ billion)
(¥ billion)
20
15
10
5
0
0.1
16.5
0.8
0.6
0.4
0.2
0
2012
2013
2014
2015
2016
• Oil hydraulic pumps
• Oil hydraulic valves
• Cooling equipment and systems
• Inverter controlled pump motors
• Hydrostatic transmissions
• Centralized lubrication units and systems
Daikin’s unique hydraulic technologies
offer outstanding energy-conservation
performance and are contributing to the
development of industry by unleashing
the potential of power control.
• Warheads for Japan’s Ministry of Defense
• Warhead parts for guided missiles
• Home-use oxygen therapy equipment
Daikin’s superior machining and quality
control technologies are used in the
production of defense-related products
and other industries where high levels
of precision and performance are criti-
cal.
3
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 A Message from the CEO
With the Accomplishments of the
Strategic Plans as a Base, We Will
to Implement Our Management
“FUSION” Series of
Proactively Continue
Strategies.
Daikin has steadily implemented its series of strategic management plans and by continuing to make reforms,
it has created a strong business base. Under its new “FUSION 20” strategic management plan, Daikin will aim
for further growth and development with an eye to generating consolidated annual net sales of ¥3 trillion.
Daikin has implemented a series of strategic management plans
the aim of creating new value-added living space for healthy and
with terms of five years each. Under these plans, Daikin has
comfortable lives.
expanded its businesses, made structural reforms, and continued
Going forward, the management environment, politics, the
management reforms.
economy, technology, and other aspects of our lives will undergo
Thus far, as we have implemented “FUSION” plans, under
a paradigm shift, and the issues facing society are expected to
“FUSION 21” (covering fiscal 1997 to fiscal 2001), we built the
become increasingly complex. The competitive environment
base for reforming our earnings structure and for future develop-
surrounding Daikin’s business activities is assumed to become
ment. Under “FUSION 05” (fiscal 2002 to fiscal 2006), we accel-
increasingly severe. Daikin will take action as quickly as possible
erated the global development of our air-conditioning business
to increase the sophistication of its technologies and its
and reached a total market capitalization of ¥1 trillion. Then,
manufacturing excellence, and, to this end, we established our
under “FUSION 10” (fiscal 2007 to fiscal 2011), we expanded
Technology Innovation Center last year. Through close collabora-
our environment-related businesses, and through tie-ups, allianc-
tion with universities, research institutes, and a wide range of
es, and M&A, we built our position as the global No. 1 in the
companies in other industries around the world, we will advance
air-conditioning business. The accomplishments of “FUSION 15”
our collaborative innovation through the fusion of technology
(fiscal 2012 to fiscal 2016) included full-scale entry into emerging
and knowledge, and develop a seamless series of differentiated
countries and development of our solutions business as well as
products that are on the cutting edge. In addition, since air con-
acceleration in growth as we scaled up our entry into the U.S.
ditioning accounts for a considerable portion of energy consump-
market through M&A and implemented other strategies. As a
tion, we will create products and services that achieve both the
result of our steady implementation of our strategic plans, we
objectives of energy conservation and eco-friendliness, through
attained net sales of ¥2 trillion, an operating income ratio of
reducing greenhouse gas emissions, and improving comfort and
10%, an overseas sales ratio of 75%, and have developed to
convenience, with the ultimate aim of both helping to solve
become an enterprise group with more than 60,000 personnel
social issues and expand our businesses.
as well as created a powerful business base.
As we endeavor to realize the goals of “FUSION 20,” the
Under our “FUSION 20” new strategic management plan that
Daikin Group will respond to the expectations and trust of its
we started this year, we will concentrate management resources
stakeholders, and, in this endeavor, we look forward to your
in clearly defined priority areas and will take thoroughgoing ini-
continuing support and understanding.
tiatives to strengthen our position in our main businesses of air
conditioning and chemicals. At the same time, we will expand
our filters, heating and hot water supply, and energy solutions
businesses, which will be future pillars of our business activities.
We will also boldly take up the challenge of entering new busi-
nesses, including atmosphere and living space engineering, with
June 2016
Masanori Togawa
President and CEO
4
With the Accomplishments of the
Strategic Plans as a Base, We Will
to Implement Our Management
“FUSION” Series of
“FUSION” Series of
Proactively Continue
Proactively Continue
Strategies.
Strategies.
5
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Interview with the CEO
Q1: Could you please review
Daikin’s performance in fiscal 2016
and your accomplishments in the lat-
ter half of the FUSION 15 strategic
management plan?
Setting new records for net sales and
income for three consecutive fiscal
years
Togawa: Looking back at the world econo-
my in fiscal 2016, first, firm consumer
spending supported the U.S. economy.
Although the economies of Europe showed
a moderate recovery trend, negative factors
included geopolitical risk. Among the
emerging economies, mainly China and the
resource-producing countries showed
trends toward deceleration. In Japan,
domestic demand, including private capital
investment, was firm, but the lower growth
in overseas economies was a factor putting
downward pressure on the economy.
Amid this business environment, the
Daikin Group adopted the policy at the
beginning of 2015 of “Create the Future,
Win in This Age of Change.” Approaching
the final year, 2015, of its strategic man-
agement plan “FUSION 15,” the Daikin
Group expanded sales through strengthen-
ing its sales and marketing power, intro-
duced high-value-added and differentiated
products, made major dramatic reductions
in fixed costs, maximized reductions in
variable costs, and took initiatives
on a Company-wide basis.
6
“FUSION 20,”
Under “FUSION 20,” Daikin
will aim to be a strong corporate
group that will win in severe
competition amid a fast-changing
competitive business environment.
Daikin aims to be a corporate group that attains sustain-
able growth, moving ahead of its rivals on a global scale
as “an air-conditioning business” that has also set its
sights on growth markets in the chemicals business and
that will work to strengthen its filter business, which will
be the third major segment of its operations. Looking to
the future, Daikin will take up the challenge of creating
new businesses and aim for sustained growth.
June 2016
Masanori Togawa
President and CEO
Accomplishments in the latter half of
FUSION 15 included the development of
Daikin’s position in newly emerging mar-
kets, including those in Asia, and accelerat-
ed global business development. In
addition, through expansion in sales of
energy-saving equipment and the broader
adoption of the new refrigerant R32, Daikin
focused on the expansion of its environ-
mental innovation business. Moreover,
other accomplishments included establish-
ing a foothold in the U.S. air-conditioner
market through a major acquisition and
expansion in business through the develop-
ment of high-value-added products. In
addition, Groupwide efforts at total cost
reductions moved forward.
Along with these activities, to move
toward increasing the sophistication of tech-
nology and excellence in manufacturing,
which are the lifelines of a manufacturing
company, Daikin established its Technology
Innovation Center (TIC) in fall 2015 and
moved forward with the seamless develop-
ment of differentiated technologies.
Over the five-year span of FUSION 15, net
sales rose from about ¥1.2 trillion to ¥2 tril-
lion, and the operating profit ratio increased
from 6.5% to more than 10%, thus giving
Daikin a double-digit operating profit ratio.
The ratio of overseas sales rose to 75%, the
number of Daikin Group employees climbed
to more than 60,000, and Daikin’s business
base was substantially strengthened.
Q2: Under your new strategic man-
agement plan FUSION 20, what do
you see as the principal manage-
ment issues and how are you
addressing these?
Structuring a management base
that can win in competition
Togawa: Today, the world economy is in a
period of slowdown because of trends in
China, the low crude oil prices, and other
factors. In addition, the speed of change in
Daikin’s operating environment is accelerat-
ing and uncertainty is increasing. At the
same time, major changes are taking place
in politics, economics, and other areas, just
as the competitive environment is also at a
major turning point. With these develop-
ments as a background, we believe that
Daikin and its competitors are moving into
a time of intense competition.
To win in this competitive environment,
Daikin must continue to strengthen its
capabilities for sales and marketing as well
as increase its product development capa-
bilities. Daikin is expanding its sales mainly
in North America and Asia. In addition,
Daikin is working to make total cost
reductions, including dramatic cuts in fixed
costs. At the same time, Daikin is strength-
ening the capabilities of its human resourc-
es and raising the sophistication of its
product development, production, procure-
ment, and its power for maintaining and
increasing the quality of its products.
Over the five-year span of
FUSION 15 Achievements
FUSION 15, net sales rose from
(¥ billion)
FY2011 Result
FY2016 Result
FUSION 15 Target
about ¥1.2 trillion to ¥2 trillion,
Net sales
and the operating profit ratio
increased from 6.5% to more
than 10%, thus making Daikin’s
Operating income
Operating income margin
ROA
ROE
business base substantially
FCF (3-year cumulative)
stronger.
1,160.3
75.5
6.5%
1.7%
4.0%
2,043.7
217.9
10.7%
6.3%
13.4%
2,050.0
190.0
9.3%
6.0%
13.0%
+112.3
(2009–11 cumulative)
+217.3
(2014–16 cumulative)
+180.0
(2014–16 cumulative)
Investment
(3-year cumulative)
261.0
250.0
FUSION 20 Goals and Medium-term Implementation Plan
Goals
(FY2021)
To achieve sales of ¥3.0 trillion and an operating income margin of 12%,
• Enhance existing businesses (AC, Chemicals, Filter)
• Expand new businesses (Heating/Water Heater, Energy Solutions, Commercial Refrigeration, Next-generation Refrigerant/
Gas, IAQ/Air Environment (AE) Engineering)
FY2016 Result
FY2017 Plan
FY2019 Target
(¥ billion)
Medium-term
implemen tation
plan for FY2019
Net sales
Operating income
Operating income margin
FCF (3-year cumulative)
ROE
Exchange rates
2,043.7
217.9
10.7%
+217.3
13.4%
2,080.0
220.0
10.6%
USD1=JPY120
EUR1=JPY133
RMB1=JPY18.9
USD1=JPY110
EUR1=JPY125
RMB1=JPY17.0
Investment plan
• Actively make investments mainly in North
America and Asia in prioritized order
Investment plan
(3-year cumulative)
2,500.0
270.0
10.8%
+270.0
13.5%
USD1=JPY110
EUR1=JPY125
RMB1=JPY17.0
FY2017–19
325.0
12 Group Strategies
Basic approaches
Existing business domains
(AC/Chemicals/Filter)
New business domains/structure
(Environment/energy
IAQ/AE Engineering)
12 Group strategies
1) AC in North America 2) AC in Asia
3) Chemicals
4) Filter
5) New businesses to quickly produce results
Heating/Water Heater Energy Solutions
6) Strategic businesses in the long term
Commercial Refrigeration Next-generation Refrigerant/Gas
IAQ/Air Environment (AE) Engineering
Technologies and monozukuri
7) Differentiated technologies/products with the TIC
8) Enhanced monozukuri in the AC business
Corporate management
9) Lean and competitive fixed-cost structure
10) Optimal inventory aiming at cash flow maximization
11) Financial operations standardization and IT integration
Unique corporate philosophy
12) Enhanced HR based on people-centered management
7
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Interview with the CEO
Daikin will steadily make investments to
expand the scale of its business activities,
and, under FUSION 20, use this greater
scope for further growth and development.
Q3: What will be the main objec-
tives and priority policies under
FUSION 20?
Setting our sights on annual net sales
of ¥3 trillion by focusing resources on
priority fields
Togawa: Under FUSION 20, which will
cover the period from fiscal 2017 to fiscal
2021, we will clarify our priority fields and
focus our resources accordingly. Also in line
with the 12 Companywide themes that we
have identified, we will strengthen our
existing businesses, take up the challenges
of entering new businesses, and work to
strengthen our management base to
support business development.
In the Air-Conditioning business, we
will place priority on the North American
market. Along with China, North America
boasts the largest market scale, and growth
above the world average is expected in this
region. In addition, in North America, air
conditioning has a long history, and, in
terms of scale also, North America leads the
world in terms of scale and other criteria.
To really aim for being the global No. 1 in
air conditioning, we are aware that we
must win the battle in this market.
In addition, in Asia, the middle-income
classes are expanding rapidly, bringing
greater depth to the regional markets, and
rapid expansion is forecast. Daikin also has
positioned Asia as an expanding market,
next in size and importance to North
America and is, therefore, implementing a
growth strategy. In this region, many coun-
tries have high electric power costs, and the
need for higher-performance products is
strong. Accordingly, Daikin aims to expand
sales of inverter-type and unitary-type air
conditioners, and will expand sales in the
commercial and applied markets as it aims
to become the overwhelming No. 1 air-
conditioner company in Asia.
Moreover, even in China, Daikin will cre-
ate new markets, and, by implementing its
own original product and marketing strate-
gies, will build on this to expand profits and
continue to grow as the top foreign brand.
In the Chemicals business, Daikin will
place priority on growing markets, such as
automobiles, information and communica-
tions technology (ICT), and new energy
sources and accelerate its development of
new uses. Also, through combining fluoride
materials and other materials and expand-
ing into new business domains, such as the
commercialization of non-fluoride materials
to strengthen its earnings base.
In addition, filters are an area where
major growth is anticipated in such areas as
restraining air pollution, increasing comfort
in living spaces and other buildings, as well
as solving environmental problems. More-
over, there is a strong affinity between ways
to improve the atmospheric environment
in indoor spaces and the air-conditioning
business, just as there is an affinity in the
materials area and the chemicals business.
Therefore, strong technological synergies
are expected between Daikin’s existing busi-
nesses. Accordingly, using the acquisition of
Flanders, Inc., in the United States, as lever-
age, Daikin will enter high-end markets,
including pharmaceuticals, and strengthen
its cost-competitiveness and work to accel-
erate growth by making these fields Daikin’s
third major source of earnings.
In addition to taking thoroughgoing
measures in existing businesses, Daikin will
move quickly to develop new business
domains, such as “heating and hot water.”
In addition, Daikin will also take up the
challenges of entering the “atmospheric
and space engineering” field which seeks
to develop high-value-added uses of avail-
able space. Through these activities, Daikin
will endeavor to realize the goal it wants to
reach in 2021, the final year of the plan, of
consolidated net sales amounting to ¥3 tril-
lion and an operating profit ratio of 12%.
Note: For further details on FUSION 20, please access the
following URL:
http://www.daikin.com/investor/management/
strategy/index.html
Q4: What do you envision as your
investment strategies for realizing
the 12 Companywide strategic
themes under FUSION 20?
Sales of the Air-Conditioning Business by Region (Includes sales of the filter business)
(¥ billion)
Daikin is developing its air-conditioning business placing highest priority on North America, which is the world’s largest market, and the growth
areas of Asia and Oceania. Daikin is aiming for global net sales of ¥2.25 trillion in fiscal 2019.
213.8 251.3
280.0
2010
2015
2018
Europe
162.1
313.6
350.0
2010
2015
2018
China
416.9
364.6
460.0
2010
2015
2018
Japan
690.0
496.3
89.7
2010
2015
2018
Americas
25.0 65.2
90.0
2010
2015
2018
ME/Africa
8
380.0
284.7
149.4
2010
2015
2018
Asia/Oceania
Accelerating growth by constructing
new plants and M&A
Togawa: In the air-conditioning business,
to expand in North America, Daikin is work-
ing to further develop and upgrade its pro-
duction bases, including a new plant in
Houston, Texas and its Mexico Plant. At the
same time, in fall 2016, Daikin will open a
North American R&D center and develop
products that are tailored to that region. In
Asia also, due to the rapid growth in
demand and expansion in Daikin sales, pro-
duction capacity is short. Daikin is, there-
fore, aiming to put into place a product
supply system that will provide the neces-
sary volumes in a timely fashion. Activities
in this area include investments for increas-
ing capacity in Thailand, Malaysia, and
India. Daikin has decided to build a new
plant in Vietnam, and consideration is being
given to adding new plants in a number of
countries.
In addition, in Europe, Daikin acquired
Zanotti S.p.A. in Italy with the objective of
strengthening its business base for its com-
mercial refrigeration and freezer equipment
business. Using Zanotti’s broad product line-
up and sales/service network, Daikin will
work to build its position in these business-
es from Europe where environmental regu-
lations are the strictest. Also, in the future,
Daikin will endeavor to attain further
growth by bringing the know-how of the
European market to areas where growth is
expected, such as India and China.
Regarding the filters business also, in
April 2016, Daikin completed the acquisi-
tion of Flanders, Inc., which gives Daikin a
high share in the United States, which is the
largest air filter market in the world. Daikin
will work to strengthen its position in the
high-end pharmaceutical, biochemical, food
products, and other markets, where growth
is anticipated and will endeavor to make
the filters business its third major source of
earnings.
Q5: What will be your policy
regarding dividends and return
to shareholders?
Raising dividend by ¥20 per share over
the previous year, based on strong
performance
Togawa: Regarding dividends, our basic
policy will be to pay stable dividends on a
steady and continuing basis and maintain a
dividend to equity (DOE) ratio of 3.0% on a
consolidated basis. We are taking initiatives
to substantially increase the return to our
shareholders by aiming for a high dividend
payout ratio. Regarding retained earnings
also, we are working to substantially
strengthen our management and financial
positions and will allocate retained earnings
to accelerate Daikin’s global development,
to speed up the development of products
that contribute to the earth’s environment,
and make other strategic investments that
will expand Daikin’s business activities and
contribute to its competitiveness.
In view of its favorable performance in
fiscal 2016, Daikin paid a dividend of ¥120
per share (¥55 as an interim dividend and
¥65 as a final dividend for the fiscal year),
which was ¥20 per share higher than in the
previous fiscal year. Note that if the ¥10 per
share dividend paid for the previous fiscal
year is excluded, the increase in the regular
dividend was ¥30 per share. Daikin is
scheduled to pay a dividend of ¥120 for
fiscal 2017.
Daikin will continue to work to expand
its business activities as it makes strategic
investments, pursues a total cost-down pol-
icy, strengthens its financial position, and
implements other measures to become a
stronger enterprise. As a result of these
initiatives, Daikin will aim to become a truly
global excellent enterprise, while, at the
same time, work to increase its enterprise
value and raise its returns to shareholders.
Q6: As Daikin continues to grow,
demands and expectations of society
are rising. What CSR initiatives are
you undertaking? Also, what
message would you most like
to emphasize to shareholders?
Creating new value to contribute
to solving social issues
Togawa: For the Daikin Group, we are
aware that restraining global warming is the
social issue that we should give the most
attention. We are endeavoring to spread the
use of R32 refrigerant, which compared to
other refrigerants has a low global warming
coefficient, for use in air conditioners
around the world. In addition, we are taking
initiatives to achieve wider usage of our
inverter units, which have higher energy
conservation features. These initiatives con-
tributed in fiscal 2016 and were responsible
for reducing emissions by 35 million tons.
The demand for air conditioning, mainly in
the emerging countries, is expected to con-
tinue to expand, but, as the Daikin Group
progresses toward the fiscal year 2021, it
aims to contribute by reducing emissions of
greenhouse gases by 60 million tons.
Moreover, TIC, which was established
last year, is collaborating with industry, the
government, and academia in “cooperative
creation” to contribute to providing solu-
tions to issues society is facing, including
those related to the environment and
energy, health, and other areas.
Daikin, as a corporate group, aims to
continue to “create new value for the
atmosphere and natural environment
through cooperative creation,” and will
endeavor to contribute to society in
response to the expectations of our custom-
ers, shareholders, suppliers, the regional
community, and our many other stakehold-
ers. Daikin will continue to work toward
the objectives of “FUSION 20” and looks
forward to the continuing understanding
and support of our shareholders.
9
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Review of Operations
Air Conditioning
Current Attained double-digit growth in the
Americas, Europe, and Asia/Oceania,
Expanded operating income
in China also
In the air-conditioning equipment busi-
Americas
ness, performance was especially strong
Sales in the Americas expanded 13%
in fiscal 2016 in the Americas, Europe,
year on year. Sales of the principal resi-
and Asia/Oceania, and this business as a
dential product, unitary air-conditioning
whole expanded 7% year on year.
equipment, experienced a reactionary
decline in demand following the surge in
Japan
demand in fiscal 2015 prior to the
Sales in Japan grew 1%
increase in the rigor of energy-conserva-
over the previous fiscal
tion regulations. As a result of this and
year. Demand in the
effects of warm winter weather, units
commercial market was
sold were below the previous fiscal year.
weak, and the number
However, sales of ductless units expand-
of units sold was below
ed year on year, as a result of expansion
the prior year. In Japan’s
in the product lineup, personnel, and the
residential air-condition-
sales network, and sales of applied units
ing market, demand
rose because of strengthening of the
was approximately level
sales network and focus on the service
with the previous year,
business.
Expanding sales of Urusara 7, an energy-
saving, eco-friendly, differentiated air
conditioner
but Daikin worked to
expand sales of energy-
saving, differentiated
products that use R32 as a refrigerant,
including Urusara 7. As a result, sales in
unit terms and Daikin’s market share
reached a level above the previous year.
10
China
through a finely tailored program of
placed emphasis on developing relation-
In China, the business environment
calling on dealers, expanded sales
ships with additional dealers and
continued to be severe, and sales were
in the countries of the region. In the
launched energy-saving, differentiated
slightly lower than in the previous fiscal
heating business, Daikin expanded sales
products that matched the needs of the
year, but, on the other hand, operating
of heat pump type hot water heating
countries of the region. Among these
income rose above the prior year. In the
units in France and the United Kingdom,
markets, Daikin captured the rising
residential market, Daikin drew on the
where environmental regulations have
demand of the middle-income classes
proposal and installation capabilities of
been tightened.
specialized “PROSHOPs” that sell into
the retail and shop markets and expand-
Asia/Oceania
in Vietnam and Indonesia, where it has
recently acquired a sales company, and
reported a marked rise in sales. Also, in
ed sales of the “New Life Multi Series”
Sales in the Asia/Oceania region expand-
India and Thailand, Daikin expanded
that offers customers a greater diversity
ed 12% year on year. As in the
sales of residential and commer-
of lifestyles. Sales in the commercial mar-
previous fiscal year, Daikin
cial products.
ket and sales of applied units began to
return to a recovery trend in the latter
half of the fiscal year as a result of
expanded sales of differentiated
products.
Europe
Sales in Europe expanded 11% over the
previous fiscal year. In the residential-use
market, Daikin responded to the rise in
demand due to the hot summer weather
with well-timed product supplies, and
sales showed major expansion mainly in
the southern and central European
regions. In the commercial-use market,
Daikin launched new VRV products, and,
The New Life Multi Series offers
customers in China a greater
diversity of lifestyles.
Strengthening Daikin’s sales network in China through specialized shops
Capturing the rising demand of the middle- income classes in Vietnam and
elsewhere
11
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Review of Operations
Air Conditioning
Future Further sales expansion globally
in all regions, particularly in
North America and Asia
In the air-conditioning equipment busi-
Americas
ness, in fiscal 2017, Daikin is aiming for a
In the residential-use market, Daikin is
2% increase in sales (compared with fiscal
working to increase the cost-competitive-
2016), benefiting from the launching of
ness of its unitary products in the high
differentiated products, maintenance of
volume zone of the market. With a focus
sales prices, and low procurement costs
on high-end ductless VRVs, applied
because of the appreciation of the yen.
chillers, and other products, Daikin is
Japan
Daikin will work to increase
earnings by implementing a
thoroughgoing policy of
launching differentiated
products and maintaining
sales prices. Also, procure-
ment costs are expected to
endeavoring to substantially strengthen
the appeal of its products and its market-
ing and sales capabilities. Also with a
portion of Goodman’s new plant in
operation, Daikin is working to increase
product supply. Other initiatives include
upgrading product development functions
and strengthening competitiveness.
be lower accompanying the appreciation
China
of the yen. In addition to the Urusara 7
Daikin is substantially strengthening its
model air conditioners for residential use,
own nationwide sales network, including
Daikin is working to expand sales of its
PROSHOPs that handle residential multi-
original, value-added air conditioners,
air conditioners. New products introduced
such as multi-air conditioners and other
include the “New Life Multi Series” resi-
types that offer superior design. In the
dential air conditioners. Also, in the com-
commercial air-conditioner market, as
mercial market, Daikin has introduced
recovery in demand has lagged, Daikin is
VRVs for large-scale buildings, air condi-
working to capture demand from urban
tioners for small stores and general offices
Multi-air conditioners launched to meet the needs
of differing regions and countries
Tokyo redevelop-
as well as a series of applied and other
ment projects that
units to meet the needs of all market seg-
are ongoing with a
ments. Under severe market conditions,
view to the 2020
Daikin aims to increase profits by increas-
Tokyo Olympics.
ing the ratio of units made in-house,
Daikin is also con-
expanding the number of units procured
tinuing to strength-
locally, accelerating cost reduction efforts,
en and shape up its
and shifting to integrated development,
marketing activities
production, sales, and service.
tailored to specific
regions.
Broadening the lineup of residential unitary products that feature high-
efficiency inverters
12
Europe
Asia/Oceania
expanding its lineup of specialized invert-
Viewing the signs of economic recovery in
Although there are concerns about the
er home air conditioners ahead of other
the EU as an opportunity, Daikin is imple-
economic slowdown in China and the
companies. In the commercial air-condi-
menting sales strategies carefully tailored
impact of low resources prices, Daikin is
tioner field, Daikin is strengthening its
by country and by product. Also, along
developing sales networks and imple-
activities related to variable refrigerant
with the shift to full-scale domestic pro-
menting product strategies that are care-
volume (VRV) units with built-in specifi-
duction in Turkey and other developments,
fully tailored to individual countries and
cations, and its lineup of applied units as
Daikin is continuing business structural
is working to capture demand from the
well as moving toward providing full-
reforms, including reduction in fixed costs
expanding middle-income classes, partic-
scale solutions services.
and strengthening competitiveness, and
ularly in India and Vietnam. Daikin is also
aiming for higher profits than in the previ-
ous year when the weather was unseason-
ably hot. Moreover, Daikin is also placing
emphasis on its heater business, including
launching new combustion heater units.
Using Zanotti S.p.A. of Italy, which Daikin
finished acquiring in July 2016, as a foot-
hold, Daikin is newly expanding its com-
mercial freezer and refrigerator business.
Planning for further business expansion in India
Daikin’s plant in Turkey goes into full-scale operation.
13
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Review of Operations
Chemicals
Current Strengthened sales capabilities
in growth markets and attained
increases in sales and income
In fiscal 2016, sales expanded mainly in
refrigerant gas business of Solvay S.A.,
repellent agents, mainly in the United
fluoroplastic resins for use in semicon-
Daikin’s overall sales of refrigerant gas
States and China. Also, sales of the
ductors, fluoroelastomers for automotive
were above the previous year.
OPTOOL™ anti-smudge surface coating
applications, and an anti-smudge coating
In the fluoroplastics resin business,
agent for smartphones were favorable.
agent for smartphone touch screens. As
although sales for use in cables for tele-
Sales of etching fluids for semiconductor
a result of the effects of declines in sales
communications bases decreased, Daikin
cleaning expanded in Japan and the
prices in China and the United States,
captured semiconductor-related demand
rest of Asia due to growth in related
sales in this business expanded 9% over
in Japan and the rest of Asia, and sales
demand. In the intermediate materials
the previous fiscal year.
were above the previous year.
business, sales in Europe expanded sig-
Market conditions for fluorocarbon
In the fluoroelastomer business,
nificantly for pharmaceutical and LCD
gas weakened in China, and Daikin
demand was favorable, mainly for use in
use. As a result of these factors, overall
responded by restraining marketing
automobiles, and sales were above the
sales of chemical products rose above
activities. As a consequence, sales in
previous year.
the previous fiscal year.
China were below the previous year, but,
In the chemical products business,
because of the acquisition of European
Daikin expanded sales of water and oil
Anti-smudge coating agent for smartphones
14
Sales of fluoroelastomers for automotive applications were favorable.
Future Overall strengthening of
capabilities for developing new uses,
increasing product attractiveness,
and technical marketing
Daikin aims to increase sales by 2% in its
demand for LAN cable is increasing along
agent for smartphones, first on wearable
Chemicals business in fiscal 2017. Priority
with the spreading use of the Internet of
computers, and then will develop uses
fields will be growth areas within ICT, auto-
Things (IoT), Daikin will focus on the LAN
other than displays. Daikin is also moving
mobiles, new energy, and other areas.
cable market and on the dynamic automo-
forward with compound products with
Geographically, priority regions will be
bile and other markets in Europe and
multiple layers of fluoromaterial products
China, the United States, and the rest of
China. To expand sales, Daikin is working to
as a new business.
Asia, and Daikin will implement thorough-
raise its capabilities for technical marketing
Also, in markets where demand for fluo-
going strategies to increase competitive-
and proposal development to global levels.
rochemical products is expected to expand,
ness. Daikin will upgrade the attractiveness
To develop new uses for its products,
mainly in India and Vietnam, Daikin will
of its products and expand sales in priority
Daikin will identify customer needs and
strengthen its marketing activities by sta-
markets, which will include cable, semicon-
prepare new use proposals. For example,
tioning marketing personnel with in-depth
ductors, automobiles, and IT terminals.
Daikin is promoting the use of OPTOOL™,
knowledge of specialized markets and
Especially in the United States, where
which is currently used as an anti-smudge
developing new customers.
Fluoroplastics resins with high chemical resistance are indispensable in clean rooms for semiconductor manufacturing equipment.
15
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Review of Operations
Oil Hydraulics
Current Strong performance of oil hydraulic
equipment in many fields in the
U.S. market
In its oil hydraulic business operations,
Oil hydraulic business sales in fiscal
Daikin supplies diverse kinds of oil
2016 exceeded those of the previous year
hydraulic equipment that realize smooth
as demand in the U.S. market for oil
movements of the parts of many kinds of
hydraulic equipment used in industrial
machinery. Principal machinery types
machinery held strong. However, demand
using hydraulic components are industri-
was stagnant in Japan’s domestic market
al machinery, including construction and
and other markets in Asia, and this had
factory processing equipment, tractors,
an adverse influence on sales. Neverthe-
and other small vehicles. The Daikin
less, demand for oil hydraulic equipment
Group’s hydraulic equipment helps to
for construction machinery and vehicles
reduce energy and electricity consump-
for installation on products of major
tion in many kinds of machinery.
domestic customers for export to the
United States continued to be firm.
An EcoRich energy-
efficient oil hydraulic unit
for inverter drives
Future Accelerating Daikin’s global drive for
expansion of sales of oil hydraulic
equipment for industrial machinery
Daikin has steadily increased its market
Furthermore, even from a global per-
achieve deeper penetration of the
share of domestic oil hydraulic equip-
spective, Daikin will use the U.S. market
Chinese and other Asian markets.
ment for use on industrial machinery.
as a bridgehead for expanding sales of
With a view to continuing to launch new
oil hydraulic equipment for industrial
products, the marketing and technologi-
machinery. With its MRO (maintenance,
cal departments are working together
repair, and operation) business and
and accelerating market development. In
hybrid hydraulic systems that combine oil
developing products, energy-saving tech-
hydraulic technology and inverter motor
nology created in the air-conditioning
technology as the focal points, Daikin
business is used in the oil hydraulic busi-
will endeavor to strengthen its marketing
ness, and Daikin is working to further
base. Also, with plans for entering the
increase the sophistication and differenti-
Mexican market near realization, Daikin
ation of its products and will expand its
will work to strengthen its business posi-
eco-related businesses.
tion in Europe and move forward to
16
Oil hydraulic drives power construction
machinery and rolling stock
Defense
Current Expanding sales of home-use
oxygen therapy equipment
in Japan and China
In the defense business, Daikin designs
equipment as a core business in this
In fiscal 2016, sales of this segment
and manufactures various products for
segment. Daikin manufactures and sells
were below the previous year. Although
Japan’s Ministry of Defense, including
portable oxygen tanks, respiration syn-
Daikin expanded sales of home-use oxy-
artillery shells, warheads, and fuses.
chronizers, and oxygen concentration
gen therapy equipment in Japan and
Using the processing technology
apparatus, which can enable persons
China, orders for practice ammunition
employed in these products, for
with chronic respiratory failure to play
from the Ministry of Defense decreased.
private-sector purposes, Daikin has
roles in society.
developed home-use oxygen therapy
Future Strengthening business
development activities
in private-sector fields
The Japanese government has been
In the home-use oxygen therapy
sales routes, beginning with the develop-
reducing its defense budgets for some
equipment business, Daikin is endeavor-
ment of relationships with additional
time, and an issue for Daikin has been
ing to expand its market share and sales
local dealers. In addition, in the field of
to shift into private-sector related
based on high quality and reliability, and
oral care and other areas, Daikin is
businesses.
it has launched new products in the
actively considering responding to other
domestic market. Also, in the Chinese
medical needs.
market, Daikin is working to expand its
17
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
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 pro-
moting consistently high levels of management 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 strength-
ening of consolidated management, and still-higher levels of
soundness and transparency. In addition, to realize an increase in
corporate value, the Group will continually consider and reevalu-
ate its concepts regarding the most-appropriate forms of corpo-
rate governance as it pursues a diverse range of Group-level
initiatives aimed at ensuring best practices throughout the
Group.
Regarding Japan’s Corporate Governance Code, Daikin has
already implemented the principles of “enhancing information
disclosure,” “making effective use of independent external
directors,” and “the policy of having constructive dialogue with
shareholders.” Going forward, Daikin will continue to enhance
these initiatives.
Management and Operational Execution Systems
Rather than adopt a U.S.-style “committees system” that com-
pletely separates decision making from operational execution,
the Group has adopted an “integrated management” system
that calls for directors to bear responsibility for management
responsibilities as well as for operational execution responsibili-
ties. 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 execution. 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.
The Group appoints directors while giving emphasis to the
diversity of directors’ backgrounds regarding such characteristics
as nationality, gender, and career history. As of June 2016, the
Board of Directors included 12 members, including one female
and two non-Japanese directors. The Board of Directors is mak-
ing speedy strategic decisions and performing sound supervision
for the entire Group.
Daikin’s Board of Directors included three external directors as
of June 2016. Daikin seeks to recruit external directors who,
conditional upon their being free of any conflict of interest, 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 director, etc., in a listed enterprise is
a principal nomination criterion for external director recruitment.
None of Daikin’s external directors have five or more concurrent
posts.
To ensure that the external directors can effectively contribute
to Daikin’s corporate governance system, the external directors
are assigned assistants in the Management Planning Office who
18
strive to provide the external directors with Daikin-related infor-
mation, early notice of Board of Directors meetings, and prior
notice of Board of Directors meeting agenda items, as well as
implementing prior explanations of particularly important agen-
da items. In addition, in the case that an external director is not
able to attend a Board of Directors meeting, the assistants pro-
vide the external director with related materials and subsequent-
ly provide the external director with an explanation of the
proceedings of the meeting and provide other assistance.
Audit System
Daikin employs an Audit and Supervisory Board and seeks to
nominate two or more outside members to its Audit and
Supervisory Board. As of June 2016, Daikin’s four Audit and
Supervisory Board members included two external Audit and
Supervisory Board members. The principal nomination criteria for
external 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.
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 related to manage-
ment and performance when necessary and also investigates
relevant units, confirms approval of documents, and regularly
exchanges opinions with representative directors, executive
officers, and the independent auditors. In addition, the Audit
and Supervisory Board Member Office has been established to
provide assistance in audit and supervisory activities. The Audit
and Supervisory Board Member Office staff perform their duties
under the orders and direction of the Audit and Supervisory
Board members, and the Audit and Supervisory Board’s opinions
are respected with regard to personnel transfers, work evalua-
tions, and other matters pertaining to the Audit and Supervisory
Board Member Office staff members.
Shareholders’ Meeting
Audit
Appointment, dismissal
Accounting
Auditor
Corporate
Auditors
Board of Directors
Board of
Corporate
Auditors
Group
Auditors
Meeting
Appointment,
supervision
Internal Control Committee,
Corporate Ethics and Risk
Management Committee,
Information Disclosure
Committee, CSR Committee
HRM and Compensation
Advisory Committee
Group Steering
Meeting
Group
Management
Meeting
Executive
Officers Meeting
Executive Officers
(The rest is abbreviated)
External Director/Audit and Supervisory Board Members’ Principal Activities
Name
Position
Principal Activities
Chiyono Terada
External Director
Ryu Yano
External Audit
and Supervisory
Board Member
Ms. Terada attended 14 of the 16 Board of Directors meetings held during the fiscal year. Based on
her abundant experience and deep insight as a corporate manager, she provides appropriate super-
vision of Company management from an independent perspective; advises management from the
consumers’ point of view, including the importance of the Company’s corporate brand; and makes
proactive proposals for measures to further promote achievements of female employees.
Mr. Yano attended 12 of the 16 Board of Directors meetings held during the fiscal year as well as
13 of the 15 Board of Auditors meetings held. Based on his abundant experience and deep insight
as a corporate manager, he accurately audits the supervision of the conduct of management by the
directors. From his broad and advanced perspective developed over many years of experience
overseas, he makes necessary statements in a timely fashion.
Reasons for Election as External Director/Audit and Supervisory Board Member
Name
Position
Principal Activities
Chiyono Terada
External Director
Tatsuo Kawada
Akiji Makino
Ryu Yano
External Audit
and Supervisory
Board Member
Toru Nagashima
Ms. Terada has abundant experience and deep insight as a corporate manager, and, drawing on her
background, she provides appropriate supervision from an independent perspective. She has an
excellent understanding of the consumers’ perspective, including the importance of the corporate
brand, and makes proactive proposals for measures to further promote achievements of female
employees. The Company management wants Ms. Terada to continue to contribute to the
Company’s corporate value looking forward and, therefore, was elected as external director.
Mr. Kawada has served as representative director of SEIREN CO., LTD., and has abundant experience
and deep insight as a corporate manager. His experience includes changing his company’s business
model, innovation creation, and reforming corporate cultures. The Company management wants
Mr. Kawada to provide appropriate supervision of the conduct of management from an indepen-
dent perspective, and, by offering proposals regarding management from his broad and high-level
perspective, contribute to increasing Daikin’s corporate value. He has, therefore, been elected as
external director.
Mr. Makino has served as representative director of Iwatani Corporation and has abundant experi-
ence and deep insight as a corporate manager, especially in the fields of energy and the natural
environment as well as the services business. The Company management wants Mr. Makino to
draw on his background and experience to provide appropriate supervision of the conduct of man-
agement from an independent point of view, and, offering proposals regarding management from
his broad and high-level perspective, contribute to increasing Daikin’s corporate value. He has,
therefore, been elected as external director.
Mr. Yano has served as representative director at Sumitomo Forestry Co., Ltd., and has abundant
experience and deep insight as a corporate manager, particularly in the field of expanding business
operations overseas. The Company management wants Mr. Yano to draw on his experience to
supervise overall management and to significantly upgrade the appropriateness of the audit
function. He has, therefore, been elected as external auditor.
Mr. Nagashima has served as representative director at TEIJIN LIMITED, and has abundant experi-
ence and deep insight as a corporate manager, particularly in the field of implementing paradigm
shifts from manufacturing to services. The Company management wants Mr. Nagashima to draw
on his experience to significantly upgrade the appropriateness of the audit function. He has,
therefore, been elected as external auditor.
Note: All of the Company’s external directors and external auditors meet the qualifications for independence established by the Tokyo Stock Exchange.
Systems for Supporting Speedy Management
Daikin has reduced the number of directors, and those directors
are, therefore, able to realize speedy decision making based on
substantive deliberations. Daikin has three main decision-making
institutions—the Board of Directors, the Group Steering
Meeting, and the Executive Officers Meeting—and each of
these, in general, meets once per month.
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
fiscal 2016, it met six times.
The Board of Directors is the decision-making institution for all
matters related to the Group as a whole that are stipulated by
laws and regulations and by the articles of incorporation, and it
also performs supervision to ensure sound and appropriate oper-
ational execution. In fiscal 2016, it met 16 times, and the aver-
age attendance rates of external directors and external Audit
19
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Corporate Governance
and Supervisory Board members at those meetings were 91%
and 84%, respectively.
Total Compensation for Directors
and Audit and Supervisory Board Members (Fiscal 2016)
In addition, to respect and protect the interests of diverse
stakeholders other than stockholders, Daikin has, based on the
Board of Directors, established its Internal Control Committee,
Corporate Ethics and Risk Management Committee, Information
Disclosure Committee, and CSR Committee.
Corporate Officer Remuneration, Etc.
To ensure the transparent management of its corporate officer
personnel and remuneration processes, Daikin has established
the HRM and Compensation Advisory Committee. This commit-
tee engages in discussions and deliberations regarding issues
including corporate officer nomination criteria, corporate officer
candidates, and remuneration. The Committee consists of five
members, including three external directors and one in-house
director, and one executive officer responsible for human
resources, with the Committee chairman being chosen from
the external directors.
The remuneration of directors and Audit and Supervisory
Board Members is determined so as to fall within the aggregate
remuneration ceiling for directors and Audit and Supervisory
Board Members as set by a resolution at the general sharehold-
ers’ 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 Audit and
Supervisory Board Members’ 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 performance over the
medium-to-long term and thereby contributing to a rise in
the Group’s corporate value.
Directors’ remuneration includes “fixed compensation,” “per-
formance-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 remuneration
of external directors and corporate auditors includes “fixed
compensation” only.
Compensation levels are determined based on consideration
of Daikin’s performance and remuneration levels compared 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. 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 compensation is sufficient.
20
Position
Number of
Individuals
Fixed
Compensation
(Millions of yen)
Performance-linked
Compensation
(Millions of yen)
Directors
Audit and
Supervisory
Board Members
Total
10
3
13
Basic
775
65
840
Stock Options
128
—
128
Bonus
350
—
350
Total
Compensation
(Millions of yen)
1,254
65
1,319
Total Compensation for External Directors and External Audit
and Supervisory Board Members (Fiscal 2016)
Number of
Individuals
4
Fixed Compensation
(Millions of yen)
Performance-linked
Compensation (Millions of yen)
Basic
59
Stock Options
—
Bonus
—
Total Compensation
(Millions of yen)
59
Corporate Officers Receiving Total Compensation
and Other Exceeding ¥100 Million (Fiscal 2016)
Name
Position
Company
Name
Noriyuki
Inoue
Masanori
Togawa
Ken
Tayano
Director
Director
Director
Chair-
man
Daikin
Industries, Ltd.
Daikin
Industries, Ltd.
Daikin
Industries, Ltd.
Consolidated
Subsidiary, Daikin
(China) Investment
Co., Ltd.
Guntaro
Kawamura
Masatsugu
Minaka
Director
Director
Daikin
Industries, Ltd.
Daikin
Industries, Ltd.
Director
Consolidated
Subsidiary,
Daikin Europe N.V.
Jiro Tomita Director
Takashi
Matsuzaki
Director
Daikin
Industries, Ltd.
Daikin
Industries, Ltd.
Fixed
Compensation
(Millions
of yen)
Performance-linked
Compensation
(Millions of yen)
Basic
Stock
Options
Bonus
Total
Compensation
(Millions
of yen)
213
138
109
12
75
6
67
61
61
27
27
13
—
13
13
—
10
10
97
65
41
—
30
29
—
33
31
338
230
176
119
117
105
103
Total Compensation and Other for Independent Auditors
(Fiscal 2016)
Audit expense
201 (Millions of yen)
Group Governance
To meet governance needs on a Group basis including M&A-
related Group companies, Daikin holds meetings of the Group
Steering Meeting. By working to thoroughly ensure that all Group
units share the Group’s important management policies and by
endeavoring to promote and strengthen support for the resolutions
of challenges of Group companies, the Group Steering Meeting
seeks to make the Group undertake corporate activities based on
unified objectives. Principal Group companies appoint Group audi-
tors to participate in Group Auditors’ meetings, which seek to
strengthen Groupwide auditing and auditing functions by under-
taking activities to strengthen the operation of those functions.
To further strengthen corporate governance and Group man-
agement as a multinational company, Daikin has appointed a
Chief Global Group Officer, who endeavors to further improve
the Group’s cohesiveness.
Directors, Audit and Supervisory Board Members, and Executive Officers (As of June 29, 2016)
Position(s)
Responsibilities & Principal Jobs
Name
Chairman of the Board
and Chief Global Group Officer
President and CEO,
Member of the Board
Noriyuki Inoue
Masanori Togawa
Chairman of Internal Control Committee
Member of the Board (external)
Chiyono Terada
President of Art Corporation
Member of the Board (external)
Tatsuo Kawada
Chairman and CEO of SEIREN CO., LTD.
Member of the Board (external)
Akiji Makino
Chairman and CEO at Iwatani 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
(non-resident)
Member of the Board
(non-resident)
Ken Tayano
Responsible for Domestic Air-Conditioning Business, Representative of China Region, Chairman and President
of Daikin (China) Investment Co., Ltd., Chairman of Daikin Fluorochemicals (China) 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
Responsible for Global Operations Division and Manufacturing Technology
Takashi Matsuzaki
Responsible for North America Research and Development (including Applied Solution Business, Refrigeration
Business, and Filter and Dust Collection Business)
Koichi Takahashi
Responsible for Accounting, Finance, Budget Operations and IT Development, General Manager of the Finance and
Accounting Division
David Swift
Yuan Fang
Regional General Manager of Air-Conditioning Business in emerging nations in the ASEAN and Oceania of Global
Operations Division, Vice Chairman and Vice President of Daikin (China) Investment Co., Ltd., Chairman of Daikin
Airconditioning (Hong Kong) Limited
Audit and Supervisory Board Member
(external)
Audit and Supervisory Board Member
(external)
Ryu Yano
Chairman of the Board of Sumitomo Forestry Co., Ltd.
Toru Nagashima
Advisor of TEIJIN LIMITED
Audit and Supervisory Board Member
Kenji Fukunaga
Audit and Supervisory Board Member Kosei Uematsu
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
Shigeki Hagiwara
Responsible for Applied Solution Business, Service Operations and Training,
and General Manager of Applied Solution Business Division
Senior Executive Officer
Yoshikazu Tayama
General Manager of Budget and Administration Group, Finance and Accounting Division
Senior Executive Officer
Masayuki Moriyama
Senior Executive Officer
Yoshihiro Mineno
Responsible for Applied Solution Business in China, ASEAN and Oceania Regions, Director and Vice President of
Daikin (China) Investment Co., Ltd., COO of McQuay China
General Manager of Global Operations Division, Director (non-resident) of Goodman Global Group, Inc., Director of
Daikin Holdings (Houston), Inc.
Senior Executive Officer
Yasushi Yamada
Responsible for Safety
Executive Officer
Katsuyuki Sawai
Executive Officer
Hitoshi Jinno
Responsible for Corporate Communication, Human Resources, and General Affairs and General Manager
of Shiga Plant
Responsible for PL/Quality, Air-Conditioning/Refrigeration/Applied, Responsible for Alliance Promotion with Gree
Electric Appliances Inc., General Manager of Air-Conditioning Manufacturing Division, Chairman of PD Alliance
Promotion Committee, and General Manager of Sakai Plant
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Kota Miyazumi
Responsible for Corporate Planning, General Manager of Marketing Research Division, Director of Planning Group in
Marketing Research Division
Tsutomu Morimoto
Responsible for Executive Secretarial Department, Goodman Group Business
Yuji Yoneda
Responsible for Air-Conditioning Research and Development (including Applied Solution Business and Refrigeration
Business) and General Manager of Technology and Innovation Center
Masaki Saji
General Manager of Human Resources Division and Department Manager of Diversity Promotion Group
Executive Officer
Masafumi Yamamoto
Responsible for CSR, Global Environment Affairs, Corporate Ethics, Compliance, Legal Affairs, General Manager of
the Legal Affairs, Compliance and Intellectual Property Center, Department Manager of Domestic Legal Affairs
Group, Chairman of CSR Committee, Chairman of Corporate Ethics and Risk Management Committee and Chairman
of Information Disclosure Committee
Executive Officer
Satoshi Funada
General Manager of Air-Conditioning Sales Division
Executive Officer
Makio Takeuchi
Responsible for Global Procurement, Deputy Manager of Air-Conditioning Manufacturing Division (Research and
Development), Responsible for Refrigeration Division, Research and Development, Co-Creation Projects member of
Technology Innovation Center
Executive Officer
Executive Officer
Yoshiyuki Hiraga
Responsible for Chemical Business and Chemical Environment/Safety
Toshio Ashida
General Manager of Corporate Planning
21
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 CSR (Corporate Social Responsibility)
Daikin’s core business of air conditioning is essential for economic development and a comfortable lifestyle, and demand
for air conditioning continues to expand in developing nations and around the world. As an industry-leading specialized
manufacturer, the Daikin Group aims for the sustainable development of society in general, and in accordance with its four
newly designated priority themes for CSR, leverages its accumulated technologies to limit the impact on the environment
while taking into account the overall valuation, and provides the people of the world with comfortable and rich lifestyles.
Materiality
In fiscal 2016, Daikin revised its stance on materiality in conjunc-
tion with the formulation of the FUSION 20 strategic manage-
ment plan, setting as its four priority CSR themes for sustainable
corporate and social development Environment, New Value
Creation, Customer Satisfaction, and Human Resources.
These priorities have also been incorporated into the FUSION
20 plan as key management considerations. We plan to formu-
late CSR targets and plans in accordance with these four themes
that take into account the impact our strategies and increasingly
global business operations have on society.
L The Materiality Determination Process
Daikin has selected two priorities for determining materiality:
1) Stakeholder interest or impact, based on the principles of
stakeholder engagement, international guidelines, and the
requirements of socially responsible investment (SRI) evaluation
agencies; and 2) Material according to Daikin, based on such
factors as our management principles and strategic management
plans. Going forward, we plan to seek further external opinions
on a broad basis, and reflect this feedback in our medium-term
CSR targets and plans.
Preservation of Biodiversity
Respect for Human Rights
Stakeholder Engagement
Regional Society
Chemical Substance Control and
Reduction
Dealing with Climate Change
Efficient Use of Resources and Energy
New Value Creation
Ensuring Product Quality and Safety
Pursuit of Customer Satisfaction
Most important
Prohibition of Bribery
Free Competition and Fair
Trade
Industrial Safety and Health
Labor-Management Relations
Supply Chain Management
Information Security
Human Resource Development
Ensuring Human Resource Diversity
Corporate Governance
Waste and Water
Important
Importance for Daikin
E
G
e
c
n
e
u
l
f
n
I
d
n
a
t
s
e
r
e
t
n
I
l
r
e
d
o
h
e
k
a
t
S
22
Environment
L Materiality of Environmental Measures
Climate change and other environmental issues need to be
addressed by society as a whole. Air conditioners, the main
product of the Daikin Group, have a close connection with cli-
mate change, as they consume a lot of electricity during use,
and the fluorocarbon used as a refrigerant contributes to the
greenhouse effect.
For this reason, the Daikin Group believes that providing for
both business development and environmental protection is
essential for sustainable growth. Accordingly, we take steps to
reduce emissions of greenhouse gases throughout the entire
supply chain, as well as work to develop and provide products
and services that mitigate climate change, and provide technical
training to support widespread market adoption. By bringing
energy conservation technologies, eco-friendly refrigerants and
other leading-edge technologies together with markets, we are
contributing to the resolution of environmental and energy
issues.
L Daikin’s Initiatives
Promotion of Environmental Engineering
The impact on climate change stemming from energy consump-
tion and the fluorocarbon used as refrigerant is the priority social
issue for Daikin, and we consider it important to promote the
widespread adoption of energy-efficient air conditioners that use
refrigerants with low global warming potential.
Daikin, based on the international consensus and its own eval-
uation, has determined that at present R-32 is the refrigerant
best suited for residential and commercial air conditioners, and is
working to promote the adoption of R-32 air conditioners
throughout the world. As of the end of fiscal 2016 (March
2016), more than 6.5 million R-32 AC units are in use in 48
countries around the world.
Royalty-Free Use of Patents
To encourage the further adoption of R-32 air conditioners, in
2011 Daikin designated a total of 93 basic patents related to the
manufacture and sale of air conditioners using R-32 as a refriger-
ant for royalty-free use in developing countries. Further, in
September 2015 we broadened the scope of this arrangement
worldwide, allowing royalty-free use of patents in developed
nations, where regulations are continually tightening.
Looking ahead, if all of the AC units using R410A, the con-
ventional refrigerant in developed countries, are converted to
R-32, by 2030 the potential reduction in impact on global warm-
ing as a result of hydrofluorocarbon (HFC) is estimated at around
800 million tonnes in units of CO2 equivalent (CO2e), a decrease
of 19% compared to continued use of the current refrigerant.
Creation of a Market Environment in India
Considering that use of air conditioning is projected to increase
particularly in emerging nations along with their economic
growth, promoting the use energy-efficient AC units with low
environmental impact refrigerants in these areas will make a
considerable contribution to controlling global warming overall.
In fiscal 2013, Daikin was entrusted with the Global Warming
Mitigation Technology Promotion Project sponsored by Japan’s
Ministry of Economy, Trade and Industry (METI), and began pro-
moting the adoption of the R-32 air conditioners in India. We con-
ducted demonstration tests of R-32 inverter air conditioners in
cities throughout India, demonstrating that the combination of
R-32 refrigerant and inverter technology could reduce CO2 emis-
sions by more than 30% compared to conventional units. We
conducted training for local AC installation and service engineers
in order to raise technical standards related to R-32 and establish
a foundation to support the spread of the technology. We also
held seminars for Indian government officials and air conditioning
industry groups to present the results of the demonstration tests,
explain the benefits of R-32, and enhance technical standards.
In India, since Daikin began selling R-32 air conditioners there
in 2014, these units have accounted for more than 10% of
annual AC unit sales, including from local manufacturers.
Daikin Receives the METI Minister Award
Daikin also provided technical support and other assistance
for the conversion to R-32 refrigerant in Thailand and
Malaysia, working in cooperation with the Japanese govern-
ment, local governments, and international organizations. In
both of these countries, rather than simply develop sales
channels and conduct marketing to promote the adoption of
R-32, Daikin worked to establish the market environment,
including training engineers and supporting the develop-
ment of standards.
In fiscal 2016, Daikin received the METI Minister Award in
recognition of its comprehensive measures contributing to
the curbing of global warming through worldwide promo-
tion of R-32 air conditioners.
23
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Daikin’s Core Facility, the Technology Innovation Center
(TIC)
The TIC is Daikin’s main facility for technological development,
bringing together engineers from various fields within the
Company. Through each step of the process, from exploration of
development themes to the researching, development, and com-
mercialization of new technologies, the TIC and other internal
departments cross boundaries in pursuit of collaborative creation,
seeking to generate technologies and swift product development.
In addition, the TIC focuses on cooperation and partnerships
with companies, universities, and research institutions that pos-
sess unique technologies in varied industries and fields. Attract-
ing people, information, and technology from around the world,
and generating innovation through collaborative creation with
external experts, was one of the aims in establishing the TIC.
Through collaborative innovation, in addition to regulating air
and space through the use of air conditioning, Daikin is expand-
ing the scope of its research themes from residential spaces,
communities, and cities, to community infrastructure, conduct-
ing research that extends to the physiological and psychological
relationship between the air environment and human body, and
generating new lifestyle value.
Utilization of Airitmo in the Next-Generation Office
Fifteen years ago, Daikin began focusing on sensing technolo-
gies that detect a person’s condition, and conducting R&D to
improve the sleeping environment through air conditioning,
leading to the development of Airitmo. This unique sensing
technology uses vibrations of air in tubes to measure physical
data such as heart rate, breathing, movement, sleep status, and
stress. Further, we utilized this technology to create products
such as Soine, a special controller for sleep periods that mea-
sures the depth of sleep, and optimally regulates the air
conditioning.
In March 2016, office chairs incorporating Airitmo were
placed in 3×3LabFuture, a business exchange facility established
by Mitsubishi Estate. The aim is to create an office space that
realizes an atmospheric environment suited to an individual’s
physical condition and structures a next generation office envi-
ronment that is pleasant and improves productivity.
CSR (Corporate Social Responsibility)
New Value Creation
L Materiality of New Value Creation
In today’s society, globalization and technological advancements
are progressing at a remarkable pace, making differentiation
from rival products difficult. To achieve sustainable growth, a
company must integrate cutting-edge technologies, and gener-
ate technologies and products that contribute to the resolution
of social issues such as energy, the environment, and health.
Companies need to offer the world unprecedented new value.
Daikin is deepening its collaborative creation across a broad
range in the areas of energy, space, and the environment, in pur-
suit of new value creation centered on air conditioning. Daikin’s
diverse workforce, along with external researchers and engi-
neers, shares dreams and ambitions, offers the world new value
through the power of air, and resolves social issues.
L Daikin’s Initiatives
Collaborative Creation Inside and Outside the Company
The key to new value creation in modern society is collaborative
innovation, the crossing of existing borders to bring together
many various types of expertise and technologies.
Daikin believes the essence of collaborative innovation to be
effectively bringing together capabilities from inside and outside
the Company in order to generate new products and services
that bring about changes in lifestyles, as well as to generate new
technologies that help resolve the problems of modern society,
such as environmental, health, and medical issues. Based on this
principle, in November 2015 we established the Technology
Innovation Center (TIC).
The TIC Research Environment and
Industry-Academia Collaboration
The TIC applies ingenuity in various ways to bring about col-
laborative creation, such as the Future Lab for dialogue with
partners from inside and outside the Company, and the Chi-
no-mori (“forest of knowledge”) to deepen the exchange of
ideas while observing Daikin’s core technologies and cutting-
edge technologies currently in development. We have also
established a Fellow Room that can be freely used by univer-
sity professors and opinion leaders from Japan and overseas.
This facility has been utilized for engineering guidance from
Purdue University Distinguished Professor and Nobel Prize
recipient Eiichi Negishi, and as a satellite office for the
industry-academia departments of Kyoto University and
Osaka University.
24
Customer Satisfaction
L Materiality of Customer Satisfaction
Daikin is accelerating its business development in 145 countries
around the world, mainly in emerging nations where demand
for air conditioning is expanding. Providing products and services
that satisfy local customers is essential to achieve sustainable
growth in the future.
With consideration to the climate, culture, and regulations of
each area, Daikin works to enhance customer satisfaction by
ensuring high quality standards that customers can trust, and
providing products and services that meet local needs.
L Daikin’s Initiatives
Working Out Global Quality Guidelines
In April 2014, the Daikin Group worked out its Global Quality
Guarantee Rules prescribing Daikin’s basic stance on quality stan-
dards across the corporate group, as well as the responsibilities
and authority for quality monitoring of the efficient implementa-
tion of corrective measures. We have also acquired ISO9001 cer-
tification at all production facilities, and put in place a quality
assurance system based on those standards.
The various aspect of the quality assurance system are inter-
nally audited by each business division and their operating status
evaluated, in a continual cycle of implementation, evaluation,
and improvement. Further, each year quality priority measures
and targets for each business division based on the Group’s
annual policy guidelines are set, establishing and implementing a
quality program for the fiscal year.
Strengthening of Marketing Research
In order to more accurately and quickly assess the needs of each
overseas area, and utilize this information for product develop-
ment, Daikin shifted its air-conditioning development structure
from a single Japan-centered model to an autonomous distribut-
ed network in which product development and research is con-
ducted regionally, strengthening our marketing research
functions worldwide. With our primary R&D centers in China
and Europe, we are strengthening our development functions at
the North American and Asia/Oceania facilities.
Improving Customer Satisfaction
in the Turkish Market
Through a local market survey in Turkey, Daikin learned that
needs were strong for air conditioners that match modern
interiors. Based on this result, Daikin launched a new model
specifically for the Turkish market with an emphasis on inte-
rior design. The Daikin Miyora received the Good Design
Award 2015.
Daikin is also focusing on providing information through
its website, incorporating a system that allows customers to
enter information about their rooms to automatically calcu-
late air-conditioning performance, and shows them the ideal
unit. In addition, we conducted the Daikin Turkey Academy
for employees, sales agents, and retail stores as part of an
effort to provide high-quality advice and service.
In China, for example, we have developed and offer products
to improve the lifestyles of customers, such as air conditioners to
counter PM2.5 air pollution, interior units specifically for kitchens
able to cope with intense oily smoke, and interior units for baths
with upgrade dehumidification systems.
Local Service Structure for Areas throughout the World
For customers in Japan, Daikin operates the Daikin Contact
Center, a 24/7 general service center for repair requests, techni-
cal consultations, and purchasing information.
Overseas, we have put in place an after-sale service structure
based on the principle of “fast, reliable, and friendly” in order to
respond to the variety of requests specific to each country or
region. We have established call centers, and by providing tech-
nical information online, have increased customer satisfaction.
Using Survey Results to Enhance Customer Satisfaction
The Daikin Group regularly conducts customer surveys, soliciting
and analyzing feedback with the aim of enhancing customer
satisfaction.
The Air-Conditioning Division conducts a survey following
completion of after-sales service on air conditioners, sending
postcards to customers selected at random. The satisfaction rate
has been consistently high, with overall satisfaction in fiscal 2016
at 4.05 out of a total 5.0 points. We believe these solid evalua-
tions are the result of the division’s effort to put customers first
and complete a repair in a single visit, as well as a training pro-
gram focused on enhancing technical capabilities and customer
service.
The Chemicals Division conducts an annual customer survey.
In the fiscal 2016 survey, Daikin maintained its high marks in
such areas as quality, delivery, and technical service, though the
survey also revealed the need for greater responsiveness. We are
working to improve our service through closer communication
with customers.
25
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
CSR (Corporate Social Responsibility)
Human Resources
L Importance of Initiatives Related to Human Resources
Daikin has advanced with rapid globalization in the last 10 years,
and the number of employees working overseas has increased
approximately five-fold. In order to meet the expectations of its
various stakeholders in the midst of this effort and to realize the
strengths of the Daikin Group including the “Environment”,
“New Value Creation”, and “Customer Satisfaction”, “human
resources” have become of utmost importance as the team
responsible for these activities.
Daikin has positioned “People-Centered Management”, which
emphasizes that the source of a company’s competitiveness is its
people, at its very core, and gets its organizational strength by
respecting individuality and value systems, and by drawing out
the unlimited potential of individuals.
L Efforts by Daikin
Human Resource Development Policy
One of the corporate philosophies of the Daikin Group is the
idea that “the cumulative growth of all Group members serves
as the foundation for the Group’s development.” Based on the
concept that “people grow through job experience,” we have
positioned OJT as the basis of human resource development to
thereby identify the comfort levels of each individual and
challenge individuals by entrusting them with jobs.
We also supplement this training with off-the-job training (Off
JT) such as the “Daikin Leadership Development Program” to
train executives who can play an active role on the front lines of
global business operations and the “Overseas Base Practical
Training” to foster young employees who are globally minded.
We also support our employees’ efforts to take courses for
language training, communication-related education, etc., and
provide opportunities for independent learning. Since fiscal
year 2016, we have also held the “Global Daikin Leadership
Development Program” to foster global executives responsible
for Group management and management of Daikin’s overseas
bases.
Global “Meister System” for Passing Down
Technical Skills
The “baby boomer generation” has developed advanced technical
skills, but when that generation begins to retire, production over-
seas will have to be expanded sharply, and therefore Daikin is
advancing with efforts to pass the technical production skills that
form the basis for manufacturing to its overseas bases. To achieve
this, we launched committees for passing down technical skills
both in Japan and at four locations overseas, and are designating
technicians who have mastered their skills as “meisters”, and can-
didates for becoming meisters as “trainers”, and are fostering
skilled technicians both in Japan and abroad. We also hold a
“Technical Skills Olympics” once every two years on a global scale,
and are aiming to pass down technical skills by designating techni-
cians who have accumulated superior results as trainer candidates.
26
Promotion of Local Personnel at Overseas Bases
In conjunction with the globalization of the Daikin Group’s busi-
ness, we are also advancing with efforts to globalize our man-
agement team, and are aggressively promoting local employees
at overseas bases to executive and managerial positions. As of
the end of fiscal year 2016, local employees accounted for 51%
of the presidents at our overseas bases and 47% of the direc-
tors. Furthermore, 13 of our 20 sales companies in Europe have
local employees serving as presidents.
Promoting the Active Role of Women
Daikin Industries is targeting a work environment that allows all
employees to fully exhibit their capabilities regardless of gender,
and is making an effort to promote the active role of women.
As a goal, by the end of fiscal year 2021, we aim to have at
least one female director, and to increase our percentage of
female managers to 10% (approximately 100 people) from the
current level of 3.6%. In fiscal year 2016, we established a
“Female Feeder (education) Position” as a managerial post for
promoting women in each division, started fostering female
managerial personnel in a planned manner, and began the
“Youth Challenge Program” for young women wanting to
become future executives. We are also providing support for
female employees by introducing on a trial basis a “Sponsor
System” in which superiors support female executive and mana-
gerial candidates for whom they are directly responsible, and
through introducing a “Mentor System” to provide career and
workplace related advice.
These types of efforts to promote women in the workplace
have been recognized, and in March 2016, Daikin Industries was
selected by the Ministry of Economy, Trade and Industry (METI)
as one of the “100 top companies for new diversity manage-
ment”, and was granted the “Nadeshiko Brand” by METI and
the Tokyo Stock Exchange.
Acquired OHSAS 18001 and Other Such Certification
In order to ensure safe plant operations and employee safety, the
Daikin Group is independently creating occupational health and
safety management systems (OHSAS) at each base, and is
acquiring certification for international standards such as OHSAS
18001. As of the end of fiscal year 2016, three manufacturing
facilities in Japan and 21 companies overseas had received
OHSAS 18001 and other such certification.
The Daikin Group also holds joint safety and security meetings
twice each year for the purpose of improving the safety level of
the entire Group and to share expertise. Every Daikin facility both
in Japan and abroad also carries out its own safety activities such
as education and safety patrols aimed at achieving zero work-
place accidents.
Compliance Risk Management / Risk
Management / CSR Promotion System
L Compliance Risk Management
Integration of Compliance and Risk Management
Compliance violations are one type of risk, and thus the Daikin
Group deals with compliance and risk management in an inte-
grated matter.
The “Corporate Ethics and Risk Management Committee” is
chaired by the director in charge of corporate ethics and compli-
ance, and is configured from the managers of each division and
the presidents of each of the main Group companies in Japan.
As a general rule, the committee meets twice each year to iden-
tify issues that need to be reinforced and find the necessary solu-
tions, and the details of deliberations held by the committee are
reported to top management.
A Compliance Risk Management Leader (CRL) is appointed in
each division and for each of the main Group companies in
Japan. Meetings of the CRL are held each month to confirm the
compliance risk management efforts being made by each divi-
sion and each main Group company in Japan, to share informa-
tion, and to conduct compliance education and training, and
efforts are made to foster a “culture free of (compliance viola-
tions)” and to elevate “mechanisms to ensure that there are no
(compliance violations)”.
Bidirectional Enhancement of Activities
with Overseas Group Companies
Overseas, members of the Corporate Ethics and Risk
Management Group visit overseas Group companies periodically,
and participate also in compliance committees in each region.
The purpose is to confirm the status of efforts relating to compli-
ance risk management and to share information, and, for exam-
ple, efforts are made to enhance activities such as incorporating
cutting-edge efforts made by Group companies overseas in
Daikin Industries.
L Risk Management
With the expansion of the Group’s business, the overall image of
risks on a global level must be understood and alleviated. To
achieve this, laterally based risk management is being introduced
Companywide.
“Self-Inspection” of Laws and Ordinances
Each year, a self-check from the perspective of laws and ordi-
nances is conducted by each division and each Group compa-
ny through an independent “self-inspection” in order to
promote compliance.
Based on the results, a “legality audit” is implemented by
the Legal Department in each division and Group company
to confirm adherence to laws and ordinances.
Each year, all divisions implement a risk assessment to identify
and select critical risks, and then the divisions formulate neces-
sary countermeasures. The most-critical risks for the entire
Company are also identified from the assessment results, and
efforts are made to develop and implement countermeasures to
thereby reduce those risks. In fiscal year 2016, six key themes
were selected for risk management including “Earthquake Risk”,
“PL Quality Risk”, “Intellectual Property Risk”, “Information
Leakage Risk”, “Overseas Crisis Management”, and “Risk of
Improper Accounting”.
L CSR Promotion System
The purpose of CSR efforts is to fulfill our responsibility to
society through the business activities of the Daikin Group
based on corporate ethics and thorough adherence to laws
and ordinances.
The “CSR Committee”, chaired by the director in charge of
CSR, sets the overall direction of CSR activities and monitors the
execution status of those activities, and the “CSR & Global
Environment Center”, which is the staff division, was established
to promote CSR activities.
Based on external environmental changes, in fiscal year 2016,
the responsibilities that should be fulfilled by the Company, and
the value that should be provided were discussed by members of
the CSR Committee. A form that aims for the creation of social
value and sustainable growth for both society and the Company
through business activities was then incorporated into the
FUSION 20 strategic management plan through fiscal year 2021.
Respect for Human Rights / Supply Chain
Management
L Respect for Human Rights
Based on the laws and ordinances of countries and regions
around the world, the Daikin Group respects basic human rights
in accordance with the various international norms.
The Daikin Group participates in the “United Nations Global
Compact” for supporting and putting into practice universally
accepted principles relating to matters such as human rights and
labor. Our “Group Compliance Guidelines” stipulate policies for
respecting human rights, diverse values, and sense of work, and
policies for no child labor or forced labor.
Self-Inspection
The “Corporate Ethics Handbook” stipulates “Group
Compliance Guidelines”, which summarize the laws, regulations,
and conduct that the Daikin Group in Japan must follow. It also
clearly specifies respect for human rights in the workplace. In
addition, an item relating to respect for human rights was
included as part of the “self-inspection” that is conducted each
year from the viewpoint of compliance, and now the inspection
includes confirming that there are no human rights violations or
other such problems.
27
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 CSR (Corporate Social Responsibility)
Group companies overseas are also creating their own
“Corporate Ethics Handbooks” based on the “Group
Compliance Guidelines”, and are making efforts to ensure total
respect for human rights in the workplace.
The Daikin Group also participates in the activities of the
Global Compact Japan Network, through which we learn from
experts and cases at other companies regarding global human
rights issues, and this helps us improve our own efforts in this
area.
Human Rights Awareness and Education
Daikin Industries conducts human rights education and aware-
ness activities each year for all of its directors, new employees,
newly appointment managers, and mid-level employees. We also
publish a series of human rights articles in the Company news-
letter to raise awareness of human rights. At Daikin America,
focus is centered on creating a workplace environment that
respects coworkers, and all employees are educated in this area
each year.
L Supply Chain Management
In 1992, the Daikin Group prepared Basic Procurement
Guidelines, and based on those guidelines, we aim to engage in
fair trade practices with our suppliers. At Daikin, we believe that
our scope of social responsibility is not limited to just our Group,
but also includes our entire supply chain, and therefore in addi-
tion to green procurement, we promote CSR activities by our
supply chain as well from perspectives such as quality, human
rights, and labor.
Strengthening Relationships of Trust with Suppliers
The Daikin Group aims to build strong relationships of trust
with all suppliers, to meet mutual expectations, and to build
growing and expanding relationships. We periodically conduct
quality audits at the production sites of our suppliers both in
Japan and overseas, have ongoing dialog relating to quality
improvements, and collaborate with our suppliers in quality
improvement efforts. More specifically, we dispatch “meisters”
(see p. 26), encourage participation in the Technical Skills
Olympics, and engage in other various efforts to improve techni-
cal capabilities. We also hold safety-related briefing sessions for
our suppliers in order to support efforts to prevent work-related
accidents before they occur.
In China, Daikin Air-conditioning (Shanghai) Co., Ltd. has
been engaged in efforts since fiscal year 2016 to reinforce the
quality control of its suppliers, and the number of suppliers par-
ticipating in the efforts has expanded to 97 companies from 20
companies the previous year. The efforts include educating and
testing the quality control managers of suppliers regarding fun-
damental knowledge, and then having those managers who
have passed testing submit improvement proposals relating to
quality problems. Thus far, 10 companies have been recognized
for their excellent performance.
28
Supply Chain CSR Promotion Guidelines
Among CSR activities in our supply chain, we are endeavoring
in particular to understand CO2 emission levels and to properly
control substances subject to international regulations such
as designated chemical substances and conflict minerals.
We recognize that the occurrence of supply problems due to
earthquakes or other such natural disasters, the occurrence of
supply problems due to bankruptcy from a slump in supply man-
agement, violations of laws or ordinances, accidents, and a sus-
pension of international distribution due to country risks are all
risks with respect to supply chains. Therefore, we are building an
in-house system that enables us to immediately make a decision
regarding a supplier that has been affected in some way, and are
constantly updating our database so that we can strengthen our
ability to respond when a problem occurs.
In fiscal year 2017, we plan to devise Supplier CSR Promotion
Guidelines and to explain those guidelines to our suppliers.
Stakeholder Engagement / Regional Society
L Stakeholder Engagement
The Daikin Group believes that stakeholder engagement is of
significant importance, and in order to continue contributing to
society, the Daikin Group routinely uses every means possible to
listen to the opinions of our stakeholders, report these to
Company officers, and utilize those opinions in business
management.
Dialog with Experts—Exchanging Opinions on Air
Conditioning and Environmental Problems
The Daikin Group holds air-conditioner forums both in Japan and
abroad where we can exchange opinions relating to the “future
of air conditioning” with experts in the field. We exchange opin-
ions about our Company’s technologies, and utilize that infor-
mation in product and business development. In fiscal year
2016, we held discussions about energy conservation technolo-
gies and next-generation refrigerants in North America and
Mexico, and in Europe, expectations are high for the activities of
the Technology Innovation Center.
Since fiscal year 2014, Daikin Industries has also held the
“Daikin Air Forum”, a platform for discussion between outside
experts and Daikin engineers regarding social issues with regards
to “air”. In fiscal year 2016 as well, we also exchanged opinions
regarding “new social values” with experts from various fields
such as air conditioning, construction, livelihood, and medical
science.
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 works to maintain its consolidated ratio of dividends on
equity (DOE) at 3.0% or higher, and it is seeking to set stable
levels of dividends based on a comprehensive consideration of
such factors as consolidated performance, financial position, and
funding requirements.
Respect for the Exercise of Voting Rights
To enable shareholders to exercise voting rights after due consid-
eration of resolution items, Daikin provides shareholders with
invitations to general shareholders’ meetings and ancillary mate-
rials a week or more 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 comput-
ers 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 proactively working to disclose relevant
information by executing diverse kinds of IR activities.
For analysts and institutional investors, Daikin holds perfor-
mance 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 institu-
tional investors in Japan and overseas and organizes meetings
and other modes of interaction with individual investors.
Daikin’s website offers access to such legally mandated materi-
als 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.
L Regional Society
The Daikin Group is made up of 213 Group companies world-
wide, has production bases in over 80 locations, and is expand-
ing business in over 145 countries. Premised on fulfilling our
social responsibility of expanding regional employment and
cooperating with local companies, our basic policy is to develop
strong bonds with local communities as a member of the region-
al society operating a business while respecting the culture and
history of each country and region.
With our employees taking the initiative, we carry out social
activities mainly in the areas of “environmental protection”,
“supporting education”, and “living symbiotically with the local
region” and are contributing to the resolution of social issues
from a global perspective based on sustainable development
goals (SDGs).
Environmental Protection—Forest Preservation Activities
Daikin Industries is advancing with efforts to protect and regen-
erate nature in collaboration with all types of people such as
governments, local residents, NGOs, and Group employees. In
June 2014, we partnered with Conservation International, an
international NGO, and the Shiretoko Nature Foundation to
launch the “Forests for the Air” project. We are engaged in
efforts to promote the coexistence of the lifestyles of local resi-
dents with the preservation of forests and biodiversity in seven
locations, including the Shiretoko Peninsula, which is a world
natural heritage site, as well as in Indonesia, Brazil, Cambodia,
India, China, and Liberia.
Supporting Education
Providing Environmental Education for Elementary School
Students
Since 2010, Daikin has offered a “Circle of Life” environmental
education program for elementary school children centered on a
theme of biodiversity. The course is based on four classroom les-
sons taught by school teachers, and when desired, schools can
request to have Daikin employees come to the school to teach
lessons as well. In fiscal year 2016, approximately 2,000 students
from 30 schools participated in the program.
Constructing Preschools and Schools
Daikin Europe built a preschool in Gambia, West Africa that is
now attended by 181 students.
Daikin Airconditioning India repaired the walls and doors,
installed toilets, fans, and drinking water equipment, and provid-
ed other support, including supplying desks and chairs at four
public schools.
Symbiosis with Regional Societies
Supporting the Activation of Okinawa
Since 1988, Daikin Industries has held the “Daikin Orchid Ladies
Golf Tournament”, and by promoting sports, we are endeavor-
ing to activate Okinawa and encourage economic interchange
with the local area.
In conjunction with this tournament, we solicit donations that
we then present as an “Orchid Bounty” on an ongoing basis to
individuals and organizations that promote areas such as the
arts, culture, education and sports in Okinawa.
Bon Festival
Daikin is engaged in efforts to deepen interchange with local
residents and build relationships of trust. As part of those efforts,
the “Bon Festival”, which is planned and operated by Daikin
employees, is a large event that attracts attention by numerous
local residents. In addition to manufacturing plants in Japan, the
festival is also held at our main production bases in China, the
United States, and other areas.
29
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
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 attributable to owners of parent
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
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Millions of yen
¥792,837
269,906
203,359
26,648
66,547
95,816
40,146
¥63,511
(63,420)
91
¥911,749
312,688
231,934
27,204
80,754
115,315
45,420
¥ 83,725
(305,251)
(221,526)
¥1,291,081
441,549
313,451
32,075
128,098
179,469
74,822
¥1,202,420
363,660
302,266
30,535
61,394
118,325
21,755
¥103,329
(76,428)
26,902
¥62,238
(99,302)
(37,065)
(4,284)
245,975
3,367
48,382
(34,942)
(37,623)
(1,113)
143,520
(38,249)
(83,073)
(85,422)
¥716,440
172,995
340,523
¥ 152.11
1,293.41
22.00
34.04%
8.39
12.09
13.11
47.53
¥1,161,364
456,074
397,542
¥1,210,094
356,928
545,641
¥1,117,418
417,919
471,686
¥ 172.66
1,511.47
28.00
¥ 262.24
1,867.79
38.00
¥ 74.51
1,615.98
38.00
34.30%
8.86
12.65
12.31
34.23
34.20%
9.92
13.90
15.87
45.09
30.24%
5.11
9.84
4.28
42.21
¥1,023,964
¥1,160,331
¥1,218,701
¥1,290,903
¥1,787,679
¥1,915,014
¥2,043,691
319,301
275,263
28,220
44,038
96,462
19,391
¥129,227
(39,848)
89,379
361,665
286,210
30,771
75,455
127,168
19,873
¥78,411
(23,306)
55,105
371,902
290,709
32,987
81,193
131,719
41,172
¥44,967
(62,955)
(17,988)
388,046
299,419
33,569
88,627
140,151
43,585
568,323
411,786
40,177
156,537
235,439
92,787
649,902
459,314
42,892
190,588
268,354
119,675
711,576
493,704
46,138
217,872
302,075
136,987
¥103,161
(218,386)
(115,225)
¥179,713
¥160,423
(80,835)
98,878
(77,331)
83,092
¥226,186
(105,493)
120,693
¥1,139,656
¥1,132,507
¥1,160,564
¥1,735,836
¥2,011,870
¥2,263,990
¥2,191,105
399,313
496,179
372,481
487,876
389,891
502,309
705,871
618,118
693,944
801,853
662,413
1,024,725
608,981
1,014,409
¥ 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
¥ 318.33
2,748.08
50.00
¥ 410.19
3,511.34
100.00
¥ 469.23
3,473.54
120.00
31.19%
31.17%
30.52%
30.06%
31.79%
33.94%
34.82%
4.30
9.42
4.01
43.54
6.50
10.96
4.04
43.08
6.66
10.81
8.30
43.28
6.87
10.86
7.78
35.61
8.76
13.17
13.07
39.86
9.95
14.01
13.10
45.26
10.66
14.78
13.44
46.30
Notes: 1. R&D expenses are included within general and 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.
4. Accompanying a change in accounting policy, effective from April 1, 2014, the consolidated financial statements for the fiscal year ending March 31, 2014 and subsequent years have been revised.
Operating Income
Net Income Attributable to
Owners of Parent
(¥ billion)
240
180
120
60
0
(¥ billion)
160
120
80
40
0
06 07 08 09 10 11 12 13 14 15
16
06 07 08 09 10 11 12 13 14 15
16
06 07 08 09 10 11 12 13 14 15
16
Net Sales
(¥ billion)
2,000
1,500
1,000
500
0
30
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 attributable to owners of parent
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
¥911,749
¥1,291,081
¥1,202,420
¥792,837
269,906
203,359
26,648
66,547
95,816
40,146
312,688
231,934
27,204
80,754
115,315
45,420
441,549
313,451
32,075
128,098
179,469
74,822
¥63,511
(63,420)
91
¥ 83,725
(305,251)
(221,526)
¥103,329
(76,428)
26,902
363,660
302,266
30,535
61,394
118,325
21,755
¥62,238
(99,302)
(37,065)
¥716,440
¥1,161,364
¥1,210,094
¥1,117,418
172,995
340,523
456,074
397,542
356,928
545,641
417,919
471,686
¥ 152.11
1,293.41
22.00
¥ 172.66
1,511.47
28.00
¥ 262.24
1,867.79
38.00
¥ 74.51
1,615.98
38.00
34.04%
34.30%
34.20%
30.24%
8.39
12.09
13.11
47.53
8.86
12.65
12.31
34.23
9.92
13.90
15.87
45.09
5.11
9.84
4.28
42.21
Notes: 1. R&D expenses are included within general and 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.
4. Accompanying a change in accounting policy, effective from April 1, 2014, the consolidated financial statements for the fiscal year ending March 31, 2014 and subsequent years have been revised.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Millions of yen
¥1,023,964
319,301
275,263
28,220
44,038
96,462
19,391
¥1,160,331
361,665
286,210
30,771
75,455
127,168
19,873
¥1,218,701
371,902
290,709
32,987
81,193
131,719
41,172
¥1,290,903
388,046
299,419
33,569
88,627
140,151
43,585
¥1,787,679
568,323
411,786
40,177
156,537
235,439
92,787
¥1,915,014
649,902
459,314
42,892
190,588
268,354
119,675
¥2,043,691
711,576
493,704
46,138
217,872
302,075
136,987
¥129,227
(39,848)
89,379
¥78,411
(23,306)
55,105
¥44,967
(62,955)
(17,988)
¥103,161
(218,386)
(115,225)
¥179,713
(80,835)
98,878
¥160,423
(77,331)
83,092
¥226,186
(105,493)
120,693
(4,284)
245,975
3,367
48,382
(34,942)
(37,623)
(1,113)
143,520
(38,249)
(83,073)
(85,422)
¥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
¥2,011,870
693,944
801,853
¥2,263,990
662,413
1,024,725
¥2,191,105
608,981
1,014,409
¥ 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
¥ 318.33
2,748.08
50.00
¥ 410.19
3,511.34
100.00
¥ 469.23
3,473.54
120.00
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%
8.76
13.17
13.07
39.86
33.94%
9.95
14.01
13.10
45.26
34.82%
10.66
14.78
13.44
46.30
Research and Development Expenses
Shareholders’ Equity
Total Assets
(¥ billion)
50
40
30
20
10
0
(¥ billion)
1,200
900
600
300
0
(¥ billion)
2,500
2,000
1,500
1,000
500
0
06 07 08 09 10 11 12 13 14 15
16
06 07 08 09 10 11 12 13 14 15
16
06 07 08 09 10 11 12 13 14 15
16
31
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Financial Review
Summary of the Period
activities of ¥105.5 billion. Among financing activities, as a result of
Looking at economic conditions throughout the world during fiscal 2016, the
proceeds from the issuance of bonds in the previous fiscal year, net cash
U.S. economy was supported by robust personal consumption. Although the
used in financing activities was ¥2.3 billion lower than in the prior fiscal
economies of Europe were on a moderate recovery trend, negative factors
year, and amounted to an outflow of ¥85.4 billion. As a consequence of
included geopolitical risks. The newly emerging economies, principally China
these factors, the balance of cash and cash equivalents at the end of the fis-
and the resource-producing countries, reported slower growth. In the
cal year was ¥291.2 billion, ¥4.3 billion higher than in the previous fiscal
Japanese economy, domestic demand, including private capital investment,
year.
continued to be firm, but the deceleration in overseas economies was a fac-
In addition, interest-bearing debt decreased ¥53.4 billion due to repay-
tor placing downward pressure on the economy. Amid this business environ-
ments of long-term debt and amounted to ¥609.0 billion at fiscal year-end.
ment, the Daikin Group took initiatives to create demand around the world
The interest-bearing debt ratio (interest-bearing debt divided by total assets)
from the beginning of the year, placing particular focus on structuring an
decreased to 27.8%, compared with 29.3% at the end of the previous fiscal
original sales network, introducing differentiated products one after another,
year.
and implemented measures to further develop its business activities. The
Group expanded sales of its principal products and services, focusing on the
Currency Exchange Rates
air-conditioning business in China and elsewhere in Asia. In addition, the
During the fiscal year, the yen depreciated against the U.S. dollar, but it
Group stepped up its total cost reduction activities and endeavored to
appreciated against the euro. The average exchange rates for the yen were
address its core themes to reach the objectives of the FUSION 15 strategic
¥120 to one U.S. dollar and ¥133 to one euro. The impact of exchange rate
management plan and expand income.
fluctuations on Company sales was +¥62.0 billion, and the effect on operat-
Turning to performance, overseas sales, principally in the Americas, Asia,
ing income was +¥2.0 billion.
and Europe, were favorable. In China also, the Group worked to expand sales
of high-value-added products. As a result of these factors and the decline in
Yen-U.S. dollar rate
the value of the yen, mainly against the U.S. dollar, which increased sales in
Yen-euro rate
Fiscal 2015
Fiscal 2016
¥110
¥139
¥120
¥133
yen terms, consolidated net sales amounted to ¥2,043.7 billion, representing
a 6.7% increase year on year.
SG&A Expenses and Operating Income
Consolidated operating income was ¥217.9 billion, an increase of 14.3%
year on year, and net income attributable of the owners of the parent com-
Selling, general and administrative expenses rose 7.5%, to ¥493.7 bil-
lion, because of an increase in employee salaries and rose to 24.2% of net
pany amounted to ¥137.0 billion (an increase of 14.5% year on year).
sales.
Among consolidated cash flows, as a result of an increase in income
before income taxes and a rise in trade notes and accounts payable, net cash
provided by operating activities rose ¥65.8 billion, to ¥226.2 billion. Among
Consolidated operating income rose 14.3%, to ¥217.9 billion, and the
operating income ratio increased 0.7 percentage point to 10.7%.
investing cash flows, payment for purchases of property, plant and equip-
R&D Expenses
ment increased, and, as a consequence, net cash used in investing activities
was ¥28.2 billion lower and amounted to net cash used in investing
In response to an increase in worldwide concern regarding global warming
and energy issues, the Group is engaged in leading-edge R&D programs
Domestic and Overseas Sales
Operating Income
and Operating Income Margin
Net Income Attributable to
Owners of Parent
(¥ billion)
2,400
1,800
1,200
600
0
(¥ billion)
240
180
120
60
0
(%)
12
(¥ billion)
150
9
6
3
0
100
50
0
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Domestic
Overseas sales
Operating income
Operating income margin
32
designed to proactively contribute to the resolution of global environmental
level of energy conservation. Even when these systems have their heat
issues, while also expanding the Group’s business operations.
exchange units replaced, compared to previous ion-pattern air conditioners,
In 2015, the Group established its Technology Innovation Center (TIC) in
they realize about 70% energy conservation. Also, as a result of the reduc-
Osaka, which is the core facility for the technology and product development
tion in coolant used, their effect on earth warming is lowered by about 76%.
of the Daikin Group. This center is responsible for the R&D within the Group
Moreover, Daikin has substantially expanded its lineup of indoor units which
and for combining the world’s knowledge, including that of industries, aca-
can use the new HFC32 (R32) refrigerant. The FIVE STAR ZEAS series has
demia, and the government, to conduct R&D on cutting-edge technologies
pursued and taken to a high level the five key features needed in commercial
and basic technologies as well as develop and provide customers with new
air conditioners of energy conservation, environmental friendliness, comfort,
value-added and differentiated products.
safe and reliable design, and ease of installation. Daikin is working to further
In fiscal 2016, R&D expenses included in cost of goods sold and SG&A
expand the usage of this series.
expenses amounted to ¥46.1 billion.
With respect to multiple air-conditioning systems for office buildings, Daikin
has been developing systems that will reduce building energy usage to a net
• Air-Conditioning and Refrigeration Equipment
zero figure and make “net zero energy buildings” a reality. As a result of this
R&D expenses for air-conditioning and refrigeration equipment operations
development activity, Daikin launched its VRV X series, which greatly improves
totaled ¥39.8 billion.
annual running efficiency. This series substantially reduces annual electric
Wall-mounted-type Urusara 7, which is for residential use, demonstrates
power costs through the introduction of a new-type scroll pressure unit that
standard heating performance even when the outside temperature is minus
significantly increases running efficiency during low-load operating periods and
15 degrees centigrade and gives the same high level of heating performance
a new refrigerant control that automatically regulates refrigerant temperature
in cold regions. In addition, in a first for the industry, Daikin developed the
to match heat loads. In addition, this series can operate even under very diffi-
first “vertical direct air flow” along the wall below the unit to the floor. This
cult conditions when the outside temperature is 50 degrees centigrade. This
unit controls the flow of air, preventing direct flows to the people in the
series also increases the range of options for tube connections, and, therefore,
room and gives the pleasant feeling of a built-in floor heating system. These
can be installed in a diversity of places and ways.
units continue to feature the waterless humidifier system of previous units
In the resident air cleaner business, Daikin conducted a thorough zero-
and just-right control of humidity and temperature, but have the added fea-
based review of its work and installation components, and launched a com-
ture of air flow control, which secures an even more pleasant air-condition-
pletely new residential air cleaning system. Until now, components were
ing experience. For cooling, these units also feature “Premium Cooling,”
installed from the front of the unit to the rear. In the new units, the parts are
which allows temperature adjustments in 0.5 degree centigrade units and
stacked from the bottom, and the unit assumes a tower-like shape, thus saving
have a “circulation air flow” feature, not available on other units, that
about 20% of the area where the unit is placed compared with previous units.
maintains a pleasant air-conditioning experience throughout the year.
The audible sound of the unit is substantially reduced, and, keeping with the
In the commercial-use air-conditioner business, in October 2015, Daikin
stylish look of the unit, it achieves much better performance.
introduced its FIVE STAR ZEAS system for stores and offices. To respond to
In North America, Daikin launched its new-type inverter screw chiller in
needs for air-conditioner renewal, Daikin adopted an all-aluminum double
December 2015. This new unit features increased capacity in the volume
micro-channel heat exchange unit that is highly efficient and realizes a high
zone in comparison with cooler scroll chillers.
Selling, General
and Administrative Expenses
Sales by Segment
Segment Profit
(¥ billion)
500
400
300
200
100
0
(¥ billion)
2,400
1,800
1,200
600
0
(¥ billion)
240
180
120
60
0
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Air conditioning
Chemicals
Other
Air conditioning
Chemicals
Other
33
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Financial Review
In China, Daikin expanded its lineup of module chillers and two-stage
In addition to the development of materials, as part of R&D in peripheral
turbo refrigerator equipment to meet expected demand for the renewal and
areas to develop technologies and applications, Daikin is working on the
replacement of existing equipment. Daikin also further developed its lineup
development of film process products, multilayered materials, and advanced
to meet demand for magnetic bearing turbo models for the high IPLV mar-
materials research related to the medical, optical, and environmental areas,
ket. In addition, water-cooled screw chillers were converted to AC inverter
and, by probing the depths of fluoro-related research and applications, is
types, and air-cooled screw chillers were converted to micro-channel types.
aiming to become fluoride “global No. 1, only 1” in the development of
In Europe, Daikin introduced new models of air-cooled inverter screw
chemical solutions. Especially in the energy field, Daikin is concentrating on
chillers to spread the use of these high-efficiency units. These models are
developing such products as electrolyte solutions, additives, positive elec-
installed with micro-channel heat exchangers, and, to meet differing control
trode binders, gaskets, and other components needed to increase the
requirements, made simplified unit number control functions a standard
capacity and safety of lithium ion secondary batteries.
feature on the lineup.
• Chemicals
In the refrigerant field, Daikin acquired a production facility of Solvay S.A.
to expand its activities globally. Daikin is also conducting R&D related to
next-generation refrigerants to cope with environmental regulations. In
R&D expenses for Chemicals operations totaled ¥5.0 billion.
addition to being applicable for use in building and home air-conditioning
Daikin conducts R&D for new products and new applications based on
equipment, Daikin has also made a full-scale entry in the automobile-related
rich experience in fluorine products and fluorochemical technology. In fluoro-
business.
polymer resins and fluororubbers, using fluorochemicals’ good properties in
Daikin will accelerate its R&D in these areas, and in its Chemical Research
heat resistance, low drug reactivity, and dielectric properties, Daikin is devel-
and Development Center seamlessly develop new products and next-genera-
oping new differentiated products for automotive, semiconductor, wire and
tion products. Through its Technical Service Center, Daikin will respond swiftly
cable (IT field), and other applications. In coating materials development,
to user requests and take responsibility for addressing properly short- to
Daikin makes use of the non-adhesive and chemical resistance properties of
medium-term themes. In addition, in TIC, Daikin is exploring the next
fluoride-based substances. During the year under review, Daikin developed
generation of themes.
and marketed a new fry pan coating material (that combines ceramic and
fluoride technologies) in collaboration with Kyocera Corporation. In addition,
• Other Operations
Daikin developed water and oil repellent textiles treatment materials as well
R&D expenses for Other operations totaled ¥1.4 billion.
as carpet treatment materials. Daikin is also developing materials for LCD-
In oil hydraulics, Daikin is commercializing a large-capacity series of prod-
related applications that draw on the functionality of fluorocompounds, and
ucts and developing new applications by leveraging the special characteris-
has received an order for a project to develop intermediate materials for
tics of its hybrid oil hydraulic system technology that combines oil hydraulic
medical use. In these and a wide range of other areas, Daikin engages in
technology and inverter technology to realize energy conservation and high
fluoride-related R&D.
Composition of Sales
Others 2.6%
Chemicals 7.9%
34
functionality that could not be attained with previously existing hydraulic
systems. In the industrial press business, Daikin’s “Super Unit” has won
high acclaim for its low electric power consumption and resulting energy
Research and
Development Expenses
(¥ billion)
48
Air-Conditioning
89.5%
36
24
12
0
2012 2013 2014 2015 2016
conservation. It also features low noise and lower heat emissions, and it
Specifically, in accordance with its fundamental goal of providing a stable
contributes to the work environment through the use of a reduced-size
and continuous return to shareholders, Daikin is striving to keep its consoli-
oil tank, and reduces the burden on the environment.
dated ratio of dividends on equity (DOE) at levels of 3% or above while also
In addition, Daikin has launched a large-scale extruder system that equals
seeking to increase its consolidated dividend payout ratio and thereby
electric power as a motive force for its responsiveness and energy conserva-
further expand shareholder returns.
tion. This system can handle multiple voltages and has other features needed
Internal reserves will be applied to strengthen the Daikin Group’s business
in Asia and other regions where adaptation to local conditions is needed.
and financial position to accelerate the development of global businesses,
Daikin will expand this system’s lineup, and it is being adopted in many loca-
further the development of environment-friendly products, and make strate-
tions where presses and other machines are needed. Daikin is adapting its
gic investments to expand business activities and strengthen competitive-
products to additional uses globally and will move forward with sales
ness.
expansion.
For the fiscal year ended March 31, 2016, Daikin increased its total cash
Also, Daikin is proceeding with the development of an energy conserva-
dividend by ¥20 per share to ¥120 per share (including an interim dividend
tion system for use on construction machinery and special vehicles. One of
of ¥55 per share and a year-end dividend of ¥65 per share). For the current
these units, a hydraulic hybrid system for use on large-scale shovels, has
fiscal year ending March 31, 2017, the Company plans to distribute a total
already been adopted. In addition to conventional hydraulic systems, Daikin
annual dividend of ¥120 per share (comprising an interim dividend of ¥60
is proceeding with the development of advanced environmentally responsive
per share and a year-end dividend of ¥60 per share).
products that go beyond the existing frameworks and will find applications
globally.
Performance by Business Segment
In defense systems, Daikin conducts R&D related to artillery shell and
• Air-Conditioning and Refrigeration Equipment
guided missile components for Japan’s Ministry of Defense.
Total sales of the Air-Conditioning and Refrigeration Equipment segment
Net Income Attributable to Owners of Parent
Operating income increased 13.7%, to ¥193.8 billion.
increased to ¥1,828.0 billion, up 6.8% from the previous fiscal year.
Net income attributable to the owners of the parent company rose 14.5%,
to ¥137.0 billion.
Japan
In Japan’s commercial air-conditioning market, as a result of the weakness in
Dividend Policy and Dividends Applicable to the Fiscal Year
new construction starts, industry demand was below the previous year. The
Daikin continues to make strategic investments and expand its business
Daikin Group was also influenced by effects of weak demand, and units sold
while also proceeding with such structural reforms as those to promote com-
were below the levels of the previous fiscal year. However, Daikin worked to
prehensive cost reductions and strengthen its financial position. The aim of
expand sales of its store and home use units, namely, the FIVE STAR ZEAS
these initiatives is to become a truly global excellent company and, at the
series, Eco-ZEAS series, and its large-scale (applied) units, all of which use
same time, substantially augment corporate value.
the new HFC32 (R32) refrigerant.
Total Assets
Working Capital and Current Ratio
Total Share holders’ Equity and
Shareholders’ Equity Ratio
(¥ billion)
2,400
1,800
1,200
600
0
(¥ billion)
600
400
200
0
(%)
240
160
80
0
(¥ billion)
1,200
900
600
300
0
(%)
48
36
24
12
0
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Working capital
Current ratio
Shareholders’ equity
Shareholders’ equity ratio
35
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Financial Review
Unit Sales of Air-Conditioning Systems in the Japanese Air-Conditioning Industry (Fiscal 2016)
(1,000 units)
First half
Year on year
Second half
Year on year
Full year
Year on year
Residential use
Commercial use
5,185
408
98%
92%
2,980
365
104%
91%
8,165
773
100%
92%
In the residential air-conditioning equipment market in Japan, although
In addition, in Russia and Turkey also, as a result of stepped-up order-taking
overall demand was adversely influenced by unseasonable weather during
activities, sales rose over the previous year.
the prime selling seasons of summer and winter, demand for the full year
was at about the same level as in the previous fiscal year. The Daikin Group
China
drew on the brand power of its Urusara 7 air conditioners and worked to
In China, conditions in the business environment continued to be severe
expand sales of the full lineup, and, as a consequence, sales were about the
due to declines in major investments and real estate projects, but the Daikin
same as in the previous year.
Europe
Group focused on sales through retailers and town shops to capture firm
consumer spending. In the latter half of the year, although the slowing of the
economy had some impact, Daikin launched new products from the latter
In Europe, demand in the principal markets of southern Europe and central
half of the year onward, and sales recovered to the levels of the previous
Europe took a turn for the better along with the improved summer weather.
year. Also, because of cost reductions centered around shifting to in-house
Taking full advantage of its strengths in local production, Daikin supplied
parts production, weakening of prices in raw materials markets, and positive
products in a timely fashion and strengthened its sales promotion activities,
effects of foreign currency fluctuations, Daikin was able to secure sales in all
and, as a consequence, sales of residential air-conditioning equipment rose
regions at previous year levels, and operating income rose above the prior
substantially over the previous year. In the United Kingdom and Germany,
year. In the residential air-conditioner business, Daikin drew on the strengths
even commercial air-conditioning equipment sales rose over the prior year,
of specialist retailers and town shops, so-called “pro shops,” for preparing
despite a slowing of the recovery in building construction, as Daikin
proposals that offer new lifestyles to customers and for implementing instal-
strengthened its sales visits in these countries and improved its follow-up
lation work, and expanded sales of its “New Life Multi Series.” Sales of resi-
activities. In addition, even heat-pump type water heating equipment sales
dential air conditioners were at the same level as in the previous year, but
expanded in France, the principal market, where Daikin seized demand
sales were driven by residential multi-air conditioners into the middle-class
triggered by tightening of regulations.
residential market, and sales in the second half rose above the previous peri-
In the emerging markets, in the Middle East and Africa, major projects
od. In the large-scale air-conditioning system field, amid the effects of the
were delayed at customers’ convenience against a background of the pro-
economic slowdown, Daikin is working to expand sales for remodeling needs
longed slump in crude oil prices in the Gulf region and rising geopolitical
in the shops and general office market, where demand is relatively strong,
risks. However, because Daikin strengthened its order-taking initiatives for
and demand will begin to recover in the latter half of the year, but, for the
small and medium-sized projects and because shipments for projects that
year as a whole, sales will be below the previous fiscal year.
had been delayed commenced, sales rose significantly over the previous year.
ROE
(%)
15
12
9
6
3
0
36
ROA
(%)
8
6
4
2
0
Capital Investment
and Depreciation and Amortization
(¥ billion)
120
90
60
30
0
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
Capital investment
Depreciation and amortization
(excluding amortization of goodwill)
Asia/Oceania Region
mainly in Japan and the rest of Asia, and, as a result, sales were above the
In the Asia/Oceania region, as a result of initiatives to strengthen the sales
previous year.
network, sales in the region as a whole were above the previous year. In
In the chemical products business, as a result of entry into the water and
particular, Daikin worked to seize demand in Vietnam and Indonesia, where
oil repellent chemicals market, sales, mainly in the United States and China,
demand for residential air-conditioning equipment is expanding along with
expanded and were above the previous year. Sales of surface protection
growth in the middle-class market. As a result, sales expanded substantially
coating materials, which are used for touch panels, were supported by strong
over the previous year.
Americas Region
demand, and sales were above the prior year. Sales of etching agents, which
are used for cleaning semiconductors, expanded in Japan and the rest of
Asia due to strong demand in related fields, and sales were up over the pre-
In the Americas region, sales for the region as a whole were above the level
vious year. In Europe, sales of intermediate materials for use in pharmaceuti-
of the previous year. Industry demand for residential air-conditioning equip-
cals and LCDs were favorable and showed significant expansion. As a result
ment was below the previous year because of the reactionary decline in
of these developments, overall sales of chemical products were above the
demand following the surge in the previous year triggered by tightening of
previous year.
energy conservation restrictions and the unseasonably warm winter.
In the fluorocarbon gas business, because sales were restrained in
However, Daikin’s equipment sales were above the previous year.
response to the deterioration in market conditions in China, sales were
For light commercial equipment (commercial air-conditioning equipment
below the previous year, but with the addition of the European gas business
for medium-sized buildings), Daikin has developed sales policies by routes,
of Solvay, sales of gases overall rose markedly over the previous year.
and sales were above the previous year. Demand for applied equipment was
above the previous year, and, in this operating environment, sales of air-
• Other operations
handling unit chillers and other equipment as well as maintenance services
Total sales in this segment amounted to ¥53.4 billion, 2.0% lower year on
for these units in Central America and South America expanded and were
year, and operating income decreased 1.5% year on year, to ¥3.5 billion.
above the previous year.
• Chemicals
Daikin recorded robust sales of oil hydraulic equipment for industrial use in
the U.S. market, but, because of the effects of stagnation in demand in Japan
and the markets in the rest of Asia, sales were approximately the same as in
Total sales in the Chemicals segment rose 8.5% year on year, to ¥162.3 bil-
the previous year. Sales of oil hydraulic equipment for construction equip-
lion, and operating income amounted to ¥20.6 billion, 24.6% above the
ment and motor vehicles to major Japanese customers for export to the
previous year.
United States continued to be strong, but in Japan, there was a reactionary
Regarding fluorochemical resins, performance was influenced by the
decline to a surge in the previous year in anticipation of the tightening of
effects of low-priced sales by competitors in the Chinese market, the decline
exhaust gas restrictions. As a result, sales were at the same level as in the
in sales of wire and cable for telecommunications stations, competition in
previous year.
the U.S. market, and low pricing of products made in China and India.
In the specialized machinery businesses, sales of home-use oxygen
However, demand remained favorable in semiconductor-related products,
therapy products were firm, but sales of artillery shells for Japan’s Ministry
Free Cash Flow
(¥ billion)
120
60
0
-60
-120
2012 2013 2014 2015 2016
of Defense decreased year on year.
In the electronic systems business, IT investments are rising moderately,
and sales, mainly of database systems for design and development purposes,
expanded.
Outlook for Fiscal 2017
The outlook for the world economy is that personal consumption will support
the economy of the United States and that the European economies will
remain on a moderate recovery trend. In Japan, against a background of
lower interest rates, residential housing and capital investment will continue
to be firm, but, on the other hand, the deceleration in overseas economies
will be a factor placing downward pressure on the economy.
Amid this business environment, the Daikin Group selected “Each and
everyone of us should secure a firm foothold and make major progress
through polishing our strengths,” [Create the Future, Exceed in a Changing
37
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Financial Review
World] as its policy for 2016, and amid the uncertainty in the world situation
In addition, Daikin Fluorochemicals (China) Co., Ltd., made ¥2.4 billion
going forward, we must aim to generate results. Specifically, we should take
in investments for increasing capacity.
continuing initiatives to enhance our sales and marketing capabilities;
The main sources of funds for these investments were bank borrowings
improve our product development, production, procurement, and quality;
and retained earnings. Note that the Daikin Group did not make any major
and strengthen our human resource and other capabilities. We should also
disacquisitions of equipment or facilities during the fiscal year under
pursue themes that will lead to further growth as we also select our invest-
review.
ments carefully, make dramatic reductions in fixed costs, and step up our
measures aimed at establishing a profitable earnings structure. The bottom
Cash Flows
line of these various initiatives should be to achieve gains in sales and
Net cash provided by operating activities rose ¥65.8 billion, to ¥226.2 bil-
profits.
lion, as a result of an increase in income before income taxes and a rise in
The Daikin Group’s performance outlook on a consolidated basis for fiscal
trade notes and accounts payable.
2017 is for a 1.8% increase in net sales, to ¥2,080.0 billion, a 1.0% gain in
Among investing cash flows, payment for purchases of property, plant and
operating income, to ¥220.0 billion, and a 2.2% increase in net income
equipment increased, and, as a consequence, net cash used in investing
attributable to owners of the parent, to ¥140.0 billion. Foreign currency
activities was ¥28.2 billion lower and amounted to net cash used in invest-
exchange rates assumed for fiscal 2017 are ¥110/U.S. dollar and ¥125/euro.
ing activities of ¥105.5 billion. Among financing activities, as a result of pro-
Assets, Liabilities, and Total Equity
financing activities was ¥2.3 billion lower than in the prior fiscal year and
• Assets
amounted to an outflow of ¥85.4 billion. As a consequence of these factors,
At the end of fiscal 2016, consolidated total assets amounted to ¥2,191.1
the balance of cash and cash equivalents at the end of the fiscal year was
billion, down ¥72.9 billion from the previous fiscal year-end. Current assets
¥291.2 billion, ¥4.3 billion higher than in the previous fiscal year.
ceeds from the issuance of bonds in the previous fiscal year, net cash used in
were down ¥15.8 billion from the previous year-end, to ¥1,066.8 billion
because of declines in inventories. Noncurrent assets declined ¥57.0 billion,
Principal Risks Associated
to ¥1,124.3 billion, due to amortization of goodwill, changes in valuation of
with the Daikin Group’s Operations
investment securities, as well as other factors.
Sharp changes in politico-economic conditions
or supply-demand relationships in principal markets
• Liabilities and Total Equity
The Group provides goods and services throughout the world, and there is a
Consolidated total liabilities decreased ¥62.0 billion from the end of the
possibility that Group performance could be impacted if politico-economic
previous fiscal year and amounted to ¥1,153.6 billion at the end of fiscal
changes occur in such markets as Japan, Europe, North America, China, and
2016 because of repayments of long-term debt and other factors. The
other countries in the Asian region.
interest-bearing debt to total assets ratio improved to 27.8%, from 29.3%
In particular, the Group is proactively developing business operations
at the end of the previous fiscal year.
outside Japan through measures including constructing new air-conditioning
Although Daikin reported net income attributable to the owners of the
equipment manufacturing facilities and acquiring air-conditioning equipment
parent company, net assets decreased ¥10.8 billion, to ¥1,037.5 billion,
dealers in Europe as well as establishing manufacturing and marketing com-
because of the payment of cash dividends and foreign currency translation
panies in China. There is, thus, a possibility that the Group’s performance
adjustments.
could be impacted by business environment changes in one or more global
regions. These changes could include the deterioration of economic condi-
Capital Investment and Depreciation and Amortization
tions, raw material price surges, and/or the intensification of competition
In accordance with the Daikin Group’s fundamental strategy of concentrating
with other companies. In the United States, on November 1, 2012, Daikin
management assets in business fields that offer high profitability, the Group
completed all procedures for the acquisition of Goodman Global Group, Inc.
made total capital investment of ¥112.7 billion in fiscal 2016, largely in the
(Head Office: Houston, Texas—hereinafter, “Goodman”) for a purchase price
air-conditioning and chemicals business fields. In the air-conditioning field,
of US$3.7 billion (including the refinancing of Goodman’s existing debt).
Daikin invested ¥27.9 billion, including research on room air conditioners
By means of this acquisition, Daikin intends to reinforce Goodman’s sales
and package air-conditioner investments for rationalization objectives. At
network—the largest sales network in the U.S. residential and commercial
Goodman Global Group, Inc., investments of ¥32.9 billion were made pri-
air-conditioning equipment market—through the launch of environment-
marily to increase capacity. In the chemicals field, the Group invested ¥12.5
friendly products incorporating Daikin’s state-of-the-art environmental
billion, primarily to increase capacity and for rationalization objectives.
technologies. Doing this, Daikin aims to bring about new trends in the U.S.
38
air-conditioner market that will enable the Group to realize business expan-
respect to new product development, all four related elements—design,
sion and contribute to environmental protection. Furthermore, Daikin hopes
production technology, and purchasing units and suppliers—work in an
to further improve its competitiveness by leveraging Goodman’s low-cost
integrated manner to concurrently move ahead with the collaborative
management know-how to develop business in emerging economies and
development of process innovation measures, aiming to implement
volume-zone markets. Daikin also hopes to use this know-how to reform the
innovations related to quality, costs, and product development speed. The
Group’s earnings structure, including at operations in advanced economies.
Group also has purchased liability insurance to cover unexpected quality-
There is a possibility that the degree of progress toward realizing those
related claims, but, in the case that a major quality claim situation were
objectives could impact the Daikin Group’s performance.
to occur, there is a possibility that it could have an impact on the Group’s
Cold summer weather and other unusual weather patterns
accompanied by changes in demand for air conditioners
Major problems in manufacturing
performance.
Air-conditioning and refrigeration operations accounted for 89.4% of the
The Group strives to implement thorough preventative maintenance mea-
Daikin Group’s consolidated net sales in fiscal 2016. Therefore, the Group
sures at all its production facilities, regardless of whether they are in Japan
strives to accurately monitor weather information and weather-related
or overseas. In addition, particularly with respect to the chemical business,
demand trends in the world’s principal markets. It also employs flexible man-
the Group is working to strengthen its facility safety audits, security manage-
ufacturing methods and marketing policies designed to minimize the impact
ment systems, and other related systems. Moreover, with respect to manufac-
of those demand trends on its performance. However, depending on the
turing problems, the Group has purchased insurance to cover facility damage
magnitude of demand changes resulting from cold summer weather or other
and foregone earnings, but, in the case that a major problem were to occur
unusual weather patterns, there is a possibility that the Group’s performance
in manufacturing operations, there is a possibility that it could have an
could be impacted.
impact on the Group’s performance.
Large fluctuations in currency exchange rates
Major changes in the market prices of securities
Overseas sales accounted for 75.4% of the Daikin Group’s consolidated net
and other assets
sales in fiscal 2016. The acceleration of global business development going
The Group’s holdings of securities are primarily holdings designed to
forward is expected to further elevate this overseas sales ratio. Consolidated
strengthen collaborative business expansion measures in cooperation with
financial statements are prepared by translating local currency-denominated
business partners and to strengthen relationships with business partners.
items for Group operations in each global region, including sales, expenses,
However, in the case of large fluctuations in securities markets, bankruptcies
and assets. Accordingly, depending on currency exchange rates at the time of
of business partners, and similar situations, there is a possibility that it could
the currency translation, there may be an impact on yen translation values
have an impact on the Group’s performance.
even when there has been no change in local currency-denominated figures.
In addition, because the Group engages in foreign currency-denominated
Impairment of long-lived assets
transactions in raw materials and component procurement and in the sale of
In connection with its business assets, goodwill generated on the occasion
goods and services, there is a possibility that changes in currency exchange
of corporate acquisitions, and similar items, the Group records various types
rates could impact manufacturing costs and sales performance. To avoid such
of tangible and intangible long-lived assets. With respect to these assets, in
currency exchange rate-related risks, the Group undertakes short-term risk
cases going forward when such factors as performance trends and market
hedging via forward exchange contracts and similar instruments. Daikin
price drops prevent the generation of expected cash flows, there may be
also undertakes medium- to long-term measures to continuously adjust
cases in which the assets in question may require impairment treatment.
procurement and manufacturing operations and optimize them for changing
In the case of such impairment of long-lived assets, there is a possibility
currency exchange-rate trends, and to balance imports and exports in each
that it could have an impact on the Group’s performance.
currency. Through this, the Group works to realize a business structure that
is not greatly impacted by changes in currency exchange rates. However,
Natural disasters
currency exchange rate-related risks cannot be completely avoided.
In the case that such natural disasters as major earthquakes and typhoons
Major product quality claims
occur and exert an impact on the Group’s manufacturing, marketing, and
distribution bases, there is a possibility that it could have an impact on the
The Group strives to ensure thorough quality management for all its prod-
Group’s performance.
ucts, regardless of whether they are manufactured in Japan or overseas. With
39
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Consolidated Balance Sheet
Daikin Industries, Ltd. and Consolidated Subsidiaries
March 31, 2016
ASSETS
Current assets:
Cash and cash equivalents (Notes 9 and 16)
Trade receivables (Notes 8 and 16):
Notes
Accounts
Allowance for doubtful receivables
Inventories (Note 4)
Deferred tax assets (Note 13)
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment:
Land
Buildings and structures
Machinery and equipment
Furniture and fixtures
Lease assets (Note 15)
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
Investments and other assets:
Investment securities (Notes 6, 9 and 16)
Investments in and advances to unconsolidated subsidiaries and associated companies
Goodwill (Note 7)
Customer relationships
Other intangible assets
Deferred tax assets (Note 13)
Assets for retirement benefits (Note 10)
Other assets
Total investments and other assets
Total
See notes to consolidated financial statements.
40
Millions of yen
2016
2015
¥ 291,206
¥ 286,950
50,730
304,917
(6,279)
333,652
33,987
58,556
54,064
300,417
(6,897)
354,159
38,746
55,176
1,066,769
1,082,615
36,364
280,346
495,660
163,060
5,692
50,132
1,031,254
(646,154)
385,100
170,487
19,100
329,753
124,672
64,436
3,475
11,540
15,773
37,562
260,576
493,647
164,070
5,890
33,834
995,579
(647,823)
347,756
200,451
20,336
369,965
137,971
68,789
2,933
19,427
13,747
739,236
833,619
¥2,191,105
¥2,263,990
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings (Notes 9 and 16)
Current portion of long-term debt (Notes 9 and 16)
Current portion of long-term lease obligations (Note 15)
Trade payables (Note 16):
Notes
Accounts
Income taxes payable (Note 16)
Deferred tax liabilities (Note 13)
Provision for product warranties
Accrued expenses (Note 8)
Other current liabilities (Note 8)
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 9 and 16)
Long-term lease obligations (Note 15)
Liabilities for retirement benefits (Note 10)
Deferred tax liabilities (Note 13)
Other long-term liabilities
Total long-term liabilities
Commitments and contingent liabilities (Notes 15 and 17)
Equity (Notes 11, 12 and 21):
Common stock—authorized, 500,000,000 shares; issued 293,113,973 shares in 2016 and 2015
Capital surplus
Stock acquisition rights
Retained earnings
Treasury stock, at cost: 1,075,356 shares in 2016 and 1,280,652 shares in 2015
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Deferred loss on derivatives under hedge accounting
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Subtotal
Noncontrolling interests
Total equity
Total
Millions of yen
2016
2015
¥ 54,675
¥ 57,898
72,941
1,943
7,959
148,079
11,511
24,581
46,567
98,801
96,670
39,010
1,913
8,362
145,576
21,515
22,659
50,547
96,376
81,768
563,727
525,624
477,492
560,875
1,930
10,982
78,029
21,475
2,718
10,710
95,116
20,635
589,908
690,054
85,032
83,585
1,119
720,548
(4,598)
46,320
(2,124)
93,798
(8,152)
85,032
83,444
993
617,129
(5,221)
67,819
(464)
179,566
(2,580)
1,015,528
1,025,718
21,942
22,594
1,037,470
1,048,312
¥2,191,105
¥2,263,990
41
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Consolidated Statement of Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2016
Net sales (Note 8)
Cost of sales (Note 14)
Gross profit
Selling, general and administrative expenses (Notes 7, 8 and 14)
Operating income
Other (expenses) income:
Interest and dividend income
Interest expense
Exchange (losses) gains
Subsidy income
Gain on sales of land
Losses on disposals of property, plant and equipment and other intangible assets
Losses on impairment of long-lived assets (Note 5)
Gains on sales of investment securities (Note 6)
Impairment of investment securities (Notes 6 and 16)
Equity in (losses) earnings of unconsolidated subsidiaries and associated companies
Gains on reversal of stock acquisition rights
Loss on termination of a defined benefit plan (Note 10)
Loss on restructuring of subsidiaries
Other—net
Other (expenses) income—net
Income before income taxes
Income taxes (Note 13):
Current
Deferred
Total income taxes
Net income
Net income attributable to noncontrolling interests
Net income attributable to owners of parent
Amounts per common share (Note 19):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.
42
Millions of yen
2016
2015
¥2,043,691
¥1,915,014
1,332,115
1,265,112
711,576
493,704
217,872
10,637
(8,495)
(11,279)
1,951
(1,078)
(491)
112
(605)
(83)
4
(1,294)
(1,068)
(11,689)
206,183
59,389
4,702
64,091
142,092
(5,105)
649,902
459,314
190,588
8,874
(9,064)
2,955
1,121
43
(481)
(4,578)
4,007
880
101
(812)
(1,126)
1,920
192,508
60,969
6,996
67,965
124,543
(4,868)
¥ 136,987
¥ 119,675
Yen
¥469.23
468.84
120.00
¥410.19
409.75
100.00
Consolidated Statement of Comprehensive Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2016
Net income
Other comprehensive (loss) income (Note 18):
Unrealized (losses) gains on available-for-sale securities
Deferred losses on derivatives under hedge accounting
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive (loss) income in affiliates accounted for using the equity method
Total other comprehensive (loss) income
Millions of yen
2016
¥142,092
2015
¥124,543
(21,498)
(1,659)
(86,963)
(5,573)
(809)
(116,502)
27,752
(1,071)
93,434
2,318
1,674
124,107
Comprehensive income
¥ 25,590
¥248,650
Total comprehensive income attributable to:
Owners of parent
Noncontrolling interests
See notes to consolidated financial statements.
¥ 22,489
3,101
¥240,224
8,426
Consolidated Statement of Changes in Equity
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2016
Outstanding
Number of
Common
Shares Issued
Common
Stock
Capital
Surplus
Stock
Acquisition
Rights
Retained
Earnings
Treasury
Stock
Millions of yen
Accumulated Other Comprehensive Income (Loss)
Unrealized
Gain
on Available-
for-Sale
Securities
Deferred
Loss on
Derivatives
under Hedge
Accounting
Foreign
Currency
Translation
Adjustments
Remeasure-
ments of
Defined
Benefit Plans
Total
Noncontrol-
ling Interests
Total
Equity
291,787,269 ¥85,032
¥83,550 ¥ 842
¥514,093 ¥(4,549)
¥40,066
¥ 606
¥ 87,938
¥(4,883)
¥ 802,695 ¥21,163
¥ 823,858
291,787,269
85,032
83,550
842
517,157
(4,549)
40,066
606
87,938
(4,883)
805,759
21,163
826,922
3,064
3,064
3,064
Balance, April 1, 2014
(as previously reported)
Cumulative effect of account -
ing change (Note 2. n)
Balance, April 1, 2014
(as restated)
Effect of change of the fiscal
year-end of certain consoli -
dated subsidiaries (Note 2. a)
Net income
Cash dividends, ¥100 per share
Repurchase of treasury stock
Disposal of treasury stock
Net change in the year
(157)
119,675
(19,546)
(310,948)
357,000
(106)
(2,095)
1,423
Balance, March 31, 2015
291,833,321
85,032
83,444
Net income
Cash dividends, ¥120 per share
Repurchase of treasury stock
Disposal of treasury stock
Change in parent’s ownership
interest due to transactions
with noncontrolling interests
Net change in the year
(53,704)
259,000
183
(42)
27,753
67,819
(1,070)
(464)
91,628
179,566
2,303
(2,580)
151
993
617,129 (5,221)
136,987
(33,568)
(479)
1,102
126
(21,499)
(1,660)
(85,768)
(5,572)
(42)
(114,373)
(42)
(115,025)
(652)
Balance, March 31, 2016
292,038,617 ¥85,032 ¥83,585 ¥1,119
¥720,548 ¥(4,598) ¥46,320
¥(2,124)
¥ 93,798 ¥(8,152)
¥1,015,528 ¥21,942 ¥1,037,470
See notes to consolidated financial statements.
43
(157)
119,675
(19,546)
(2,095)
1,317
120,765
1,025,718
136,987
(33,568)
(479)
1,285
1,431
22,594
(157)
119,675
(19,546)
(2,095)
1,317
122,196
1,048,312
136,987
(33,568)
(479)
1,285
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Consolidated Statement of Cash Flows
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2016
Operating activities:
Income before income taxes
Adjustments for:
Income taxes—paid
Depreciation and amortization
Losses on impairment of long-lived assets
Gains on sales of investment securities
Impairment of investment securities
Losses on disposals of property, plant and equipment and other intangible assets
Equity in losses (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
Payment for acquisition of newly consolidated subsidiary, net of cash and cash equivalents acquired
Proceeds from sales of shares of subsidiaries resulting in change in the scope of consolidation
Payment for acquisition of shares of associated company
Payments for transfer of business
Proceed from transfer of business
Payments for acquisition of investment securities
Proceeds from sales of investment securities (Note 6)
Other—net
Net cash used in investing activities
Financing activities:
Net (decrease) increase in short-term borrowings
Increase in long-term debt
Repayments of long-term debt
Cash dividends paid to owners of parent
Cash dividends paid to noncontrolling interests
Other—net
Net cash used in 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.
44
Millions of yen
2016
2015
¥206,183
¥192,508
(72,930)
84,203
491
(112)
605
1,078
83
(19,940)
1,494
(2,869)
7,998
10,318
7,733
10,166
708
(9,023)
20,003
226,186
(96,697)
992
(1,311)
(358)
(3,182)
121
(2,587)
193
(2,664)
(105,493)
(2,839)
(40,076)
(33,568)
(6,529)
(2,410)
(85,422)
(31,015)
4,256
286,950
¥291,206
(60,214)
77,767
4,578
(4,007)
481
(880)
(18,997)
(16,631)
2,777
(4,303)
(16,557)
6,059
3,685
497
(6,340)
(32,085)
160,423
(71,760)
1,773
1,793
(1,324)
(10,698)
7,452
(4,567)
(77,331)
13,346
24,909
(95,922)
(19,546)
(2,257)
(3,603)
(83,073)
29,837
29,856
(201)
257,295
¥286,950
Notes to Consolidated Financial Statements
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2016
1. BASIS OF PRESENTATION OF 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 (IFRSs).
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
readers outside Japan.
In addition, certain reclassifications have been made in the 2015 consolidated financial statements to conform to the
classification used in 2016.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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 and influence concepts, 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 investments for
which the value has been permanently impaired, for which appropriate write-downs are recorded. If these subsidiaries and
associated companies had been consolidated or accounted for using the equity method, respectively, the effect on the
accompanying consolidated financial statements would not have been material.
For the year ended March 31, 2015, PT. Daikin Applied Solutions Indonesia and one other company 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
included in assets resulting from transactions within the Group is eliminated.
b. 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 (“PITF”) No. 18, “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” which was
subsequently revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards
in other jurisdictions, the accounting policies and procedures applied to a parent company and its subsidiaries for similar
transactions and events under similar circumstances should, in principle, be unified for the preparation of the consolidated financial
statements. However, financial statements prepared by foreign subsidiaries in accordance with either IFRSs or generally accepted
accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification—
”FASB ASC”) tentatively may be used for the consolidation process, except for the following 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 recorded in equity through
other comprehensive income; (c) expensing capitalized development costs of research and development; and (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.
c. 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,” which was subsequently
revised in line with the revisions to PITF No. 18 above, adjustments are 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 IFRSs or U.S. GAAP 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 amortization of actuarial gain or loss of pensions
that has been recorded in the equity through other comprehensive income; (c) expensing capitalized development costs of research
and development; and (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.
45
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
d. 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, 2016 and 2015.
e. 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.
f. 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, principally determined by the average method, or market.
g. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation of property, plant and
equipment of the Company and its consolidated subsidiaries is principally computed by the straight-line method 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.
h. 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 obligation imposed either by law or contract that results from the acquisition,
construction, development and normal operation of a tangible 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 capitalized by increasing the carrying amount of the related fixed
asset by the amount of the liability. The asset retirement cost is subsequently 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 retirement cost.
i. 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.
j. 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 standard
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.
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.
k. 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 applicable 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.
46
l. 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 primarily include customer relationships. Customer relationships are amortized using the
straight-line method over the estimated useful lives (mainly 30 years).
m. Provision for Product Warranties - The Group repairs or exchanges certain products without charge under specific
circumstances. The provision for product warranties is stated in amounts considered to be appropriate based on the past
experience and an evaluation of potential losses on the product warranties.
n. 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. In
calculating the projected benefit obligation, expected benefit is attributed to the current period on a benefit formula basis.
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 other related
practical guidance, and were followed by partial amendments from time to time through 2009.
(a) 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).
(b) 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 service
period 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
service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the
current period, are treated as reclassification adjustments (see Note 18).
(c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to
periods, the discount rate, and expected future salary increases.
This 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, all 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 Company applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective
March 31, 2014, and for (c) above, effective April 1, 2014.
With respect to (c) above, the Company changed the method of attributing the expected benefit to periods from a straight-line
basis to a benefit formula basis and the method of determining the discount rate from using the period which approximates the
expected average remaining service period to using a single weighted-average discount rate reflecting the estimated timing and
amount of benefit payment, and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As a result, net defined
benefit assets and retained earnings as of April 1, 2014, increased by ¥4,788 million and ¥3,064 million, respectively. The impact
of this change on the operating income and income before income taxes for the year ended March 31, 2015, is insignificant.
o. Stock Options - In accordance with ASBJ Statement No. 8, “Accounting Standard for Stock Options,” the Company measures
the cost of employee 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 options or the goods or services received. In the consolidated balance sheet, the stock
options are presented as a stock acquisition right as a separate component of equity until exercised.
p. 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 consolidated 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.
q. 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 separate component of equity.
47
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
r. Bonuses to Directors and Audit & Supervisory Board Members - Bonuses to Directors and Audit & Supervisory Board
Members are accrued at the year-end to which such bonuses are attributable. Accrued bonuses are included in accrued expenses.
s. Income Taxes - The provision for current income taxes is computed based on income before income taxes 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.
The Group files a tax return under the consolidated corporate-tax system from the annual period beginning on April 1, 2015,
which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned
domestic subsidiaries.
t. 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 exposure 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.
u. 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 EPS of common stock assumes full exercise of the outstanding stock options which have a 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 applicable to the
respective years including dividends to be paid after the end of year.
v. New Accounting Pronouncements
Tax Effect Accounting - On December 28, 2015, the ASBJ issued ASBJ Guidance No. 26, “Guidance on Recoverability of
Deferred Tax Assets,” which includes certain revisions of the previous accounting and auditing guidance issued by the Japanese
Institute of Certified Public Accountants. While the new guidance continues to follow the basic framework of the previous
guidance, it provides new guidance for the application of judgment in assessing the recoverability of deferred tax assets. The
previous guidance provided a basic framework which included certain specific restrictions on recognizing deferred tax assets
depending on the company’s classification in respect of its profitability, taxable profit and temporary differences, etc. The new
guidance does not change such basic framework however, in limited cases, it allows companies to recognize deferred tax assets
even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the
previous guidance, if the company can justify, with reasonable grounds, that it is probable that the deductible temporary difference
will be utilized against future taxable profit in some future period. The new guidance is effective for the beginning of annual
periods beginning on or after April 1, 2016. Earlier application is permitted for the annual period ending on or after March 31,
2016. The new guidance shall not be applied retrospectively and any adjustments from the application of the new guidance at the
beginning of the reporting period shall be reflected in retained earnings or accumulated other comprehensive income at the
beginning of the reporting period. The Company expects to apply the new guidance on recoverability of deferred tax assets
effective April 1, 2016, and the application is not expected to have an impact on the consolidated financial statements.
Leases - On January 13, 2016, the International Accounting Standards Board issued IFRS16 Leases. On February 25, 2016, the
Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02 Leases (Topic 842). These standards
require lessees to recognize most leases on the balance sheet there by resulting in the recognition of lease assets and liabilities. The
Company expects to apply IFRS16 for annual periods beginning on or after January 1, 2019. The Company expects to apply ASU
2016-02 for annual periods beginning after December 15, 2019 and for the first quarter within annual periods beginning after
December 15, 2020. The Group is currently assessing the impact of these new standards will have on the consolidated financial
statements.
48
3. CHANGES IN ACCOUNTING POLICIES
Business Combinations - In September 2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business
Combinations,” revised ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business
Divestitures,” and revised ASBJ Statement No. 22, “Accounting Standard for Consolidated Financial Statements.” Major
accounting changes are as follows:
(a) Transactions with noncontrolling interest - A parent’s ownership interest in a subsidiary might change if the parent purchases or
sells ownership interests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the
parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the previous
accounting standard, any difference between the fair value of the consideration received or paid and the amount by which
the noncontrolling interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated
statement of income. Under the revised accounting standard, such difference is accounted for as capital surplus as long as
the parent retains control over its subsidiary.
(b) Presentation of the consolidated balance sheet - In the consolidated balance sheet, “minority interest” under the previous
accounting standard is changed to “noncontrolling interest” under the revised accounting standard.
(c) Presentation of the consolidated statement of income - In the consolidated statement of income, “net income before minority
interests” under the previous accounting standard is changed to “net income” under the revised accounting standard, and “net
income” under the previous accounting standard is changed to “net income attributable to owners of the parent” under the
revised accounting standard.
(d) Provisional accounting treatments for a business combination - If the initial accounting for a business combination is incomplete
by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is incomplete. Under the previous accounting standard guidance,
the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit
or loss in the year in which the measurement is completed. Under the revised accounting standard guidance, during the
measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the
provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that
existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date.
Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition
date.
(e) Acquisition-related costs - Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs
to effect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition-related costs by
including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall
be accounted for as expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the
consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective
for the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of
annual periods beginning on or after April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c)
presentation of the consolidated statement of income. In the case of earlier application, all accounting standards and guidance
above, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income,
should be applied simultaneously.
Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with
noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards and
guidance, the accumulated effects of retrospective adjustments for all (a) transactions with noncontrolling interest and (e)
acquisition-related costs that occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus and
retained earnings for the year of the first-time application. In prospective application, the new standards and guidance shall be
applied prospectively from the beginning of the year of the first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of the
consolidated statement of income shall be applied to all periods presented in consolidated financial statements containing the first-
time application of the revised standards and guidance.
The revised accounting standards and guidance for (d) provisional accounting treatments for a business combination are
effective for a business combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015.
Earlier application is permitted for a business combination which occurs on or after the beginning of annual periods beginning on
or after April 1, 2014.
The Company applied the revised accounting standards and guidance for (a), (b), (c) and (e) above from April 1, 2015, and for
(d) above for a business combination which occurred on or after April 1, 2015, and the impact of these changes was insignificant.
(See Note 19 for the impact of this change on basic net income per share (EPS) and diluted net EPS).
49
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 4. INVENTORIES
Inventories at March 31, 2016 and 2015 consisted of the following:
Finished products and merchandise
Semifinished products and work in process
Raw materials and supplies
Total
Millions of yen
2016
2015
¥232,018
¥248,027
40,028
61,606
40,494
65,638
¥333,652
¥354,159
5. LONG-LIVED ASSETS
The Group reviewed its long-lived assets for impairment for the years ended March 31, 2016 and 2015. Impairment losses
recognized were mainly as follows:
(1) 2016
Held for use
Use
Location
Asset Category
Millions of yen
Settsu City, Osaka Prefecture
Machinery and equipment
¥450
The Group recognized impairment losses recorded in other expenses for those assets as the profitability of oil hydraulics business
for industrial machinery is expected to decline due to the economic downturn and sluggish demand in the Chinese market. The
carrying amounts of the related assets were written down to the recoverable amount. The recoverable amounts of these assets
were measured at value in use and the discount rate used for computation of the present value of future cash flows was 5%.
(2) 2015
Use
Location
Asset Category
Millions of yen
Idle assets with no future plan
for utilization
Jiujiang City,
People’s Republic of China
Buildings and structures
Machinery and equipment
Total
¥1,337
2,822
¥4,159
The Group recognized impairment losses recorded in other expenses for those assets which were mainly deemed to be idle
assets with no future plan for utilization. The carrying amounts of the related assets were written down to the recoverable amount.
The recoverable amounts of these assets were measured by the net selling price at disposition.
6. MARKETABLE AND INVESTMENT SECURITIES
The acquisition costs and aggregate fair values of marketable available-for-sale securities included in investment securities at March
31, 2016 and 2015 were as follows:
Millions of yen
2016
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥98,754
¥63,907
¥(2,975)
¥159,686
350
1
351
¥99,104
¥63,908
¥(2,975)
¥160,037
Millions of yen
2015
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥98,536
¥92,951
¥(320)
¥191,167
75
1
76
¥98,611
¥92,952
¥(320)
¥191,243
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
50
Available-for-sale securities that were sold during the years ended March 31, 2016 and 2015 were as follows:
March 31, 2016
Available-for-sale:
Equity securities
March 31, 2015
Available-for-sale:
Equity securities
Millions of yen
Proceeds
Realized
Gains
Realized
Losses
¥168
¥98
Millions of yen
Proceeds
Realized
Gains
Realized
Losses
¥7,452
¥4,007
The impairment losses on marketable available-for-sale securities for the year ended March 31, 2016 was ¥0.1 million.
No impairment loss was recognized for the year ended March 31, 2015.
7. GOODWILL
Amortization expenses for goodwill were ¥26,282 million and ¥24,920 million for the years ended March 31, 2016 and 2015,
respectively, which were included in selling, general and administrative expenses.
8. RELATED PARTY TRANSACTIONS
Material transactions and balances with related parties for the years ended March 31, 2016 and 2015 were as follows:
(1) 2016
(a) The Company
Name
Description of Post
Ownership of
the Company
(%)
Chiyono Terada External Director/Chief
0.00
Executive Officer
(CEO) and President of
Art Corporation
(b) The Company’s consolidated subsidiaries
Name
Description of Post
Ownership of
the Company
(%)
Chiyono Terada External Director/CEO
0.00
and President of Art
Corporation
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving
business and delivery business
2016
¥535
Account
Accrued expenses
and other current
liabilities
2016
¥76
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving business
and delivery business
2016
¥ 55
Account
Accrued expenses
and other current
liabilities
2016
¥ 5
Sales of products and other
119
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.
(2) 2015
(a) The Company
Name
Description of Post
Ownership of
the Company
(%)
Chiyono Terada External Director/Chief
0.00
Executive Officer
(CEO) and President of
Art Corporation
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
2015
Account
Commission for moving business
and delivery business
¥469
Accrued expenses
and other current
liabilities
2015
¥45
51
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 (b) The Company’s consolidated subsidiaries
Name
Description of Post
Ownership of
the Company
(%)
Chiyono Terada External Director/CEO
0.00
and President of Art
Corporation
Millions of yen
Transactions
Resulting Account Balances
Description of Transaction
Commission for moving business
and delivery business
2015
¥67
Account
Accrued expenses
and other current
liabilities
2015
¥ 7
Sales of products and other
71
Accounts receivable
14
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.
9. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings of the Group at March 31, 2016 and 2015 consisted of the following:
Bank overdrafts and notes to banks
Commercial paper
Total
Millions of yen
2016
¥40,675
14,000
¥54,675
2015
¥41,898
16,000
¥57,898
Unused short-term bank credit lines were ¥150,000 million at March 31, 2016. The weighted-average interest rates of bank
overdrafts and notes to banks at March 31, 2016 and 2015 were 1.00% and 1.25%, respectively. The weighted-average interest
rates of commercial paper at March 31, 2016 and 2015 were 0.00% and 0.09%.
Long-term debt at March 31, 2016 and 2015 consisted of the following:
1.42% unsecured bonds, due 2016
0.46% unsecured bonds, due 2017
1.86% unsecured bonds, due 2019
0.72% unsecured bonds, due 2019
0.38% unsecured bonds, due 2021
1.20% unsecured bonds, due 2022
0.68% unsecured bonds, due 2024
Unsecured loans from government-sponsored banks, with interest of 1.75%, due through 2019
Millions of yen
2016
2015
¥ 30,000
¥ 30,000
10,000
40,000
10,000
10,000
30,000
10,000
20,000
10,000
40,000
10,000
10,000
30,000
10,000
20,000
Unsecured loans from banks and others, payable in foreign currencies, with interest ranging from
0.90% to 4.00% (2016) and from 0.58% to 5.76% (2015), due through 2022
140,816
169,862
Unsecured loans from banks and others with interest ranging from 0.15% to 3.62% (2016) and from
0.22% to 3.58% (2015), due through 2023
Total
Less current portion
249,617
550,433
(72,941)
270,023
599,885
(39,010)
Long-term debt, less current portion
¥477,492
¥560,875
52
Annual maturities of long-term debt outstanding at March 31, 2016 were as follows:
Year Ending March 31
2017
2018
2019
2020
2021
2022 and thereafter
Total
Millions of yen
¥ 72,941
72,911
73,709
88,296
84,895
157,681
¥550,433
At March 31, 2016, investment securities with book values of ¥800 million and a time deposit with a book value of ¥525 million
were pledged as collateral without corresponding borrowing.
Certain loan agreements provide that the lender may require the Group to submit proposals for paying dividends, issuing
additional 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 have ever exercised these rights with respect to debt of the Group.
10. SEVERANCE INDEMNITIES AND PENSION PLANS
Under the Group’s severance indemnities and pension plans, employees terminating their employment are, in most circumstances,
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 obligations and benefit costs for retirement lump-sum payment using the
simplified method.
1. Defined benefit plans
(1) The changes in defined benefit obligations for the years ended March 31, 2016 and 2015 were as follows (excluding
the benefit plans for which the simplified method was applied):
Balance at beginning of year (as previously reported)
Cumulative effect of accounting change
Balance at beginning of year (as restated)
Service cost
Interest cost
Net actuarial losses
Past service cost
Benefits paid
Effect of changes in the scope of consolidation
Decrease due to the termination of a defined benefit plan
Foreign currency translation adjustments
Others
Balance at end of year
Millions of yen
2016
¥91,059
2015
¥89,633
91,059
5,229
1,913
3,688
150
(4,072)
266
(3,018)
180
(4,788)
84,845
4,210
1,985
5,404
(1,349)
(3,796)
(2,145)
1,909
(4)
¥95,395
¥91,059
53
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
(2) The changes in plan assets for the years ended March 31, 2016 and 2015 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 (losses) gains
Contributions from the employer
Benefits paid
Decrease due to the termination of a defined benefit plan
Foreign currency translation adjustments
Others
Balance at end of year
Millions of yen
2016
2015
¥102,450
¥ 92,229
3,796
(4,690)
3,186
(3,576)
(2,488)
1
3,396
6,985
3,622
(3,455)
(2,145)
1,832
(14)
¥ 98,679
¥102,450
(3) The changes in defined benefit obligation for the years ended March 31, 2016 and 2015 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
2016
¥2,674
1,046
(994)
¥2,726
2015
¥2,501
980
(807)
¥2,674
(4) Reconciliations between the liabilities recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets at March 31, 2016 and 2015 were as follows (including the benefit plan for
which the simplified method was applied):
Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation
Millions of yen
2016
¥(92,760)
98,679
5,919
(5,361)
2015
¥(89,278)
102,450
13,172
(4,455)
Net amount of liabilities and assets recorded in the consolidated balance sheet
¥ 558
¥ 8,717
Liabilities for retirement benefits
Assets for retirement benefits
Net amount of liabilities and assets recorded in the consolidated balance sheet
¥(10,982)
11,540
¥ 558
¥(10,710)
19,427
¥ 8,717
54
(5) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015 were as follows:
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial (gains) losses
Amortization of past service cost
Periodic benefit cost calculated by the simplified method
Others
Subtotal (net periodic benefit costs)
Loss on termination of a defined benefit plan
Total
Millions of yen
2016
¥5,229
1,913
(3,796)
(103)
(218)
1,046
255
4,326
¥4,326
2015
¥4,210
1,985
(3,396)
163
(208)
980
69
3,803
812
¥4,615
(6) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined benefit plans
for the years ended March 31, 2016 and 2015 were as follows:
Past service cost
Net actuarial losses
Total
Millions of yen
2016
¥ 205
7,887
¥8,092
2015
¥(1,298)
(2,245)
¥(3,543)
(7) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined
benefit plans for the years ended March 31, 2016 and 2015 were as follows:
Unrecognized past service cost
Unrecognized net actuarial losses
Total
(8) Plan assets
(a) Components of plan assets
Plan assets at March 31, 2016 and 2015, 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
2016
¥ (1,112)
12,443
¥11,331
2015
¥(1,317)
4,557
¥ 3,240
2016
6%
2015
5%
8
25
18
17
1
2
23
8
24
21
16
0
2
24
100%
100%
(b) Method of determining the expected rate of return on plan assets
To determine the expected long-term rate of return on plan assets, we consider current and target asset allocations, as well as
historical and expected returns on various categories of plan assets.
55
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 (9) Assumptions used for the years ended March 31, 2016 and 2015 were as follows:
Discount rate
Expected rate of return on plan assets
Expected rate of future salary increases
2016
Mainly 0.3%
Mainly 2.5%
Mainly 3.5%
2015
Mainly 1.2%
Mainly 2.5%
Mainly 4.5%
2. Defined contribution plan
The amounts of contribution required for the defined contribution plan paid by the Company and its subsidiaries were ¥4,742
million and ¥4,832 million for the years ended March 31, 2016 and 2015, respectively.
11. EQUITY
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 being 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
incorporation 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 within equity under certain conditions upon
resolution of the shareholders.
(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 a 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.
56
12. STOCK OPTIONS
The stock options outstanding at March 31, 2016, were as follows:
Stock Option
2009 Stock Option
2010 Stock Option
2011 Stock Option
2012 Stock Option
2013 Stock Option
2014 Stock Option
2015 Stock Option
Persons
Granted
8 directors
42 employees
8 directors
41 employees
10 directors
39 employees
10 directors
41 employees
10 directors
38 employees
9 directors
45 employees
9 directors
46 employees
Number of
Options Granted
294,000 shares
Date of Grant
Exercise Price
Exercise Period
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
310,000 shares
2014.7.14
¥6,715
53,200 shares
2015.7.13
¥ 1
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
From July 15, 2016
to July 14, 2020
From July 14, 2018
to July 13, 2030
57
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 The stock option activity was as follows:
2008
Stock
Option
2009
Stock
Option
2010
Stock
Option
2011
Stock
Option
2012
Stock
Option
2013
Stock
Option
2014
Stock
Option
2015
Stock
Option
Shares
Year Ended March 31, 2015
Vested
April 1, 2014—Outstanding
170,000
26,000
32,000
101,000
300,000
286,000
Granted
Exercised
Canceled
March 31, 2015—Outstanding
Year Ended March 31, 2016
Vested
(49,000)
(14,000)
(16,000)
(65,000)
(213,000)
(121,000)
(4,000)
8,000
16,000
36,000
87,000
286,000
310,000
310,000
April 1, 2015—Outstanding
8,000
16,000
36,000
87,000
286,000
310,000
Granted
Exercised
Canceled
March 31, 2016—Outstanding
Exercise price
Average stock price at exercise
(4,000)
(10,000)
(16,000)
(51,000)
(178,000)
(4,000)
¥5,924
¥6,655
¥3,250
¥8,486
6,000
20,000
36,000
108,000
310,000
53,200
¥3,050
¥ 2,970
¥ 2,186 ¥ 4,500 ¥ 6,715
¥ 1
¥8,378
¥ 8,500
¥ 8,698 ¥ 8,273
53,200
Fair value price at grant date
¥ 803
¥ 899
¥1,113
¥ 935
¥ 676 ¥ 1,220 ¥ 1,697
¥ 7,726
The assumptions used to measure fair value of 2015 Stock Option
Estimate method:
Black-Scholes option-pricing model
Volatility of stock price:
38.9%
Estimated remaining outstanding period: 9 years
Estimated dividend:
Risk-free interest rate:
¥90 per share
0.4%
58
13. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in the aggregate, resulted
in a normal effective statutory tax rate of approximately 33.0% and 35.6% for the years ended March 31, 2016 and 2015,
respectively.
The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets and liabilities at
March 31, 2016 and 2015 were as follows:
Deferred tax assets:
Provision for product warranties
Inventories
Investment securities
Tax loss carryforwards
Deferred revenue
Software and other intangible assets
Accrued bonus
Liabilities for retirement benefits
Allowance for doubtful receivables
Foreign income tax credit
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
2016
2015
¥ 14,946
14,293
¥ 16,276
16,862
6,774
5,641
5,505
5,345
3,529
2,246
1,425
733
6,165
6,805
5,803
4,782
3,556
2,119
1,238
1,635
17,664
(16,669)
21,225
(21,141)
¥ 61,432
¥ 65,325
¥ 64,087
¥ 68,259
33,019
14,694
3,574
1,187
10,019
30,455
24,817
6,070
1,729
10,091
¥126,580
¥ (65,148)
¥141,421
¥ (76,096)
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, 2016 was as follows:
Normal effective statutory income tax rate
Differences in foreign subsidiaries’ tax rates
Amortization of goodwill
Taxes and tax effects on dividends from foreign subsidiaries
Valuation allowance
Permanently non-taxable income, such as dividend income
Tax credit for research and development
Permanently non-deductible expenses, such as entertainment expenses
Other - net
Actual effective income tax rate
2016
33.0%
(6.5)
4.0
3.7
(1.4)
(1.2)
(1.1)
0.5
0.1
31.1%
59
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
A reconciliation of the 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, 2015.
On March 29, 2016, the 2016 Tax Reform Act was enacted in Japan to reduce the normal effective statutory tax rate from
32.2% to 30.8% for the fiscal year beginning on or after April 1, 2016, and to 30.6% for fiscal years beginning on or after April
1, 2018. The effect of these changes was to decrease deferred tax liabilities, net of deferred tax assets, by ¥1,106 million, income
taxes-deferred by ¥435 million, deferred loss on derivatives under hedge accounting by ¥27 million, remeasurements of defined
retirement benefit plans by ¥87 million, and increase unrealized gain on available-for-sale securities by ¥785 million.
At March 31, 2016, the Company and certain consolidated subsidiaries had tax loss carryforwards aggregating ¥20,496 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
2017
2018
2019
2020
2021
2022 and thereafter
Total
Millions of yen
¥ 328
1,175
389
1,616
592
16,396
¥20,496
14. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in cost of sales and selling, general and administrative expenses were ¥46,138 million
and ¥42,892 million for the years ended March 31, 2016 and 2015, respectively.
15. LEASES
The Group leases certain computer equipment and other assets.
Obligations under finance leases and future minimum payments under noncancelable operating leases at March 31, 2016 were
as follows:
Due within one year
Due after one year
Total
Millions of yen
Finance
Leases
¥1,943
1,930
¥3,873
Operating
Leases
¥15,412
30,351
¥45,763
Pro forma information for the years ended March 31, 2016 and 2015
As discussed in Note 2.j, 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 transactions.
Pro forma information of such leases existing at the transition date, such as acquisition cost, accumulated depreciation, obligations
under finance leases, and depreciation expense on an “as if capitalized” basis for the years ended March 31, 2016 and 2015, was
as follows:
Acquisition cost
Accumulated depreciation
Net leased property
Millions of yen
Furniture
and
Fixtures
¥4
3
¥1
2016
Others
¥6
6
¥0
Total
¥10
9
¥ 1
Furniture
and
Fixtures
¥36
33
¥ 3
2015
Others
¥52
47
¥ 5
Total
¥88
80
¥ 8
60
Obligations under finance leases were as follows:
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 were as follows:
Lease payments
Depreciation expense
Millions of yen
2016
¥1
¥1
2015
¥7
1
¥8
Millions of yen
2016
¥7
7
2015
¥17
17
Depreciation expense, which is not reflected in the accompanying consolidated statement of income, was computed using the
straight-line method.
16. 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 based on 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.
Short-term bank loans and commercial papers 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 through adequate financial planning by the corporate
finance department. In addition, the Group has short-term bank credit lines. Some long-term bank loans are exposed to market
risks from change in interest rates, which are hedged by mainly using 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, interest
rates of bank loans, and 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.
61
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Fair values of financial instruments
The carrying amounts, fair values and unrealized loss of significant financial instruments were as follows. Fair values of financial
instruments 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 values 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, 2016
Carrying
Amount
Fair
Value
Unrealized
Loss
¥291,206
¥291,206
355,647
160,037
¥806,890
¥156,038
54,675
11,511
550,433
¥772,657
355,647
160,037
¥806,890
¥156,038
54,675
11,511
560,212
¥782,436
¥ (3,444)
¥ (3,444)
Millions of yen
March 31, 2015
¥9,779
¥9,779
Carrying
Amount
Fair
Value
Unrealized
Loss
¥286,950
¥286,950
354,481
191,243
¥832,674
¥153,938
57,898
21,515
599,885
¥833,236
¥ (787)
354,481
191,243
¥832,674
¥153,938
57,898
21,515
608,496
¥841,847
¥ (787)
¥8,611
¥8,611
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 value because of their short maturities.
Investment securities
The fair values of equity securities are measured at the quoted market prices of the stock exchange for the equity instruments, and
the fair values of debt securities are measured at the amounts to be received through maturity discounted at the Group’s assumed
corporate discount rate. Fair value information for investment securities by classification is included in Note 6.
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 value
because of their short maturities.
Long-term debt
The fair values of bonds are determined at the quoted market prices 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 that qualify for hedge accounting and meet specific matching criteria, are determined by discounting the cash flows related
to the loans and the interest rate swaps at the Group’s assumed corporate borrowing rate.
62
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
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
ZAR
CZK
HKD
PLN
SGD
MYR
TRY
BRL
IDR
INR
Buying: CNY
MYR
Commodity future contracts:
Buying: Metal
Millions of yen
March 31, 2016
Contract
Amount
Due after
One Year
Fair
Value
Unrealized
Gain (Loss)
¥ 65
(49)
103
(281)
(15)
7
23
(0)
(55)
(58)
(48)
(3)
(59)
(6)
(67)
¥ 65
(49)
103
(281)
(15)
7
23
(0)
(55)
(58)
(48)
(3)
(59)
(6)
(67)
411
411
Contract
Amount
¥ 5,535
42,015
18,385
5,869
655
1,813
1,261
188
2,027
985
8,214
18
2,947
676
1,391
9,353
¥ 688
¥ (39)
¥ (39)
63
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
NZD
ZAR
CZK
HKD
SGD
MYR
TRY
CNY
IDR
INR
Buying: CNY
MYR
THB
Commodity future contracts:
Buying: Metal
Derivative transactions to which hedge accounting is applied
Forward exchange contracts:
Selling: GBP
EUR
USD
ZAR
CZK
PLN
TRY
Buying: CNY
Interest rate swaps:
Millions of yen
March 31, 2015
Contract
Amount
Due after
One Year
Fair
Value
Unrealized
Gain (Loss)
¥ (15)
¥ (15)
(26)
(119)
256
(25)
4
29
13
75
18
(57)
(227)
4
(4)
128
(71)
92
(26)
(119)
256
(25)
4
29
13
75
18
(57)
(227)
4
(4)
128
(71)
92
Contract
Amount
¥ 4,088
44,002
21,741
5,867
533
1,412
3,223
2,813
2,543
935
9,955
2,459
261
240
1,616
9,000
9,642
¥ 1,893
¥(160)
¥(160)
Millions of yen
March 31, 2016
Contract
Amount
Due after
One Year
Fair
Value
¥ 291
(212)
73
6
(259)
(21)
(64)
(131)
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Contract
Amount
¥ 7,378
41,319
2,455
885
7,596
1,156
3,528
4,521
Fixed-rate payment, floating-rate receipt
Long-term debt
¥174,601
¥162,776
¥(3,057)
Fixed-rate payment, floating-rate receipt*
Long-term debt
149,600
129,200
64
Forward exchange contracts:
Selling: GBP
EUR
USD
ZAR
CZK
PLN
TRY
Buying: EUR
CNY
Interest rate swaps:
Millions of yen
March 31, 2015
Contract
Amount
Due after
One Year
Fair
Value
¥ (330)
375
(89)
(20)
667
(35)
(13)
(98)
127
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Payables
Contract
Amount
¥ 8,616
32,116
3,256
1,185
7,482
1,114
2,582
2,603
5,595
Fixed-rate payment, floating-rate receipt
Long-term debt
¥193,542
¥180,926
¥(1,286)
Fixed-rate payment, floating-rate receipt*
Long-term debt
170,000
149,600
* 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 values cannot be readily determinable
Nonlisted equity securities
Investments in limited partnerships and other investments
Total
Millions of yen
Carrying Amount
2016
¥ 9,565
885
¥10,450
2015
¥8,265
943
¥9,208
The impairment losses on nonlisted equity securities for the year ended March 31, 2016 were ¥605 million.
Maturity analysis for financial assets and securities with contractual maturities
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities:
Due in
One Year
or Less
¥291,206
355,599
Available-for-sale securities with contractual maturities (corporate bonds)
25
Total
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities:
¥646,830
Due in
One Year
or Less
¥286,950
353,532
Available-for-sale securities with contractual maturities (corporate bonds)
25
Total
¥640,507
Please see Note 9 for annual maturities of long-term debt.
Millions of Yen
March 31, 2016
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
¥48
25
¥73
Millions of yen
March 31, 2015
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
¥949
50
¥999
Due after
Ten Years
¥300
¥300
Due after
Ten Years
65
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016
17. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments for capital expenditures outstanding at March 31, 2016 totaled approximately ¥22,795 million.
At March 31, 2016, contingent liabilities for trade notes endorsed and repurchase obligation for liquidation of notes receivables
totaled ¥3,670 million and ¥1,174 million, respectively.
18. COMPREHENSIVE INCOME
The components of other comprehensive (loss) income for the years ended March 31, 2016 and 2015 were as follows:
Unrealized (losses) gains on available-for-sale securities:
(Losses) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred losses on derivatives under hedge accounting:
(Losses) gains 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
Remeasurements of defined benefit plans:
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 (loss) income
Millions of yen
2016
2015
¥ (31,523)
¥ 43,015
(98)
(31,621)
10,123
(4,007)
39,008
(11,256)
¥ (21,498)
¥ 27,752
¥ (3,786)
¥ (1,024)
1,278
(2,508)
849
(479)
(1,503)
432
¥ (1,659)
¥ (1,071)
¥ (86,950)
¥ 93,374
(13)
(86,963)
60
93,434
¥ (86,963)
¥ 93,434
¥ (7,771)
¥ 2,804
(321)
(8,092)
2,519
739
3,543
(1,225)
¥ (5,573)
¥ 2,318
¥ (809)
¥ 1,674
¥(116,502)
¥124,107
66
19. NET INCOME PER SHARE
Reconciliations of the differences between basic and diluted net income per share (EPS) for the years ended March 31, 2016 and
2015 were as follows:
Year Ended March 31, 2016
Basic EPS:
Millions of yen
Thousands of shares
Net Income
Weighted-
Average Shares
Yen
EPS
Net income available to common shareholders
¥136,987
291,942
¥469.23
Effect of dilutive securities:
Stock options
Diluted EPS:
239
Net income for computation
¥136,987
292,181
¥468.84
Year Ended March 31, 2015
Basic EPS:
Millions of yen
Thousands of shares
Net Income
Weighted-
Average Shares
Yen
EPS
Net income available to common shareholders
¥119,675
291,756
¥410.19
Effect of dilutive securities:
Stock options
Diluted EPS:
309
Net income for computation
¥119,675
292,065
¥409.75
As stated in Note 3, the Company applied the revised accounting standard and guidance for (a) transactions with noncontrolling
interest, (b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e)
acquisition-related costs, effective April 1, 2015, and (d) provisional accounting treatments for a business combination which
occurred on or after April 1, 2015.
However, the impact of these changes on basic and diluted EPS for the year ended March 31, 2016 was insignificant.
20. SEGMENT INFORMATION
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
available 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
evaluating 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.”
67
DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Total
Segment profit
Segment assets
Other:
Depreciation
3. Information about sales, profit, assets and other items
Millions of yen
March 31, 2016
Reportable Segment
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations
Consolidated
Sales:
Sales to external customers
¥1,828,012 ¥162,286
¥1,990,298 ¥53,393
¥2,043,691
¥2,043,691
Intersegment sales
614
10,295
10,909
500
11,409 ¥ (11,409)
1,828,626
172,581
2,001,207
53,893
2,055,100
(11,409)
2,043,691
193,786
20,621
214,407
3,529
217,936
(64)
217,872
1,798,333
189,508
1,987,841
35,370
2,023,211
167,894
2,191,105
Amortization of goodwill
26,183
99
26,282
26,282
¥ 44,326 ¥ 12,055
¥ 56,381 ¥ 1,527
¥ 57,908
¥ 57,908
26,282
Investment balance in
unconsolidated subsidiaries
and associated companies
accounted for using
the equity method
Investment in property,
plant and equipment
and intangible assets
11,815
6,798
18,613
18,613
18,613
90,617
18,157
108,774
3,938
112,712
112,712
Millions of yen
March 31, 2015
Reportable Segment
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations
Consolidated
Sales:
Sales to external customers
¥1,710,945 ¥149,559
¥1,860,504 ¥54,510
¥1,915,014
¥1,915,014
Intersegment sales
875
8,051
8,926
476
9,402 ¥ (9,402)
1,711,820
157,610
1,869,430
54,986
1,924,416
(9,402)
1,915,014
170,484
16,550
187,034
3,584
190,618
(30)
190,588
1,847,343
190,047
2,037,390
34,225
2,071,615
192,375
2,263,990
Total
Segment profit
Segment assets
Other:
Depreciation
Amortization of goodwill
24,920
24,920
24,920
¥ 41,235 ¥ 10,222
¥ 51,457 ¥ 1,373
¥ 52,830
¥ 52,830
24,920
Investment balance in
unconsolidated subsidiaries
and associated companies
accounted for using
the equity method
Investment in property,
plant and equipment
and intangible assets
12,243
7,555
19,798
19,798
19,798
57,914
17,508
75,422
2,937
78,359
78,359
Notes: 1. The Other segment is the aggregation of other operating segments which are not included in the reportable segments and consists of the Oil Hydraulics segment,
the Defense segment and the Electronics segment.
2. “Reconciliations” include unallocated items and intersegment eliminations. The unallocated corporate assets included in “Reconciliations” amounted to ¥173,176
million and ¥202,383 million at March 31, 2016 and 2015, 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.
68
4. Supplemental information
(1) Information about geographical areas
(a) Sales
Japan
USA
China
Millions of yen
March 31, 2016
Asia and
Oceania
Europe
Other
Consolidated
¥502,233
¥484,951
¥349,266
¥304,626
¥276,587
¥126,028
¥2,043,691
Japan
USA
China
Millions of yen
March 31, 2015
Asia and
Oceania
Europe
Other
Consolidated
¥498,683
¥432,423
¥353,377
¥272,373
¥243,566
¥114,592
¥1,915,014
Note: Sales are classified by country or region based on the physical locations of customers.
(b) Property, plant and equipment
Japan
USA
China
Millions of yen
March 31, 2016
Asia and
Oceania
Europe
Other
Consolidated
¥140,641
¥91,187
¥77,981
¥34,957
¥31,379
¥8,955
¥385,100
Japan
USA
China
¥113,028
¥66,245
¥91,106
Millions of yen
March 31, 2015
Asia and
Oceania
¥37,209
Europe
¥30,845
Other
¥9,323
Consolidated
¥347,756
(2) Significant impairment losses on long-lived assets by reportable segment
Impairment losses on long-lived assets
Millions of yen
March 31, 2016
Air
Conditioning
¥41
Chemicals
Other
¥450
Eliminations
and
Corporate
Consolidated
¥491
Note: The impairment losses reported in “Other” are related to the Oil Hydraulics segment.
Impairment losses on long-lived assets
Millions of yen
March 31, 2015
Air
Conditioning
Chemicals
¥4,159
Other
¥419
Eliminations
and
Corporate
Consolidated
¥4,578
Note: The impairment losses reported in “Other” are related to the Oil Hydraulics segment.
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DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 (3) Information about goodwill
(a) Balance of goodwill by reportable segment
Goodwill for each reportable segment at March 31, 2016 and 2015 was as follows:
Millions of yen
2016
Chemicals
Other
Millions of yen
2015
Chemicals
Other
Eliminations
and
Corporate
Eliminations
and
Corporate
Air
Conditioning
¥329,753
Air
Conditioning
¥369,965
Consolidated
¥329,753
Consolidated
¥369,965
Goodwill
Goodwill
21. SUBSEQUENT EVENTS
a. Acquisition of Flanders Holdings LLC
At the Board of Directors’ meeting held on February 9, 2016, the Company resolved to acquire all equity interests of Flanders
Holdings LLC (hereinafter, “Flanders”) through American Air Filter Company, Inc. (hereinafter, “AAF”) and entered into an equity
transfer agreement with Flanders Investment Holdings LLC. On April 27, 2016, the Company completed the acquisition of all
equity interests and turned Flanders into a subsidiary.
1. Outline of the business combination
(1) Name and business contents of the acquiree
Flanders Holdings LLC
Name:
Business contents: Manufacture and sale of air filters and other related products
Location:
Size of Company (as of December 2015)
Wilmington, Delaware, United States of America
Total assets: US$238 million (¥28,722 million)
Net sales: US$298 million (¥36,198 million)
(2) Main reason for the business combination
With this acquisition, the Flanders business will be integrated into AAF and enable AAF to leverage its global sales network to
market the cleanroom equipment and high-end air filter products that are the strengths of Flanders. In addition to making AAF
the leading manufacturer in the United States, which is reportedly the largest air filter market in the world, this merger will also
position AAF as a leading company in the global market.
(3) Date of the business combination
April 27, 2016
(4) Legal form of the business combination
Acquisition of equity interests for cash considerations
(5) Name of the acquiree after business combination
Flanders Holdings LLC
(6) Ratio of equity interests acquired
100%
(7) Basis for determination of the acquirer
AAF, a subsidiary of the Company, is regarded as the acquiring company since AAF acquired all equity interests of Flanders for
cash consideration.
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2. Amount and breakdown of the acquisition costs
Payment for acquisition of equity interests: US$204 million (¥22,796 million)
Acquisition cost is based on a tentative calculation and will be determined after adjusting variances in working capital and others
based on the contract. Cost that is directly related to the acquisition has yet to be determined at this time.
3. Fundraising method
Internally generated funds and bank loans were used to fund this acquisition.
b. Appropriations of Retained Earnings
Resolutions approved by the Company’s Board of Directors at the meeting held on May 10, 2016 are subject to approval at the
general shareholders’ meeting planned to be held on June 29, 2016.
Payment of year-end cash dividends of ¥65 per share to shareholders at March 31, 2016, totaling ¥18,983 million was
approved.
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DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2016 Independent Auditors’ Report
72
Corporate Data
(As of March 31, 2016)
Head Office
Tokyo 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/
JR Shinagawa East Bldg., 2-18-1, Konan, Minato-ku, Tokyo 108-0075, Japan
Phone: 81-3-6716-0111
Fiscal Year-End Date
March 31 on an annual basis
Date of Founding
October 25, 1924
Date of Establishment
February 11, 1934
Paid-in Capital
¥85,032 million
Number of Shares of
Common Stock Issued
293,113 thousand
Number of Shareholders
28,927
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.
• The Bank of New York Mellon SA/NV 10
• Japan Trustee Services Bank, Ltd. (Trust Account 4)
• Trust & Custody Services Bank, Ltd. (Securities Inv. Trust Account)
• Sumitomo Life Insurance Company
Number of Subsidiaries and
Affiliated Companies
Subsidiaries: 213 Affiliates: 13
Number of Employees
60,805 (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
Administrator
Mitsubishi UFJ Trust and Banking Corporation
3-6-3, Fushimicho, Chuo-ku, Osaka 541-8502, Japan
Ordinary General Meeting
of Shareholders
June
Auditor
Deloitte Touche Tohmatsu LLC
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tional 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.
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