Seiko Epson Corporation
Annual Report 2010
April 2009-March 2010
Cautionary Statement
This report includes forward-looking statements that are based on management’s view from the information
available at the time of the announcement. These statements are subject to various risks and uncertainties. Actual
results may be materially different from those discussed in the forward-looking statements. The factors that may
affect Epson include, but are not limited to, general economic conditions, the ability of Epson to continue to
timely introduce new products and services in markets, consumption trends, competition, technology trends, and
exchange rate fluctuations.
In this annual report, “Epson” refers to the Epson Group, while “the Company” may refer to the Group or the
parent company, Seiko Epson Corporation.
1
Table of Contents
Consolidated Financial Highlights ................................................................................................... 3
Information on the Company .......................................................................................................... 5
1. Overview of the business group ................................................................................................ 5
2. Major equipment and facilities ................................................................................................. 8
3. Overview of capital expenditures............................................................................................ 10
4. Plans for new additions or disposals ....................................................................................... 11
5. Major management contracts................................................................................................. 12
Risks Related to Epson’s Business Operations................................................................................ 13
Business Conditions....................................................................................................................... 20
1. Overview of business result .................................................................................................... 20
2. Manufacturing, orders received and sales ............................................................................... 23
3. Analysis of financial condition and results of operations.......................................................... 24
4. Research and development activities....................................................................................... 27
5. Issues for Fiscal 2010.............................................................................................................. 29
6. Dividend policy ...................................................................................................................... 30
Corporate Governance .................................................................................................................. 31
1. Approach to corporate governance ......................................................................................... 31
2. Details of audit remuneration ................................................................................................. 36
3. Basic policy regarding company control ................................................................................. 37
Management ................................................................................................................................. 39
Financial Statements ..................................................................................................................... 41
Consolidated Balance Sheets ...................................................................................................... 42
Consolidated Statements of Income ............................................................................................ 44
Consolidated Statements of Changes in Net Assets ...................................................................... 45
Consolidated Statements of Cash Flows...................................................................................... 47
Notes to Consolidated Financial Statements................................................................................ 48
Report of Independent Auditors .................................................................................................... 74
Additional Information ................................................................................................................. 75
1. Principal subsidiaries and affiliates ........................................................................................ 75
2. Distribution of ownership among shareholders ....................................................................... 79
3. Major shareholders................................................................................................................ 80
4. Epson stock price ................................................................................................................... 81
5. Corporate data and investor information................................................................................ 82
2
Consolidated Financial Highlights
Seiko Epson Corporation and Subsidiaries
For the years ended March 31
Statements of income data
Net sales
Information-related equipment
Electronic devices
Precision products
Other
Eliminations and corporate
Gross profit
Selling, general and
administrative expenses
Operating income (loss)
Income (loss) before income
taxes and minority interests
Net income (loss)
Research and development costs
Capital expenditures
Depreciation and amortization
Net cash provided by (used in)
operating activities
Net cash provided by (used in)
investing activities
Free cash flow
Net cash provided by (used in)
financing activities
2005
2006
2007
2008
2009
2010
Millions of yen
Thousands of
U.S. dollars
2010
¥1,479,750
¥1,549,568
¥1,416,032
¥1,347,841
¥1,122,497
¥985,363
$10,590,745
946,029
482,611
81,143
34,510
(64,543)
409,739
318,772
90,967
73,647
976,443
526,967
85,778
32,977
(72,597)
354,787
329,029
25,758
(20,047)
916,330
444,703
87,744
30,310
(63,055)
356,773
306,430
50,343
3,476
55,689
(17,917)
(7,094)
89,042
157,535
104,241
92,939
118,283
109,305
84,690
77,548
89,603
902,970
395,197
83,927
29,124
(63,378)
368,449
310,871
57,577
52,045
19,093
82,870
64,991
79,209
769,850
311,626
72,697
31,828
(63,506)
289,443
291,031
(1,588)
(89,559)
712,692
248,001
57,746
19,714
(52,791)
259,469
241,241
18,227
(799)
7,660,105
2,665,519
620,646
211,876
(567,401)
2,788,789
2,592,885
195,904
(8,587)
(111,322)
(19,791)
($212,714)
82,058
58,947
78,406
68,849
26,885
47,395
739,993
288,961
509,404
162,489
117,497
160,229
112,060
44,253
56,542
607,717
(99,396)
(95,266)
(76,419)
(50,770)
(61,002)
(43,203)
(464,348)
63,093
(96,373)
22,231
19,123
83,810
(30,150)
61,289
(70,663)
(16,748)
(9,558)
13,338
(41,087)
143,357
(441,605)
3
Balance sheet data
Current assets
Property, plant and equipment (net of
accumulated depreciation)
Total assets
Current liabilities
Noncurrent liabilities
Net assets
Number of employees
Per share data (yen and U.S. dollars)
Net income (loss)
Cash dividends
Shareholders’ equity
Financial ratios (%)
Shareholders’ equity ratio
ROE (net income (loss)/average
shareholders’ equity at beginning and end
of year)
ROA (income (loss) before income taxes
and minority interests/ average total assets
at beginning and end of year)
ROS (income (loss) before income taxes
and minority interest/ net sales)
2005
2006
2007
2008
2009
2010
Millions of yen
Thousands of
U.S. dollars
2010
¥746,712
441,355
¥795,402
426,118
¥813,274
379,032
¥737,245
343,261
¥617,677
253,712
¥596,210
225,354
$6,408,115
2,422,130
1,297,790
1,325,206
1,284,412
1,139,165
504,601
293,662
472,870
85,647
507,371
311,610
474,520
90,701
476,125
313,952
494,335
87,626
385,123
282,595
471,446
88,925
917,342
283,848
314,862
318,631
72,326
870,090
328,652
258,574
282,864
77,936
$9,351,784
3,532,374
2,779,170
3,040,240
―
¥283.60
(¥91.24)
(¥36.13)
22.00
2,408.13
29.00
2,416.54
32.00
2,395.14
¥97.24
32.00
2,277.45
(¥566.92)
35.00
1,541.16
(¥99.34)
7.00
1,407.92
($1.06)
$0.07
15.13
36.4
12.6
5.9
5.0
35.8
(3.8)
(1.5)
(1.3)
36.6
(1.5)
0.3
0.2
39.3
4.2
4.3
3.9
33.0
(29.7)
(8.7)
(8.0)
32.3
(6 8)
(0 1)
(0 1)
Notes
1. Amounts for periods prior to April 1, 2007, are rounded off. However, amounts for periods from or subsequent to April 1, 2007, are rounded
down. Please refer to the “Basis of presenting consolidated financial statements” on page 48.
2. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥93.04=U.S.$1 as of March 31, 2010.
3. In this table, cash dividends per share refers to the amount paid for each share in each fiscal year.
4. Shareholders’ equity is net assets excluding minority interests.
4
Information on the Company
1. Overview of the business group
The Epson Group (“Epson” or the “Group”), which includes Seiko Epson Corporation (“the Company”) and
related companies, and is mainly comprised of businesses responsible for the development, manufacture and
sales of information-related equipment, electronic devices, precision products, and other products.
Research and development and product development are mainly conducted by the Company (corporate R&D
and operations division R&D). Manufacturing and sales are conducted by the Company and its subsidiaries and
affiliates, domestic and abroad, under the management of the Company’s operations divisions.
The following is a brief description of each business segment and the main subsidiaries and affiliates of each
business segment.
(1) Information-related equipment business segment
This segment comprises the printer business, the visual instruments business and others. This segment mainly
includes the development, manufacture and sales of printers, 3LCD projectors, and personal computers (PCs).
Details of the main businesses are as follows.
Printer business
Based on its digital control technologies and digital color image processing technologies, the printer business is
responsible for the development, manufacture and sales of products that offer total solutions of color digital data
from input through to output. The main products in this business include inkjet printers, page printers, serial
impact dot matrix (“SIDM”) printers, large-format inkjet printers and related supplies, color image scanners,
mini-printers, point-of-sale (“POS”) system products and others.
Visual instruments business
The visual instruments business is responsible for the development, manufacture and sales of 3LCD projectors,
LCD monitors, label writers and others. The manufacture of high-temperature polysilicon (“HTPS”) TFT liquid
crystal panels (“HTPS-TFT panels”), which are the key components in 3LCD projectors, is included in the
display business.
Others
In the PC business, PCs for the Japanese market are sold through a domestic subsidiary.
The major subsidiaries and affiliates involved in each segment are as follows:
Business
category
Printer business
Main products
Inkjet printers, page
printers, SIDM
printers,
large-format inkjet
printers and related
supplies, color
image scanners,
mini-printers, POS
system products and
others
Visual
instruments
business
3LCD projectors,
LCD monitors, label
writers and others
Others
PCs and others
Main subsidiaries and affiliates
Manufacturing companies
Tohoku Epson Corporation
Akita Epson Corporation
Epson Portland Inc.
Epson El Paso, Inc.
Epson Precision (Hong
Kong) Ltd.
Singapore Epson Industrial
Pte. Ltd.
P.T. Indonesia Epson
Industry
Epson Precision
(Philippines), Inc.
Tianjin Epson Co., Ltd.
Epson Precision (Hong
Kong) Ltd.
–
5
Sales companies
Epson Sales Japan Corporation
Epson America, Inc.
Epson Europe B.V.
Epson (U.K.) Ltd.
Epson Deutschland GmbH
Epson France S.A.
Epson Italia s.p.a.
Epson Iberica, S.A.
Epson (China) Co., Ltd.
Epson Korea Co., Ltd.
Epson (Shanghai) Information
Equipment Co., Ltd.
Epson Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Singapore Pte. Ltd.
Epson Australia Pty. Ltd.
Epson Direct Corporation
(2) Electronic devices business segment
This segment comprises the display business, the quartz device business, and the semiconductor business. This
segment mainly includes the development, manufacture and sales of small- and medium-sized LCDs, crystal
oscillators and CMOS LSIs.
Based on their ultra-fine and ultra-precision processing technologies, low-power consumption technologies and
high-density mounting technologies, businesses in this segment offer a wide range of electronic devices that are
compact, thin, and which save energy. Products are aimed at handled device and various other applications.
Products are also developed and manufactured to respond to the needs of other businesses within the Group.
Details of the main businesses are as follows.
Display business
The display business is responsible for the development, manufacture and sales of small- and medium-sized
LCDs mainly for handheld devices, and HTPS-TFT panels for 3LCD projectors, and others.
Epson Imaging Devices Corporation, a consolidated subsidiary of the Company, transferred part of its business
assets related to the small- to medium-sized TFT-LCD business as of April 1, 2010.
Quartz device business
The quartz device business is responsible for the development, manufacture and sales of crystal units, crystal
oscillators, quartz sensors and optical devices for industrial and consumer products in a wide range of markets.
Semiconductor business
The semiconductor business is responsible for the development, manufacture and sales of CMOS LSIs and
others with low drive voltage, low power consumption and high durability mainly for handheld devices and other
information communications equipment, and PC peripherals. It also develops semiconductors and base
technologies for other Group businesses.
The major subsidiaries and affiliates involved in each segment are as follows:
Business
category
Display business
Quartz device
business
Semiconductor
business
Main products
Small- and
medium-sized
LCDs, HTPS-TFT
panels for 3LCD
projectors and others
Crystal units,
crystal oscillators,
quartz sensors,
optical devices and
others
CMOS LSIs and
others
Main subsidiaries and affiliates
Manufacturing companies
Epson Imaging Devices
Corporation
Suzhou Epson Co., Ltd.
Epson Precision (Hong
Kong) Ltd.
Epson Toyocom Corporation
Akita Epson Corporation
Epson Toyocom Malaysia
Sdn. Bhd.
Sales companies
Epson Toyocom Corporation
Epson Imaging Devices
Corporation
Epson Electronics America, Inc.
Epson Europe Electronics GmbH
Epson Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Singapore Pte. Ltd.
Singapore Epson Industrial
Pte. Ltd.
(3) Precision products business segment
This segment comprises the watch business, the optical products business, and the factory automation products
business. This segment mainly includes the development, manufacture and sales of watches, watch movements,
plastic corrective lenses, horizontally articulated robots and others.
Based on their ultra-fine and ultra-precision processing technologies that originated in mechanical watches, and
high-density mounting technologies, this segment is the birthplace of Epson’s micromechatronics technologies.
Details of the main businesses are as follows.
6
Watch business
The watch business is responsible for the development, manufacture and sales of Seiko brand watches and watch
movements.
Optical products business
The optical products business is responsible for the development, manufacture and sales of Seiko brand plastic
corrective lenses.
Factory automation products business
The factory automation products business is responsible for the development, manufacture and sales of
horizontally articulated robots and semiconductor testing equipment known as IC handlers, and industrial inkjet
equipment.
The major subsidiaries and affiliates involved in each segment are as follows:
Business
category
Main products
Watch business Watches, watch
movements and
others
Optical products
business
Plastic corrective
lenses and others
Factory
automation
products business
Horizontally
articulated robots,
IC handlers,
industrial inkjet
equipment and
others
Main subsidiaries and affiliates
Manufacturing companies
Sales companies
Epson Precision (Hong
Kong) Ltd.
Singapore Epson Industrial
Pte. Ltd.
Seiko Lens Service Center
Corporation
Philippines Epson Optical
Inc.
–
Time Module (Hong Kong) Ltd.
–
Epson America, Inc.
Epson Deutschland GmbH
(4) Other business segment
This segment comprises the businesses of subsidiaries that offer services within Epson, and business incubation
projects still in the start-up phase that are aimed at optimizing current management resources.
Details of the main businesses are as follows.
Intra-Group service business
The intra-Group service business comprises subsidiaries providing a wide range of services for Epson. In
particular, this includes Epson Logistics Corporation, which is responsible for logistics and export-related
services, Epson Insurance Center, which provides insurance services, Epson Facility Engineering Corporation,
which is responsible for the maintenance of facilities, and Epson & Nissin Travel Solutions Corporation, which
is a travel agent.
To streamline the system, including the functional transfers of services within the Group, the functions of some
affiliated companies were transferred to the Company as of January 1, 2010.
Business incubation projects
Business incubation projects develop various projects that Epson is trying to nurture into new businesses.
7
2. Major equipment and facilities
Epson’s major equipment and facilities are as follows.
(1) Seiko Epson Corporation
Name of plant
(location)
Business segment
Type of facilities
Correct as of March 31, 2010
Book value (Millions of yen)
Machinery,
Buildings and
equipment
structures
and
Land
(Area: m2)
Other
Total
Number of
employees
(Persons)
vehicles
1,301
Overall
administration and
Other facilities
3,104
141
(43,888)
190
4,738
932
other
Overall
administration and
Other facilities
89
—
other
Information-related
Printer manufacturing facilities
[3,202]
—
(—)
5,229
26
115
80
equipment, etc.
Research and development
22,140
7,393
(185,726)
2,687
37,449
4,628
facilities
Plant
Information-related
Mini-printer manufacturing
(Matsumoto-shi,
equipment
facilities, etc.
Information-related
3LCD projector component
equipment
manufacturing facilities
Liquid crystal panel and
Electronic devices
factory automation
Precision products
manufacturing facilities
Other facilities
Electronic devices
Liquid crystal panel
manufacturing facilities
Semiconductor manufacturing
Electronic devices
facilities
Other
Research and development
facilities
[26,619]
3,637
935
286
(179,759)
449
5,309
670
[1,758]
453
723
288
(31,340)
506
1,972
653
[918]
1,443
7,866
4,327
(113,082)
1,065
14,702
1,332
3,219
2,103
12,321
3,563
[28,909]
1,375
(160,528)
1,996
(247,143)
2,104
(538,828)
8,303
(40,725)
1,019
126
6,825
188
731
18,613
1,288
157
12,554
1,065
105 12, 024
391
682
Electronic devices
Semiconductor manufacturing
facilities
9,270
1,021
Electronic devices
Sales facilities
3,614
0
Precision products Watch manufacturing facilities
1,935
1,425
(41,836)
298
4,678
Precision products
Plastic corrective lens
manufacturing facilities
[5,764]
421
1,456
1,441
(8,931)
114
3,434
385
[31,978]
8
Head Office
(Suwa-shi, Nagano)
Tokyo Office
(Shinjuku-ku, Tokyo)
Hirooka Office
(Shiojiri-shi, Nagano)
Matsumoto Minami
Nagano)
Shimauchi Plant
(Matsumoto-shi,
Nagano)
Suwa Minami Plant
(Fujimi-machi,
Suwa-gun, Nagano)
Chitose Plant
(Chitose-shi,
Hokkaido)
Fujimi Plant
(Fujimi-machi,
Suwa-gun, Nagano)
Sakata Plant
(Sakata-shi,
Yamagata)
Hino Office
(Hino-shi, Tokyo)
Shiojiri Plant
(Shiojiri-shi, Nagano)
Matsushima Plant
(Minowa-machi,
Kamiina-gun,
Nagano)
(2) Domestic subsidiaries
Company name
(location)
Business segment
Type of facilities
Epson Toyocom
Corporation
Electronic devices
(Hino-shi, Tokyo)
Crystal device manufacturing
facilities
Correct as of March 31, 2010
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Other Total
Number of
employees
(Persons)
7,405
5,132
(266,923)
440 20,588
1,774
7,609
Tohoku Epson
Corporation
(Sakata-shi,
Yamagata)
Akita Epson
Corporation
(Yuzawa-shi, Akita)
devices
Epson Imaging
Information-related
Printer component
equipment
manufacturing facilities
5
2
Information-related
equipment, electronic
Printer component and crystal
device manufacturing facilities
1,308
226
Devices Corporation
Electronic devices
LCD manufacturing facilities
2,523
—
(183,658)
(Tottori-shi, Tottori)
[47,687]
(3) Overseas subsidiaries
[10,849]
—
(—)
677
(68,992)
636
319
327
1,006
121 2,334
1,036
—
3,159
1,612
Correct as of March 31, 2010
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Other Total
Number of
employees
(Persons)
2,494
2,866
–
(–)
[64,104]
58
1,750 7,111
14,269
3,136
1,845
(41,065)
302 5,343
4,328
Company name
(location)
Business segment
Type of facilities
Information-related
equipment
Electronic devices
Precision products
Information-related
Printer, LCD, visual
instrument and watch
manufacturing facilities
equipment
Scanner, semiconductor and
Electronic devices
watch manufacturing facilities
Epson Precision
(Hong Kong) Ltd.
(Hong Kong, China)
Singapore Epson
Industrial Pte. Ltd.
(Singapore)
P.T. Indonesia Epson
Industry
(Bekasi, Indonesia)
Epson Precision
(Philippines), Inc.
(Cabuyao,
Philippines)
Epson Toyocom
Malaysia Sdn. Bhd.
(Kuala Lumpur,
Precision products
Information-related
equipment
Information-related
equipment
Electronic devices
Printer manufacturing facilities
1,790
1,112
Printer and crystal device
manufacturing facilities
1,473
230
(17,489)
139 1,905
3,311
[41,567]
–
(–)
[137,131]
61
427 3,331
7,721
[173,200]
333
(32,437)
39 2,225
2,776
Electronic devices
Crystal device manufacturing
facilities
374
1,478
Malaysia)
Notes
1. The above figures do not include consumption tax.
2. “Other” in book value figures includes tools, furniture and fixtures and other property, plant and equipment,
but does not include construction in progress.
3. Portions of the land are rented from companies not included in consolidated accounts. Each area of the rented
land is indicated in parenthesis [ ].
4. Figures for Epson Precision (Hong Kong) Ltd., Singapore Epson Industrial Pte. Ltd. and
Epson Precision (Philippines), Inc. are included in consolidated business results.
5. The above book value amounts are after adjustments for consolidated accounts.
9
3. Overview of capital expenditures
Capital expenditures for the fiscal year under review were concentrated in key strategic areas including new
products, developing new businesses, and preparing for future growth. In addition, Epson made moves to restrain
new capital spending and efficiently utilize existing facilities in an effort to improve cash flow.
As a result of these efforts, total capital expenditures (including property, plant and equipment, software and
lease rights) came to ¥25,937 million.
No equipment with a significant impact on production capacity was sold or removed.
Capital expenditures in each business segment are discussed below.
Information-related equipment
Investment for commercializing new products and for maintaining and renewing equipment and facilities for
printers and 3LCD projectors amounted to ¥12,502 million in the fiscal year under review.
Electronic devices
Investment for commercializing new products, and for maintaining and renewing equipment and facilities for
small- and medium-sized LCDs and quartz devices amounted to ¥9,862 million in the fiscal year under review.
Precision products
Investment for commercializing new products, and for maintaining and renewing equipment and facilities for
watches and plastic corrective lenses amounted to ¥1,876 million in the fiscal year under review.
Other businesses and company-wide
Investment in R&D and other activities amounted to ¥1,697 million in the fiscal year under review.
10
4. Plans for new additions or disposals
Epson plans to invest ¥46 billion in capital expenditures for the consolidated fiscal year ending March 31, 2011.
The breakdown by business segment is as follows.
Business segment
Information-related
equipment
Electronic devices
Precision products
Other and overall
Total
Planned amount of
capital
expenditures (100
millions of yen)
Main types and purposes of equipment and facilities
210
180
30
40
460
Commercializing new products, reinforcing productivity and
maintaining and renewing equipment and facilities, etc.
Commercializing new products, reinforcing productivity and
maintaining and renewing equipment and facilities, etc.
Commercializing new products and maintaining and renewing
equipment and facilities, etc.
Investment for research and development, etc.
–
Notes
1. The above amounts do not include consumption tax.
2. Required funds will be covered by current funds in hand.
3. There are no plans to dispose of or sell major equipment and facilities with the exception of disposals and
sales associated with regular and ongoing renewals.
4. The above capital expenditure plan includes property, plant and equipment as well as software and lease rights
that are included among intangible assets.
11
5. Major management contracts
(1) Technology license agreements
Name of contracting
company
Name of other party
Country
Type of contract
Contract period
Seiko Epson
Corporation
Research Corporation
Technologies, Inc.
U.S.A.
License to use patents relating to
printing technologies for printers
December 22, 2000
until the expiry of the
patents
(2) Reciprocal technical assistance agreements
Name of contracting
company
Name of other party
Country
Type of contract
Contract period
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Hewlett-Packard Company
U.S.A.
License to use patents relating to
inkjet printers
January 1, 2005 until
the expiry of the patents
International Business
Machines Corporation
U.S.A.
License to use patents relating to
information-related equipment
April 1, 2006 until the
expiry of the patents
Microsoft Corporation
U.S.A.
License to use patents relating to
information-related equipment and
software used by such equipment
September 29, 2006
until the expiry of the
patents
Eastman Kodak Company
U.S.A.
License to use patents relating to
information-related equipment
October 1, 2006 until
the expiry of the patents
Xerox Corporation
U.S.A.
Texas Instruments
Incorporated
U.S.A.
License to use patents relating to
electrophotography and inkjet
printers
License to use patents relating to
semiconductors and
information-related equipment
March 31, 2008 until
the expiry of the patents
April 1, 2008 until
March 31, 2018
Canon Incorporated
Japan
License to use patents relating to
information-related equipment
August 22, 2008 until
the expiry of the patents
(3) Other
At a meeting held on April 30, 2009, the Seiko Epson Corporation’s board of directors decided to hold a share
exchange that would make Epson Toyocom Corporation a wholly owned subsidiary of parent company Seiko
Epson. The share exchange agreement was concluded on the same day, making Epson Toyocom Corporation a
wholly owned subsidiary of the Company as of June 1, 2009, the effective date of the share exchange agreement.
On June 30, 2009, Seiko Epson and Sony Corporation formally concluded an agreement to transfer to Sony
Corporation and Sony Mobile Display Corporation certain assets of the small- and medium-sized TFT LCD
business operated by Epson Imaging Devices Corporation. Epson Imaging Devices transferred certain of the
assets associated with said business on April 1, 2010, as per the agreement.
12
Risks Related to Epson’s Business Operations
1. Epson relies to a significant degree on sales and profits from its printer business
Epson’s ¥712,692 million in sales from its information-related equipment business for the year ended March
2010 constituted 72.3% of Epson’s consolidated sales, which were ¥985,363 million. Inkjet and other printers,
including printer consumables, accounted for a large majority of the sales and profits of the information-related
equipment business. A decrease in sales of inkjet printers and printer consumables could have a material adverse
effect on Epson’s results.
2. Price competition causes a downward trend in prices
Market prices for printers, projectors and other information-related equipment have been on a continuous
decline due to intensified competition and a shift in demand toward lower-priced products. Meanwhile, prices
for crystal devices and color LCDs for mobile phones are being driven down across the board due to intensified
competition and other factors, and other products could be similarly affected. Epson is striving to improve
profitability by reducing production costs, for example, by using low-cost designs, and is taking measures to
fight the trend of declining prices, for example, by expanding sales of high-value-added products. However,
there is no assurance that these efforts will succeed, and if Epson is unable to respond effectively to counteract
the downward price trend, its results might be adversely affected.
3. Epson’s technologies compete with the technologies of other companies
Some of the products that Epson sells contain technology that place Epson in competition against other
companies. For example:
1) Epson’s Micro Piezo technology*1 that it uses in its inkjet printers competes with the thermal inkjet
technologies*2 of other companies; and
2) Epson’s 3LCD technology*3 that it uses in its projectors competes with other companies’ DLP*4 and
LCOS*5 technologies.
Epson believes the technology it uses in these types of product is superior to the alternative technologies of
other companies, but, if consumer opinion with respect to Epson’s technology changes, or if other
revolutionary technologies appear on the market and compete with Epson’s technologies, Epson may lose
that competitive edge and its results might consequently be adversely affected.
*1. Micro Piezo technology is an inkjet printer technology created by Epson that manipulates so-called
piezoelectric elements to fire small droplets of ink from the printer nozzle.
*2. Thermal inkjet technology is a type of technology for printers whereby the ink is heated to create bubbles
and the pressure from the bubbles is used to fire the ink (also sometimes referred to as bubble jet
technology).
*3. 3LCD technology is a technology whereby TFT panels are used as light valves. The light from the light
source is divided into the three primary colors (red, blue and green) using special mirrors, the picture is
created on separate LCDs for each color and then the picture is recombined and projected on the screen.
*4. The DLP technology is a technology that uses a digital micro-mirror device (DMD) as a display device. A
DMD is a semiconductor on which between hundreds of thousands and millions of micro mirrors are
arranged, each mirror directing light onto its own individual pixel, and the image is created by the light
from the light source being reflected from the mirrors onto the screen. DLP and DMD are trademarks of
Texas Instruments Incorporated.
*5. LCOS technology is a technology that uses liquid crystal on silicon (LCOS ) as a display device. It is
characterized by the extremely large number of openings on the surface of the reflective LCD panel.
Because the circuits and the switching elements are etched underneath the reflective layer, there is no need
for the BM (a light-blocking layer that prevents light from falling on the pixel transistor area), making for a
seamless display of the picture.
4. Epson might experience a reduction in the market share of genuine consumables
Ink cartridges are particularly important inkjet consumables in terms of Epson’s sales and profit. There are other
parties who supply ink cartridges that can be used in Epson printers. These alternative products are sold for less
than genuine Epson ink cartridges and, while they have relatively low market share in Japan and America, they
have high market share in certain Asian countries. Against the risk posted by a decline in the share of genuine
13
ink cartridges, Epson’s policy is to continue to earn the support of its customers by maintaining and improving
the quality of its genuine products and by striving to boost user-friendliness by using even longer lasting ink and
creating application-specific inks. Epson will also take legal measures if any of the patent rights or trademark
rights it holds over its ink cartridges are infringed.
There is no assurance, however, that any of these efforts will be effective, and if Epson’s sales from consumable
products for inkjet printers declines because, for example, in the future the market share of non-genuine ink
cartridges increases further or Epson must reduce the prices of its brand products, then Epson’s results might
consequently be adversely affected.
5. A change in the market could affect Epson
Epson is concentrating management resources on core businesses in which it can leverage its unique strengths –
printers, projectors, quartz devices and sensors – and on future growth areas as it seeks to strengthen its business
foundations, while at the same time also cultivating new businesses that will support the next generation.
However, because technological innovation and product cycles are changing extremely rapidly in markets that
Epson is focusing its managerial resources on , the Company may be unable to respond flexibly to such changes
and develop and introduce competitive products. In addition, reduced consumption and capital expenditure in
Epson’s main markets stemming from economic downturns have hurt demand for Epson’s products in the past
and may do so in the future.
If, for example, Epson cannot suitably respond to technological innovations in our main markets, or if economic
downturns or other factors prevent a recovery in demand, Epson’s results could consequently be adversely
affected.
6. Trends in the electronic devices market might adversely affect Epson
Certain trends reflect product life cycles and economic conditions in markets for electronic devices such as
semiconductors and mobile phone handsets. The electronics industry has historically been subject to large
cyclical fluctuations, and Epson could experience a decline in demand for its products, excess production
capacity, and falling prices in the future.
Epson has moved to put its electronic devices businesses in a stronger financial position, primarily through
restructuring, and make them more resistant to such market fluctuations. However, if product demand remains
sluggish for an extended period of time, or if the market deteriorates further, Epson’s operating results could be
adversely affected. There is also no assurance that Epson can always accurately predict future trends, and it is
possible that Epson might not be able to make the right investments at the right time in response to market
trends.
7. Epson competes with other companies
Epson presently faces competition from powerful companies with abundant financial resources or strong
financial compositions, and from companies in such countries and regions as Taiwan, Korea, or China that have
the ability to manufacture competitive products or compete on price level in Epson’s markets. This competition
could adversely affect Epson’s results.
In addition to such competition, there is also the possibility that powerful companies Epson is not currently in
competition with may use their brand power, technological strength, ability to procure funds, marketing power,
sales skills or low-cost production ability to newly enter a business area of Epson’s and compete with it.
8. Expanding businesses overseas entails risks for Epson
Epson is continuing to expand its businesses overseas; 65.0% of its consolidated sales for the business year
ended March 2010 were overseas sales. Epson has production sites all over Asia, including China, Indonesia,
Singapore and Malaysia, as well as in the United States, the United Kingdom, Mexico, and other countries. It
has also established many sales companies all over the world. Epson’s employees overseas as of March 2010
accounted for approximately 70% of its overall employees.
Epson believes that this global expansion makes it possible to undertake market activities that precisely
ascertain the market needs of each individual region and has many merits, such as leading to the securing of
high cost-competitiveness through cuts in production costs and reduced lead times. There are, however,
unavoidable risks related to producing and selling products overseas that come with expanding businesses
overseas, some of which are changes in government laws, ordinances, or regulations related to production and
14
sales, social, political or economic changes, transport delays, damage to infrastructure (e.g., power supply),
restrictions on currency exchanges, insufficient skilled labor, changes in regional labor environments, changes
in taxes, regulations or the like protective of trade, and laws, ordinances, regulations, or the like related to the
import and export of Epson products.
9. The intense technological innovation required of Epson entails risks
Epson is engaged in manufacturing and selling products that require advanced technologies, so technological
superiority is a vital element of Epson’s competitiveness. Epson possesses core technologies—for example,
ultra-fine, ultra-precise processing technologies, low-power consumption technologies, thin-film technologies,
surface treatment technologies, high-density mounting technologies, digital control technologies and digital
color image processing technologies. By evolving and fusing these technologies, Epson has been able to
manufacture and sell products that meet customers’ needs, thereby developing the presence that it has today.
The rate of technological innovation required in most of the fields in which Epson is engaged, however, is so
intensely fast, that in order to respond swiftly to customer needs in the face of changes in technology, Epson
sometimes must undertake long-term investments or capital spending based on product predictions. Thus, while
Epson is making every effort to gauge market and customer needs and will maneuver to respond to the intense
technological innovation on which they depend, if Epson is unable to accurately gauge those market trends or
customer needs, it may not be able to appropriately respond to the required technological innovations, and its
results might be adversely affected.
10. The short lifecycle of certain products makes Epson vulnerable to certain risks
Epson is manufacturing and selling products that generally have short life cycles, such as consumer products.
Epson has its own group distribution network throughout the world and is taking various measures, such as
trying to understand through its distribution subsidiaries and branches the needs for different products in each
region, and striving to reduce lead time by establishing production sites in regions close to consumers. If the
transitions from existing products to new ones do not go smoothly, however, Epson’s results could
consequently be adversely affected.
Factors affecting whether the transition to a new product goes smoothly include delays in the development or
production of Epson’s new products, competitors’ timing in introducing their new products, the difficulty in
predicting changes in consumers’ needs, a decline in purchases of existing products as consumers anticipate
new product introductions, and competition between Epson’s existing and new products.
11. Procuring products and outsourcing the manufacture of products entails risks for Epson
Epson procures parts, semi-finished products and finished products from third parties, but it has generally
conducted transactions without entering into any long-term purchase agreements. Epson is developing upon its
efficient procurement activities by cooperatively engaging with such suppliers in maintaining product quality,
improving products and reducing costs. However, if its ability to procure was to be adversely affected by, for
example, insufficient supply from a third party, poor quality of products supplied or the like, then Epson’s
results could consequently be adversely affected. Epson strives to, in principle, procure parts and the like from
multiple suppliers, but there are some cases in which it can only procure parts from one company due to the
difficulty of procuring an alternative component from another company. One such example is actuators, which
are the primary component of the print heads in medium- and low-price inkjet printers. On the manufacturing
side of its business, Epson outsources the manufacturing of certain products such as inkjet printers. If demand
for such products rises suddenly, it will become difficult to secure alternative or additional manufacturers to
outsource to, and Epson might become vulnerable to such risks as an increase in costs or a delay in production.
12. Epson faces risks concerning the hiring and retention of personnel
It is vital that Epson hire and retain talented personnel both in Japan and overseas for the development and
manufacture of Epson’s advanced new technologies and products, but the competition for recruiting personnel
is becoming increasingly intense. Epson is putting considerable effort into securing talented personnel by
establishing research and development sites and design sites both in Japan and overseas. If Epson is unable to
continue to use or employ an adequate number of talented personnel, however, the implementation of its
business plans could be adversely affected.
15
13. Fluctuations in foreign currency exchanges create risks for Epson
A significant portion of Epson’s sales are denominated in U.S. dollars or the euro. Epson is continuing to
expand its overseas procurement and move its production sites overseas, thereby attracting an increase in
expenses in foreign currencies linked to the euro or U.S. dollar, and, although its U.S. dollar-denominated sales
countervail its U.S. dollar-denominated expenses, its euro-denominated sales are still greater than its
euro-denominated expenses. Also, although Epson has executed currency forwards and currency options to
hedge against the risks inherent in foreign currency exchanges, unfavorable movements in the exchange rates of
foreign currencies such as the U.S. dollar or euro against the yen could adversely affect Epson’s financial
situation or business results.
14. There are risks inherent in pension systems
Epson has established a defined-benefit pension plan (fund-type), a defined-benefit pension plan (contract-type),
a tax qualified pension plan and a termination allowance plan.
If, with respect to the defined-benefit pension-type retirement pension plan, there is a change in the operating
results of the pension assets or in the ratio used as the basis for calculating retirement allowance liabilities,
Epson’s results could consequently be adversely affected.
15. Epson’s intellectual property rights activities expose Epson to certain risks
Patent rights and other intellectual property rights are extremely important to Epson for maintaining its
competitiveness. Epson has itself developed many of the technologies it needs, and it utilizes them as
intellectual property in the form of products or technologies by acquiring patent rights, trademark rights and
other intellectual property rights for them or entering into agreements with other companies for them. Epson
carefully selects the personnel who manage its intellectual properties and is constantly working to strengthen its
intellectual property portfolio.
If, however, any of the following situations relating to intellectual properties occurs, Epson’s results could
consequently be affected.
1) An objection might be raised or an application to invalidate might be filed against an intellectual property
right of Epson, and as a result, that right might be recognized as invalid.
2) A third party to whom Epson originally had not granted a license might come to possess a license as a
result of a merger with or acquisition of another third party, and Epson’s competitive advantage that it had
due to that license might consequently be lost.
3) New restrictions might be imposed on an Epson business that were originally not imposed on it as a result
of a merger with or acquisition of a third party, and it might be forced to spend money to find a solution to
those restrictions.
Intellectual property rights that Epson holds might not give it a competitive advantage or Epson might not
be able to use them effectively.
4)
5) Epson or one of its customers might be subject to a third-party’s claim of an infringement of intellectual
6)
property rights and have to spend a considerable amount of time and money to resolve the issue, or such a
claim might interfere with Epson’s management or focusing of managerial resources.
If a third-party’s claim of infringement of intellectual property right is upheld, Epson might incur damage
in the form of having to pay considerable compensation or royalties or stop using the applicable
technology.
7) A suit might be brought against Epson for payment of remuneration to employees or the like for their
inventions or the like, which would mean Epson might be forced to spend a considerable amount of time
and money to resolve the issue and, as a result, might be required to pay a considerable amount of money in
remuneration.
16. Problems may arise relating to the quality of Epson’s products
The existence of quality guarantees on Epson’s products and the details of those guarantees differ from
customer to customer, depending on the agreement it has entered into with them. If there is a defect in an Epson
product or it does not conform to the required standard and consequently costs must be incurred to repair
defects (such as by replacing or repairing the product) or the product causes damage to a person or property,
then there is a possibility Epson might be subject to, for example, product liability.
16
Also, Epson might be held liable to a customer and might incur expenses for repairs or corrections on the
grounds that it did not adequately display or explain an Epson product’s performance. Furthermore, if such a
problem in quality arises with respect to Epson products, Epson might lose the trust of others in its products,
lose major customers or experience a drop in demand for those products, any of which might adversely affect
Epson’s results.
17. Epson is vulnerable to risks of problems arising relating to the environment
Epson is subject, both in Japan and overseas, to various environmental regulations concerning industrial waste
and emissions into the atmosphere that arise during the manufacturing process. Environmental conservation
activities are one of Epson’s most important management policies, and it is proactively engaged in
environmental conservation activities on all fronts by developing and manufacturing products that have less of a
burden on the environment, reducing the amount of energy used, promoting the recovery and recycling of
end-of-life products and improving environmental management systems. To date, Epson has not had any serious
environmental issue, but there is a possibility that in the future Epson might be affected by a compensation
claim, incur expenses (such as cleaning expenses), receive a fine, be ordered to cease production or be
otherwise affected as a result of environmental damage or that new regulations might be brought in requiring
Epson to pay considerable expenses, and, if such a situation should occur, Epson’s results could be adversely
affected.
18. Epson is vulnerable to proceedings relating to antitrust laws and regulations
As it expands its business globally, Epson is subject in Japan and overseas to proceedings relating to antitrust
laws and regulations, such as those prohibiting private monopolies and protecting fair trade. Overseas
authorities sometimes investigate and gather information on certain industries and as part of this, Epson’s
market conditions and sales methods may come under investigation. In the case that such investigations and
proceedings take place, there is the risk that Epson’s sales activities could be obstructed and, if such a situation
should occur, Epson’s results could be adversely affected.
The Company and related subsidiaries are subject to allegations concerning a TFT-LCD price-fixing cartel, and
received from competition authorities in the United States and elsewhere instructions and notices to submit
relevant materials. In August 2009, a consolidated subsidiary of the Company concluded a plea agreement by
which it paid a fine of U.S.$26 million to the United States Department of Justice, and criminal procedures were
completed in October 2009. Related civil lawsuits have been brought before courts in the United States and
elsewhere by clients and others.
.
19. Epson is at risk of material legal actions being brought against it
Epson conducts its businesses both in Japan and overseas; its primary businesses being the development,
manufacture and sale of information-related equipment, electronic devices and precision equipment. Given the
nature of its businesses, there is a possibility that an action could be brought or legal proceedings could be
started against it regarding, for example, intellectual property rights, product liability, antitrust laws or
environmental regulations. Should that happen, public confidence in Epson might suffer, and resolving and
responding to the issue might entail considerable expense and management resources. The results of the action
or legal proceedings might also adversely affect Epson’s results or the development of Epson’s business in the
future. As of the date it submitted its Annual Securities Report, Epson was contending the following material
actions.
In Germany, the organization for collecting copyright fees on behalf of copyright holders,
Verwertungsgesellschaft Wort (“VG Wort”), has brought a series of legal actions seeking payment of copyright
fees against importers and venders of PCs, printers and other digital equipment that is capable of reproducing
copyrighted works.
In January 2004 VG Wort brought a civil action against Epson Deutschland GmbH (“EDG”), a consolidated
subsidiary of the Company, to seek payment of copyright fees on single-function printers. The initial judgment
determined that the aforementioned printer is subject to a copyright fee and decreed that EDG pay the fee at a
rate of between 10 to 256.70 euros per printer depending on the printer’s printable pages per minute, however,
the claim was dismissed by both appeals court, and then supreme court judgments. The plaintiff has expressed
dissatisfaction with this ruling, and has appealed to the Federal Constitutional Court of Germany.
17
For multi-function printers, the BITKOM industry association, of which EDG is a member, and the VG Wort
agreed to settlement terms regarding the payment of certain fees for copyrighted works. EDG endorsed the
terms of the settlement agreement, meaning it has agreed to pay a certain amount in copyright fees.
Companies in general, including Epson, and industry organizations, are taking a stance opposing the expansion
of the scope of such copyright fees. Although at this point it is difficult to predict the result of the appeal or
even when a decision in the current proceedings will be handed down, if the results of the legal actions or
procedures are unfavorable to Epson, Epson’s results or future business expansion might consequently be
affected.
20. Epson is vulnerable to certain risks in internal control over financial reporting
Epson has established and operates internal control with the aim of ensuring the effectiveness and efficiency of
business operations, reliability of financial reporting, compliance with applicable laws and regulations relevant
to business activities and safeguarding of assets.
With the establishment and operation of internal controls high on its list of important management issues, Epson
has been pursuing a Group-wide effort to audit and improve corporate oversight of our subsidiaries and
affiliates. However, since there is no assurance that Epson will be able to establish and operate an effective
internal control system on a continuous basis, and since there are inherent limits to internal control systems, if
the internal controls that Epson implements fail to function effectively, or if there are deficiencies or material
weaknesses in the internal controls, it might adversely affect the reliability of Epson’s financial reporting.
21. Epson is vulnerable to risks inherent in its tie-ups with other companies
One of Epson’s business strategy options is to enter business tie-ups with other companies. If there is any
review of the arrangements of the tie-up between the parties, however, there is a possibility the tie-ups will be
dissolved or be subject to changes. There is also no assurance that the business strategy through the tie-ups will
succeed or contribute to Epson’s results exactly as expected.
22. Epson might be severely affected in the event of a natural disaster
Epson is undertaking a global expansion of its sites for research and development, procurement, manufacturing,
logistics, sales and services. It is possible that the regions concerned could be affected by any number of
unpredictable events, such as a natural disaster, computer virus, outbreak of an influenza pandemic, act of
terrorism or war, and that Epson’s results might consequently be affected.
In particular, the central area of Nagano Prefecture, where Epson has sites for its primary businesses, is a region
at particularly high risk of earthquakes. There are numerous cities and towns in that region designated as “Areas
Requiring Enhanced Measures to Respond to Disasters in Earthquakes” due to high degree of risk of a
large-scale disaster in the event of an earthquake in the Tokai region; and an active fault line also traces the
Itoigawa Shizuoka geotectonic line through the middle of the Nagano Prefecture region.
The areas classifiable as Areas Requiring Enhanced Measures to Respond to Disasters in Earthquakes were
revised in April 2002, so Epson had to revise its earthquake-response policy, look into strengthening numerous
buildings that were not built to resist earthquakes, take measures to avoid losses of materials for important parts,
and create plans to prevent damage from earthquakes. Epson is also conducting other countermeasures such as
partially dispersing its manufacturing sites throughout other regions.
However, if a major earthquake occurs in the central Nagano Prefecture region, it is possible that, despite these
countermeasures, the effect on Epson could be extreme.
Although Epson is insured against physical damage in the event of an earthquake, there is still a limit on the
amount up to which Epson is covered for such damage.
23. There are risks related to Epson’s major shareholders
The Hattori family, who founded Epson, and the individual shareholders who are related to the Hattori family, as
well as the companies whose major shareholders are the Hattori family or such individual shareholders, have the
power, if they jointly exercise their voting rights in Epson, to influence to a significant degree the outcome of
resolutions of a general shareholders’ meeting, such as those for the election of directors.
It is also possible that the interests of these major shareholders might conflict with the interests of other
shareholders. For example, because the Hattori family is the major shareholder of companies such as Seiko
Holdings Corporation that have business dealings with Epson, it is possible that a conflict of interest might arise
18
between those companies and Epson in transactions or competing businesses. In particular, Seiko Holdings
entrusts a large portion of the manufacturing of its watches, its primary business, to Epson.
24. Laws and regulations pose risks for Epson
Epson has businesses in which products require permission or licenses under laws and regulations, such as its
plastic corrective lenses, which are subject to regulations of relevant authorities as they are considered medical
equipment in Japan. Such products do not represent a high percentage of Epson’s overall sales or profit, but
Epson is subject to the permission and other regulations of relevant authorities in its manufacturing and
manufacturing/sales of those products in Japan.
Also, because the plastic corrective lenses, which are manufactured by Epson, are sold in the United States,
Europe and Asia by a distributor subsidiary of Seiko Holdings, Epson is also subject to certain regulations in
these regions. For example, relevant authorities in the United States generally make it compulsory to carry out
tests of new products and to keep designated records relating to those products.
Regulations governing medical devices in Japan, the United States and other regions have changed in the past,
so there is a possibility that they will change again in the future. If they do, there is a possibility the changes
might impede the manufacture and sale of Epson’s products and thereby adversely affect Epson’s results.
19
Business Conditions
1. Overview of business result
(1) Operating results
The first half of the year under review was affected by the global financial crisis and subsequent steep
economic decline. In the second half, however, the global economy, helped by economic measures in various
countries, showed signs of picking up.
The economic picture varied by region. The U.S. and Europe saw some benefits in the second half from the
economic measures introduced, but the situation remained extremely challenging, with continued high
unemployment. China saw an early recovery in internal demand evolve into positive growth. After bottoming out
relatively early, other countries and regions in Asia also headed toward recovery, largely as a result of economic
stimulus measures and increased exports to China. Japan, meanwhile, saw positive indicators such as an increase
in exports, especially to Asia, and a pick-up in production in the second half, but unemployment remains high
and business conditions difficult.
The situation in the main markets of the Epson Group (“Epson”) was as follows.
Consumer inkjet printer demand was steady in Asia, but in other regions sales were hampered by the effects of
the economic downturn in the first half. Business inkjet printers showed some signs of recovery but, on the
whole, the recovery trend was weak and unit sales remained weak. The serial dot-matrix printer (SIDM) market
is contracting in North America, Europe, and Japan, but demand remained firm in some countries, including
China, Singapore and some of the surrounding countries. Sales of POS systems turned upward as retailers
gradually resumed technology spending, but sales for the year were hurt by the sluggish economy in the first half.
Orders for both business and education projectors rebounded sharply in the second half, especially for low-end
models.
Many of the main applications for Epson’s electronic devices were also hit in the first half by the recession, but
in the second half some began showing signs of having hit bottom or of recovering. New demand for mobile
phones ticked upward in the second half in Asia, most notably China, as well as in Africa and the Middle East.
Upgrade demand also showed signs of returning in the second half in Europe and America. Demand was driven
especially by personal consumers looking to upgrade from mobile phones to smart phones as functions evolved.
Government buying incentives in various countries also pumped up demand for certain items, most notably
automobiles, televisions and other home electronics products. Sales of PCs were steady as a result of the
popularity of compact notebook models and the release of Windows 7. At the same time, demand for digital
cameras and portable media players (PMPs) appeared to slacken.
Meanwhile, the products in Epson’s information-related equipment and electronic devices segments suffered
from continued price erosion due to across-the-board competition and an ongoing shift of demand toward the
low-price zone.
In the precision products segment the ripple effect of economic stimulus measures on personal spending failed to
extend beyond items such as TVs and automobiles. There was no carry-over into demand for watches and
eyeglass lenses. Semiconductor manufacturing equipment and robot shipments began rising in the second half,
as corporate appetite for capital spending increased following the recession and a very lean first half.
At the end of the 2008 fiscal year, Epson established a long-range corporate vision called “SE15” and a
three-year “SE15 Mid-Range Business Plan” in response to the rapid changes in the business environment that
began last fiscal year.
Under the mid-range business plan, we will reposition ourselves to generate profit and rebuild our business
foundations as we move toward the SE15 goal of becoming a community of robust businesses. To this end, we
took bold actions in small- and medium-sized displays and semiconductors businesses, which we concluded
could not be restored to profitability as they were structured. On the other hand, we identified printers, projectors
and crystal devices as growth businesses and strategic businesses in which we can leverage our strengths.
Accordingly, we are rapidly shifting our human and management resources to these areas. We began fiscal 2009,
the first year in the mid-range business plan, with the aim of reaching breakeven in ordinary income by
reinforcing the business foundations that underpin SE15.
For the fiscal year we posted an extraordinary loss of ¥16,753 million. This was primarily because, as with the
previous year, we recorded an impairment loss in a part of the electronic devices segment that is not generating
20
sufficient cash flows, and also due to payment of a fine in conjunction with allegations of involvement in an
LCD price-fixing cartel. In addition, income taxes totaled ¥18,989 million as the Company considered the
taxable income of Seiko Epson Corporation and its wholly-owned domestic subsidiaries, therefore reviewing its
calculation of realizable deferred tax assets, and including in taxation charges a write-down of deferred tax
assets.
The average exchange rates of the yen against the U.S. dollar and of the yen against the euro during the year
under review were ¥92.85 and ¥131.15, respectively. This represents an 8% appreciation in the value of the yen
against the dollar and a 9% appreciation in the value of the yen against the euro, year-over-year.
As a result of the foregoing factors, net sales for the full fiscal year were ¥985,363 million, down 12.2% from the
previous year. Operating income was ¥18,227 million, compared to an operating loss of ¥1,588 million in the
previous year. Ordinary income was ¥13,875 million, up 161.7% year-over-year. And net loss was ¥19,791
million, compared to a net loss of ¥111,322 million in the previous year.
The operating results by business segment are summarized below.
Note that from the fiscal year under review, certain operating expenses have been allocated to the various
business segments in conjunction with the reallocation to basic R&D of some business incubation projects
included in the “Other” segment.
Information-related equipment
The printer business saw net sales decline. Sales of most of our printer products were significantly impacted by
the first-half economic situation and the strong yen.
Total unit shipments of inkjet printers (including consumables, as in all printer discussions below) increased
versus the previous year because, even though unit shipments of consumer models declined in Europe and Japan,
second-half shipments accelerated in North America as new products were launched, and unit sales remained
steady in Asia and South America due to the rapid economic recovery in these regions. For business models,
meanwhile, we saw demand in some sectors head toward recovery, while average selling prices were buoyed by
new models. Nevertheless, the market was slow to rebound and unit shipments declined. SIDM printer unit
shipments rode higher on the back of increased demand associated with China’s tax collection system, but
revenue was hurt due to an increase in products on the low end. In POS systems products, moreover, we saw a
recovery in the second half in demand for retail printers in Europe and America, but results were hurt by the
effects of retailers’ first-half spending curbs. The page printer business saw unit volume rise on factors such as
successes in tender business, but results were adversely impacted by price erosion and a decline in unit sales
from the previous fiscal year.
Visual instruments business net sales edged slightly upward. In the first half net sales suffered from the effects of
the recession and yen appreciation, but we saw demand for business projectors, especially lowend models, soar
in the second half in the Asian and North American education markets.
Operating income in the information-related equipment segment rose as a result of cost cutting efforts and fixed
cost reductions. However, the rise was tempered by the effects of yen appreciation and a decline in unit
shipments due to the recession in the first half.
As a result of the foregoing factors, full-year net sales in the information-related equipment segment were
¥712,692 million, down 7.4% from the prior year. Operating income was ¥38,030 million, up 26.2% from the
prior year. The reallocation of operating expenses had a ¥3,654 million effect on this segment.
Electronic devices
The displays business as a whole posted sharply lower net sales. Although unit shipments of small- and
medium-sized displays to smart-phone manufacturers increased, net sales were affected by a decline in unit
shipments to mobile phone, PMP, and other equipment manufacturers that accompanied the reorganization of the
business.
The quartz device business reported a slight increase in net sales. Although net sales were moderated by the
effects of lower prices associated with yen appreciation and changes in the product mix, we saw increased
demand for high-precision quartz sensors used in items such as game equipment. We also saw demand rebound
for crystal devices used in various types of digital electronics, as the market recovered from the rapid inventory
21
adjustments that began as the recession took hold from the second half of the previous fiscal year.
The semiconductor business posted sharply lower net sales. Although a round of industry inventory adjustments
came to an end in the second half and demand for electronic devices in general rebounded, the recovery was not
enough to make up for the first-half decline in unit shipments.
Operating loss in the electronic devices segment contracted due to a combination of factors: a reduction in
depreciation expenses associated with business structure improvement expenses and an impairment loss recorded
in the previous fiscal year; the effect of human resources reassignments and other fixed cost reductions; and an
increase in capacity utilization rates as the inventory correction cycle neared its end.
As a result of the foregoing factors, full-year net sales in the electronic device segment were ¥248,001 million,
down 20.4% year-over-year, while operating loss was ¥9,266 million versus an operating loss of ¥18,249 million
in the year ago. The reallocation of operating expenses had a ¥1,105 million effect on this segment.
Precision products
The precision products segment as a whole saw a sharp decline in net sales and, along with this, a wider
operating loss. Unit shipments of watches and plastic eyeglass lenses declined, as the impact of economic
stimulus measures failed to reach these products. Sales of industrial inkjet systems were also hurt by cutbacks in
corporate capital spending.
As a result of the foregoing factors, full-year net sales in the precision products segment were ¥57,746 million,
down 20.6% year-over-year, while operating loss was ¥4,111 million versus an operating loss of ¥1,907 million
in the year ago period. The reallocation of operating expenses had a ¥292 million effect on this segment.
The operating results by geographic segment are summarized below.
Japan
Net income from sales of small- and medium-sized displays, inkjet printers, semiconductors and watches
declined. As a result, net sales were ¥868,495 million, down 13.0% year-over-year, while operating loss was
¥25,193 million, compared to an operating loss of ¥44,478 million last year.
The Americas
Small- and medium-sized displays net sales grew. Meanwhile, net sales from inkjet printers, POS systems
products, SIDM printers, crystal devices, and 3LCD projectors declined. As a result, net sales were ¥229,328
million, down 5.6% from the prior year, while operating income was ¥8,472 million, up 75.9% year-over-year.
Europe
Net sales from inkjet printers, SIDM printers, page printers, scanners, and POS systems products declined.
As a result, net sales were ¥214,224 million, down 12.2% from the prior year, while operating income was
¥6,751 million, down 33.6% from last year.
Asia / Oceania
Crystal device and SIDM printer net sales increased, while net sales from small- and medium-sized displays,
watches, and semiconductors declined. As a result, net sales were ¥555,434 million, down 8.9% from the prior
year, while operating income was ¥27,261 million, up 60.5% from last year.
(2) Cash Flow Performance
Cash flows from operating activities during the year were ¥56,542 million. They consisted primarily of a loss
before income taxes and minority interests of ¥799 million, ¥47,395 million in depreciation and amortization,
and a ¥17,646 million increase in accounts payable. Cash flows from investing activities were ¥43,203 million in
outflows, primarily due to ¥31,836 million in capital expenditures mainly in the information-related equipment
and electronic devices segments, and to purchase of investments in subsidiaries of ¥13,405 million.
Cash flows from financing activities were negative ¥41,087 million, due to a net decrease caused by repayment
of loans totaling ¥39,580 million.
As a result, cash and cash equivalents at the end of the fiscal year totaled ¥254,590 million.
* Please refer to the following for historical information about Epson’s financial results:
http://global.epson.com/IR/investor relations fr archive.htm
22
2. Manufacturing, orders received and sales
(1) Actual manufacturing
The following table shows actual manufacturing information by segment in the fiscal year under review.
Business segment
Year ended March 31, 2010
(From April 1, 2009, to March 31, 2010)
(Millions of yen)
Change
compared to
previous year
(%)
Information-related equipment
Electronic devices
Precision products
Other
Total
688,955
200,642
53,266
795
943,660
87.8
73.9
75.7
58.0
83.7
Notes
1. The above figures are based on sales prices. Intersegment transactions are offset and therefore eliminated.
2. The above figures do not include consumption tax.
3. The above figures include outsourced manufacturing.
(2) Orders received
Epson’s policy is to manufacture products based on sales forecasts. Accordingly, this section does not apply.
(3) Actual sales
The following table shows actual sales information by segment in the fiscal year under review.
Business segment
Year ended March 31, 2010
(From April 1, 2009, to March 31, 2010)
(Millions of yen)
Change compared
to previous year
(%)
Information-related equipment
Electronic devices
Precision products
Other
Total
Notes
1. Intersegment transactions are offset and therefore eliminated.
2. The above figures do not include consumption tax.
3. No customer accounts for more than 10% of the actual total sales.
711,378
215,534
56,284
2,165
985,363
92.7
77.0
78.9
55.0
87.8
23
3. Analysis of financial condition and results of operations
(1) Analysis of operating results
Net Sales
Consolidated net sales decreased ¥137,134 million, or 12.2%, to ¥985,363 million compared with the previous
consolidated fiscal year.
Sales in each business segment are discussed below.
In the information-related equipment segment, sales declined ¥57,157 million, or 7.4%, to ¥712,692 million. The
following major factors contributed to the decrease.
Total inkjet printer unit shipments showed year-over-year growth despite the effects of a stronger yen and a
decline in consumer model volume in Europe and Japan. Leading unit shipments higher were North America,
where new consumer inkjet models launched in the second half proved popular, and Asia and South America,
whose economies headed toward recovery early and where sales remained steady. Business printer volume
declined in the wake of a sluggish market recovery, although higher average selling prices were observed for
some models on the back of renewed demand and the popularity of new models. POS-related product shipments
fell due to the effects of a stronger yen and spending cutbacks in the retail industry precipitated by the first-half
economic downturn. Tax system-related demand drove SIDM printer shipments in China, but they were also
impacted by a shift to low-cost products and a stronger yen. Page printer unit shipments increased as a result of
stronger focus on tender business, but they were also affected by falling prices and the recent historical trend of
declining sales volumes. At the same time, net sales from 3LCD projectors remained steady year-over-year due
to increased unit shipments driven by low-cost models in the education markets of Asia and North America,
despite also being impacted by a stronger yen and the general economic slowdown.
In the electronic devices segment, sales were down ¥63,625 million, or 20.4%, to ¥248,001 million. The
following major factors contributed to the decrease.
In the small- and medium-sized displays business, volumes decreased following a structural reorganization. The
semiconductor business suffered from reduced first-half shipments despite completing inventory adjustments in
the second half in response to the economic downturn, and increased demand for electronic devices overall. On
the other hand, quartz device net sales were steady year-over-year as a result of renewed demand.
In the precision products segment, sales declined ¥14,951 million, or 20.6%, to ¥57,746 million. The decline was
primarily due to lower watch shipments and reduced volumes of inkjet equipment for industrial use resulting
from curbs on capital spending.
In the other segment, sales decreased ¥12,114 million, or 38.1%, to ¥19,714 million. This was a result of no
longer recording net sales of affiliates that were providing services to Epson because their functions were
transferred to operations divisions.
Cost of sales and gross profit
The cost of sales decreased ¥107,159 million, or 12.9%, to ¥725,894 million, and the cost of sales ratio dropped
0.5 percentage points, to 73.7%. The decline in the cost of sales reflects a decline in materials costs as a result of
reduced income, as well as capital spending curbs, reduced depreciation and amortization in the electronic
devices segment resulting from impairment losses, and the effects of a stronger yen.
As a result, gross profit declined ¥29,974 million, or 10.4%, to ¥259,469 million. The gross profit margin ratio
rose 0.5 percentage points, to 26.3%.
Selling, general and administrative expenses and operating income (loss)
Selling, general and administrative (SG&A) expenses declined ¥49,790 million, or 17.1%, to ¥241,241 million.
Facing challenging economic conditions from the outset in addition to the effects of a strong yen, Epson looked
to maximize the efficiency of its investment budget and, as a result, reduced its R&D, sales promotion, and
advertising expenses. The Company also reduced salaries and wages by revising overall labor costs and reduced
travel expenses by streamlining operations. Shipping costs also fell, mainly due to lower revenues and logistics
operation reforms.
24
Reflecting these factors, Epson booked operating income of ¥18,227 million, an improvement of ¥19,815 million
from the previous fiscal year.
Operating income in each business segment is analyzed below. Note that from the fiscal year under review the
operating expenses of certain incubation projects, in line with their transfer from the “Other” segment to
corporate R&D, will be charged to the information-related equipment, electronic devices, and precision
equipment segments.
In the information-related equipment segment, operating income increased ¥7,887 million, or 26.2%, to ¥38,030
million. This was the combined result of the decline in gross profit on lower sales and a stronger yen being offset
by lower selling, general and administrative (SG&A) expenses, including advertising, sales promotions, labor,
shipping, and R&D costs. There was also an additional ¥3,654 million in reallocated operating expenses.
The electronic devices segment recorded an operating loss of ¥9,266 million, an improvement of ¥8,982 million.
While net sales declined, the loss was partially offset by the increase in gross profit on lower depreciation
expenses associated with the business structure improvement expenses and impairment loss recorded in the
previous fiscal year, and lower labor, R&D, and other SG&A expenses. There was also an additional ¥1,105
million in reallocated operating expenses.
The precision products segment was down ¥2,203 million from the previous fiscal year with an operating loss of
¥4,111 million. This was due to the decline in gross profit on lower revenue. There was also an additional ¥292
million in reallocated operating expenses.
In the other segment, while there was an operating loss of ¥6,669 million, the loss was ¥5,403 million less than
that of the prior fiscal year. There was also a ¥5,052 million reduction in operating expenses.
Non-operating income and expenses
Non-operating income minus non-operating expenses amounted to a net loss of ¥4,351 million, a decrease of
¥11,241 million from the previous fiscal year’s ¥6,889 million. This was primarily due to two factors. First,
interest income fell to ¥1,259 million, down from ¥4,288 million the previous fiscal year as a result of lower
overseas interest rates precipitated by the global financial crisis. Second, the ¥3,146 million in foreign exchange
gains from the previous fiscal year was offset by ¥5,076 million in foreign exchange losses in the year under
review.
Ordinary income
As a result, ordinary income increased ¥8,573 million, or 161.7%, to ¥13,875 million.
Extraordinary income and losses
Extraordinary income minus extraordinary expenses amounted to a net loss of ¥14,675 million, a decrease of
¥80,186 million from ¥94,861 million in the previous fiscal year. This was primarily due to an impairment loss
on business assets in the small- and medium-sized display business in the period under review amounting to
¥7,269 million. This compares to extraordinary losses totaling ¥76,244 million in the previous fiscal year due to
business restructuring expenses and impairment loss on business assets resulting from worsening profitability in
the quartz device business, and further steps in setting the direction of the small- and medium-sized display and
semiconductor businesses based on the new SE15 long-range vision.
Loss before income taxes and minority interests
As a result, Epson recorded a loss before income taxes and minority interests of ¥799 million, down ¥88,760
million from the previous period.
Income taxes
Income taxes decreased ¥7,198 million to ¥18,989 million. Certain income taxes increased commensurate with
increased income at overseas subsidiaries. However, taxable income declined from the previous fiscal year at the
group of domestic companies presenting a consolidated tax return, despite writing down deferred tax assets that
25
were revised as unlikely to be realized. The effective tax rate after the application of deferred tax accounting
came to -2,375.4%.
Minority interests in income
A gain of ¥100 million was recorded for minority interests in subsidiaries, an improvement of ¥4,427 million
from the previous fiscal year. This was primarily due to certain minority interests in subsidiaries that had
accounted for loss in the previous fiscal year becoming wholly owned subsidiaries in the period under review.
Net loss
As a result, Epson recorded a net loss of ¥19,791 million, down ¥91,531 million from the previous period.
(2) Liquidity and capital resources
Cash flow
Net cash provided by operating activities in the period under review was ¥56,542 million, up ¥12,288 million
from the previous fiscal year. This was primarily due to a loss of ¥799 million, in contrast to a loss of ¥89,559
million before income taxes in the previous fiscal year.
The cash flow from investing activities was ¥43,203 million, down ¥17,798 million from the previous fiscal year.
The main reason for the decrease was, despite a ¥10,447 million increase in payments for investment securities,
payments for purchases of tangible and intangible assets declined by ¥28,245 million year-over-year.
Net cash used in financing activities was ¥41,087 million, down from ¥9,558 million in the previous fiscal year.
The main outflows were a net decrease of ¥20,382 million for short- term loans payable and repayments of
¥18,543 million for long-term loans payable, as well as ¥2,654 million for lease obligations and ¥1,374 million
for cash dividends paid. The main inflow was ¥2,000 million in proceeds from long-term loans payable.
Due to these factors, as of March 31, 2010, cash and cash equivalents at the end of the year stood at ¥254,590
million, a drop of ¥29,749 million from the previous fiscal year-end, giving Epson sufficient liquidity.
The total of both short- and long-term loans payable decreased and amounted to ¥209,061 million, down ¥36,986
million from the previous fiscal year.
The majority of long-term loans payable [excluding the current portion of long-term loans payable] amounts to
¥151,593 million, at a weighted average interest rate of 1.21% and with a repayment deadline of March 2015.
These loans were obtained as unsecured loans primarily from banks.
Financial condition
Total assets as of March 31, 2010 stood at ¥870,090 million, a decrease of ¥47,251 million from the previous
fiscal year-end. Current assets were down ¥21,467 million, while fixed assets decreased ¥25,784 million. The
decrease in current assets was due mainly to a decline in marketable securities. The decrease in fixed assets was
primarily the result of selective capital spending and impairment losses on business assets in the electronic
devices business.
Total liabilities were ¥587,226 million, a reduction of ¥11,484 million from the previous fiscal year. Current
liabilities increased ¥44,803 million, while long-term liabilities were down ¥56,288 million. The increase in
current liabilities was due to revised categorization of bonds due to mature within one year; the decrease in
long-term liabilities was due to repayment of long-term loans payable.
Working capital, defined as current assets less current liabilities, was ¥267,558 million, a decrease of ¥66,270
million compared with March 31, 2009.
Total assets declined, and the ratio of interest-bearing debt to total assets dropped from 38.3% to 35.8%.
26
4. Research and development activities
As set forth in the “SE15” long-range corporate vision, Epson is pursuing innovation in compact, energy-saving,
high-precision technologies with the aim of becoming a “community of robust businesses.” Epson’s research and
development programs are designed to achieve this and thus are principally focused on boosting competitiveness
by concentrating management resources on areas of strength, reinforcing business foundations, and using the
technologies and other assets in Epson’s arsenal to create new businesses.
Operations division R&D develops core technologies and shared technology platforms in order to strengthen
Epson’s market position over the short- to long-term. Corporate R&D’s mission is to develop both existing and
new core technologies and shared technology platforms for creating new businesses and revolutionizing
businesses.
Total R&D spending in the year under review was ¥68,849 million. This included ¥27,403 million in the
information-related equipment segment, ¥9,279 million in the electronic devices segment, ¥2,516 million in the
precision products segment, and ¥29,649 million in the other segment and company-wide R&D projects.
The main R&D accomplishments in each business segment are described below.
Information-related equipment
In the printer business, Epson developed the world’s first water-based white ink for large-format inkjet printers
(LFP). In addition to the high-density white ink, certain of the new LFPs come with an ink set that also includes
orange and green inks. These new additions give the printers an even wider color gamut. This is especially true
in the bright and vivid green to yellow and yellow to red portions of the color space. Moreover, the
eco-considerate ink dries quickly at room temperature without the need for heating or other artificial means,
gives off very little of the odor that is particularly anathema among food packagers, and does not release volatile
organic compounds (VOC). Epson also developed new commercial and industrial inkjet printers, including
systems for fabricating liquid crystal color filters, digital textile printing, and industrial label printing. All these
printing systems share the ability to fire microdroplets at extraordinary speeds and the competitive technological
advantage of ink formulation freedom.
In the visual instruments business Epson developed a 3LCD projector that delivers 6,000 lumens of brightness
and a contrast ratio of 5,000:1 thanks to liquid crystal panels fabricated with Epson’s original C2 FineTM
inorganic alignment layer. The projector produces vivid, high-quality images that brightness alone cannot
provide.
Electronic devices
In the quartz device business, Epson developed a six-axis sensor (incorporating a three-axis gyro-sensor and a
three-axis accelerometer) with a wide dynamic range of 81 to 83 dB (200 Hz output bandwidth) to detect a wide
range of motion at both low and high speeds. The sensor, which uses only 6.1 mA of power, was developed for
high-quality camera-shake correction applications, compact high-precision navigation systems, and other
high-integrity motion tracing and motion tracking applications.
In the display business, Epson developed the ULTIMICRON series of color XGA liquid crystal panels for
electronic viewfinders, with different models being developed for use in cameras, camcorders, and
head-mounted displays (HMD). In pursuit of the ultimate high-definition experience, Epson also developed
WUXGA panels that support not only full-HD images but also the higher resolutions required by special
applications. Projectors equipped with these panels can display ultra-high definition 8K images or 4K images in
3D on a 150-inch screen.
In the semiconductor business, Epson and U.S.-based E Ink Corporation jointly developed a controller IC for E
Ink’s VizplexTM electronic paper displays (EPD). Targeting applications in the rapidly xepanding markets for
products such as eBooks and e-tablets, Epson outfitted this EPD controller with its high-performance display
engine and provided support for rich images. The controller manages this while saving space within the display
system. Epson also developed a wireless sensor network system that is resistant to water and metals. Capable of
transmitting data packets through water and soil using low-frequency band communications*1, the active radio
tags used in the system will run for approximately five to seven years on a single battery while sending data
eight times per second*2.
*1 Established as international standard IEEE 1902.1 in February 2009
*2 Equipped with an ultra-low power microcontroller and with a maximum transmission range of
27
approximately five meters.
Other businesses and company-wide
Our researchers established technology for depositing uniform layers using an inkjet process. The process
exploits Epson’s proprietary Micro Piezo inkjet technology to achieve markedly greater accuracy in organic
material deposition than the conventional technology. Extremely uniform layers (weight error < 1%) are
achieved by precisely controlling the selection and ejection of multi-size droplets of ink material on a substrate
so that only the required volume of material is deposited. This technology offers dramatically improved quality
and throughput and helped push the advent of large-screen organic light-emitting diode (OLED) TVs a
significant step closer to realization.
GL bonding technology was developed to achieve optical components that provide uniform wavefront aberration
characteristics. Instead of adhesives made of relatively thick layers of organic material, GL bonding technology
uses inorganic glass materials in an ultra-thin film (as thin as 100 nm) to bond together quartz substrates that
exhibit high photostability and reduced transmitted wavefront aberrations. Wave plates employing GL bonding
technology show no signs of physical changes, transmitted wavefront aberrations, or heat damage even after
being exposed for more than 1,000 hours to blue wavelength light irradiation at a power density on the order of
1 W/mm2.
28
5. Issues for Fiscal 2010
Epson’s operating environment is marked by an acceleration of trends including the increasing influence of
developing markets on the global economy and a shift to sustainable industrial and economic activities.
With society being transformed by changes such as these that have overturned traditional assumptions, Epson
believes that customer values are also set to undergo dramatic change.
Accepting this situation as an opportunity, Epson is implementing structural changes as it seeks to go forward on
a new growth path. To do this it will rediscover its traditional strengths, and concentrate management resources
on businesses with growth potential and which are strategically important.
More specifically, under this policy Epson established its SE15 Long-Range Corporate Vision in March 2009,
setting out its vision for the period up to 2015. We also established the SE15 (First Half) Mid-Range Business
Plan, a three-year mid-range business plan beginning in fiscal 2009.
According to the SE15 Long-Range Corporate Vision, Epson will focus on “compact, energy-saving,
highprecision technologies” as its core strengths since its foundation, and will leverage these strengths as it looks
to achieve sustainable growth. Through the formation of Group-wide platforms, Epson seeks to become “a
community of robust businesses” creating products and services that emotionally engage customers worldwide.
Based on the assumption of continuing severe business conditions, the SE15 (First Half) Mid-Range Business
Plan describes how Epson will combine its strengths to respond to this situation. Epson will implement a range
of measures to ensure its return to a profit-generating structure on the path to realizing the SE15 Long-Range
Corporate Vision.
Going forward, Epson will further shift management resources to areas where it can leverage its strengths and to
businesses with growth potential and which are strategically important, and will look to foster new businesses to
drive future growth. On the other hand, for businesses facing a difficult profit scenario due to the worsening of
the business environment, Epson will implement far-reaching structural reforms and rebuild the foundations of
our business. The Company has taken steps to complete measures such as merging and retiring business sites and
making strategic alliances with other companies.
By demonstrating Group synergies and launching speedy and efficient initiatives, Epson is looking to achieve by
2015 both ROS and ROE of 10% or above on a continuous basis in addition to boosting net sales.
Plans for businesses with growth potential
Printers
In printers, Epson will leverage its core and proprietary Micro Piezo inkjet technology to further strengthen the
foundations of its business. In applications that range from consumer through to business markets, Epson will
take the customers’ viewpoint as it develops products that provide ease-of-use and which emotionally engage
with users.
Epson will also expand operations by increasing the number of models for emerging markets, and launching
environmentally considerate models. We will also seek to expand into the commercial and industrial sectors
through the application of Micro Piezo technology.
Projectors
As the world’s leading manufacturer, Epson aims to maintain top share, increase its presence in the high-end
projector market by leveraging the advantages of its core HTPS TFT LCD technology, and enter and develop
new business domains.
Quartz devices and sensors
By making Epson Toyocom a wholly owned subsidiary in June 2009 to improve management
responsiveness and efficiency, Epson aims to reinforce Epson Toyocom’s position as the leading company
in the crystal device market.
Quartz devices will be positioned as the core of Epson’s electronic device businesses. By creating synergies
with its semiconductor and other technologies, Epson will fortify its lineup of sensing devices and applied
products.
29
6. Dividend policy
The Company believes in distributing profits by maintaining stable dividend payments and seeks to increase cash
flow through greater management efficiency and improved profitability. On that basis, with the goal of achieving
a consistent consolidated dividend payout ratio of 30% over the medium- to long-term, the Company distributes
profits to shareholders while taking into account the need for capital to fuel its business strategy and to maintain
its business performance and financial standing.
The Company’s dividend policy is to pay cash dividends twice a year. The year-end dividend is determined by
resolution of the general shareholders’ meeting and the interim dividend is determined at a meeting of the board
of directors.
This fiscal year, due to the uncertainty surrounding the global economic outlook and our own full-year financial
outlook, we took the extremely regrettable decision not to pay an interim dividend. However, from the second
half onward there have been clear signs that real business results are recovering so, in line with our policy of
returning stable profits to shareholders, we are paying a year-end dividend of ¥10 per share.
The Company’s Articles of Incorporation allow the Company to issue an interim dividend with a base date of
September 30 every year by resolution of the board of directors.
The Company’s distribution of retained earnings for the fiscal year under review is as follows:
Distribution of retained earnings for the fiscal year under review
Date approved
Cash dividends (Millions
of yen)
Cash dividend per share
(Yen)
June 22, 2010, by resolution of
the general shareholders’ meeting
1,997
10
* Please refer to the following for historical information about Epson’s share dividends:
http://global.epson.com/IR/stock dividends.htm
30
Corporate Governance
1. Approach to corporate governance
(1) Corporate governance system
Outline
Epson’s basic approach to corporate governance is encapsulated in its commitment to sustaining trust-based
management. Along with ongoing efforts to increase enterprise value, Epson has initiated a number of practices
designed to reinforce management checks and balances and to assure corporate ethics compliance. In so doing,
the Company seeks to ensure the transparency and soundness of management in the eyes of its customers,
shareholders, employees and other stakeholders.
Epson has a board of directors and a board of auditors. The ten-member board of directors meets once a month
and convenes extraordinary meetings as needed. The board of directors makes decisions regarding basic
management policies, key business operations, period-end closing, disclosure timeframes, and other important
issues. Various other corporate management deliberative bodies are in place to oversee the execution of business
operations. The main corporate management meetings and their aims are as follows:
Corporate Strategy Council/ corporate management meeting
The Corporate Strategy Council and corporate management meetings are convened to thoroughly deliberate
matters before they are referred to the board of directors.
Trust-Based Management Council
The Trust-Based Management Council meets to oversee legal compliance through internal controls, to discuss
risk management issues, and to manage the operating effectiveness of internal controls in general.
Nomination Committee/ Compensation Committee
Epson has established the Nomination Committee for screening board of director candidates and the
Compensation Committee for deliberating director remuneration issues.
Epson’s system of corporate governance, including the elements above, is as follows:
Reasons for adopting the current system of corporate governance
Epson is currently reorganizing its businesses, focusing management resources on growth areas and key
segments to achieve the goals of “SE15,” its long-range corporate vision. The current system of corporate
governance is ideal for driving reorganization and putting Epson back on a growth trajectory. By having
31
directors on the board who understand the situation inside the Company simultaneously oversee the execution of
business operations, the Company is able to expedite decisions and manage its businesses in a way that is best
for the Epson Group as a whole.
Moreover, the engagement of outside auditors and the high degree of independence they bring ensures sufficient
oversight of management not only from a compliance perspective but also in terms of advice on the broader
aspects of management.
Internal control system and risk management improvements
Epson considers Epson’s Management Philosophy to be its most important business concept, and to realize the
mission stated in the Management Philosophy, the Company established “Principles of Corporate Behavior,”
rules for proper business conduct that are shared across the Group, worldwide. Departments within Epson pursue
improvements to internal controls based on the Principles of Corporate Behavior. These improvements are
reported to the Trust-Based Management Council, which is attended by all directors and auditors. By doing this,
Epson is taking action to steadily improve the level of internal control for the entire Group.
Business execution system
Epson is instituting a system that will ensure the appropriate and efficient execution of business. To that end,
Epson has established regulations governing each job function, the division of operational duties, and the
management of affiliated companies while distributing power and authority across the entire Group.
To ensure the appropriateness of corporate activities, affiliated companies must report or receive prior approval
from the parent company for changes in management regulations. Regulations at affiliates that meet certain
criteria are put on the agenda for discussion at the parent company’s board meetings, thereby creating a system
of business oversight for the Group.
Responsibility for the business execution systems of affiliates lies with the person responsible at the relevant
operations division, and support for cross-organizational projects and the like is provided by the respective Head
Office supervisory departments.
Personnel responsible for business operations must report to the board of directors on the items below at least
once every three months.
• Current business performance and performance outlook
• Risk management responses
• Status of key business operations
Safeguarding and management of work-related information
Information on business operations is safeguarded and managed under regulations governing, among other
things, document control, management approval, and contracts, with directors and statutory auditors reviewing
these and other relevant documents on an ongoing basis.
Regulations include the Basic Information Security Regulation, which helps to prevent leaks by providing
Group-wide rules for managing information according to the level of sensitivity.
Compliance-based management
Epson has established Principles of Corporate Behavior for putting its Management Philosophy into practice, as
well as regulations that spell out the compliance-based management requirements that underpin the principles,
and an organizational compliance framework.
The president holds overall responsibility for management’s legal compliance, with the persons responsible at
each operations division in charge of compliance management at their respective businesses and subsidiaries.
Head Office supervisory departments cooperate with the divisions to drive cross-organizational projects.
Epson has installed a legal compliance hotline and other counseling services for reporting any violations.
There is also web-based and other in-house compliance training for employees, including those at subsidiaries.
The Trust-Based Management Council was established to deliberate legal compliance issues under the leadership
of the president. The Trust-Based Management Council manages the overall state of compliance at Epson,
including compliance with laws, internal regulations, and corporate ethics, as well as approaches to key areas of
compliance. Auditors also take seats on the council to verify the details of legal compliance programs.
The president periodically reports to the board of directors on compliance management issues and formulates
appropriate measures to respond to these issues.
32
Epson’s Principles of Corporate Behavior categorically state that the Company will not be involved with
anti-social elements in any way.
Risk management
Epson’s risk management system is founded on regulations that define the organization, procedures, and other
key elements of this system.
Overall responsibility for risk management resides with the president, with the persons responsible at each
operations division in charge of risk management at their respective businesses and subsidiaries.
The Trust-Based Management Council was established to deliberate risk management issues under the leadership
of the president. The Council identifies important Group risks and manages programs to control them. When
major risks become apparent, the president leads the entire company in mounting a swift initial response in line
with Epson’s prescribed crisis management program.
The president periodically reports to the board of directors on risk management issues and formulates
appropriate measures to respond to these issues.
(2) Audit system
Internal audit
Epson’s compliance system guards against potential legal and internal regulatory violations in departmental
operations, and the Audit Office reports directly to the president the results of routine internal audits, including
those conducted at Epson subsidiaries. The Audit Office evaluates the effectiveness of the governance process
and requests improvements where needed.
Statutory audit
Epson has assigned three outside statutory auditors to its five-member board of statutory auditors to ensure
greater independence and transparency of audits.
Based on corporate regulations governing auditors and audit procedures, statutory auditors have the authority to
conduct hearings with directors and other personnel whenever they deem such hearings necessary. Statutory
auditors are also authorized to attend important business meetings, which enables the auditors to conduct audits
based on the same information as that available to directors. Statutory auditors also routinely review important
documents related to management decision making.
Epson has established an Audit Staff Office with specialized personnel to assist the statutory auditors in their
duties. The views of the board of statutory auditors are given a great deal of weight in the evaluation and transfer
of personnel assigned to this office.
To improve the effectiveness of their audits, statutory auditors consult on a regular basis with the Audit Office
and independent public accountants.
Statutory auditors hold regular meetings with representative directors to directly assess business operations.
(3) Outside directors and outside statutory auditors
Outside statutory auditors
Each of Epson’s three outside statutory auditors draws on a wealth of experience and keen insight when
conducting audits, and offers frank opinions to the board of directors.
There is a high degree of independence between Epson and its three outside statutory auditors because, at present,
there are no conflicts of interest between Epson and said auditors, or between Epson and other companies by
which the auditors are employed.
There is no particular system of coordination between outside statutory auditors and audit functions in the
Group; however, statutory auditors actively consult with the Audit Office and independent public accountants.
Each time an issue is identified by an audit, details are passed on to the outside statutory auditors to keep them
informed as appropriate. Moreover, statutory auditors take seats on the Trust-Based Management Council, which
manages the operational effectiveness of internal controls, and they actively seek explanations from departments
where there has been an important incident involving internal control. Statutory auditors are thus kept abreast of
operational issues and the status of measures to address those issues.
33
Outside directors
Epson does not currently have any outside directors. Objective, neutral oversight of management from the
outside is an essential element of corporate governance, and oversight of the board of directors at Epson is
reinforced by having three outside statutory auditors on its five-member board of statutory auditors. Epson
proactively discloses information to statutory auditors, including outside statutory auditors, to ensure the
transparency of its decision making and operational processes by, for example, reserving seats for the auditors at
all corporate management meetings.
(4) Director remuneration
Basic policy
Directors serve to enhance corporate value, both in the immediate and long terms, and Epson has designed its
system of director remuneration to provide them with incentives to improve business performance. The system is
detailed as follows.
The specific monthly salaries of directors are set according to their title, and in consideration of Epson’s business
performance. Director bonuses are paid according to the level of achievement with respect to performance
targets predefined by the board of directors. Bonuses are treated as incentives for directors to ensure performance
goals for the year are met. Furthermore, a portion of the monthly salaries of directors is paid as Epson stock so
that remuneration is linked to share price, and to serve as an incentive for improving business performance in the
long term.
Remuneration paid
Category
Total remuneration
(millions of yen)
Remuneration breakdown
(millions of yen)
Basic salary
Bonus
Number of
individuals
378
378
Directors
(Excluding outside
directors)
Statutory auditors
(Excluding outside
statutory auditors)
Outside directors
Notes
1. The numbers above include one director who retired at the closing of the general shareholders’ meeting on
11
56
56
55
55
3
2
-
-
-
June 24, 2009.
2. Remuneration paid to directors does not include remuneration paid to personnel who hold the position of
director as an additional post.
3. Epson introduced a stock performance (stock-based) component to the remuneration system to link
remuneration more closely to share price, so Epson stock accounts for a portion of basic salary.
4. A resolution of the general shareholders’ meeting held on June 26, 2001, established the maximum amount
of remuneration at ¥70 million per month for directors and at ¥12 million per month for statutory auditors.
5. The remuneration paid does not include director bonuses since bonuses will not be paid for the fiscal year
under review.
6. Stock options are not granted as remuneration.
7.
In addition to the above, a director who retired at the closing of the general shareholders’ meeting held on
June 24, 2009, received ¥44 million in retirement benefits pursuant to a resolution at the general
shareholders’ meeting held on June 23, 2006, on the payment of discontinued benefits for retiring directors.
(5) Stock holdings
Balance sheet total of stocks held for reasons other than pure investment
32 companies
¥11,997 million
34
Issuing company, number, and balance sheet total of stocks held for reasons other than pure investment
Company
Shares (stock)
Balance sheet total
(millions of yen)
Reason held
NGK Insulators, Ltd.
3,757,000
Mizuho Financial Group, Inc.
15,003,480
Seiko Holdings Corporation
1,644,080
The Hachijuni Bank, Ltd.
Marubun Corporation
489,500
332,640
Iwasaki Electric Co., Ltd.
1,000,000
Hakuto Co., Ltd.
King Jim Co., Ltd.
Otuska Corporation
Joshin Denki Co., Ltd.
190,000
221,980
10,000
70,000
7,164 Strengthen
business ties
2,775 Strengthen
business ties
404 Strengthen
business ties
260 Strengthen
business ties
188 Strengthen
business ties
176 Strengthen
business ties
172 Strengthen
business ties
157 Strengthen
business ties
59 Strengthen
business ties
59 Strengthen
business ties
(6) Accounting audits
(a) Names and other details of corporate public accountants performing audits
Name of CPA
Audit company
Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
Takashi Ide
Ernst & Young
ShinNihon LLC
Seiji
Yamamoto
Ernst & Young
ShinNihon LLC
Taisuke Ide
Ernst & Young
ShinNihon LLC
No. of successive years
performing audits
1
4
1
Note
On June 26, 2007, the Fuji Accounting Office and Misuzu Audit Corporation completed their terms as
independent auditors. The Company accordingly appointed Ernst & Young ShinNihon as its new independent
auditor. The above-mentioned successive years performing audits include audits performed with Misuzu Audit
Corporation.
(b) Composition of auditing team
The auditing team comprises 43 staff including eight certified public accountants, 16 junior accountants, and 19
other accounting staff.
(7) Outline of contract limiting liability
The Company’s contract with the outside statutory auditor is based on Article 427, Paragraph 1, of the Japanese
35
Companies Act, and the contract stipulations determining the liability for damages on Article 423, Paragraph 1,
of the same law. Said contract also stipulates that the limit of liability for damages shall be the legal maximum.
The scope of liability concerning the outside statutory auditor is limited to errors and omissions that occur in
good faith and that are not serious.
(8) Number of directors
Epson’s Articles of Incorporation determine the maximum number of directors to be ten.
(9) Election and retirement of directors
According to its Articles of Incorporation, directors of the Company can be elected by a majority vote by at least
one third of shareholders with voting rights, and not through cumulative voting.
Provisions regarding the retirement of directors do not vary from the provisions of the Japanese Companies Act.
(10) Items for the General Shareholders’ Meeting that can be determined by the board of directors
Treasury stock acquisition
The Company’s Articles of Incorporation allow the Company to acquire treasury stock through stock market
trade and other means by resolution of the board of directors. This enables a more flexible capital policy in
response to a changing business environment.
Director and auditor exemption from liability
When liability falls under the requirements stipulated in Article 426, Paragraph 1, of the Japanese Companies
Act, the Company’s Articles of Incorporation allow the Company to exempt the directors and auditors from
liability for damages in Article 423, Paragraph 1, of the Japanese Companies Act up to the amount remaining
after the legal minimum liability is deducted from the total liability amount by resolution of the board of
directors. This allows the directors to fully apply themselves to their expected role of building an organization
capable of aggressive business expansion, and allows the statutory auditors to fulfill their functions accordingly.
Interim dividend
The Company’s Articles of Incorporation allow the Company to declare an interim dividend with a date of record
of September 30 every year by resolution of the board of directors. This provides the Company with flexibility in
paying dividends to shareholders.
(11) Special resolution requirements of the General Shareholders’ Meeting
The Company’s Articles of Incorporation set forth the requirements for a special resolution of the general
shareholders’ meeting stipulated in Article 309, Paragraph 2, of the Japanese Companies Act as a two-thirds
majority vote by at least one third of shareholders with voting rights. This policy is intended to ensure smooth
operation of the general shareholders’ meeting by relaxing the quorum requirements for special resolutions in the
general shareholders’ meeting.
2. Details of audit remuneration
(1) Remuneration for audits by certified public accountants
(Millions of yen)
Category
Previous fiscal year
Fiscal year under review
Remuneration for
audit certification
work
Remuneration for
non-audit work
Remuneration for
audit certification
work
Remuneration for
non-audit work
Filing company
Consolidated
subsidiaries
Total
188
127
316
4
-
4
159
146
305
0
-
0
(2) Other important remuneration
Previous fiscal year
Total payments for audits carried out on behalf of 11 consolidated overseas subsidiaries by auditing certified
36
public accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2010, amounted
to ¥31 million.
Fiscal year under review
Total payments for audits carried out on behalf of 26 consolidated overseas subsidiaries by auditing certified
public accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2011, amounted
to ¥136 million.
(3) Non-audit work performed by auditing certified public accountant at filing company
Previous fiscal year
Remuneration paid for non-audit work performed by the auditing certified public accountant was for consultancy
services relating to internal control systems, in particular financial reporting.
Fiscal year under review
Remuneration paid for non-audit work performed by the auditing certified public accountant was for consultancy
services, in particular training courses.
(4) Governing policy for auditor remuneration
This does not apply because remuneration for auditing services is determined according to the nature of the audit
work.
3. Basic policy regarding company control
At its meeting on April 30, 2008, Epson’s board of directors agreed to a basic policy governing persons who
control our financial and business policy decisions (hereinafter the “basic policy”).
(1) Overview
Epson believe that its shareholders should be determined through free trade on the market. Therefore, the
decision as to whether to accept a takeover offer that would allow another party to acquire a controlling share of
Epson and thus gain power over the Company’s financial and business decisions should ultimately be put before
the shareholders.
To ensure and enhance the corporate value and common interests of shareholders, Epson believes it is essential
for Epson’s directors, managers, and employees to work as a team to create value, to pursue the Epson tradition
of creativity and challenge, and to earn and keep the trust of its customers.
Not all large-scale acquisitions of shares enhance the value of the Company whose shares are being acquired,
however, nor do they serve the common interests of shareholders. Epson recognizes the need to use all necessary
and appropriate means to protect the company’s corporate value and the common interests of its shareholders
against persons seeking to improperly acquire large numbers of shares in an attempt to gain control over
decisions concerning the Company’s financial and business policies.
(2) Efforts in preventing parties who are deemed inappropriate based on its basic policy from gaining
control over Epson’s financial and business policy decision making
Aiming to ensure and enhance corporate value and the common interests of its shareholders, Epson introduced a
series of measures (the “Plan”) to prevent large-scale acquisition of Epson shares after shareholders approved the
Plan at their annual general meeting held on June 25, 2008.
The purpose of the Plan is to allow the Epson board of directors to secure the time and information necessary for
shareholders to decide whether to accept the bid or to present shareholders with alternative proposals, and to
discuss and negotiate with the acquirer for the benefit of shareholders, in order to prevent large-scale acquisitions
of Epson shares that do not enhance corporate value or that are not in the common interest of shareholders.
Specifically, if a party intends to acquire 20% or more of shares outstanding or to stage a takeover bid, they shall
be required to submit documentation justifying the acquisition in advance to the Epson board of directors and to
comply with the procedures defined in the Plan. Furthermore, the Plan allows for the activation of provisions to
halt the acquisition in question if, for example, it is not conducted in line with the Plan or it is deemed contrary
to Epson’s value as a company or the common interest of its shareholders.
37
To prevent arbitrary decisions being made by the Epson board of directors in their administration of the Plan,
including the activation of preventive provisions, it is subject to the approval of a special committee made up of
highly independent external parties. Actions of the special committee shall include examination of stock
acquisition details, requesting information from the Epson board of directors regarding alternative proposals,
disclosing information to shareholders, and negotiating with parties intending to make acquisitions. The special
committee shall advise the Epson board of directors on the necessity to activate the Plan, and the Epson board of
directors shall give maximum regard to that advice before implementing their resolutions promptly as an organ
of the Japanese Companies Act.
* Please refer to the following release for a more detailed explanation.
http://global.epson.com/newsroom/2008/news 20080430 5.htm
38
Management
Directors, statutory auditors and executive officers of the Company correct as of the date when the annual
securities report (“yukashoken-houkokusho”) was submitted and their functions are listed below.
Position
Current function
Name
Seiji Hanaoka
Yasuo Hattori
Minoru Usui
Masayuki Morozumi
Chairman
Vice-Chairman
President
(Representative Director)
Senior Managing Director
(Representative Director)
Kenji Kubota
Managing Director
(Representative Director)
Torao Yajima
Managing Director
Seiichi Hirano
Managing Director
Noriyuki Hama
Director
Tadaaki Hagata
Director
Yoneharu Fukushima
Director
Kenji Uchida
Standing Statutory
Auditor
Toru Oguchi
Standing Statutory
Auditor
Yoshiro Yamamoto
Tatsuhiro Ishikawa
Kenji Miyahara
Hiroshi Komatsu
Outside Statutory Auditor
Outside Statutory Auditor
Outside Statutory Auditor
Managing Executive
Officer
John Lang
Managing Executive
Masataka
Kamiyanagi
Officer
Managing Executive
Officer
General Administrative Manager,
Business Infrastructure Improvement
Division, and Chief Operating Officer,
Precision Products Operations Segment
General Administrative Manager,
Corporate Strategy Division
Chief Operating Officer, Electronic
Devices Operating Segment, and
President, Epson Toyocom Corporation
General Administrative Manager, Global
Sales & Marketing Planning Division,
and President, Epson Sales Japan
Corporation.
General Administrative Manager, Human
Resources Division, and Chairman,
Epson Europe B.V.
Chief Operating Officer, Imaging
Products Operations Segment
General Administrative Manager,
Corporate Research & Development
Division
Deputy General Administrative Manager,
Global Sales & Marketing Planning
Division
President and Chief Executive Officer,
Epson America, Inc
General Administrative Manager,
Intellectual Property Division
39
Akihiko Sakai
Executive Officer
Kazuki Ito
Akio Mori
Executive Officer
Executive Officer
Kiyofumi Koike
Executive Officer
Ryuhei Miyagawa
Executive Officer
Koichi Endo
Executive Officer
Hiromi Taba
Koichi Kubota
Executive Officer
Executive Officer
Motonori Okumura
Executive Officer
Deputy Chief Operating Officer, Imaging
Products Operations Segment, and
General Administrative Manager,
Imaging Products Business Planning &
Management Office
Vice-Chairman, Epson (China) Co., Ltd.
Chief Operating Officer, Watch
Operations Division
Chairman and President, Epson (China)
Co., Ltd.
Chief Operating Officer, Semiconductor
Operations Division, and President,
Tohoku Epson Corporation
Chairman, Epson Singapore Pte. Ltd. and
Chairman, Singapore Epson Industrial
Pte. Ltd.
President, Epson Europe B.V.
Chief Operating Officer, Visual
Instruments Operating Division
Chief Operating Officer, Imaging &
Information Operating Division
40
Index to Consolidated Financial Statements
Seiko Epson Corporation and Subsidiaries
Consolidated Balance Sheets………………………………………..
Consolidated Statements of Income…………………………………
Consolidated Statements of Changes in Net Assets…………….…
Consolidated Statements of Cash Flows………………………….…
Notes to Consolidated Financial Statements ……………………….
42
44
45
47
48
41
Consolidated Balance Sheets
Assets
Current assets
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets
Property, plant and equipment
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Construction in progress
Other
Accumulated depreciation
Total property, plant and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets
Millions of yen
March 31,
2009
March 31,
2010
Thousands of U.S.
dollars
March31,
2010
¥172,921
134,133
102,014
91,471
36,947
19,132
12,673
51,773
(3,389)
617,677
404,869
518,819
184,508
54,994
2,958
137
(912,574)
253,712
－
16,789
16,789
15,281
44
2,751
11,368
(284)
29,161
299,664
¥917,342
¥193,117
144,435
51,511
90,284
39,198
21,710
9,307
48,903
(2,258)
596,210
405,096
467,364
174,014
54,912
4,318
127
(880,479)
225,354
2,873
15,187
18,060
16,087
47
4,551
9,978
(200)
30,464
273,879
¥870,090
$2,075,634
1,552,396
553,643
970,378
421,302
233,340
100,032
525,659
(24,269)
6,408,115
4,353,998
5,023,258
1,870,313
590,197
46,410
1,399
(9,463,445)
2,422,130
30,879
163,231
194,110
172,904
505
48,914
107,255
(2,149)
327,429
2,943,669
$9,351,784
The accompanying notes are an integral part of these financial statements.
42
Liabilities
Current liabilities
Notes and accounts payable-trade
Short-term loans payable
Current portion of bonds
Current portion of long-term loans payable
Accounts payable-other
Income taxes payable
Deferred tax liabilities
Provision for bonuses
Provision for product warranties
Provision for loss on litigation
Other
Total current liabilities
Noncurrent liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities
Provision for retirement benefits
Provision for recycle costs
Provision for product warranties
Provision for loss on litigation
Negative goodwill
Other
Total noncurrent liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock
Authorized - 607,458,368 shares
Issued - 199,817,389 shares
Capital surplus
Retained earnings
Treasury stock
March 31, 2010 - 22,089 shares
March 31, 2009 - 3,018 shares
Total shareholders' equity
Valuation and translation adjustments
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Total valuation and translation adjustments
Minority interests
Total net assets
Total liabilities and net assets
Millions of yen
March 31,
2009
March 31,
2010
Thousands of U.S.
dollars
March 31,
2010
¥90,768
$975,580
¥70,177
42,182
－
18,543
61,748
6,208
274
11,572
9,813
8,214
55,113
283,848
100,000
185,322
5,818
12,966
926
677
45
1,729
7,375
314,862
598,710
53,204
79,500
208,524
(8)
341,220
2,835
(2,175)
(39,255)
(38,596)
16,007
318,631
21,739
30,000
35,728
58,576
10,024
83
14,484
9,928
1,220
56,097
328,652
70,000
151,593
10,207
20,008
396
450
－
－
5,917
258,574
587,226
53,204
84,321
187,358
(35)
324,847
4,023
130
(47,705)
(43,552)
1,568
282,864
233,652
322,441
384,006
629,578
107,738
892
155,674
106,706
13,112
602,995
3,532,374
752,364
1,629,331
109,705
215,047
4,256
4,836
－
－
63,631
2,779,170
6,311,544
571,840
906,287
2,013,736
(376)
3,491,487
43,239
1,397
(512,735)
(468,099)
16,852
3,040,240
$9,351,784
The accompanying notes are an integral part of these financial statements.
43
¥917,342
¥870,090
Consolidated Statements of Income
Net sales
Cos t of sales
Gros s profit
Selling, general and administrative expenses
Operating income (loss )
Non-operating income:
Interes t income
Rent income
Amortization of negative goodwill
Other
Total non-operating income
Non-operating expens es:
Interes t expenses
Foreign exchange loss es
Other
Total non-operating expens es
Ordinary income
Extraordinary income:
Gain on s ales of noncurrent ass ets
Gain on s ales of inves tment securities
Revers al of provision for recycle cos ts
Other
Total extraordinary income
Extraordinary loss:
Impairment loss
Los s on antitrus t law fine
Other
Total extraordinary losses
Income (loss) before income taxes and minority interests
Income taxes -current
Income taxes -deferred
Total income taxes
Minority interes ts in income (loss)
Net income (loss )
Millions of yen
Thous ands of U.S.
dollars
March 31,
2009
March 31,
2010
March 31,
2010
¥1,122,497
833,053
289,443
291,031
(1,588)
¥985,363
725,894
259,469
241,241
18,227
$10,590,745
7,801,956
2,788,789
2,592,885
195,904
4,288
1,215
1,342
8,101
14,948
6,110
－
1,947
8,058
5,301
349
57
－
1,062
1,469
20,348
－
75,982
96,331
(89,559)
7,744
18,443
26,188
(4,425)
(¥111,322)
1,259
1,014
1,368
4,084
7,726
5,070
5,076
1,931
12,078
13,875
595
394
593
493
2,078
7,269
2,457
7,026
16,753
(799)
13,740
5,249
18,989
1
(¥19,791)
13,531
10,898
14,703
43,907
83,039
54,492
54,557
20,765
129,814
149,129
6,395
4,234
6,373
5,332
22,334
78,127
26,407
75,516
180,050
(8,587)
147,678
56,439
204,117
10
($212,714)
The accompanying notes are an integral part of these financial statements.
44
Consolidated Statements of Changes in Net Assets
Shareholders' equity
Capital stock
Balance at the end of previous period
Changes of items during the period
Total changes of items during the period
Balance at the end of current period
Capital surplus
Balance at the end of previous period
Changes of items during the period
Increase by share exchanges
Total changes of items during the period
Balance at the end of current period
Retained earnings
Balance at the end of previous period
Changes of items during the period
Dividends from surplus
Net income (loss)
Total changes of items during the period
Balance at the end of current period
Treasury stock
Balance at the end of previous period
Changes of items during the period
Purchase of treasury stock
Disposal of treasury stock
Total changes of items during the period
Balance at the end of current period
Total shareholders' equity
Balance at the end of previous period
Changes of items during the period
Increase by share exchanges
Dividends from surplus
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Total changes of items during the period
Balance at the end of current period
Valuation and translation adjustments
Valuation difference on available-for-sale securities
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Deferred gains or losses on hedges
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Foreign currency translation adjustment
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Millions of yen
March 31,
2009
March 31,
2010
Thousands of U.S.
dollars
March 31,
2010
¥53,204
¥53,204
$571,840
－
53,204
79,500
－
－
79,500
326,719
(6,872)
(111,322)
(118,195)
208,524
(7)
(1)
－
(1)
(8)
459,417
－
(6,872)
(111,322)
(1)
－
(118,196)
341,220
3,859
(1,024)
(1,024)
2,835
156
(2,332)
(2,332)
(2,175)
(16,227)
(23,027)
(23,027)
(39,255)
－
53,204
79,500
4,820
4,820
84,321
－
571,840
854,482
51,805
51,805
906,287
208,524
2,241,217
(1,374)
(19,791)
(21,165)
187,358
(8)
(27)
0
(26)
(35)
(14,767)
(212,714)
(227,481)
2,013,736
(86)
(290)
0
(290)
(376)
341,220
3,667,453
4,820
(1,374)
(19,791)
(27)
0
(16,372)
324,847
2,835
1,188
1,188
4,023
51,805
(14,767)
(212,714)
(290)
0
(175,966)
3,491,487
30,471
12,768
12,768
43,239
(2,175)
(23,388)
2,306
2,306
130
24,785
24,785
1,397
(39,255)
(421,925)
(8,449)
(8,449)
(47,705)
(90,810)
(90,810)
(512,735)
The accompanying notes are an integral part of these financial statements.
45
Total valuation and translation adjustments
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Minority interests
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Total net assets
Balance at the end of previous period
Changes of items during the period
Increase by share exchanges
Dividends from surplus
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Millions of yen
March 31,
2009
March 31,
2010
Thousands of U.S.
dollars
March 31,
2010
(12,211)
(26,384)
(26,384)
(38,596)
24,240
(8,233)
(8,233)
16,007
471,446
－
(6,872)
(111,322)
(1)
－
(34,618)
(152,815)
¥318,631
(38,596)
(414,842)
(4,955)
(4,955)
(43,552)
(53,257)
(53,257)
(468,099)
16,007
172,043
(14,439)
(14,439)
1,568
(155,191)
(155,191)
16,852
318,631
3,424,654
4,820
(1,374)
(19,791)
(27)
0
(19,394)
(35,767)
¥282,864
51,805
(14,767)
(212,714)
(290)
0
(208,448)
(384,414)
$3,040,240
The accompanying notes are an integral part of these financial statements.
46
Consolidated Statements of Cash Flows
Consolidated statements of cash flows
Net cash provided by (used in) operating activities
Income (loss) before income taxes and minority interests
Depreciation and amortization
Impairment loss
Equity in (earnings) losses of affiliates
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for retirement benefits
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on sales of noncurrent assets
Loss on retirement of noncurrent assets
Loss (gain) on sales of investment securities
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in accrued consumption taxes
Increase (decrease) in notes and accounts payable-trade
Other, net
Subtotal
Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Decrease (increase) in time deposits
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Purchase of long-term prepaid expenses
Purchase of investments in subsidiaries
Other, net
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayments of lease obligations
Purchase of treasury stock
Proceeds from sales of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Millions of yen
March 31,
2009
March 31,
2010
Thousands of U.S.
dollars
March 31,
2010
(¥89,559)
78,406
20,348
(58)
(1,211)
761
(8,441)
(900)
(2,247)
(4,618)
6,110
(57)
(318)
2,373
(57)
50,239
(3,686)
440
(30,931)
41,916
58,507
3,792
(6,259)
(11,786)
44,253
712
(601)
399
(52,163)
564
(7,918)
19
(462)
(2,371)
819
(61,002)
18,851
90,000
(103,029)
(7,795)
(1)
－
(6,872)
(710)
(9,558)
(5,767)
(32,074)
316,414
¥284,340
(¥799)
47,395
7,269
(126)
(462)
(918)
2,931
58
8,287
(1,536)
5,070
(1,165)
(286)
1,038
(365)
(8,373)
(7,128)
(667)
17,646
5,629
73,497
336
(5,131)
(12,159)
56,542
523
(14)
929
(27,196)
895
(4,640)
5
(204)
(13,405)
(95)
(43,203)
(20,382)
2,000
(18,543)
(2,654)
(27)
0
(1,374)
(105)
(41,087)
(2,000)
(29,749)
284,340
¥254,590
($8,587)
509,404
78,127
(1,354)
(4,965)
(9,866)
31,502
623
89,069
(16,509)
54,492
(12,521)
(3,073)
11,156
(3,923)
(89,993)
(76,612)
(7,168)
189,660
60,488
789,950
3,611
(55,148)
(130,696)
607,717
5,621
(150)
9,984
(292,304)
9,619
(49,871)
53
(2,192)
(144,077)
(1,031)
(464,348)
(219,090)
21,496
(199,301)
(28,525)
(290)
0
(14,767)
(1,128)
(441,605)
(21,519)
(319,755)
3,056,104
$2,736,349
The accompanying notes are an integral part of these financial statements.
47
Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
(1) Nature of operations
Seiko Epson Corporation (“the Company”) was originally established as a manufacturer of watches but later
expanded its business to provide key devices and solutions for the digital color imaging markets through the
application of its proprietary technologies. The Company operates its manufacturing and sales business mainly in
Japan, the Americas, Europe and Asia/Oceania.
(2) Basis of presenting consolidated financial statements
The Company and its subsidiaries in Japan maintain their records and prepare their financial statements in
accordance with accounting principles generally accepted in Japan. Its foreign subsidiaries maintain their records
and prepare their financial statements in conformity with International Financial Reporting Standards or the
generally accepted accounting principles in the United States. In addition, some items required by Japanese
standards should be adjusted in the consolidation process so that net income is accurately accounted for, unless
they are not material.
In the accompanying consolidated financial statements, “Epson” is referred to as the Company and its
consolidated subsidiaries and affiliates.
The amounts in the accompanying consolidated financial statements and the notes are rounded down.
2. Number of group companies
As of March 31, 2010, the Company had 95 consolidated subsidiaries. It has applied the equity method in respect
to three unconsolidated subsidiaries and five affiliates.
3. Acquisitions
As of March 11, 2009, the Company owned 66.69% of the issued and outstanding shares of consolidated
subsidiary Epson Toyocom Corporation (“Epson Toyocom”). Aiming to make Epson Toyocom a wholly-owned
subsidiary, the Company, from March 12, 2009, to April 23, 2009, undertook a tender offer to acquire all of the
issued and outstanding shares of Epson Toyocom. As a result, the Company’s ownership of Epson Toyocom’s
issued shares rose to 91.05% as of April 30, 2009. On June 1, 2009, the Company conducted a share exchange by
which Epson Toyocom became a wholly-owned subsidiary.
By completing this tender offer and share exchange, Epson intended to increase management speed and further
improve efficiency with the purpose of enhancing Group synergies, strengthening business foundations and
optimizing corporate value.
Details such as acquisition cost, share exchange ratio and calculation method, and goodwill generated are as
follows:
Acquisition cost of the subsidiary’s shares
Cash
Value of the Company’s shares used for acquisition (Note)
Consulting fees, etc.
¥13,045
4,820
360
Millions of yen
Thousands of
U.S. dollars
$140,209
51,805
3,869
Total acquisition cost
¥18,225
$195,883
Note: The value of the Company’s shares was based on its share price on the date of the share exchange.
48
Share exchange ratio and calculation method
Exchange ratio: One share of the Company’s common stock for 0.21 share of Epson Toyocom common stock
The above share exchange ratio was calculated after Epson Toyocom selected PwC Advisory Co., Ltd. as
third-party consultants, and the Company engaged Merrill Lynch Japan Securities Co., Ltd. from the tender offer
stage as financial advisors. The ratio was determined after careful deliberations and close consultations among
the various parties.
Details of the number and value of shares exchanged are as follows:
Number of shares exchanged: 3,452,797
Value of shares exchanged: ¥4,820 million ($51,805 thousand)
Goodwill generated
Value of goodwill generated: ¥4,140 million ($44,496 thousand)
The Company recognizes the difference between the acquisition cost of the outstanding Epson Toyocom shares
and the decrease in minority interests as goodwill. Goodwill is amortized over five years using the straight-line
method.
Accounting for this transaction was based on the “Accounting Standard for Business Combinations” issued by
the Business Accounting Council on October 31, 2003 and on the “Guidance on Accounting Standard for
Business Combinations and Accounting Standard for Business Divestitures” issued by the Accounting Standards
Board of Japan (“ASBJ”) on November 15, 2007.
4. Summary of significant accounting policies
(1) Consolidation and investments in affiliates
The accompanying consolidated financial statements include the accounts of the Company and those of its
subsidiaries that are controlled by Epson. Under the effective control approach, all majority-owned companies
are to be consolidated. Additionally, companies in which share ownership equals 50% or less may be required to
be consolidated in cases where such companies are effectively controlled by other companies through the
interests held by a party who has a close relationship with the parent in accordance with Japanese accounting
standards. All significant inter-company transactions and accounts, along with unrealized inter-company profits,
are eliminated upon consolidation.
Investments in affiliates in which Epson has significant influence are accounted for using the equity method.
Consolidated income includes Epson’s current equity in net income or loss of affiliates after elimination of
significant unrealized inter-company profits.
The difference between the cost and the underlying net assets of investments in subsidiaries is recognized as
“goodwill” and is included in the intangible assets account (if the cost is in excess) or in the noncurrent liabilities
account (if the underlying net asset is in excess). Goodwill is amortized on a straight-line basis over a period of
five years.
(2) Foreign currency translation and transactions
Foreign currency transactions are translated using foreign exchange rates prevailing at the respective transaction
dates. Receivables and payables in foreign currencies are translated at the foreign exchange rates prevailing at
the respective balance sheet dates, and the resulting transaction gains or losses are included in income for the
current period.
All the assets and liabilities of foreign subsidiaries and affiliates are translated at the foreign exchange rates
prevailing at the respective balance sheet dates, and all the income and expense accounts are translated at the
49
average foreign exchange rates for the respective periods. Foreign currency translation adjustments are recorded
in the consolidated balance sheets as translation adjustments and minority interest in subsidiaries.
(3) Cash and cash equivalents
Cash and cash equivalents included in the consolidated financial statements comprise cash on hand, bank
deposits that may be withdrawn on demand, and highly liquid investments purchased with initial maturities of
three months or less, and which present low risk of fluctuation in value.
(4) Financial instruments
(a) Investments in debt and equity securities
Investments in debt and equity securities are classified into three categories: 1) trading securities, 2)
held-to-maturity debt securities, or 3) other securities. These categories are treated differently for
purposes of measuring and accounting for changes in fair value.
Trading securities held for the purpose of generating profits from changes in market value are
recognized at their fair value in the consolidated balance sheets. Changes in unrealized gains and
losses are included in current income. Held-to-maturity debt securities are expected to be held to
maturity and are recognized at amortized cost computed based on the straight-line method in the
consolidated balance sheets. Other securities for which market quotations are available are recognized
at fair value in the consolidated balance sheets. Unrealized gains and losses for these other securities
are reported as a separate component of net assets, net of taxes. Other securities for which market
quotations are unavailable are stated at cost, primarily based on the moving-average cost method.
Other-than-temporary declines in the value of other securities are reflected in current income.
(b) Derivative instruments
Derivative instruments (i.e., forward exchange contracts, interest rate swaps and currency options) are
recognized as either assets or liabilities at their respective fair value at the date of contract, and gains
and losses arising from changes in fair value are recognized in earnings in the corresponding fiscal
period.
Interest rate swaps meeting certain hedging criteria are not recognized at their fair value under
exceptional processes recognized in Japanese accounting standards. The amounts received or paid for
such interest rate swap arrangements are charged or credited to interest expenses as incurred.
(c) Allowance for doubtful accounts
Allowance for doubtful accounts is calculated based on the aggregate amount of estimated credit
losses for doubtful receivables plus an amount for receivables other than doubtful receivables
calculated using historical write-off experience from certain prior periods.
(5)
Inventories
Inventories are stated at the lower of cost or market value, where cost is primarily determined using the
weighted-average cost method.
(6) Property, plant and equipment
Property, plant and equipment, including significant renewals and improvements, are carried at cost less
accumulated depreciation. Maintenance and repairs, including minor renewals and improvements, are charged to
income as incurred. Depreciation of property, plant and equipment is mainly computed based on the
declining-balance method for the Company and its Japanese subsidiaries, and on the straight-line method for
50
foreign subsidiaries at rates based on estimated useful lives. For buildings acquired by the Company and its
Japanese subsidiaries on or after April 1, 1998, depreciation is computed based on the straight-line method,
which is prescribed by Japanese income tax laws.
The estimated useful lives of significant depreciable assets principally range from 8 to 50 years for buildings and
structures, and from 2 to 12 years for machinery, equipment and vehicles.
(7)
Intangible assets
Amortization of intangible assets is computed using the straight-line method. Amortization of software for
internal use is computed using the straight-line method over its estimated useful life, ranging from three to five
years.
(8)
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This review is performed using estimates of future cash
flows. If the carrying value of a long-lived asset is considered to be impaired, an impairment charge is recorded
for the excess of the carrying value of the long-lived asset over its recoverable amount.
(9) Provision for bonuses
Provision for bonuses to employees is calculated on the basis of the estimated amounts that Epson is obligated to
pay its employees after the fiscal year-end for services provided up to the balance sheet dates.
Provision for bonuses to directors and statutory auditors are provided for the estimated amounts that the
Company is obligated to pay to directors and statutory auditors subject to the resolution of the general
shareholders’ meeting held subsequent to the fiscal year-end.
(10) Provision for product warranties
Epson provides an accrual for estimated future warranty costs based on the historical relationship of warranty
costs to net sales. Specific warranty provisions are made for those products where warranty expenses can be
specifically estimated.
(11) Provision for loss on litigation
Provision for loss on litigation are mainly provided for the estimated future compensation payment and litigation
expenses.
(12) Income taxes
The provision for income taxes is computed based on income before income taxes and minority interest in the
consolidated statements 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 basis of assets and liabilities.
The Company applies the consolidated tax return system for the calculation of income taxes. Under the
consolidated tax return system, the Company consolidates all wholly-owned domestic subsidiaries based on
Japanese tax regulations.
(13) Provision for retirement benefits
The Company and some of its Japanese subsidiaries recognize provision for retirement benefits to employees
based on the actuarial valuation of projected benefit obligation and the fair value of plan assets. Other Japanese
51
subsidiaries recognize provision for retirement benefits to employees based on the voluntary retirement benefit
payable at the year-end.
Pension benefits are determined based on years of service, basic rates of pay and conditions under which the
termination occurs, and are payable at the option of the retiring employee either in a lump-sum amount or as an
annuity. Contributions to the plans are funded through several financial institutions in accordance with the
applicable laws and regulations.
Unrecognized prior service costs are amortized based on the straight-line method over a period of five years
beginning at the date of adoption of the plan amendment. Unrecognized actuarial gains and losses are amortized
based on the straight-line method over a period of five years starting from the beginning of the subsequent year.
Effective April 1, 2009, the Company and some of its Japanese subsidiaries adopted ASBJ Statement No.19,
“Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” issued on July 31, 2008. The
adoption of the amendments had no effect on Epson’s financial results for the year ended March 31, 2010.
Most of the Company’s foreign subsidiaries have various retirement plans, which are primarily defined
contribution plans.
(14) Provision for recycle costs
At the time of sale, provision for recycle costs is calculated based on the estimated future returns of consumer
personal computers.
(15) Revenue recognition
Revenue from sale of goods is recognized at the time when goods are shipped. Revenue from services is
recognized when services are rendered and accepted by customers.
(16) Research and development costs
Research and development costs are charged as incurred.
(17) Leases
Epson leases certain office space, machinery and equipment and computer equipment from third parties using
capital leases. Most of the capital leases are other than those under which ownership of the assets will be
transferred to the lessee at the end of the lease term, and are depreciated/amortized in accordance with the
straight-line method over the periods of the leases, assuming no residual value.
(18) Net income per share
Net income per share is computed based on the weighted-average number of common shares outstanding during
each fiscal period.
(19) Dividends
Dividends are charged to retained earnings in the fiscal year in which they are paid after approval by
shareholders. In addition to year-end dividends, the board of directors may declare interim cash dividends by
resolution to the registered shareholders as of September 30 of each year.
5. U.S. dollar amounts
U.S. dollar amounts presented in the accompanying consolidated financial statements and in these notes are
included solely for the convenience of readers. These translations should not be construed as representations that
52
the yen amounts actually represent, or have been or could be converted into U.S. dollars at that or any other rate.
As the amounts shown in U.S. dollars are for convenience only, a rate of ¥93.04 = U.S.$1, the exchange rate
prevailing on March 31, 2010, has been used.
6.
Inventories
Losses recognized and charged to cost of sales as a result of valuations on March 31, 2009 and 2010, were
¥30,979 million and ¥30,115 million ($323,677 thousand), respectively.
7.
Investments in debt and equity securities
Epson classifies all investments in debt and equity securities as either held-to-maturity debt securities or other
securities.
The carrying amount of held-to-maturity debt securities, which was recognized at amortized cost and included in
the short-term investments and investment securities accounts at March 31, 2009, comprised the following:
Held-to-maturity debt securities
Commercial paper
National/Local government bonds and other
Total
Millions of yen
March 31
2009
¥999
148
¥1,147
The aggregate cost and market value (carrying value) of other securities with market value, which were included
in the investment securities account on March 31, 2009, were as follows:
Millions of yen
March 31, 2009
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
¥6,878
250
¥4,111
-
¥7,128
¥4,111
(¥156)
(-)
(¥156)
¥10,833
250
¥11,083
Equity securities
Other
Total
The carrying amount of other securities, which was carried at cost and included in the short-term investments
account and investment securities account at March 31, 2009, comprised the following:
Millions of yen
March 31
2009
¥101,000
809
300
14
¥102,124
Other securities
Certificate of deposit
Unlisted equity securities
Corporate bonds
Other
Total
53
The aggregate cost and market value (carrying value) of other securities with market value, which were included
in the short-term investment securities account and the investment securities account at March 31, 2010, were as
follows:
Millions of yen
March 31, 2010
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
¥6,300
51,500
227
¥5,749
-
-
Total
¥58,027
¥5,749
(¥88)
(-)
(-)
(¥88)
¥11,961
51,500
227
¥63,688
Thousands of U.S. dollars
March 31, 2010
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
$67,712
553,526
2,439
$61,790
-
-
($945)
(-)
(-)
$128,557
553,526
2,439
Total
$623,677
$61,790
($945)
$684,522
From the fiscal year ended March 31, 2010, the table above includes certificate of deposit. Unlisted securities,
which were carried at a cost of ¥967 million ($10,393 thousand) at March 31, 2010, are not included in this table
because market quotations are unavailable, and it is therefore extremely difficult to estimate their market value.
For the year ended March 31, 2009, the total amount of other-than-temporary impairments charged to current
income for securities with market value was ¥3,814 million in the aggregate. For the year ended March 31, 2010,
the total amount of other-than-temporary impairments charged to current income for securities with market value
is not disclosed herein since it is insignificant to the consolidated results. Impairments are principally recorded in
cases where the fair value of other securities with determinable market value has declined in excess of 30% of
cost. Those securities are written down to the fair value, and the resulting losses are included in current income
for the period.
The total sales of other securities and the related gains for the year ended March 31, 2009, are not disclosed
herein since they are insignificant to the consolidated results. The total sales of other securities, the related gains
and losses for the year ended March 31, 2010, were ¥551 million ($5,922 thousand), ¥394 million ($4,234
thousand) and ¥29 million ($311 thousand), respectively.
The amounts of investments in unconsolidated subsidiaries and affiliates, which were included in the investment
securities account at March 31, 2009 and 2010, were ¥2,939 million, ¥2,804 million ($30,137 thousand),
respectively.
54
8. Short-term and long-term loans payable
Short-term loans payable and long-term loans payable at March 31, 2009 and 2010, comprised the following:
Millions of yen
March 31
2009
Amount
Amount
2010
Average
interest
rate
Thousands
of
U.S. dollars
March 31,
2010
Last due Amount
Short-term loans payable
Current portion of long-term loans payable
Current portion of lease obligations
Long-term loans payable from financial
institutions
Lease obligations
Unsecured bonds issued by the Company
Unsecured bonds issued by the Company
Unsecured bonds issued by the Company
Unsecured bonds issued by the Company
¥42,182
18,543
2,582
¥21,739
35,728
1,059
0.73%
1.00
-
-
-
-
$233,652
384,006
11,404
185,322
151,593
2,558
30,000
20,000
30,000
20,000
1,533
30,000
20,000
30,000
20,000
1.21
-
1.05
1.44
1.65
1.70
2015
1,629,331
2016
2010
2012
2011
2012
16,491
322,441
214,961
322,441
214,961
Total
¥351,189
¥311,655
$3,349,688
Average interest rates are calculated using weighted-average interest rates on bonds payable, short-term loans
payable and long-term loans payable as of March 31, 2010.
Average interest rates on lease obligations are not disclosed herein since interest expenses included in lease
payments are allocated based on the straight-line method for the corresponding fiscal years.
The maturities of long-term debt outstanding as of March 31, 2010, were as follows:
Year ending March 31
Millions of yen
2011
2012
2013
2014
2015
Total
Thousands of
U.S. dollars
$384,006
452,418
349,312
806,105
21,496
¥35,728
42,093
32,500
75,000
2,000
¥187,322
$2,013,337
55
The maturities of lease obligations outstanding as of March 31, 2010, were as follows:
Year ending March 31
Millions of yen
Thousands of
U.S. dollars
2011
2012
2013
2014
2015
Thereafter
Total
¥1,059
548
435
357
183
9
¥2,593
The maturities of bonds outstanding as of March 31, 2010, were as follows:
Year ending March 31
Millions of yen
$11,404
5,891
4,675
3,837
1,966
96
$27,869
Thousands of
U.S. dollars
$322,441
322,441
429,923
2011
2012
2013
Total
¥30,000
30,000
40,000
¥100,000
$1,074,805
9. Goodwill
Epson had goodwill and negative goodwill as of March 31, 2009 and 2010. Goodwill and negative goodwill are
amortized on a straight-line basis in accordance with Japanese accounting standards. Goodwill or negative
goodwill is recorded on the balance sheets after offsetting. The amounts of goodwill and negative goodwill
before offsetting as of March 31, 2009 and 2010, were as follows:
Millions of yen
March 31
2009
2010
Thousands of
U.S. dollars
March 31,
2010
Goodwill
Negative goodwill
¥469
2,199
¥3,703
830
$39,799
8,920
10. Retirement benefits
The Company and its Japanese subsidiaries maintain corporate defined benefit pension plans and defined
contribution pension plans covering the majority of their employees.
Some of the Company’s Japanese subsidiaries maintain tax qualified pension plans that are non-contributory
defined benefit pension plans. These companies contribute amounts required to maintain sufficient plan assets to
provide for accrued benefits, subject to limitations on expense deductibility under Japanese income tax laws.
56
The funded status of these plans at March 31, 2009 and 2010, was as follows:
Projected benefit obligations
Plan assets at fair value
Unfunded status
Unrecognized items:
Actuarial gains (losses)
Prior service cost reduction from plan amendment
Provision for retirement benefits - net
Prepaid pension cost
Provision for retirement benefits
Millions of yen
March 31
2009
¥219,094
171,621
47,473
2010
¥229,649
193,268
36,381
(36,086)
(734)
10,653
2,313
¥12,966
(17,081)
(476)
18,822
1,186
¥20,008
Thousands of
U.S. dollars
March 31,
2010
$2,468,282
2,077,257
391,025
(183,609)
(5,116)
202,300
12,747
$215,047
The composition of net pension and severance costs for the years ended March 31, 2009 and 2010, was as
follows:
Service cost
Interest cost
Expected return on plan assets
Amortization and expenses:
Actuarial losses
Prior service costs
Net pension and severance costs
Contribution to defined contribution pension plan
Millions of yen
Year ended March 31
2009
¥8,050
5,751
(6,895)
2,155
(2,077)
6,985
3,542
¥10,528
2010
¥8,257
5,944
(5,720)
6,999
257
15,737
3,581
¥19,319
Thousands of
U.S. dollars
Year ended
March 31,
2010
$88,747
63,886
(61,478)
75,225
2,762
169,142
38,499
$207,641
The assumptions used for the actuarial computation of the retirement benefit obligations for the years ended
March 31, 2009 and 2010, were primarily as follows:
Discount rate
Long-term rate of return on plan assets
11. Net assets
Year ended March 31
2009
2010
2.5%
3.2
2.5%
3.2
The Japanese Companies Act stipulates that an amount equal to 10% of dividends shall be distributed as
additional paid-in capital or legal reserve on the date of distribution until an aggregated amount of additional
paid-in capital and legal reserve equals 25% of common stock.
Under the Japanese Companies Act, distributions can be made at any time by resolution of the shareholders, or
by the board of directors if certain conditions are met.
57
Under the Japanese Companies Act, the distributions of retained earnings for a fiscal year is made by resolution
of shareholders at a general meeting to be held within three months after the balance sheet date, and accordingly
such distributions are recorded at the time of resolution.
In the years ended March 31, 2009 and March 31, 2010, the Company paid the following cash dividends per
share to its registered shareholders at the ends of year and interim periods:
Cash dividends per share
Year-end
Interim
Total
Yen
Year ended March 31
2010
2009
¥16.00
19.00
¥35.00
¥7.00
-
¥7.00
U.S. dollars
Year ended
March 31,
2010
$0.07
-
$0.07
The effective dates of the distribution for year-end and interim cash dividends, which were paid during the year
ended March 31, 2009, were June 26, 2008, and December 5, 2008, respectively. The effective date of the
distribution for year-end cash dividend, which was paid during the year ended March 31, 2010, was June 25,
2009.
The proposed cash dividends of retained earnings of the Company for the year ended March 31, 2010, approved
at the general shareholders’ meeting, which was held on June 22, 2010, were as follows:
Cash dividends
Millions of yen
¥1,997
Thousands of U.S. dollars
$21,463
Cash dividends per share
¥10.00
$0.10
Yen
U.S. dollars
The effective date of the distribution is June 23, 2010.
12. Net income (loss) per share
Calculation of net income (loss) per share for the years ended March 31, 2009 and 2010, is as follows:
Thousands of
U.S. dollars
Year ended
March 31,
2010
($212,714)
Millions of yen
Year ended March 31
2009
(¥111,322)
2010
(¥19,791)
Thousands of shares
196,361
199,225
Net income (loss) attributable to common shares
Weighted-average number of common shares
outstanding
Net income (loss) per share
Yen
U.S. dollars
(¥566.92)
(¥99.34)
($1.06)
Diluted net loss per share is not calculated herein since a net loss was incurred and Epson had no dilutive
58
potential common shares outstanding during the years ended March 31, 2009 and 2010.
13. Income taxes
Epson is subject to a number of different income taxes that amounted to a statutory income tax rate in Japan of
approximately 40.4 % for each of the years ended March 31, 2009 and 2010.
The significant components of deferred tax assets and liabilities as of March 31, 2009 and 2010, were as follows:
Deferred tax assets:
Property, plant and equipment and intangible assets
(Impairment loss and excess of depreciation)
Net operating tax loss carry-forwards
Inter-company profits on inventories and write downs
Provision for bonuses
Devaluation of investment securities
Provision for retirement benefits
Provision for product warranties
One-time depreciation for assets
Others
Gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Undistributed earnings of overseas subsidiaries and affiliates
Net unrealized gains on land held by a subsidiary
Valuation difference on available-for-sale securities
Reserve for special depreciation for tax purpose
Others
Gross deferred tax liabilities
Net deferred tax assets
Millions of yen
March 31
2009
2010
Thousands of
U.S. dollars
March 31,
2010
¥52,045
44,082
$473,796
32,494
18,719
3,925
2,886
3,360
3,017
1,060
20,146
137,656
(113,436)
24,220
52,509
20,207
4,146
2,900
6,331
2,966
1,808
14,558
149,510
(131,482)
18,028
(9,582)
(2,613)
(1,069)
(712)
(910)
(14,888)
¥9,331
(8,324)
(2,613)
(1,683)
(344)
(1,493)
(14,459)
¥3,568
564,370
217,186
44,561
31,169
68,046
31,878
19,432
156,505
1,606,943
(1,413,177)
193,766
(89,466)
(28,084)
(18,088)
(3,697)
(16,082)
(155,417)
$38,349
The valuation allowance was established mainly against deferred tax assets on future tax-deductible temporary
differences and operating tax loss carry-forwards as it is probable that these deferred tax assets will not be
realized within the foreseeable future.
59
The differences between Epson’s statutory income tax rate and the income tax rate reflected in the consolidated
statements of income were reconciled as follows:
Statutory income tax rate
Reconciliation:
Year ended March 31
2010
2009
40.4%
40.4%
Changes in valuation allowance
Reversal of deferred income taxes on undistributed earnings of
overseas subsidiaries due to corporate tax reform
Tax rate differences in overseas subsidiaries
Entertainment expenses, etc. permanently non-tax deductible
Unrecognized tax benefit for inter-company profit elimination
Other
(99.0)
(3,168.4)
21.8
-
(1.5)
7.8
1.3
-
532.9
204.0
-
15.8
Income tax rate per statements of operations
(29.2%)
(2,375.4%)
14. Selling, general and administrative expenses
The significant components of selling, general and administrative expenses for the years ended March 31, 2009
and 2010, were as follows:
Millions of yen
Year ended March 31
2009
¥75,978
22,075
22,881
16,333
43,948
276
109,540
¥291,031
2010
¥73,239
15,303
16,052
14,325
32,316
517
89,485
¥241,241
Thousands of
U.S. dollars
Year ended
March 31,
2010
$787,177
164,477
172,527
153,966
347,334
5,556
961,848
$2,592,885
Salaries and wages
Advertising
Sales promotion
Shipping costs
Research and development costs
Allowance for doubtful accounts
Other
Total
15. Research and development costs
Research and development costs, which are included in the cost of sales and selling, general and administrative
expenses, totaled ¥82,058 million and ¥68,849 million ($739,993 thousand) for the years ended March 31, 2009
and 2010, respectively.
16. Impairment loss
Epson’s business assets are generally grouped by business segment under the Company’s management
accounting system, and their cash flows are continuously monitored. Assets that Epson plans to sell and idle
assets are separately assessed for impairment on the individual asset level. Impairment tests are performed for
both types of assets. The net book value of a business asset is reduced to its recoverable amount when there is
substantial deterioration in the asset’s future earning potential due to adverse changes in the marketplace
resulting in lower product prices or due to a change in the utilization plan for the assets. The carrying value of
60
assets that Epson plans to sell and idle assets is reduced to its recoverable amount when their net selling prices
are substantially lower than their carrying values.
For the year ended March 31, 2009, Epson incurred an impairment loss on its liquid crystal display production
equipment, semiconductor production equipment, production equipment planned for consolidation and idle
assets. The carrying value of these assets was reduced to its recoverable amount. A reduction in value of ¥73,839
million was recognized in the impairment loss account and the other account. The reduction mainly comprised
¥31,744 million for buildings and structures, ¥24,809 million for machinery, equipment and vehicles, ¥4,645
million for tools, furniture and fixtures, ¥6,235 million for land, ¥3,930 million for intangible assets. The
recoverable amounts are determined using their net selling prices and value in use, which were assessed on the
basis of reasonable estimates. The values in use were calculated by applying a 6.1% discount rate to the assets’
expected future cash flows.
For the year ended March 31, 2010, Epson incurred an impairment loss on its liquid crystal display production
equipment, production equipment planned for consolidation and idle assets. The carrying value of these assets
was reduced to its recoverable amount. A reduction in value of ¥7,269 million ($78,127 thousand) was
recognized in the impairment loss account. The reduction mainly comprised ¥1,074 million ($11,543 thousand)
for buildings and structures, ¥3,203 million ($34,426 thousand) for machinery, equipment and vehicles, ¥2,669
million ($28,686 thousand) for tools, furniture and fixtures. The recoverable amounts are determined using their
net selling price, which were assessed on the basis of reasonable estimates.
17. Leases
As of March 31, 2009 and 2010, capital leases, mainly comprised of plants, production equipment in the
electronic devices segment, host computers and computer terminals.
Future lease payments for non-cancelable operating leases as a lessee at March 31, 2009 and 2010, were as
follows:
Future lease payments
2009
2010
Millions of yen
March 31
Thousands of
U.S. dollars
March 31,
2010
Due within one year
Due after one year
¥4,216
9,068
¥2,810
8,872
$30,202
95,356
Total
¥13,285
¥11,682
$125,558
61
18. Cash flow information
Cash and cash equivalents as of March 31, 2009 and 2010, were as follows:
Cash and deposits
Short-term investments
Short-term loans receivables
Millions of yen
March 31
2009
¥172,921
102,014
10,000
2010
¥193,117
51,511
10,000
Thousands of
U.S. dollars
March 31,
2010
$2,075,634
553,643
107,480
Less:
Short-term loans payable (overdrafts)
Time deposits due over three months
Short-term investments due over three months
Cash and cash equivalents
(4)
(576)
(14)
¥284,340
(0)
(27)
(11)
¥254,590
(0)
(290)
(118)
$2,736,349
The Company obtained marketable securities, the fair value of which was ¥9,921 million and ¥9,918 million
($106,599 thousand) as of March 31, 2009 and 2010, respectively, as deposit for the short-term loans receivables
above.
19. Derivatives instruments
Epson enters into forward exchange contracts, currency options and interest rate swaps. Forward exchange
contracts and currency options are utilized to hedge currency risk exposure. Interest rate swaps are utilized to
hedge against possible future changes in interest rates on loans. Epson uses derivative instruments only for
hedging purposes and not for purposes of trading or speculation.
The table below lists notional amounts and fair value of derivatives as of March 31, 2009 and 2010, by
transaction and type of instrument, excluding derivatives qualifying for hedge accounting.
(a) Currency-related transactions
Instruments
Forward exchange contracts:
Sold -
U.S. dollar (purchased Japanese yen)
Euro (purchased Japanese yen)
Australian dollar (purchased Japanese yen)
Euro (purchased Singapore dollar)
Australian dollar (purchased Singapore dollar)
Purchased -
U.S. dollar (sold Japanese yen)
Euro (sold Japanese yen)
Sterling pound (sold Singapore dollar)
U.S. dollar (sold Taiwan dollar)
U.S. dollar (sold Korean won)
Total
62
Millions of yen
March 31, 2009
Notional
amounts
Fair value
Unrealized
gains
(losses)
¥462
18,368
849
71
1
2,129
323
1
281
715
¥460
17,403
874
72
1
2,142
326
1
293
676
¥1
964
(25)
(0)
(0)
12
2
0
11
(39)
¥928
Instruments
Forward exchange contracts:
Sold -
U.S. dollar (purchased Japanese yen)
Euro (purchased Japanese yen)
Australian dollar (purchased Japanese yen)
Singapore dollar (purchased Japanese yen)
Hong Kong dollar (purchased Japanese yen)
Euro (purchased Singapore dollar)
Australian dollar (purchased Singapore dollar)
Purchased -
U.S. dollar (sold Japanese yen)
Euro (sold Japanese yen)
U.S. dollar (sold Taiwan dollar)
Sterling pound (sold Singapore dollar)
Indonesia rupiah (sold U.S. dollar)
Total
Instruments
Forward exchange contracts:
Sold -
U.S. dollar (purchased Japanese yen)
Euro (purchased Japanese yen)
Australian dollar (purchased Japanese yen)
Singapore dollar (purchased Japanese yen)
Hong Kong dollar (purchased Japanese yen)
Euro (purchased Singapore dollar)
Australian dollar (purchased Singapore dollar)
Purchased -
U.S. dollar (sold Japanese yen)
Euro (sold Japanese yen)
U.S. dollar (sold Taiwan dollar)
Sterling pound (sold Singapore dollar)
Indonesia rupiah (sold U.S. dollar)
Total
Millions of yen
March 31, 2010
Notional
amounts
Fair value
Unrealized
gains
(losses)
¥52,622
20,530
1,203
2,675
3,272
38
3
4
124
190
9
1,693
¥82,369
(¥1,705)
624
(78)
(117)
(106)
0
(0)
0
0
(4)
0
53
(¥1,332)
(¥1,705)
624
(78)
(117)
(106)
0
(0)
0
0
(4)
0
53
(¥1,332)
Thousands of U.S. dollars
March 31, 2010
Notional
amounts
Fair value
Unrealized
gains
(losses)
$565,655
220,657
12,929
28,751
35,167
408
32
42
1,332
2,042
96
18,196
$885,307
($18,315)
6,706
(838)
(1,257)
(1,139)
0
(0)
0
0
(42)
0
569
($14,316)
($18,315)
6,706
(838)
(1,257)
(1,139)
0
(0)
0
0
(42)
0
569
($14,316)
The fair value is calculated based on prices obtained from financial institutions.
The table below lists notional amounts and fair value of derivatives as of March 31, 2010, by transaction and
type of instrument, qualifying for hedge accounting.
63
(a) Currency-related transactions
Instruments
Hedged items
Forward exchange contracts:
Sold -
Millions of yen
March 31, 2010
Notional
amounts
Fair value
Euro (purchased Japanese yen)
Forecasted transactions in
foreign currency sales
¥5,297
¥179
Purchased -
U.S. dollar (sold Japanese yen)
U.S. dollar (sold Taiwan dollar)
Forecasted transactions in
foreign currency purchase
1,077
283
38
(3)
Total
¥6,658
¥215
Instruments
Hedged items
Forward exchange contracts:
Sold -
Thousands of U.S. dollars
March 31, 2010
Notional
amounts
Fair value
Euro (purchased Japanese yen)
Forecasted transactions in
foreign currency sales
$56,944
$1,934
Purchased -
U.S. dollar (sold Japanese yen)
U.S. dollar (sold Taiwan dollar)
Forecasted transactions in
foreign currency purchase
11,575
3,041
408
(32)
Total
$71,560
$2,310
The fair value is calculated based on prices obtained from financial institutions.
(b) Interest-related transactions
Instruments
Hedged items
Millions of yen
March 31, 2010
Notional
amounts
Due after
one year
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
¥78,822
¥50,093
Instruments
Hedged items
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
64
Thousands of U.S. dollars
March 31, 2010
Notional
amounts
Due after
one year
$847,184
$538,402
The fair value of interest rate swaps meeting certain hedging criteria and recognized under exceptional treatment
in Japanese accounting standards are not disclosed herein. They are included in the fair value of the long-term
loans payable disclosed in Note 20 “Financial risk management and fair value of financial instruments.”
20. Financial risk management and fair value of financial instruments
From the year ended March 31, 2010, Epson adopted ASBJ Statement No.10 (revised 2008), “Accounting
Standard for Financial Instruments” and its Implementation Guidance - ASBJ Guidance No.19 “Guidance on
Disclosures about Fair Value of Financial Instruments,” issued on March 10, 2008. As a result, this note has been
introduced for the financial statements from the year ended March 31, 2010.
Financial risk management principles
With the maintenance of funding an essential precondition, Epson places great emphasis on safety and liquidity,
and selects operational funding methods that are designed to ensure the maximum possible efficiency. Epson
uses methods such as bank loans and bonds to procure funds and others. Epson uses derivative instruments only
for hedging purposes and not for purposes of trading or speculation.
Risks associated with financial instruments
Operating receivables such as notes and accounts receivable-trade are exposed to counterparties’ credit risks.
Epson operates internationally, exposing its foreign operating receivables to the risk of fluctuations in foreign
currency exchange rates.
Investment securities are mainly comprised of shares of companies with which Epson maintains business
relations, and are exposed to risks associated with market fluctuations. The majority of notes and accounts
payable-trade, accounts payable-other have payment due dates of one year or less. Some of these are foreign
currency based, and are therefore exposed to risks associated with foreign currency fluctuations.
Certain interest expenses are exposed to the risk of interest rate fluctuations because of floating interest rates.
Interest rate swaps are utilized to hedge against possible future fluctuations in interest rates on loans.
Derivative instruments are mainly comprised of forward exchange contracts and interest rate swaps.
Financial risk management
(1) Credit and default risk
Based on internal rules and policies and procedures, Epson regularly monitors the situation regarding the
operating receivables of counterparties, and in addition to reviewing the payment due dates and account balances
for each partner, seeks to understand and reduce at an early stage concerns regarding the collection of operating
receivables caused by partners’ financial difficulties.
Epson’s management believes that credit risk relating to derivative instruments used by Epson is relatively low
since all parties relating to the derivative instruments are creditworthy financial institutions.
(2) Market risk
Epson principally manages its exposure to fluctuations in exchange rates on a net basis and mainly uses forward
exchange contracts to reduce the exposures. For risks associated with foreign currency fluctuations, for operating
receivables and payables based on foreign currency, Epson, as a basic rule, executes forward exchange
transactions for the purpose of hedging for each currency on a monthly basis. Epson makes exchange contracts
for foreign currency-based operating receivables and payables that it expects to occur as a result of forecasted
transactions. Forward exchange transactions are executed in accordance with internal rules and policies based on
foreign exchange management rules and policies.
Interest rate swaps are utilized to hedge against possible future fluctuations in interest rates on loans. Interest rate
65
swap transactions are approved and executed based on the authorization of Epson’s director responsible for
finance based on internal rules and policies concerning financial management.
For investment securities, Epson regularly reviews the market value and financial results, etc., of the issuing
company (counterparty) based on rules and policies for managing investment securities. Epson also takes into
consideration the state of the relationship with counterparties as it constantly reviews the level of its holdings.
(3) Liquidity risk
Epson manages liquidity risk by maintaining current liquidity at an appropriate level through creating and
updating liquidity plans at appropriate times, and by constantly reviewing the external financial environment.
Fair value of financial instruments
The fair value of each category of Epson’s financial instruments and their carrying value in Epson’s balance
sheets are as follows:
Instruments
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Investment securities
Total
Notes and accounts payable-trade
Short-term loans payable
Accounts payable-other
Bonds payable (including current portion)
Long-term loans payable (including current portion)
Millions of yen
March 31, 2010
Carrying
value
¥193,117
144,435
51,500
12,188
Fair value
¥193,117
144,435
51,500
12,188
¥401,241
¥401,241
90,768
21,739
58,576
100,000
187,322
90,768
21,739
58,576
101,211
189,764
Unrealized
gains
(losses)
-
-
-
-
-
-
-
-
¥1,211
2,441
Total
¥458,406
¥462,059
¥3,652
Derivative instruments
(¥1,116)
(¥1,116)
-
66
Instruments
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Investment securities
Total
Thousands of U.S. dollars
March 31, 2010
Carrying
value
$2,075,634
1,552,396
553,526
131,008
Fair value
$2,075,634
1,552,396
553,526
131,008
$4,312,564
$4,312,564
Unrealized
gains
(losses)
-
-
-
-
-
Notes and accounts payable-trade
Short-term loans payable
Accounts payable-other
Bonds payable (including current portion)
Long-term loans payable (including current portion)
975,580
233,652
629,578
1,074,805
2,013,337
975,580
233,652
629,578
1,087,822
2,039,608
-
-
-
$13,015
26,236
Total
$4,926,952
$4,966,240
$39,251
Derivative instruments
($11,994)
($11,994)
-
Derivative instruments in the table above represent a net amount.
Investments in unconsolidated subsidiaries and affiliates of ¥2,804 million ($30,137 thousand), unlisted
securities of ¥967 million ($10,393 thousand) at March 31, 2010, are not included above because there is no
market value and it is therefore extremely difficult to estimate their fair value.
The fair value of financial instruments was calculated based on the following methods and premises:
(1) Cash and deposits, notes and accounts receivable-trade and short-term investments securities
Due to the short terms of these financial instruments, it is assumed that their fair value is equal to the carrying
amounts.
(2)
Investment securities
Fair value was measured using exchange market value.
(3) Notes and accounts payable-trade, short-term loans payable, accounts payable-other
Due to the short terms of these financial instruments, it is assumed that their fair value is equal to the carrying
amounts.
(4) Bonds payable (including current portion)
Fair value was measured using market prices.
(5) Long-term loans payable (including current portion)
Because long-term loans payable that are with floating rates are affected in the short term by fluctuations in
market interest rates, and because Epson’s credit status has not changed greatly since they were implemented, it
is assumed that their fair value is equal to the carrying amounts. The fair value of loans payable based on fixed
67
interest rates are calculated by discounting the total amounts of loans payable using estimated interest rates that
would be in effect if similar loan arrangements were entered into. Among items that are based on floating interest
rates, the fair value of long-term loans payable whose interest rates become fixed as a result of interest-rate
swaps are calculated using the same method as used for determining the fair value of long-term loans payable
based on fixed interest rates.
Limitations
Fair value estimates are based on relevant market information. These estimates involve uncertainties and
therefore changes in assumptions could affect the estimates.
21. Contingent liabilities
Contingent liabilities for guarantee of employees’ housing loans from banks as of March 31, 2009, were ¥1,707
million. Contingent liabilities for guarantee of employees’ housing loans from banks and others as of March 31,
2010, were ¥1,413 million ($15,187 thousand).
22. Related party transactions
The Company has entered into real estate lease agreements with K.K. Sunritz (“Sunritz”). Mr. Yasuo Hattori, a
vice-chairman and director of the Company, and his relatives own 9.5% and 71.3% of the outstanding shares of
Sunritz, respectively.
A subsidiary of the Company has also entered into real estate lease agreements with Hamazawa Investment
Company (“Hamazawa”), which is a subsidiary of Sunritz.
The company and its subsidiary’s transactions with these related parties for the years ended March 31, 2009 and
2010, and related balances on March 31, 2009 and 2010, were as follows:
Transactions:
With Sunritz -
Rental expenses for real estates
With Hamazawa -
Rental expenses for real estates
Balances:
With Sunritz -
Other investments
Millions of yen
Year ended March 31
2010
2009
Thousands of
U.S. dollars
Year ended
March 31,
2010
¥18
25
¥18
23
$193
247
Millions of yen
Year ended March 31
2010
2009
Thousands of
U.S. dollars
Year ended
March 31,
2010
¥1
¥1
$10
68
23. Segment information
(1) Business segment information
Epson engages primarily in the development, manufacture and sale of computer printers, liquid crystal displays
(“LCDs”), semiconductor products and other products.
Epson operates manufacturing facilities in Japan, Asia, the Americas and Europe, and markets its products
internationally through a global network of local sales subsidiaries.
Epson engages principally in the following three business segments categorized based on the nature of products,
markets and marketing methods.
The information-related equipment segment mainly includes color inkjet printers, page printers, serial impact
dot matrix printers, large-format inkjet printers and related supplies, color image scanners, mini-printers,
printers for use in POS systems, 3LCD projectors, LCD monitors, label writers and personal computers.
The electronic devices segment mainly includes small- and medium-sized LCDs, HTPS-TFT panels for 3LCD
projectors, crystal units, crystal oscillators, quartz sensors, optical devices and CMOS LSI.
The precision products segment mainly includes watches, watch movements, plastic corrective lenses,
precision industrial robots, IC handlers and industrial inkjet equipment.
Operations not categorized in any of the above segments, such as intra-group services and business incubation
projects, are categorized within “Other”.
The following table summarizes the business segment information of Epson for the years ended March 31, 2009
and 2010:
Millions of yen
Year ended March 31, 2009
Information-
related
equipment
Electronic
devices
Precision
products
Other
Total
Eliminations
and corporate
Consolidated
¥767,355
2,494
769,850
¥279,845
31,781
311,626
¥71,359
1,337
72,697
¥3,937 ¥1,122,497
27,891
63,506
1,186,003
31,828
- ¥1,122,497
-
1,122,497
(¥63,506)
(63,506)
¥739,707
¥329,876
¥74,604
¥43,901 ¥1,188,090
(¥64,005) ¥1,124,085
¥30,143
(¥18,249)
(¥1,907)
(¥12,073)
(¥2,086)
¥498
(¥1,588)
¥303,490
¥165,130
¥50,510
¥113,664
¥632,795
¥284,546
¥917,342
¥30,595
¥32,958
¥3,972
¥10,882
¥78,407
(¥1)
¥78,406
¥133
¥73,218
¥52
¥434
¥73,839
-
¥73,839
¥31,578
¥18,763
¥3,752
¥6,695
¥60,788
(¥1,840)
¥58,947
Net sales:
Customers
Inter-segment
Total
Operating
expenses
Operating income
(loss)
Identifiable assets
Depreciation and
amortization
Impairment loss
Capital
expenditures
69
Millions of yen
Year ended March 31, 2010
Information-
related
equipment
Electronic
devices
Precision
products
Other
Total
Eliminations
and corporate
Consolidated
¥711,378
1,314
712,692
¥215,534
32,466
248,001
¥56,284
1,461
57,746
¥2,165
17,548
19,714
¥985,363
52,791
1,038,154
-
(¥52,791)
(52,791)
¥985,363
-
985,363
¥674,662
¥257,268
¥61,857
¥26,383
¥1,020,172
(¥53,037)
¥967,135
¥38,030
(¥9,266)
(¥4,111)
(¥6,669)
¥17,982
¥245
¥18,227
¥302,381
¥154,369
¥46,020
¥102,462
¥605,234
¥264,855
¥870,090
¥24,464
¥10,457
¥3,913
¥8,588
¥47,425
(¥29)
¥47,395
¥830
¥5,280
¥89
¥1,068
¥7,269
-
¥7,269
¥14,506
¥9,440
¥2,076
¥2,115
¥28,138
(¥1,252)
¥26,885
Net sales:
Customers
Inter-segment
Total
Operating
expenses
Operating income
(loss)
Identifiable assets
Depreciation and
amortization
Impairment loss
Capital
expenditures
Thousands of U.S. dollars
Year ended March 31, 2010
Information-
related
equipment
Electronic
devices
Precision
products
Other
Total
Eliminations
and corporate
Consolidated
Net sales:
Customers
$7,645,959 $2,316,573
$604,944
$23,269
14,146
7,660,105
348,946
2,665,519
15,702
620,646
188,607
211,876
$7,251,380 $2,765,110
$664,831
$283,554
$10,590,74
5
567,401
11,158,146
$10,964,87
5
-
$10,590,74
5
($567,401)
-
(567,401) 10,590,745
$10,394,84
1
($570,034)
$408,725
($99,591)
($44,185)
($71,678)
$193,271
$2,633
$195,904
$3,250,033 $1,659,168
$494,625
$1,101,268
$6,505,094 $2,846,690
$9,351,784
$262,973
$112,392
$42,057
$92,304
$509,726
($322)
$509,404
$8,944
$56,749
$956
$11,478
$78,127
-
$78,127
$155,924
$101,461
$22,312
$22,732
$302,429
($13,468)
$288,961
Inter-segment
Total
Operating
expenses
Operating income
(loss)
Identifiable assets
Depreciation and
amortization
Impairment loss
Capital
expenditures
The amounts of corporate assets included in “Eliminations and corporate” were ¥293,829 million and ¥277,820
million ($2,986,027 thousand) at March 31, 2009 and 2010, respectively, and mainly comprised cash and
deposits, securities and short-term loans receivable.
In line with changes to the role of basic R&D accompanying the structural changes in the electronic devices
segment, certain operating expenses previously included in business incubation projects in the “other” segment,
from the current fiscal year, were allocated to the various business segments. As a result, operating income
decreased by ¥3,654 million ($39,285 thousand) in the information-related equipment segment, by ¥1,105
million ($11,876 thousand) in the electronic devices segment, and by ¥292 million ($3,138 thousand) in the
precision products segment, and increased by ¥5,052 million ($54,299 thousand) in the “other” segment
compared to the corresponding amounts that would have been reported if the previous method had been applied.
70
In addition, the Company carried out structural changes to certain subsidiaries, transferring as of January 1, 2010,
certain intra-group service functions previously included in the “other” segment to the Company’s various
business segments.
(2) Geographic segment information
Net sales are attributed to geographic segments based on the country or region location of the Company or the
subsidiary that transacted the sale with the external customer. Principal countries and jurisdictions in each
geographic segment are as follows:
“The Americas” mainly includes the United States, Canada, Brazil, Chile, Argentina, Costa Rica, Colombia,
Venezuela, Mexico and Peru.
“Europe” mainly includes the United Kingdom, the Netherlands, Germany, France, Italy, Spain, Portugal and
Russia.
“Asia/Oceania” mainly includes China (including Hong Kong), Singapore, Malaysia, Taiwan, Thailand, the
Philippines, Australia, New Zealand, Indonesia, Korea and India.
The following table summarizes the geographic segment information of Epson for the years ended March 31,
2009 and 2010:
Millions of yen
Year ended March 31, 2009
Japan
The Americas
Europe Asia/Oceania
Total
Eliminations
and corporate
Consolidated
¥505,477
492,993
998,471
¥215,950
26,931
242,881
¥237,754
6,353
244,108
¥163,314 ¥1,122,497
446,258
972,537
2,095,035
609,573
-
(¥972,537)
(972,537)
¥1,122,497
-
1,122,497
¥1,042,949
¥238,064
¥233,937
¥592,585 ¥2,107,537
(¥983,452) ¥1,124,085
(¥44,478)
¥4,817
¥10,170
¥16,987
(¥12,502)
¥10,914
(¥1,588)
Net sales:
Customers
Inter-segment
Total
Operating
expenses
Operating income
(loss)
Identifiable assets
¥450,657
¥79,752
¥70,141
¥154,054
¥754,606
¥162,736
¥917,342
Millions of yen
Year ended March 31, 2010
Net sales:
Customers
Inter-segment
Total
Operating
expenses
Operating income
(loss)
Japan
The Americas
Europe Asia/Oceania
Total
Eliminations
and corporate
Consolidated
¥402,482
466,013
868,495
¥209,565
19,763
229,328
¥207,881
6,343
214,224
¥165,432
390,002
555,434
¥985,363
882,121
1,867,484
-
(¥882,121)
(882,121)
¥985,363
-
985,363
¥893,689
¥220,856
¥207,473
¥528,173
¥1,850,192
(¥883,056)
¥967,135
(¥25,193)
¥8,472
¥6,751
¥27,261
¥17,292
¥934
¥18,227
Identifiable assets
¥474,883
¥77,748
¥57,642
¥184,444
¥794,719
¥75,370
¥870,090
71
Thousands of U.S. dollars
Year ended March 31, 2010
Japan
The Americas
Europe
Asia/Oceania
Total
Eliminations
and
corporate
Consolidated
-
$10,590,74
5
-
(9,481,094) 10,590,745
Net sales:
Customers
$4,325,936 $2,252,418
$2,234,318
$1,778,073
$10,590,74
5
Inter-segment
Total
Operating
expenses
Operating income
(loss)
5,008,740
9,334,676
212,414
2,464,832
68,174
2,302,492
4,191,766
5,969,839
20,071,839
9,481,094 ($9,481,094)
9,605,441
2,373,775
2,229,932
5,676,836
19,885,984
(9,491,143) 10,394,841
($270,765)
$91,057
$72,560
$293,003
$185,855
$10,049
$195,904
Identifiable assets
$5,104,096
$835,640
$619,539
$1,982,416
$8,541,691
$810,093
$9,351,784
The amounts of corporate assets included in “Eliminations and corporate” were ¥293,829 million and ¥277,820
million ($2,986,027 thousand) at March 31, 2009 and 2010, respectively, and mainly comprised cash and
deposits, securities and short-term loans receivable.
(3) Sales to overseas customers
The following table shows sales to overseas customers by geographic region, and as a percentage of consolidated
net sales, for the years ended March 31, 2009 and 2010:
Overseas sales
Consolidated net sales
Percentage of overseas sales to
consolidated net sales (%)
Overseas sales
Consolidated net sales
Percentage of overseas sales to
consolidated net sales (%)
Overseas sales
Consolidated net sales
Percentage of overseas sales to
consolidated net sales (%)
Millions of yen
Year ended March 31, 2009
Asia/Oceania
¥255,038
¥262,130
Europe
The Americas
¥236,602
Total
¥753,771
¥1,122,497
21.1%
23.4%
22.7%
67.2%
Millions of yen
Year ended March 31, 2010
Asia/Oceania
¥209,806
¥212,902
Europe
The Americas
¥217,636
Total
¥640,346
¥985,363
22.1%
21.6%
21.3%
65.0%
Thousands of U.S. dollars
Year ended March 31, 2010
The Americas
$2,339,188
Europe
$2,288,284
Asia/Oceania
$2,255,008
Total
$6,882,480
$10,590,745
22.1%
21.6%
21.3%
65.0%
72
24. Other
The Company and related subsidiaries are subject to allegations concerning a TFT-LCD price-fixing cartel, and
received from competition authorities in the United States and elsewhere instructions and notices to submit
relevant materials. In August 2009, Epson Imaging Devices Corporation, a consolidated subsidiary of the
Company, concluded a plea agreement by which it paid a fine of U.S.$26 million to the United States
Department of Justice, and criminal procedures were completed in October 2009. Related civil lawsuits have
been brought before courts in United States and elsewhere by clients and others.
25. Subsequent events
Significant business transfer
As of April 1, 2010, Epson Imaging Devices Corporation (“Epson Imaging”), a consolidated subsidiary of the
Company, transferred a part of its business and some assets in the field of small- and medium-sized liquid crystal
displays (“LCDs”) to Sony Corporation (“Sony”) and Sony Mobile Display Corporation (“SMD”). In a changing
market environment, Epson had found it difficult to distinguish its small- and medium-sized display business
from the competition, and judged that transferring the aforementioned business to the Sony Group was the most
appropriate way of optimizing its liquid crystal technologies and amorphous silicon TFT production capability.
Details of transfer
Date of transfer: April 1, 2010
Gain on business transfer: ¥598 million ($6,427 thousand)
Carrying amounts of assets and liabilities transferred:
Current assets
Noncurrent assets
Total
Current liabilities
Noncurrent liabilities
Total
Millions of yen
Thousands of
U.S. dollars
March 31, 2010
¥3,605
145
¥3,751
¥231
54
¥286
$38,757
1,558
$40,315
$2,493
580
$3,073
The business transferred was included in the electronic devices segment. Some Epson employees have been
temporarily seconded to SMD.
73
Report of Independent Auditors
74
Additional Information
1. Principal subsidiaries and affiliates
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Consolidated subsidiaries
Epson Sales Japan
Corporation
*1
Shinjuku-ku,
Tokyo
4,000
(million JPY)
Epson Direct
Corporation
Matsumoto-shi,
Nagano
150
(million JPY)
Sales of
information-related
equipment
Sales of
information-related
equipment
Epson Toyocom
Corporation
*1, 2
Hino-shi,
Tokyo
12,266
(million JPY)
Manufacture and sales
of electronic devices
Tohoku Epson
Corporation
Sakata-shi,
Yamagata
480
(million JPY)
Akita Epson
Corporation
Yuzawa-shi,
Akita
80
(million JPY)
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment and
electronic devices
100.0
Sales of printers and other
PC peripherals,
Rental of assets,
Interlocking directors
100.0
(100.0)
Sales of PCs, etc.,
Rental of assets
100.0
Manufacture and sales of
crystal devices, etc.
Rental of assets
100.0
Manufacture of printer
components,
Loan of assets
100.0
Manufacture of printer
components and crystal
devices
Epson Imaging Devices
Corporation *1
Tottori-shi,
Tottori
55,000
(million JPY)
Manufacture and sales
of electronic devices
100.0
U.S. Epson, Inc.
*1
Long Beach,
U.S.A.
111,941
(thousand USD)
Regional headquarters
100.0
Epson America, Inc.
*1
Long Beach,
U.S.A.
40,000
(thousand USD)
Sales of
information-related
equipment and
precision products
Epson Electronics
America, Inc.
San Jose,
U.S.A.
10,000
(thousand USD)
Sales of electronic
devices
Epson Portland Inc.
*1
Portland,
U.S.A.
31,150
(thousand USD)
Epson El Paso, Inc.
*1
El Paso, U.S.A.
51,000
(thousand USD)
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment
Epson Europe B.V.
*1
Amsterdam,
Netherlands
95,000
(thousand EUR)
Regional headquarters
100.0
Regional headquarters in
Europe, Sales of printers
and other PC peripherals,
Guaranty of liabilities,
Interlocking directors
Epson (U.K.) Ltd.
Hemel
Hempstead,
UK
1,600
(thousand GBP)
Sales of
information-related
equipment
100.0
(100.0)
Sales of printers and other
PC peripherals
Guaranty of liabilities
75
Manufacture and sales of
LCDs, Rental of assets,
Guaranty of liabilities
Regional headquarters in
Americas,
Interlocking directors
Sales of printers and other
PC peripherals, and sales of
factory automation products,
Interlocking directors
Sales of electronic devices
Manufacture of printer
consumables,
Interlocking directors
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
Manufacture of printer
consumables,
Interlocking directors
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Epson Deutschland
GmbH
Dusseldorf,
Germany
5,200
(thousand EUR)
Sales of
information-related
equipment and
precision products
Epson Europe
Electronics GmbH
Munich,
Germany
2,000
(thousand EUR)
Sales of electronic
devices
Epson France S.A.
Levallois-
Perret, France
4,000
(thousand EUR)
Epson Italia s.p.a.
Milan, Italy
3,000
(thousand EUR)
Epson Iberica, S.A.
Cerdanyola,
Spain
1,500
(thousand EUR)
Epson (China) Co., Ltd.
*1
Beijing, China
1,068
(million CNY)
Sales of
information-related
equipment
Sales of
information-related
equipment
Sales of
information-related
equipment
Regional headquarters,
sales of
information-related
equipment
Epson Korea Co., Ltd. Seoul, Korea
1,466
(million KRW)
Sales of
information-related
equipment
Epson (Shanghai)
Information Equipment
Co., Ltd.
Shanghai,
China
16
(million CNY)
Sales of
information-related
equipment
Epson Hong Kong Ltd.
Hong Kong,
China
2,000
(thousand HKD)
Epson Taiwan
Technology
& Trading Ltd.
Taipei, Taiwan
25,000
(thousand TWD)
Epson Singapore Pte.
Ltd.
Singapore
200
(thousand SGD)
Epson Australia
Pty. Ltd.
North Ryde,
Australia
1,000
(thousand AUD)
Sales of
information-related
equipment and
electronic devices
Sales of
information-related
equipment and
electronic devices
Regional headquarters,
sales of
information-related
equipment and
electronic devices
Sales of
information-related
equipment
Suzhou Epson Co.,
Ltd.
*1
Suzhou, China
1,043
(million CNY)
Manufacture of
electronic devices
76
100.0
(100.0)
Sales of printers and other
PC peripherals, and sales of
factory automation products,
Guaranty of liabilities
100.0
(100.0)
Sales of electronic devices,
Guaranty of liabilities
100.0
(100.0)
Sales of printers and other
PC peripherals
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
100.0
Regional headquarters in
China,
Sales of printers and other
PC peripheral
100.0
Sales of printers and other
PC peripherals
100.0
(100.0)
Sales of printers and other
PC peripherals
100.0
Sales of printers and other
PC peripherals, and sales of
electronic devices
Sales of printers and other
PC peripherals, and sales of
electronic devices,
Guaranty of liabilities
Regional headquarters in
South-east Asia,
Sales of printers and other
PC peripherals, and sales of
electronic devices,
Guaranty of liabilities
Sales of printers and other
PC peripherals,
Guaranty of liabilities,
Interlocking directors
Manufacture of LCDs
100.0
100.0
100.0
100.0
(80.6)
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Tianjin Epson Co., Ltd. Tianjin, China
172
(million CNY)
Epson Precision
(Hong Kong), Ltd.
*1
Hong Kong,
China
81,602
(thousand USD)
Singapore Epson
Industrial
Pte. Ltd.
*1
P.T. Indonesia Epson
Industry
*1
Epson Precision
(Philippines), Inc.
*1
Singapore
71,700
(thousand SGD)
Bekasi,
Indonesia
23,000
(thousand USD
Cabuyao,
Philippines
57,533
(thousand USD)
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment, electronic
devices and precision
products
Manufacture of
information-related
equipment, electronic
devices and precision
products
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment and
electronic devices
80.0
(18.6)
Manufacture of printer
consumables, etc.,
Interlocking directors
100.0
Manufacture of printers,
3LCD projectors, LCDs and
watches, etc.,
Interlocking directors
100.0
Manufacture of scanners,
semiconductors, and
watches, etc.,
Guaranty of liabilities,
Interlocking directors
100.0
Manufacture of printers,
Guaranty of liabilities,
Interlocking directors
100.0
Manufacture of printers and
crystal devices,
Interlocking directors
Epson Toyocom
Malaysia Sdn. Bhd.
Kuala Lumpur,
Malaysia
16,000
(thousand MYR)
Manufacture of
electronic devices
100.0
(100.0)
Manufacture of crystal
devices
63 other companies
–
–
–
–
–
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and affiliate
Equity method affiliates
Time Module
(Hong Kong) Ltd.
Hong Kong,
China
5,001
(thousand HKD)
Sales of precision
products
33.3 Sales of watch movements
Four other companies
–
–
–
–
–
Notes
1. Ownership percentage of voting rights indicated inside parenthesis refers to indirect ownership percentage.
2. *1 indicates a specified subsidiary (“tokutei-kogaisha”).
3. *2 submitted the interim report for the 86th year (From April 1, 2009, to March 31, 2010), but did not submit
the annual securities report (“yukashoken-houkokusho”).
4. The net sales (excluding eliminations of sales among consolidated subsidiaries) of Epson Sales Japan
Corporation, Epson America, Inc. and Epson Europe B.V. each amount to more than 10% of the consolidated
net sales. Key information about operations of those subsidiaries is as follows.
(Millions of yen)
Company name
Net sales Ordinary income
Net income
Total net assets
Total assets
Epson Sales Japan Corporation
203,397
Epson America, Inc.
Epson Europe B.V.
179,745
207,881
4,336
5,653
6,743
2,321
3,905
5,334
14,613
23,298
43,666
64,464
80,160
99,060
Figures for Epson America, Inc. and Epson Europe B.V. are included in consolidated business results.
77
5. As a result of the share exchange of June 1, 2009, the Company’s assumed 100% of the voting rights in Epson
Toyocom Corporation and Epson Toyocom Malaysia Sdn. Bhd.
78
2. Distribution of ownership among shareholders
Share ownership (100 shares per unit)
Government
and regional
public
bodies
Japanese
financial
institutions
Japanese
securities
companies
Other
Japanese
Foreign institutions and
others
corporations Institutions Individuals
Japanese
individuals
and others
Total
Shares
less
than
one unit
(Shares)
Correct as of March 31, 2010
–
67
47
406
357
25
36,294
37,196
–
–
573,553
39,080
567,469
320,933
123
495,625 1,996,783 139,089
–
28.72
1.95
28.41
16.10
0.00
24.82
100.00
–
Category
Number of
shareholders
(Persons)
Number of
shares
owned
（Units）
Percentage
of shares
owned
(%)
Notes
1. 22,089 shares of treasury stock are included as 220 units in “Japanese individuals and others” and 89 shares in
“Shares less than one unit.”
2. Four units in the name of Japan Securities Depository Center, Inc. are included under “Other Japanese
corporations.”
79
3. Major shareholders
Name
Address
Correct as of March 31, 2009
Number of shares
held
Shareholding ratio
(%)
Aoyama Kigyo Kabushiki
Kaisha
5-8 Ginza 3-chome, Chuo-ku, Tokyo
20,718,934
10.36
Sanko Kigyo Kabushiki Kaisha 6-1 Ginza 5-chome, Chuo-ku, Tokyo
14,288,500
The Master Trust Bank of
Japan, Ltd. (Trust account)
11-3 Hamamatsu-cho 2-chome,
Minato-ku, Tokyo
10,149,300
Seiko Holdings Corporation
5-11 Ginza 4-chome, Chuo-ku, Tokyo
7,948,800
Japan Trustee Services Bank,
Ltd. (Trustee Account)
8-11 Harumi 1-chome, Chuo-ku,
Tokyo
Yasuo Hattori
Reijiro Hattori
The Dai-ichi Mutual Life
Insurance Company
Seiko Epson Corporation
Employees’ Shareholding
Association
Minato-ku, Tokyo
Minato-ku, Tokyo
13-1 Yuraku-cho 1-chome,
Chiyoda-ku, Tokyo
3-5 Owa 3-chome, Suwa-shi, Nagano
5,638,311
7,259,400
7,154,506
7,060,700
6,240,000
7.15
5.07
3.97
3.63
3.58
3.53
3.12
2.82
Noboru Hattori
Minato-ku, Tokyo
Total
－
5,599,968
92,058,419
2.80
46.07
Note
Mitsubishi UFJ Financial Group, Inc., and its joint holders submitted a Major Shareholding Report as of
February 1, 2010, claiming that they hold the Company’s shares as follows as of January 25, 2010. However, we
have not been able to confirm the number of shares they held at the end of the fiscal year under review.
Therefore, they are not included in the above major shareholders.
Name
Address
Number of shares held
The Bank of
Tokyo-Mitsubishi UFJ,Ltd.
7-1 Marunouchi 2-chome,
Chiyoda-ku,Tokyo,Japan
Mitsubishi UFJ Trust and
Banking Corporation
4-5 Marunouchi 1-chome, Chiyoda-ku,
Tokyo
Mitsubishi UFJ Asset
Management
4-5 Marunouchi 1-chome, Chiyoda-ku,
Tokyo
Total
－
1,610,000
8,043,700
377,200
10,030,900
Shareholding ratio
(%)
0.81
4.03
0.19
5.02
80
4. Epson stock price
(1) High and low stock prices for the previous five years
Year
Fiscal year
High (¥)
Low (¥)
64th year
March 2006
3,970
2,650
65th year
March 2007
66th year
March 2008
67th year
March 2009
68th year
March 2010
3,610
2,660
4,320
1,997
3,300
1,001
1,715
1,216
Note
High and low stock prices noted above are based on the Tokyo Stock Exchange (First Section) data.
(2) High and low stock prices for the previous six months
Month
October 2009
November
December
January 2010
February
March
High (¥)
Low (¥)
1,527
1,313
1,436
1,256
1,508
1,305
1,708
1,477
1,715
1,463
1,639
1,444
Note
High and low stock prices noted above are based on the Tokyo Stock Exchange (First Section) data.
81
5. Corporate data and investor information
(1) Company name
Seiko Epson Corporation
(2) Founded
(3) Head office
May 1942
3-5 Owa 3-chome, Suwa, Nagano 392-8502, Japan
Tel: -81-266-52-3131(main)
(4) Tokyo office
Shinjuku NS Building, 4-1 Nishishinjuku 2-chome,
Shinjuku-ku Tokyo 163-0811, Japan
Tel: +81-3-3348-8531
(5) Investor information
Closing of accounts
Regular general shareholders’ meeting
Date for confirmation to shareholders of
March 31
June
the cash dividend payment date
March 31
Date for confirmation to shareholders of
the interim cash dividend payment date
September 30
Transfer Agent
Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo
Agent’s Business Address:
Head Office of Stock Transfer Agency Department
Intermediary Offices:
Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo
Tel: +81-3-5213-5213
http://www.mizuho-tb.co.jp/english/
Branches of Mizuho Trust & Banking Co., Ltd
Head Office and Branches of Mizuho Investors
Securities Co., Ltd.
Posting of Public Notices
Public notices will be posted electronically. In the event
of accidents or other circumstances preventing the
electronic posting of information, such information will
be made available through the Nihon Keizai Shimbun
newspaper (Japanese)
Web Address
http://www.aspir.co.jp/koukoku/6724/6724.html
(Japanese)
82
3-5 Owa 3-chome, Suwa, Nagano 392-8502, Japan
Tel: +81-266-52-3131 (main)
http://global.epson.com