SEIKO EPSON CORPORATION
ANNUAL REPORT 2011
April 2010 - March 2011
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 ....................................................................................... 28
5. Issues for Fiscal 2011 .............................................................................................................. 30
6. Dividend policy ...................................................................................................................... 32
Corporate Governance .................................................................................................................. 33
1. Approach to corporate governance ......................................................................................... 33
2. Details of audit remuneration ................................................................................................. 39
3. Basic policy regarding company control ................................................................................. 40
Management ................................................................................................................................. 41
Index to Consolidated Financial Statements ................................................................................... 43
Consolidated Balance Sheets ...................................................................................................... 44
Consolidated Statements of Income ............................................................................................ 46
Consolidated Statements of Comprehensive Income ................................................................... 47
Consolidated Statements of Changes in Net Assets ...................................................................... 48
Consolidated Statements of Cash Flows ...................................................................................... 50
Notes to Consolidated Financial Statements ................................................................................ 51
Report of Independent Auditors .................................................................................................... 87
Additional Information ................................................................................................................. 88
1. Principal subsidiaries and affiliates ........................................................................................ 88
2. Distribution of ownership among shareholders ....................................................................... 92
3. Major shareholders ................................................................................................................ 93
4. Epson stock price ................................................................................................................... 95
5. Corporate data and investor information ................................................................................ 96
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
2006
2007
2008
2009
2010
2011
Millions of yen
Thousands of
U.S. dollars
2011
¥1,549,568
¥1,416,032
¥1,347,841
¥1,122,497
¥985,363
¥973,663
$11,709,717
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
(17,917)
(7,094)
92,939
112,574
109,305
84,690
73,104
89,603
902,970
395,197
83,927
29,124
(63,378)
368,449
310,871
57,577
52,045
19,093
82,870
63,955
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)
702,918
231,235
68,276
1,279
(30,046)
262,963
230,253
32,709
15,381
8,453,626
2,780,938
821,118
15,382
(361,347)
3,162,513
2,769,140
393,373
184,978
(111,322)
(19,791)
10,239
123,138
82,058
55,624
78,406
68,849
25,937
47,395
54,377
31,813
41,159
653,962
382,597
494,999
117,497
160,229
112,060
44,253
56,542
32,395
389,597
(95,266)
(76,419)
(50,770)
(61,002)
(43,203)
(23,615)
(284,004)
22,231
19,123
83,810
(30,150)
61,289
(70,663)
(16,748)
(9,558)
13,338
(41,087)
8,780
(42,691)
105,592
(513,421)
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
Information-related equipment
Electronic devices
Precision products
Other
Corporate
Total
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)
2006
2007
2008
2009
2010
2011
Millions of yen
Thousands of
U.S. dollars
2011
¥795,402
426,118
¥813,274
379,032
¥737,245
343,261
1,325,206
1,284,412
1,139,165
507,371
311,610
474,520
476,125
313,952
494,335
46,417
32,849
6,639
2,208
2,588
90,701
43,623
32,551
6,636
2,455
2,361
87,626
385,123
282,595
471,446
47,862
29,609
6,576
2,417
2,461
88,925
¥617,677
253,712
917,342
283,848
314,862
318,631
41,748
19,818
6,038
2,151
2,571
72,326
(¥91.24)
(¥36.13)
29.00
2,416.54
32.00
2,395.14
¥97.24
32.00
2,277.45
(¥566.92)
35.00
1,541.16
¥596,210
225,354
¥543,530
213,623
$6,536,741
2,569,152
798,229
315,422
211,999
270,808
9,599,867
3,793,409
2,549,597
3,256,861
870,090
328,652
258,574
282,864
45,863
22,439
5,839
590
3,206
77,936
(¥99.34)
7.00
44,711
20,659
5,985
245
2,951
74,551
¥51.25
20
1,407.92
1,347.71
$0.61
0.24
16.20
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)
33.7
3.7
1.9
1.6
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 51.
2. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥83.15=U.S.$1 as of March 31, 2011.
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 consumables, 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,
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
consumables, color
image scanners,
mini-printers, POS
system products and
others
Visual
instruments
business
3LCD projectors,
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 Engineering
(Shenzhen) Ltd.
Singapore Epson Industrial
P.T. Indonesia Epson
Pte. Ltd.
Industry
Epson Precision
(Philippines), Inc.
Tianjin Epson Co., Ltd.
Epson Engineering
(Shenzhen) Ltd.
Epson Precision
(Philippines), Inc.
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 Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Singapore Pte. Ltd.
Epson Australia Pty. Ltd.
Epson Direct Corporation
–
5
(2) Electronic devices business segment
This segment comprises the quartz device business, the semiconductor business and the display business. This
segment mainly includes the development, manufacture and sales of crystal oscillators, CMOS LSIs and
HTPS-TFT panels for 3LCD projectors.
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.
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 mainly CMOS LSIs
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.
Display business
The display business is responsible for the development, manufacture and sales of 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 to the Sony Group as of April 1, 2010, thereby
ceasing the related production as of December 31, 2010.
The major subsidiaries and affiliates involved in each segment are as follows:
Main subsidiaries and affiliates
Business category
Main products
Quartz device business Crystal units,
Manufacturing companies
Epson Toyocom
Corporation
crystal oscillators,
quartz sensors,
optical devices and
others
Mainly CMOS LSIs Singapore Epson Industrial
Akita Epson Corporation
Epson Toyocom Malaysia
Sdn. Bhd.
HTPS-TFT panels
for 3LCD
projectors and small
and medium-sized
LCDs
Pte. Ltd.
Epson Imaging Devices
Corporation
Suzhou Epson Co., Ltd.
Epson Engineering
(Shenzhen) Ltd.
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.
Semiconductor
business
Display business
(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.
6
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.
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 for and within the Epson Group.
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 Insurance Center, which provides insurance services, and others.
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, 2011
Book value (Millions of yen)
Machinery,
Buildings and
equipment
structures
and
Land
(Area: m2)
Other
Total
Number of
employees
(Persons)
vehicles
1,301
Overall
Head Office
(Suwa-shi, Nagano)
Tokyo Office
(Shinjuku-ku, Tokyo)
Hirooka Office
(Shiojiri-shi, Nagano)
administration and
Other facilities
2,893
114
(43,888)
146
4,456
899
other
Overall
administration and
Other facilities
76
—
other
Printer development and
Information-related
component manufacturing
[3,202]
—
(—)
5,475
14
90
64
equipment
facilities
20,504
5,439
(188,118)
2,045
33,465
4,612
[22,983]
3,637
[28,909]
1,375
(160,528)
1,996
(247,143)
2,104
(538,828)
8,303
(40,725)
1,019
Other facilities
892
253
(179,759)
354
5,137
675
[1,758]
453
656
308
(31,340)
463
1,882
721
[918]
1,443
7,105
3,254
(113,082)
841
12,645
1,333
Other
Research and development
facilities
Matsumoto Minami
Plant
Information-related
(Matsumoto-shi,
equipment
Nagano)
Shimauchi Plant
(Matsumoto-shi,
Nagano)
Information-related
3LCD projector development
equipment
and design facilities.
Suwa Minami Plant
Electronic devices
(Fujimi-machi,
Precision products
Suwa-gun, Nagano)
Other
Electronic devices
Liquid crystal panel and
factory automation
manufacturing facilities
Other facilities
Liquid crystal panel
manufacturing facilities
Semiconductor manufacturing
Electronic devices
facilities
Other
Research and development
facilities
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)
2,974
1,292
11,362
2,705
190
5,832
197
567
16,633
1,218
341
12,606
1,043
73
11,850
391
636
Electronic devices
Semiconductor manufacturing
facilities
8,652
1,507
Electronic devices
Sales facilities
3,473
0
Precision products Watch manufacturing facilities
1,815
959
(41,836)
190
3,985
Precision products
Plastic corrective lens
manufacturing facilities
[5,764]
421
1,399
1,008
(8,931)
80
2,910
438
[31,978]
8
(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, 2011
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Other Total
Number of
employees
(Persons)
6,893
4,785
(266,923)
256 19,416
1,577
7,481
Tohoku Epson
Corporation
(Sakata-shi,
Yamagata)
Akita Epson
Corporation
Information-related
Printer component
equipment
manufacturing facilities
5
1
Information-related
equipment, electronic
Printer component and crystal
device manufacturing facilities
1,261
195
(Yuzawa-shi, Akita)
devices
(3) Overseas subsidiaries
[6,163]
—
(—)
677
(68,992)
249
256
997
108 2,243
936
Company name
(location)
Business segment
Type of facilities
Correct as of March 31, 2011
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Other Total
Number of
employees
(Persons)
1,978
2,796
–
(–)
[64,104]
56
2,070 6,845
13,795
Epson Precision
(Hong Kong) Ltd.
(Hong Kong, China)
Singapore Epson
Industrial Pte. Ltd.
(Singapore)
P.T. Indonesia Epson
Industry
(Bekasi, Indonesia)
Epson Precision
(Cabuyao,
Philippines)
Epson Toyocom
Malaysia Sdn. Bhd.
(Kuala Lumpur,
Information-related
Printer, liquid crystal
equipment
projector, liquid crystal panel
Electronic devices
and watch manufacturing
Precision products
facilities
Printer consumables
Information-related
equipment
Electronic devices
Precision products
Information-related
equipment
manufacturing facilities
Printer manufacturing facilities
2,795
1,018
semiconductor and watch
2,884
1,649
(41,065)
302 4,892
4,139
[41,567]
–
(–)
[201,753]
57
925 4,739
6,143
[173,200]
322
(32,437)
32 3,185
2,746
(Philippines), Inc.
Information-related
equipment
Printer and liquid crystal
projector manufacturing
facilities
1,172
229
(17,489)
429 1,888
4,565
Electronic devices
Crystal device manufacturing
facilities
344
2,486
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, primarily on new
products and production capacity expansion to help foster the development of new businesses and prepare 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) amounted to ¥31,813 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 ¥17,813 million in the fiscal year under review.
Electronic devices
Investment for commercializing new products, and for maintaining and renewing equipment and facilities for
quartz devices amounted to ¥9,965 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 ¥1,856 million in the fiscal year under review.
Other businesses and company-wide
Investment in R&D and other activities amounted to ¥2,179 million in the fiscal year under review.
10
4. Plans for new additions or disposals
Epson plans to invest ¥530 billion in capital expenditures for the consolidated fiscal year ending March 31, 2012.
The breakdown by business segment is changed from the fiscal year under review as follows.
Business segment
Information-related
equipment
Devices & Precision
Products
Other and overall
Total
Planned amount of
capital
expenditures (100
millions of yen)
Main types and purposes of equipment and facilities
300
140
90
530
Reinforcing productivity, commercializing new products and
maintaining and renewing equipment and facilities, etc.
Commercializing new products, reinforcing productivity 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
On February 2, 2011, Seiko Epson and Sony Corporation agreed upon and concluded an agreement to transfer all
the equity held by Seiko Epson in its consolidated subsidiary Suzhou Epson Co., Ltd., to Sony (China) Limited,
a company within the Sony Group.
On May 25, 2011, Seiko Epson and its consolidated subsidiary Epson Toyocom Corporation agreed upon and
concluded an agreement on an absorption-type corporate split to transfer Epson Toyocom’s quartz device
business (excluding a part of the manufacture and sales of quartz devices) to Seiko Epson.
12
Risks Related to Epson’s Business Operations
At present, Epson has identified the following significant factors as risks that could have a material adverse
affect on its future business, financial condition or operating results and that should thus be taken into account
by investors. There may be other risk factors of which Epson is unaware at this time.
Epson strives to recognize, prevent, and control potential risks and to address risks that materialize.
Also, all forward-looking statements hereunder were made at Epson's discretion as of the date this Annual
Report was submitted.
1. Epson relies to a significant degree on sales and profits from its printer business.
Epson’s ¥702,918 million in sales from its information-related equipment business for the year ended March
2011 constituted 72.2% of Epson’s consolidated sales, which were ¥973,663 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 printers and printer consumables could have a material adverse effect
on Epson’s operating results.
2. Price competition could put downward pressure on prices.
Market prices for printers and certain electronic devices have been trending downward in recent years primarily
due to intensified competition and a shift in demand toward lower-priced products. Epson is striving to improve
profitability by reducing production costs, for example, by using low-cost designs. At the same time, it is taking
action to fight the trend of declining prices by, for example, developing and 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 operating 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) The Micro Piezo technology*1 that Epson uses in its inkjet printers competes with the thermal inkjet
technologies*2 of other companies; and
2) The 3LCD technology*3 that Epson 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 which could adversely affect its operating results.
*1. Micro Piezo technology is an inkjet technology created by Epson that manipulates piezoelectric elements to fire small
droplets of ink from nozzles.
*2. Thermal inkjet technology (also known as bubble-jet technology) is a printer technology in which the ink is heated to
create bubbles and the pressure from the bubbles is used to fire the ink.
*3. 3LCD technology uses TFT panel 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. DLP technology uses a digital micro-mirror device (DMD) as a display device. A DMD is a semiconductor on which
anywhere from hundreds of thousands to millions of micro mirrors are arranged, each mirror directing light onto its own
individual pixel. An image is formed 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 uses liquid crystal on silicon (LCOS ) as a display device. The reflective LCD panels used in LCOS
systems are characterized by a high aperture ratio. 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 genuine consumables might lose market share.
Ink cartridges are particularly important inkjet consumables in terms of Epson’s sales and profit. There are other
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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. To mitigate the risk that genuine ink cartridges could lose
market share, Epson will pursue a policy of earning sustained customer loyalty by emphasizing the quality of its
genuine products as well as by boosting user-friendliness, including by using even longer lasting ink and by
providing inkjet printers tailored to applications in each market. 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 net sales from
consumable products for inkjet printers declines because, for example, the market share of non-genuine ink
cartridges increases further or because genuine ink cartridges lose market share or Epson must reduce the prices
of Epson brand products, operating results might be adversely affected.
5. Market changes 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 where
Epson is focusing its managerial resources, 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 its main markets, or if economic
downturns or other factors prevent a recovery in demand, Epson’s operating results could be adversely affected.
6. Trends in the electronic devices market could 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 has experienced a decline in demand for its products, excess production capacity,
and price erosion during downturns.
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 in Epson’s markets. This competition could
adversely affect Epson’s operating results.
In addition to such competition, there is also the possibility that powerful companies against which Epson does
not currently compete 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; more than 60% of its consolidated sales for the business
year ended March 2011 were overseas sales. Epson has production sites all over Asia, including China,
Indonesia, Singapore, Malaysia and the Philippines, as well as in the United States, the United Kingdom, and
other countries. It has also established many sales companies all over the world. As of March 2011, overseas
employees account for more than 70% of Epson's total workforce.
Epson believes that its global presence provides many advantages. For example, it enables Epson to undertake
marketing activities aligned with the market needs of individual regions and leads to greater
cost-competitiveness by reducing production costs and lead times. There are, however, unavoidable risks
14
associated with overseas production and sales operations. These include but are not limited to changes in
national laws, ordinances, or regulations related to production and sales; social, political or economic changes;
transport delays; damage to infrastructure (e.g., power supply); currency exchange restrictions; 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 rapid rate of technological innovation required in most of the fields in which Epson is engaged, however,
means 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 rapid
technological innovation on which they depend, if Epson is unable to accurately gauge those market trends or
customer needs, or if it cannot appropriately respond to the required technological innovations, its operating
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 global distribution network. It gathers information on product needs in different regions
through local subsidiaries and branches, and it strives to reduce lead times 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 operating results could consequently be adversely affected.
Factors that could interfere with the transition to a new product include delays in the development or production
of 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 entail 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 suppliers in maintaining product quality,
improving products and reducing costs. However, if its ability to procure were to be adversely affected by, for
example, insufficient supply from a third party or poor quality of products supplied, Epson’s operating results
could be adversely affected. In principle, Epson strives to procure parts and the like from multiple suppliers.
However, certain inkjet printer and other products parts are procured from a single source due to difficulty in
procuring alternative parts from another company. On the manufacturing side of its business, Epson outsources
the manufacture of certain inkjet printer and other products. If demand for such products rises suddenly, it may
be 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 to develop advanced new
technologies and manufacture advanced new products, but the competition for such 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.
13. Fluctuations in foreign currency exchanges create risks for Epson.
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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 the U.S. dollar or other foreign currencies linked to it, 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 defined-benefit pension plans, 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 operating results could 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.
However, if any of the following situations relating to intellectual properties occurs, Epson’s operating results
could be adversely 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 the competitive advantage that Epson had
due to that license might 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 ability to focus its 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 an Epson product is
defective or does not conform to the required standard, it may have to be replaced or repaired or otherwise
reworked at Epson's expense. Or, if the product causes personal injury or property damage, Epson could bear
product liability or hold other liability.
Also, Epson could be held liable to a customer and could incur expenses for repairs or corrections on the
grounds that it did not adequately display or explain an Epson product’s features or performance. Furthermore,
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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 operating 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 from manufacturing processes. Environmental conservation is one
of Epson’s most important management policies, and the Company is proactively engaged in environmental
conservation on all fronts. For example, Epson has programs to develop and manufacture products that have a
smaller environmental burden, reduce energy use, promote the recovery and recycling of end-of-life products,
and improve 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 operating results could be adversely affected.
18. Epson is vulnerable to proceedings relating to antitrust laws and regulations.
With business operations that span the globe, Epson is subject in Japan and overseas to proceedings relating to
antitrust laws and regulations, such as those prohibiting private monopolies and those 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. Such investigations and
proceedings could obstruct Epson’s sales activities and adversely affect Epson’s operating results.
19. Epson is at risk of material legal actions being brought against it.
Epson conducts businesses internationally. Its primary businesses are 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.
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 the appeals court and the supreme court. The plaintiff, however, unsatisfied with
this ruling, appealed to the Federal Constitutional Court of Germany. On December 21, 2010, the Federal
Constitutional Court ruled that the August 2008 ruling of the supreme court violates rights set forth in Article 14
of the constitutional law of Germany. It thus dismissed the August 2008 ruling of the supreme court and
referred the case back to the supreme court for review. Companies in general, including Epson, and industry
organizations are showing a willingness to take a stance against the expansion of the scope of such copyright
fees.
Apart from this, civil actions have been brought against the Company and certain of its consolidated
subsidiaries by multiple customers in multiple countries, including the United States, regarding allegations of
involvement in a liquid crystal display price-fixing cartel. It is difficult at this time to predict the outcome of
these civil actions and when they may be settled, but Epson's operating results and future business could be
affected, depending on the outcomes of suits and legal proceedings.
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
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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 its 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 limitations 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. However, the parties
may review the arrangements of tie-ups, and there is a possibility that tie-ups could 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 operating results exactly as expected.
22. Epson might be severely affected in the event of a natural disaster.
Epson has research and development, procurement, manufacturing, logistics, sales and services sites around the
globe. 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 these
could adversely affect Epson's operating results.
The central region of Nagano Prefecture, where Epson has sites for its primary businesses, has numerous cities
and towns designated as "Areas Requiring Enhanced Measures to Respond to Disasters" due to the high risk of
a large-scale disaster in the event of an earthquake in the Tokai region. Moreover, an active fault line 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.
Several of Epson's manufacturing sites and offices in the Tohoku region were damaged by the Great East Japan
Earthquake that struck on March 11, 2011. Epson began to ascertain the personal and physical damage
immediately following the disaster, took action to ensure business continuity, and gradually restarted production,
but Epson's operating results could be adversely affected by the disaster's aftermath, including by difficulty in
procuring certain parts, by production constraints arising from a tight power supply, by reduced demand, or by
the materialization of other currently unforeseeable factors.
Although Epson is insured against losses arising from earthquakes, the scope of indemnification is limited.
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
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.
Some of Epson's businesses involve products that require legal or regulatory approval or licenses. Plastic
corrective lenses, for example, are subject to regulation by certain authorities as they are considered medical
equipment in Japan. Such products do not represent a high percentage of Epson’s total net sales or income, but
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Epson is subject to the approval and regulatory requirements 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 sales 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
these products and to keep designated records relating to them.
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 operating
results.
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Business Conditions
1. Overview of business result
(1) Operating results
Overall, the global economy saw continued modest growth during the fiscal year under review despite a credit
crunch, high unemployment, and other causes of deceleration. The economic picture varied by region. In the
U.S., economic stimulus measures spurred modest economic growth, though continued high unemployment and
other factors weighed down the recovery. Europe also experienced high unemployment, but the economy
bounced off bottom and began to show signs of recovering. China and India recorded growth, mainly due to
internal demand. As a whole, the other countries of Asia were also headed toward recovery. The Japanese
economy, meanwhile, was picking up in the first half according to indicators such as personal consumption and
increases in exports and manufacturing. In the second half, however, the economy was already in a holding
pattern when northeastern Japan was struck by the devastating Great East Japan Earthquake that struck on March
11, leaving a great deal of economic uncertainty in its wake.
The situation in the main markets of the Epson Group (“Epson”) was as follows.
Demand for consumer inkjet printers was steady overall, though there was some regional variation. Business
inkjet printer demand was weakened by corporate belt-tightening in the printing industry and other sectors in the
face of concern over economic uncertainty in Europe and America. In the expanding economies of China and
other parts of Asia, however, business inkjet demand steadily climbed. While the serial dot-matrix printer
(SIDM) market is contracting in America, Europe, and Japan, demand remained firm in some regions, including
China, Southeast Asia, and South Asia. In POS systems, retailer capital investment trended upward but lacked
vigor. In projectors, the expansion of demand lost some of its momentum in the second half. Nevertheless,
full-year projector demand grew, especially for low-end business and education models and for full
high-definition models for home theater.
Demand for the main electronic device applications generally remained steady across the period.
New mobile phone demand, underpinned by steady increases in unit volume in India and China, held firm.
Upgrade demand drove the mobile phone market as a whole, with faster transmissions speeds providing traction
for a raft of new smartphones. The digital camera market remained steady, with sales of SLR models particularly
firm. The television market grew, especially in the low price zone. Meanwhile, the market for the closely
watched new category of tablet PCs expanded. The portable media player (PMP) market, on the other hand,
trended slightly downward as the first round of demand wound down and as media player features become more
common on mobile phone handsets.
Markets associated with the precision products segment also showed signs of recovery, with demand for watches
climbing in tandem with improvement in the economy. With corporate manufacturing on the mend, demand for
semiconductor manufacturing equipment and robots increased. In the eyeglass lens market prices continued to
erode.
Epson is currently operating under a mid-range business plan that seeks to restore profitability and rebuild the
business foundations of the company as it moves toward the long-range SE15 goal of becoming a community of
robust businesses. Now in the second year of the three-year mid-range plan, we are looking to reach break-even
or better in net income and to set a profit-generating corporate structure firmly in place.
In conjunction with this effort, we advanced toward completion of a reorganization of the small- and
medium-sized displays business and made headway on growth initiatives in the key business domains of printers,
projectors and quartz devices.
Included in the extraordinary losses recorded for the 2010 fiscal year were a ¥9,909 million in business structure
improvement expenses accompanying the transfer of the small- and medium-sized displays business and a
¥4,755 million loss on disaster associated with the effects of the Great East Japan Earthquake.
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 ¥85.72 and ¥113.12, respectively. This represents an 8% appreciation in the value of the yen
against the dollar and a 14% 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 ¥973,663 million ($11,709,717
thousand), down 1.2% from the prior year. Operating income was ¥32,709 million ($393,373 thousand), up
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79.5% from the prior year. Ordinary income was ¥31,174 million ($374,912 thousand), up 124.7% from the
prior year. And net income was ¥10,239 million ($123,138 thousand), compared to a net loss of ¥19,791 million
in the previous year.
A breakdown of the financial results in each reporting segment is provided below. Please note that, with the
application on March 27, 2009 of Accounting Standard No. 17, “Revised Accounting Standard for Disclosures
about Segments of an Enterprise and Related Information,” Epson has changed the method it uses to account for
segment information, effective from the current fiscal year. The main change is that expenses associated with
corporate R&D are consolidated under corporate expenses instead of being apportioned to reporting segments as
they were in the past.
Information-related equipment
Net sales in the printer business as a whole declined slightly. Inkjet printer (including consumables, as in all
printer discussions below) unit shipments increased, as sales of consumer models in the U.S. remained steady
throughout the first half. Unit shipments of large-format printers for enterprise grew, largely due to business
wins in the U.S. photo and signage markets and expanded demand in the robust Chinese market. Meanwhile,
consumables units shipments declined along with changes in the model mix, while average selling prices rose.
Office inkjet printer sales were firm, thanks to a series of business wins. SIDM printer unit shipments rode
higher on the back of increased demand associated with China’s tax collection system, while shipments of POS
system products grew, owing mainly increased demand from small- and medium-sized retailers. Page printer
hardware shipments increased as a result of successful tenders, but net sales were adversely affected by ongoing
price erosion, as well as by a decline in sales of consumables due to a smaller page printer install base. Net sales
of the printer business were largely canceled out by gains in the yen.
The visual instruments business as a whole reported increased net sales. Although tempered to some extent by
the strong yen, unit shipments of 3LCD business projectors increased, as demand for education models remained
firm in Europe, America, and Asia. Moreover, average selling prices rose as a result of the popularity of
short-throw lens projectors and other higher-end models. Increased demand for full-HD home-theater projectors
also contributed to higher net sales.
Segment income in the information-related equipment segment declined compared to the same period last year,
when last year’s segment income is recalculated using the accounting method applied this year (as with all
segments below). The decline was due to yen appreciation and price erosion, which outweighed increased unit
shipments of SIDM printers and 3LCD projectors.
As a result of the foregoing factors, full-year net sales in the information-related equipment segment were
¥702,918 million ($8,453,626 thousand), down 1.4% from the prior year. Segment income was ¥70,151 million
($848,630 thousand), compared to operating income of ¥38,030 million in the previous year. Segment income in
the same period last year, recalculated using the accounting method applied this year, was ¥71,748 million.
Electronic devices
The quartz device business reported higher net sales. Although hurt by yen appreciation, net sales were boosted
by increases in shipments of most products due to the economic recovery, which buoyed demand for electronic
devices in general.
The semiconductor business as a whole saw net sales increase. Unit shipments of silicon foundry products,
analog ICs, and monochrome LCD drivers for automotive applications increased due to firm demand for
electronic components in general. Higher average selling prices brought about by changes in the model mix were
also seen to boost revenue.
The displays business as a whole posted sharply lower net sales. Unit shipments of high-temperature polysilicon
TFT liquid-crystal panels for 3LCD projectors (“HTPS panels”) increased due to increased demand, especially in
the first half, for education and other projectors. However, net sales were hurt by the effects of the strong yen
and price erosion. The small- and medium-sized displays business is in the process of being transferred and thus
21
saw net sales decline.
Segment income in the electronic devices business segment increased. In addition to higher revenues, an
improved product mix, and lower fixed costs in the semiconductor business, segment income benefited from
lower costs associated with the small- and medium-sized displays business. Segment income was, however,
negatively impacted by factors such as yen appreciation, a worsening of the product mix in the quartz device
business, and HTPS panel price erosion.
As a result of the foregoing factors, full-year net sales in the electronic devices segment were ¥231,235 million
($2,780,938 thousand), down 6.8% from the prior year, while segment income was ¥5,569 million ($66,975
thousand) versus an operating loss of ¥9,266 million a year ago. Segment income in the same period last year,
recalculated using the accounting method applied this year, was ¥1,529 million.
Precision products
The precision products segment reported higher demand for IC handlers and robots accompanying a rebound in
corporate manufacturing. Sales of watches, meanwhile, also showed signs of rebounding, and the segment as a
whole posted higher net sales and, along with it, increased segment income.
As a result of the foregoing factors, full-year net sales in the precision products segment were ¥68,276 million
($821,118 thousand), up 18.2% from the prior year. Segment income was ¥3,307 million ($39,771 thousand),
compared to operating loss of ¥4,111 million in the year ago period. Segment loss in the same period last year,
recalculated using the accounting method applied this year, was ¥1,311 million.
Other
Full-year net sales in the “Other” segment were ¥1,279 million ($15,382 thousand), compared to ¥19,714 million
in the same period last year. Segment loss for the year was ¥286 million ($3,451 thousand), compared to an
operating loss of ¥6,669 million in the same period last year. The main reason for the decline in income is that
subsidiaries that provided internal services to Epson were dissolved and their functions transferred to various
Epson businesses in the previous fiscal year. Segment loss in the same period last year, recalculated using the
accounting method applied this year, was ¥100 million.
Adjustments
Segment loss was ¥46,032 million ($533,602 thousand). The loss was primarily due to the recording of research
and development expenses for basic research and new businesses that do not belong to a reporting segment, as
well as to the recording of selling, general and administrative expenses, largely comprised of Head Office
expenses. Segment loss in the same period last year, recalculated using the accounting method applied this year,
was ¥53,639 million.
(2) Cash Flow Performance
Net cash provided by operating activities during the year was ¥32,395 million ($389,597 thousand), compared to
¥56,542 million in the previous fiscal year. This decrease was due mainly to a ¥23,318 million decrease in notes
and accounts payable-trade accompanying repayment of things such as notes and accounts payable-trade and a
¥15,665 million ($188,394 thousand) increase in inventories due chiefly to a strategic build-up of product
inventory for the following year. On the other hand, income before income taxes and minority interests was
¥15,381 million ($184,978 thousand), depreciation and amortization totaled ¥41,159 million ($494,999
thousand), and notes and accounts receivable-trade decreased by ¥8,225 million ($98,917 thousand).
Net cash used in investing activities was ¥23,615 million ($284,004 thousand), compared to ¥43,203 million the
previous fiscal year. Comprising the bulk of this was ¥28,308 million ($340,444 thousand) in purchases of
property, plant, and equipment associated mainly with new products.
Net cash used in financing activities was ¥42,691 million ($513,421 thousand), compared to ¥41,087 million the
previous fiscal year. Most of this was used for repayment of loans.
As a result, cash and cash equivalents at end of period totaled ¥211,777 million ($2,546,927), compared to
¥254,590 million at the end of the previous fiscal year.
* Please refer to the following for historical information about Epson’s financial results:
http://global.epson.com/IR/
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, 2011
(From April 1, 2010, to March 31, 2011)
(Millions of yen)
Change
compared to
previous year
(%)
Information-related equipment
Electronic devices
Precision products
Total for the reporting segments
Other
Total
638,794
214,597
66,090
919,483
632
920,115
92.7
107.0
124.1
97.5
99.4
97.5
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, 2011
(From April 1, 2010, to March 31, 2011)
(Millions of yen)
Change compared
to previous year
(%)
Information-related equipment
Electronic devices
Precision products
Total for the reporting segments
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.
701,879
203,491
66,628
971,999
788
972,788
98.7
94.4
118.4
98.9
66.7
98.8
23
3. Analysis of financial condition and results of operations
(1) Analysis of operating results
Net Sales
Consolidated net sales decreased by ¥11,699 million (1.2%) to ¥973,663 million compared with the previous
consolidated fiscal year.
Sales in each reporting segment are discussed below.
In the information-related equipment segment, net sales were ¥702,918 million, a year-over-year decline of
¥9,774 million (1.4%). The following major factors contributed to the decline.
Although consumer inkjet printer unit shipments grew, largely due to strong first-half sales in the Americas, the
gains were cancelled out by the effects of yen appreciation and price erosion. Shipments of page printers,
especially low-end models, also increased, owing in large part to successful tenders, but net sales were adversely
affected by yen appreciation and sluggish consumables sales associated with a smaller page printer install base.
In 3LCD projectors, on the other hand, the company saw growth in units shipments of education and
home-theater models overseas. Moreover, average selling prices rose as short-throw and full-HD models
accounted for a greater percentage of total sales. Serial-impact dot-matrix printer unit shipments also increased,
with demand associated with China's tax collection system complemented by steady demand in other emerging
economies. Shipments of business inkjet printers to the photo and signage markets grew, largely due to order
wins in the U.S. and expanded demand in the robust Chinese market. Net sales in the segment as a whole ended
only slightly lower year-over-year, despite the effects of yen appreciation and price erosion.
In the electronic devices segment, net sales were ¥231,235 million, a year-over-year decline of ¥16,765 million
(6.8%). The following major factors contributed to the decline.
Demand for electronic devices in general steadily rose as the economy recovered. In the quartz device business
unit shipments of most products increased. Likewise, in the semiconductor business unit shipments of silicon
foundry products, analog ICs, and monochrome LCD drivers for automotive applications increased. However,
the small- and medium-sized displays business, which was in the process of being transferred, saw its net sales
hurt by a decline in unit volume, as well as by price erosion in high-temperature polysilicon TFT LCD panels
(“HTPS panels”) used in 3LCD projectors.
The precision products segment posted net sales of ¥68,276 million, a year-over-year increase of ¥10,529 million
(18.2%). The increase was primarily due to a turnaround in watch unit shipments and to increased sales of IC
handlers and robots as corporate capital spending rebounded.
In the “Other” segment, net sales were ¥1,279 million, a year-over-year decline of ¥185 million (12.7%).
Cost of sales and gross profit
The cost of sales was ¥710,700 million, a year-over-year decrease of ¥15,193 million (2.1%). The decrease in
cost of sales is primarily a reflection of the effects of yen appreciation, lower R&D expenses due to more
rigorous screening and selection of investment projects, continued curtailment of capital spending, and a decline
in depreciation and amortization due to the recording of an impairment loss in the electronic devices segment in
the previous period.
As a result, gross profit was ¥262,963 million, up ¥3,493 million (1.3%) compared to the previous period.
Selling, general and administrative expenses and operating income
Selling, general and administrative (SG&A) expenses were ¥230,253 million, down ¥10,987 million (4.6%)
year-over-year. Amid a slowdown in the pace of the economic recovery, the company once again rigorously
screened spending proposals, reduced its R&D, sales promotion, and advertising expenses. SG&A expenses were
also helped by the effects of yen appreciation. Logistics expenses also declined, largely as a result of changes
that brought greater operational efficiency.
Reflecting these factors, operating income rose ¥14,481 million (79.5%), to ¥32,709 million.
Segment income in each reporting segment was as follows. Accounting Standard No. 17, “Revised Accounting
Standard for Disclosures about Segments of an Enterprise and Related Information,” came into effect on March
24
27, 2009. Effective in the year under review, therefore, the company changed the method it uses to calculate
segment income and, for comparison purposes, recalculated the previous period's results using the new method.
Segment income in the information-related equipment segment was ¥70,151 million, compared to ¥71,748
million in the previous period. The slight dip came largely because the effects of yen appreciation and price
erosion cancelled out the effects of increased unit shipments of 3LCD projectors and SIDM printers for business
applications and the effects of increased operational efficiency, which reduced logistics and other SG&A
expenses.
Segment income in the electronic devices segment was ¥5,569 million, compared to 1,529 million in the
previous period. Although negatively impacted by yen appreciation and price erosion affecting quartz devices
and HTPS panels, segment income jumped due to a combination of improvement in the semiconductor product
mix, increased gross profit owing to reduced expenses for small- and medium-sized displays, and reduced R&D
and other SG&A expenses.
Segment income in the precision products segment was ¥3,307 million, compared to a ¥1,311 million loss in the
previous period. The rebound in income reflects a rise in gross profit that accompanied revenue growth in
watches, IC handlers, and robots, among other products.
Other segment loss was ¥286 million, compared to a ¥100 million loss in the previous period.
As for adjustments, segment loss was ¥46,032 million, compared to a loss of¥ 53,639 million in the previous
period. The smaller loss was primarily due to the recording of R&D expenses for basic research and new
businesses that do not belong to a reporting segment, as well as to the recording of SG&A expenses, largely
comprised of Head Office expenses, and more rigorous screening of budget expenditures.
Non-operating income and expenses
Non-operating income minus non-operating expenses amounted to a net loss of ¥1,534 million, a ¥2,817 million
improvement from the ¥4,351 million loss in the previous period. The main reason for the improvement is that
the loss on foreign exchange was ¥1,239 million in the year under review, compared to a loss of ¥5,076 million
in the previous period.
Ordinary income
Ordinary income was ¥31,174 million, up ¥17,299 million (124.7%) compared to the previous period.
Extraordinary income and losses
Extraordinary income minus extraordinary loss amounted to a net loss of ¥15,793 million, a ¥1,118 million
increase in loss from the ¥14,675 million recorded in the previous period. The increase in extraordinary loss was
primarily due to a ¥7,269 million impairment loss on business assets in the small- and medium-sized display
business in the previous period, as well as the recording of ¥9,909 million in business structure improvement
expenses associated with the transfer and termination of the small- and medium-sized displays business and a
¥4,755 million loss on disaster, comprising the loss or damage of inventory as a result of the Great East Japan
Earthquake, which combined to negate a ¥2,274 million gain on sales of noncurrent assets from the sale by a
subsidiary of buildings and structures during the year under review.
Income before income taxes and minority interests
Epson thus recorded income before income taxes and minority interests of ¥15,381 million, an increase of
¥16,181 million from the period.
Income taxes
Income taxes decreased by ¥14,018 million to ¥4,971 million. In the previous period, given the taxable income
situation of the domestic group companies presenting a consolidated tax return, the company revised and took a
write-down on deferred tax assets. Conversely, in the fiscal year under review the company increased its deferred
tax assets as it expects financial improvement of Seiko Epson on a non-consolidated basis. The effective tax rate
after the application of deferred tax accounting came to 32.3%.
25
Minority interests in income
Minority interests in income for the period under review were ¥170 million, compared to ¥1 million in the
previous period. This was due to a decrease in losses distributed proportionally to minority interests in the period
under review in conjunction with Epson Toyocom Corporation becoming a wholly owned subsidiary during the
previous period.
Net income
As a result of the foregoing, Epson posted net income of ¥10,239 million, a ¥30,030 million increase from the
previous period.
(2) Liquidity and capital resources
Cash flow
Net cash provided by operating activities in the period under review was ¥32,395 million, down ¥24,146 million
from the previous period. Among the factors contributing to increased cash flow were the recording of a ¥16,181
million increase in income before income taxes and minority interests, a ¥16,599 million effect from a decrease
in notes and accounts receivable-trade, and ¥9,909 million in business structure improvement expenses
associated with the transfer of the small- and medium-sized displays business. Factors contributing to the
decrease included a ¥40,965 million effect from a decrease in notes and accounts payable-trade accompanying
repayments, a ¥8,536 million effect from an increase in inventories due to a strategic build-up of product
inventory for the following year, the recording of a ¥7,269 million impairment loss in the preceding period
associated with the small- and medium-sized displays business, and a ¥6,236 million decrease in depreciation
and amortization due to more rigorous selectivity in investments in past years.
Net cash used in investing activities totaled ¥23,615 million, down ¥19,588 million from the previous period.
Cash used in the year under review decreased due to ¥13,405 million used to acquire subsidiary company shares
in the previous period.
Net cash used in financing activities was ¥42,691 million, a ¥1,604 million increase compared to the previous
period. While loan repayments decreased, net cash used in financing activities increased mainly as a result of a
¥2,621 million increase in dividend payments as the company's financial performance improved.
Due to these factors, as of March 31, 2011, cash and cash equivalents at the end of the period stood at ¥211,777
million, a drop of ¥42,812 million from the previous period , giving Epson sufficient liquidity.
The combined total of short- and long-term loans payable was ¥180,722 million, a decrease of ¥28,338 million
compared to the previous period, owing to progress in repaying general interest-bearing liabilities.
Long-term loans payable (excluding the current portion), which comprise the majority of loans, amount to
¥107,500 million as of March 31, 2011, at a weighted average interest rate of 1.62% and with a repayment
deadline of March 2015. These borrowings were obtained as unsecured loans primarily from banks.
Financial condition
Total assets as of March 31, 2011 stood at ¥798,229 million, a decrease of ¥71,861 million from the previous
fiscal year-end due primarily to a decrease in current assets. Current assets declined by ¥52,680 million. The
main cause of the decrease was a ¥42,811 million total decline in cash and deposits and in securities, mainly due
to repayment of interest-bearing liabilities and payment of notes and accounts payable-trade. Total property,
plant and equipment declined by ¥11,731 million, primarily because of a more rigorous approach to the selection
of investments. Total liabilities as of March 31, 2011 were ¥527,421 million, down ¥59,804 million from the
previous fiscal year. This decrease in total liabilities was due to repayment of interest-bearing liabilities that
results in a decrease in short-term loans payable, current portion of bonds, current portion of long-term loans
payable, bonds payable, and long-term loans payable totaling ¥38,338 million, as well as a ¥17,935 million
decrease in notes and accounts payable-trade.
Retained earnings increased by ¥6,243 million, largely as a result of having posted net income. Nevertheless,
26
total net assets decreased by ¥12,056 million compared to the end of the previous period, mainly because of a
-¥63,812 million foreign currency translation adjustment, a decline of ¥16,106 million, due to the appreciation of
the yen versus the euro and US dollar.
Working capital, defined as current assets less current liabilities, was ¥228,108 million, a decrease of ¥39,450
million compared with March 31, 2011.
The ratio of interest-bearing liabilities to total assets declined to 34.1% from 35.8% at the end of the previous
fiscal year.
27
4. Research and development activities
Epson is pursuing innovation in compact, energy-saving, high-precision technologies with the aim of becoming a
“community of robust businesses,” as set forth in the company's “SE15” Long-Range Corporate Vision. The
company's research and development programs are designed to achieve this and are thus principally focused on
boosting competitiveness by concentrating management resources on areas of strength, reinforcing business
foundations, and using the technologies and other assets in the company's portfolio to create new businesses.
Operations division R&D develops core technologies and shared technology platforms in order to strengthen
the company's market position, both short and long term. Corporate R&D’s mission is to develop both new and
existing core technologies and shared technology platforms, with the aim of creating new and revolutionizing
existing businesses.
Total R&D spending in the year under review was ¥54,377 million. This included ¥25,622 million in the
information-related equipment segment, ¥7,326 million in the electronic devices segment, ¥3,332 million in the
precision products segment, and ¥18,096 million in the other segment and corporate segment.
The main R&D accomplishments in each segment are described below.
Information-related equipment
In the printer business, the company developed a low environmental impact color inkjet printer. Equipped with
an energy-saving “deep-sleep” feature that puts the printer in a sleep mode where it uses just 0.8W of power, this
inkjet product boasts a TEC value (a value defined by the International ENERGY STAR program that indicates
the typical electricity consumption of a product when in operation and standby states) of 1.27 kWh, the lowest*1
TEC value of any high-speed A3 color printer in Japan that prints at least 21 sheets per minute. The company
also developed “Epson UltraChrome® GS ink”, a new eco-solvent GS ink for commercial large-format printers
that produces little of the odor associated with ordinary solvent-based inks and that does not contain
carcinogenic nickel compounds, thus minimizing the harmful impact on the environment and employees.
In the visual instruments business, the company developed a mobile 3LCD projector that weighs just 1.7 kg and
is an ultra-slim 44 mm, making it the world's thinnest*2 3LCD model. With 3,000 lumens of brightness, the
projector is capable of displaying sharp, vivid images even in well-lit rooms. A short-throw lens and both vertical
and horizontal keystone correction enable the projector to throw a bright, high-quality picture on large screens
even in limited space.
*1 As of November 24, 2010, according to Epson research
*2 As of September 16, 2010, according to Epson research
Electronic devices
In the quartz device business, the company developed an ultra-compact yet highly accurate, high-resolution
absolute pressure*3 sensor that measures 7.0 x 5.0 mm along the edges and is only 2.0 mm thick. The sensor
employs a newly developed, original QMEMS*4 pressure-sensing structure that provides total pressure accuracy
of ±30 Pa*5 and a resolution*6 of 0.3 Pa.
The company also developed gyroscopic sensors for vehicle attitude sensing applications, such as electronic
stability control (ESC) and rollover protection systems. Using QMEMS technology to fabricate crystal sensing
elements in an original hammerhead structure, the company was able to realize very small sensors that exhibit
stable characteristics over a wide temperature range (-40 to +125°C). Sensor reliability was increased by
providing a diagnostic circuit that detects failures at any given time and at startup. Excellent vibration resistance
and shock survivability were achieved by optimizing the sensing elements and their support structure.
In the semiconductor business, the company developed a display control platform for e-paper displays that
provide laser printer-like image quality and fast refresh rates. The platform is built around core semiconductor
chips and firmware used to control the driving of e-paper displays. These components are optimized to run
together as a fine-tuned system. The platform's new driving scheme employs high-speed image processing
technology originally developed for photo printers to enable e-paper displays with resolutions of 300 dpi and
higher to be refreshed at high speed.
*3 Absolute pressure is the pressure zero-referenced against a perfect vacuum.
*4 QMEMS is a combination of “quartz,” a crystalline material that has excellent stability and precision, and
28
“MEMS,” micro electro-mechanical systems engineered using microfabrication technology. QMEMS refers to
compact, high-performance devices made from quartz material and is a registered trademark of Epson Toyocom
Corporation.
*5 Pa (Pascal) is the international unit for pressure.
*6 Resolution is the measurement or detection capability of a sensor or device.
Precision products
In the factory automation products business the company developed new vertical six-axis robots. Equipped with
original Smart Motion Control technology*7 that provides outstanding continuous-path control while enabling
high speed with low vibration, the new robots also have a slim, space-efficient design that gives them among the
shortest cycle times in their class*8.
*7 New acceleration/deceleration tuning and other original Epson robot control technologies that enable high
speed while achieving low vibration to optimize robot motion (straight and arcing motions, and motion when
carrying heavy loads)
*8 Compared to other vertically articulated six-axis robots with similar payload and arm length. Source: Epson
research, as of the end of December 2010.
29
5. Issues for Fiscal 2011
Epson’s operating environment is marked by an acceleration of trends including the increasing influence of
emerging markets on the global economy and a shift to sustainable industrial and economic activities. With
society being transformed by changes such as these, Epson believes that customer values are also on the verge of
dramatic change.
Seeing 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 its management resources
on businesses that have growth potential and/or strategic importance.
Toward this end, Epson established the SE15 Long-Range Corporate Vision in March 2009, setting out its vision
for the period up to 2015, and the three-year SE15 Mid-Range Business Plan (FY2009-FY2011).
Under the SE15 Long-Range Corporate Vision, Epson will focus on “compact, energy-saving, high-precision
technologies” as its core strengths since its foundation, and will leverage these strengths as it looks to achieve
sustainable growth. Through the consolidation of management resources on growth businesses and 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 Mid-Range Business Plan
(FY2009-FY2011) 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 that have growth potential and/or strategic importance, so as to foster new businesses that will drive
future growth. In fiscal 2011, the final year of the SE15 Mid-Range Business Plan (FY2009-FY2011), Epson
will step up its efforts to move onto the growth path set out in SE15 and will continue to strengthen its business
structure and pursue its ongoing structural reforms.
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
users.
Epson will also expand operations by increasing the number of models for emerging markets and by launching
environmentally considerate models. It 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 drawing on the technical expertise it has accumulated over the years and by rebuilding its manufacturing
infrastructure, Epson is looking to create high-value-added microdevices and reinforce its position as the leading
company in the crystal device market.
Quartz devices are positioned as the core products of Epson’s electronic devices businesses. By creating
synergies with its semiconductor and other technologies, Epson will fortify its lineup of sensing devices and
applied products.
Please note that Epson manufacturing sites in the Tohoku area of Japan were affected by the Great East Japan
Earthquake that struck on March 11, 2011. While carefully confirming the situation regarding employees and
30
facilities, Epson successively restarted production as it sought to resume operations. Going forward, Epson will
have to keep a close eye on how the parts procurement situation impacts production of certain finished goods
even as it seeks to minimize impacts by sourcing substitute parts or engineering workarounds.
31
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.
Although it recorded unforeseen extraordinary losses during the year, including a ¥4,755 million loss associated
with inventory and equipment as a result of the Great East Japan Earthquake that struck on March 11, 2011, the
Company increased its annual dividend by 10 yen per share, declaring a 20-yen dividend (10 yen of which was
paid as an interim dividend at the end of the first half). The two main considerations in this decision were the
Company’s policy of paying stable dividends and the fact that it posted positive net income, thus achieving the
goal established at the beginning of the period of reaching or exceeding break-even in this income category.
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
October 29, 2010, by resolution
of the board of directors
June 20, 2011, by resolution of
the general shareholders’ meeting
Cash dividends
(Millions of yen)
Cash dividend per share
(Yen)
1,997
1,997
10
10
32
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.
The company 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
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
33
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.
Epson’s Principles of Corporate Behavior categorically state that the Company will not be involved with
anti-social elements in any way.
34
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.
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
35
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
Directors
Statutory auditors
(including total for outside
statutory auditors)
Total
Notes
1. The numbers above include two directors and one statutory auditor who retired at the closing of the general
408
115
(57)
408
115
(57)
12
6
(3)
523
523
18
-
-
-
shareholders’ meeting on June 22, 2010.
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.
36
(5) Stock holdings
Balance sheet total of stocks held for reasons other than pure investment
26 companies
¥10,026 million
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.
Hakuto Co., Ltd.
489,500
190,000
Iwasaki Electric Co., Ltd.
1,000,000
King Jim Co., Ltd.
Marubun Corporation
Joshin Denki Co., Ltd.
Otuska Corporation
Pixelworks, Inc.
221,980
332,640
70,000
10,000
100,000
Mizuho Trust & Banking Co., Ltd.
10,000
5,586 Maintain and
strengthen
business ties
2,070 Maintain and
strengthen
business ties
468 Maintain and
strengthen
business ties
234 Maintain and
strengthen
business ties
165 Maintain and
strengthen
business ties
164 Maintain and
strengthen
business ties
141 Maintain and
strengthen
business ties
139 Maintain and
strengthen
business ties
56 Maintain and
strengthen
business ties
53 Maintain and
strengthen
business ties
29 Maintain and
strengthen
business ties
0 Maintain and
strengthen
business ties
37
(6) Accounting audits
(a) Names and other details of corporate public accountants performing audits
Name of CPA
Audit company
No. of successive years
performing audits
2
Takashi Ide
Seiji
Yamamoto
Ernst & Young
ShinNihon LLC
Ernst & Young
ShinNihon LLC
Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
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.
Ernst & Young
ShinNihon LLC
Taisuke Ide
5
2
(b) Composition of auditing team
The auditing team comprises 35 staff including 11 certified public accountants, eight junior accountants, and 16
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
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.
38
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
159
146
305
0
-
0
144
124
268
13
-
13
(2) Other important remuneration
Previous fiscal year
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, 2010, amounted
to ¥136 million.
Fiscal year under review
Total payments for audits carried out on behalf of 38 consolidated overseas subsidiaries by auditing certified
public accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2011, amounted
to ¥177 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, in particular training courses.
Fiscal year under review
Remuneration paid for non-audit work performed by the auditing certified public accountant was for consultancy
services in IFRS.
(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.
39
3. Basic policy regarding company control
At its meeting on April 30, 2008, Epson’s board of directors agreed to the basic policy described below
governing persons who control the Company’s financial and business policy decisions (hereinafter the “basic
policy”).
(1) Overview
Epson believes 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 prevent large-scale acquisitions of Epson stock certificates that do not enhance
corporate value or that are not in the common interests of shareholders by having shareholders decide whether to
allow such acquisitions and by giving the Epson board of directors the time and information they need to present
shareholders with an alternative proposal and enable the board to discuss and negotiate with the acquirer on
behalf of shareholders. Specifically, a party that intends to acquire 20% or more of stock certificates outstanding
or to stage a takeover bid shall be required to submit in advance to the Epson board of directors a statement of
intent as well as sufficient and necessary information for decision-making on the part of shareholders and for
evaluation and consideration by a special committee. The party shall also be required 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.
To prevent the Epson board of directors from making arbitrary decisions on the activation of provision, the
question of whether to invoke preventive provisions 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 regarding the necessity of the activation of provisions, and
the Epson board of directors shall promptly accept or reject a resolution regarding the activation of provisions,
paying the utmost consideration to that advice. Since the Plan was to be in force until the close of the June 20,
2011 general shareholders' meeting, the Company decided to renew a revised version of the Plan, subject to the
approval of shareholders at the general shareholders' meeting.
40
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)
Executive Vice President
(Representative Director)
Kenji Kubota
Senior Managing Director
(Representative Director)
Torao Yajima
Managing Director
Seiichi Hirano
Tadaaki Hagata
Managing Director
Managing Director
Noriyuki Hama
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
Akihiko Sakai
Akio Mori
Officer
Managing Executive
Officer
Executive Officer
Executive Officer
General Administrative Manager,
Business Infrastructure Improvement
Division, and Chief Operating Officer,
Electronic Devices and Precision
Products Operations Segment
General Administrative Manager,
Corporate Strategy Division
Chief Operating Officer, Microdevices
Operations Division, and President,
Epson Toyocom Corporation
President, Epson Sales Japan Corporation
Chief Operating Officer, Imaging
Products Operations segment
General Administrative Manager, Human
Resources Division
General Administrative Manager,
Corporate Research & Development
Division, and General Manager, I Project
Deputy Chief Operating Officer, Imaging
Products Operations Segment
President and Chief Executive Officer,
Epson America, Inc
General Administrative Manager,
Intellectual Property Division
President, Tohoku Epson Corporation
Deputy General Administrative Manager,
Corporate Research & Development
Division
41
Kiyofumi Koike
Executive Officer
Ryuhei Miyagawa
Executive Officer
Koichi Endo
Executive Officer
Hiromi Taba
Koichi Kubota
Executive Officer
Executive Officer
Motonori Okumura
Executive Officer
Takashi Oguchi
Shigeki Inoue
Executive Officer
Executive Officer
Chairman and President, Epson (China)
Co., Ltd.
Deputy Chief Operating Officer,
Microdevices Operations Division,
Senior General Manager, Sensing System
Business Unit, and Senior General
Manager, Imaging Interface Business
Unit
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
President, P.T. Indonesia Epson Industry
Deputy General Administrative Manager,
Corporate Strategy Division
42
Index to Consolidated Financial Statements
Seiko Epson Corporation and Subsidiaries
Consolidated Balance Sheets………………………………………..
Consolidated Statements of Income…………………………………
Consolidated Statements of Comprehensive Income……………
Consolidated Statements of Changes in Net Assets…………….…
Consolidated Statements of Cash Flows………………………….…
Notes to Consolidated Financial Statements ……………………….
44
46
47
48
50
51
43
Consolidated Balance Sheets
As sets
Current ass ets
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Merchandise and finished goods
W ork in process
Raw materials and supplies
Deferred tax as sets
Other
Allowance for doubtful accounts
Total current as sets
Noncurrent assets
Property, plant and equipment
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Cons truction in progress
Other
Accumulated depreciation
Total property, plant and equipment
Intangible assets
Goodwill
Other
Total intangible as sets
Investments and other assets
Investment s ecurities
Long-term loans receivable
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other as sets
Total noncurrent assets
Total assets
Millions of yen
March 31,
2010
March 31,
2011
Thousands of U.S.
dollars
March 31,
2011
¥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
¥125,807
140,564
76,009
90,900
37,133
23,876
12,419
38,821
(2,003)
543,530
399,318
439,113
156,671
54,744
4,792
114
(841,132)
213,623
2,632
11,984
14,616
13,319
47
4,236
8,929
(73)
26,458
254,699
¥798,229
$1,513,012
1,690,487
914,119
1,093,205
446,578
287,143
149,356
466,929
(24,088)
6,536,741
4,802,381
5,280,974
1,884,197
658,376
57,630
1,432
(10,115,838)
2,569,152
31,653
144,125
175,778
160,180
565
50,944
107,384
(877)
318,196
3,063,126
$9,599,867
The accompanying notes are an integral part of these financial statements.
44
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
Other
Total current liabilities
Noncurrent liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities
Provision for retirement benefits
Provision for loss on litigation
Provision for product warranties
Provision for recycling costs
Other
Total noncurrent liabilities
Total liabilities
Net assets
Shareholders' equity
Capital s tock
Authorized - 607,458,368 s hares
Issued - 199,817,389 shares
Capital s urplus
Retained earnings
Treasury s tock
March 31, 2011 - 23,924 shares
March 31, 2010 - 22,089 shares
Total shareholders ' equity
Accumulated other comprehensive income
Valuation difference on available-for-sale s ecurities
Deferred gains or los ses on hedges
Foreign currency translation adjustment
Total accumulated other comprehensive income
Minority interes ts
Total net assets
Total liabilities and net as sets
Millions of yen
March 31,
2010
March 31,
2011
Thousands of U.S.
dollars
March 31,
2011
¥90,768
¥72,833
$875,923
21,739
30,000
35,728
58,576
10,024
83
14,484
9,928
57,317
31,129
30,000
42,093
51,112
6,472
116
16,681
8,199
56,782
374,371
360,793
506,229
614,696
77,835
1,395
200,613
98,604
682,950
328,652
315,422
3,793,409
70,000
151,593
10,207
20,008
－
450
396
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
60,000
107,500
8,921
26,289
2,102
420
478
6,287
211,999
527,421
53,204
84,321
193,602
(38)
331,088
2,558
(572)
(63,812)
(61,826)
1,545
270,808
¥870,090
¥798,229
721,587
1,292,844
107,288
316,163
25,279
5,051
5,748
75,637
2,549,597
6,343,006
639,855
1,014,082
2,328,346
(457)
3,981,826
30,763
(6,879)
(767,429)
(743,545)
18,580
3,256,861
$9,599,867
The accompanying notes are an integral part of these financial statements.
45
Consolidated Statements of Income
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income:
Interest income
Rent income
Amortization of negative goodwill
Other
Total non-operating income
Non-operating expenses:
Interest expenses
Foreign exchange losses
Rent expenses on real estates
Other
Total non-operating expenses
Ordinary income
Extraordinary income:
Gain on sales of noncurrent assets
Reversal of provision for product warranties
Gain on transfer of business
Other
Total extraordinary income
Extraordinary loss:
Loss on disaster
Business structure improvement expenses
Provision for loss on litigation
Other
Total extraordinary losses
Income (loss) before income taxes and minority
interests
Income taxes-current
Income taxes-deferred
Total income taxes
Income (loss) before minority interests
Minority interests in income
Net income (loss)
Millions of yen
Thousands of U.S.
dollars
March 31,
2010
March 31,
2011
March 31,
2011
¥985,363
725,894
259,469
241,241
18,227
¥973,663
710,700
262,963
230,253
32,709
$11,709,717
8,547,204
3,162,513
2,769,140
393,373
1,259
1,014
1,368
4,084
7,726
5,070
5,076
613
1,318
12,078
13,875
595
87
-
1,394
2,078
-
-
-
16,753
16,753
(799)
938
1,562
708
3,741
6,951
4,225
1,239
944
2,076
8,485
31,174
2,274
873
513
490
4,152
4,755
9,909
2,013
3,267
19,945
15,381
13,740
5,249
18,989
(19,789)
1
(¥19,791)
9,121
(4,149)
4,971
10,409
170
¥10,239
11,280
18,785
8,514
45,016
83,595
50,811
14,900
11,352
24,993
102,056
374,912
27,348
10,499
6,169
5,917
49,933
57,185
119,170
24,209
39,303
239,867
184,978
109,692
(49,897)
59,795
125,183
2,045
$123,138
The accompanying notes are an integral part of these financial statements.
46
Consolidated Statements of Comprehensive Income
Income (loss ) before minority interes ts
Other comprehensive income
Valuation difference on available-for-sale s ecurities
Deferred gains or loss es on hedges
Foreign currency translation adjustment
Share of other comprehensive income of as sociates accounted
for using equity method
Total other comprehensive income
Comprehens ive income
Comprehens ive income attributable to:
Comprehens ive income attributable to owners of the parent
Comprehens ive income attributable to minority interests
Millions of yen
Thous ands of U.S.
dollars
March 31,
2010
March 31,
2011
March 31,
2011
(¥19,789)
¥10,409
$125,183
1,188
2,306
(8,457)
(55)
(5,018)
(¥24,807)
(¥24,746)
(¥61)
(1,460)
(702)
(16,099)
(135)
(18,398)
(¥7,988)
(¥8,034)
¥46
(17,558)
(8,442)
(193,627)
(1,623)
(221,250)
($96,067)
($96,620)
$553
The accompanying notes are an integral part of these financial statements.
47
Consolidated Statements of Changes in Net Assets
Shareholders' equity
Capital s tock
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 s urplus
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 s tock
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 s tock
Total changes of items during the period
Balance at the end of current period
Accumulated other comprehensive income
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 los ses 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
Millions of yen
March 31,
2010
March 31,
2011
Thousands of U.S.
dollars
March 31,
2011
¥53,204
¥53,204
$639,855
-
53,204
79,500
4,820
4,820
84,321
-
53,204
-
639,855
84,321
1,014,082
-
-
84,321
-
-
1,014,082
208,524
187,358
2,253,253
(1,374)
(19,791)
(21,165)
187,358
(8)
(27)
0
(26)
(35)
(3,995)
10,239
6,243
193,602
(35)
(2)
-
(2)
(38)
(48,045)
123,138
75,093
2,328,346
(420)
(37)
-
(37)
(457)
341,220
324,847
3,906,770
4,820
(1,374)
(19,791)
(27)
0
(16,372)
324,847
2,835
1,188
1,188
4,023
(2,175)
2,306
2,306
130
-
(3,995)
10,239
(2)
-
6,241
331,088
4,023
(1,464)
(1,464)
2,558
130
(702)
(702)
(572)
-
(48,045)
123,138
(37)
-
75,056
3,981,826
48,382
(17,619)
(17,619)
30,763
1,563
(8,442)
(8,442)
(6,879)
(39,255)
(47,705)
(573,722)
Net changes of items other than shareholders ' equity
Total changes of items during the period
Balance at the end of current period
(8,449)
(8,449)
(47,705)
(16,106)
(16,106)
(63,812)
(193,707)
(193,707)
(767,429)
The accompanying notes are an integral part of these financial statements.
48
Total accumulated other comprehensive income
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
Increas e by share exchanges
Dividends from surplus
Net income (loss)
Purchase of treas ury stock
Dispos al 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,
2010
March 31,
2011
Thousands of U.S.
dollars
March 31,
2011
(38,596)
(43,552)
(523,777)
(4,955)
(4,955)
(43,552)
16,007
(14,439)
(14,439)
1,568
(18,274)
(18,274)
(61,826)
1,568
(22)
(22)
1,545
(219,768)
(219,768)
(743,545)
18,857
(277)
(277)
18,580
318,631
282,864
3,401,850
4,820
(1,374)
(19,791)
(27)
0
(19,394)
(35,767)
¥282,864
-
(3,995)
10,239
(2)
-
(18,297)
(12,056)
¥270,808
-
(48,045)
123,138
(37)
-
(220,045)
(144,989)
$3,256,861
The accompanying notes are an integral part of these financial statements.
49
Consolidated Statements of Cash Flows
Millions of yen
March 31,
2010
March 31,
2011
Thous ands of U.S.
dollars
March 31,
2011
Consolidated s tatements of cas h flows
Net cash provided by (used in) operating activities
Income (los s) before income taxes and minority interests
Depreciation and amortization
Equity in (earnings ) los ses of affiliates
Amortization of goodwill
Business structure improvement expenses
Loss on dis aster
Increas e (decreas e) in allowance for doubtful accounts
Increas e (decreas e) in provision for bonuses
Increas e (decreas e) in provision for product warranties
Increas e (decreas e) in provision for retirement benefits
Interes t and dividends income
Interes t expenses
Foreign exchange loss es (gains )
Loss (gain) on sales of noncurrent as sets
Loss on retirement of noncurrent as sets
Loss (gain) on sales of investment securities
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increas e (decreas e) in accrued cons umption taxes
Increas e (decreas e) in notes and accounts payable-trade
Other, net
Subtotal
Interes t and dividends income received
Interes t 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 s ecurities
Proceeds from s ales of inves tment securities
Purchase of property, plant and equipment
Proceeds from s ales of property, plant and equipment
Purchase of intangible as sets
Proceeds from s ales of intangible assets
Purchase of long-term prepaid expens es
Proceeds from s ales of inves tments in subsidiaries res ulting in
change in scope of consolidation
Proceeds from trans fer of bus iness
Other, net
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increas e (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from is suance of bonds
Redemption of bonds
Repayments of lease obligations
Purchase of treasury s tock
Proceeds from s ales of treas ury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cas h and cas h equivalents
Net increas e (decreas e) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents from newly cons olidated
s ubsidiary
(¥799)
47,395
(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
12,898
73,497
336
(5,131)
(12,159)
56,542
523
(14)
929
(27,196)
895
(4,640)
5
(204)
－
－
(13,501)
(43,203)
(20,382)
2,000
(18,543)
－
－
(2,654)
(27)
0
(1,374)
(105)
(41,087)
(2,000)
(29,749)
284,340
－
¥15,381
41,159
(77)
240
9,909
4,755
(192)
2,309
(1,309)
329
(1,174)
4,225
(60)
(2,303)
895
19
8,225
(15,665)
(761)
(23,318)
2,643
45,230
2,023
(4,320)
(10,538)
32,395
(2)
(7)
260
(28,308)
2,844
(2,286)
12
(699)
53
4,062
455
(23,615)
10,092
－
(37,728)
20,000
(30,000)
(989)
(2)
－
(3,995)
(67)
(42,691)
(9,020)
(42,932)
254,590
119
$184,978
494,999
(926)
2,886
119,170
57,185
(2,309)
27,769
(15,742)
3,956
(14,119)
50,811
(721)
(27,696)
10,763
228
98,917
(188,394)
(9,152)
(280,432)
31,785
543,956
24,329
(51,954)
(126,734)
389,597
(0)
(84)
3,126
(340,444)
34,192
(27,492)
144
(8,406)
637
48,851
5,472
(284,004)
121,371
－
(453,734)
240,529
(360,819)
(11,894)
(24)
－
(48,045)
(805)
(513,421)
(108,491)
(516,319)
3,061,815
1,431
Cash and cash equivalents at end of period
¥254,590
¥211,777
$2,546,927
The accompanying notes are an integral part of these financial statements.
50
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. Meanwhile 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, 2011, the Company had 92 consolidated subsidiaries. It has applied the equity method in respect
to one unconsolidated subsidiary and five affiliates.
3. 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.
51
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
average foreign exchange rates for the respective periods. Foreign currency translation adjustments are recorded
in the consolidated balance sheets as foreign currency translation adjustment and minority interests.
(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
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 values 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
52
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.
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 values at the date of contract, and gains
and losses arising from changes in fair value are recognized in earnings in the corresponding fiscal
period. If certain hedging criteria are met, such gains and losses are deferred and accounted for as
deferred gains or losses on hedges in net assets.
Interest rate swaps meeting certain hedging criteria are not recognized at their fair values under
exceptional processes recognized in Japanese accounting standards. The amounts received or paid for
such interest rate swap arrangements are charged or credited to income as incurred.
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
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.
53
(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 is 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
54
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
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.
Most of the Company’s foreign subsidiaries have various retirement plans, which are primarily defined
contribution plans.
(14) Provision for recycling costs
At the time of sale, provision for recycling 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
55
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.
(20) Changes in significant accounting policies
Effective April 1, 2010, Epson adapted the Accounting Standards Board of Japan (“ASBJ”) Statement No.18,
“Accounting Standard for Asset Retirement Obligations” and its Guidance No.21, “Guidance on Accounting
Standard for Asset Retirement Obligations,” issued on March 31, 2008.
The adoption of these standards did not have a material effect on Epson’s results of operations and financial
position for the year ended March 31, 2011.
(21) Comprehensive income
Effective from the year ended March 31, 2011, Epson adapted ASBJ Statement No. 25, “Accounting Standard
for Presentation of Comprehensive Income” which was announced on June 30, 2010. According to the
announcement, comprehensive income for the years ended March 31, 2010 and 2011, are presented.
4. 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
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 ¥83.15 = U.S.$1, the exchange rate
prevailing as of March 31, 2011, has been used.
5. Acquisitions and business transfer
(1) 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
56
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.
Total acquisition cost
Millions of yen
¥13,045
4,820
360
¥18,225
Note: The value of the Company’s shares was based on its share price on the date of the share exchange.
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
Goodwill generated
Value of goodwill generated: ¥4,140 million
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
57
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 ASBJ on November 15,
2007.
(2) Business Transfer
(a) LCDs business transfer
As of April 1, 2010, Epson 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.
Outline of transfer
Date of transfer: April 1, 2010
Gain on business transfer: ¥513 million ($6,169 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
¥3,604
228
¥3,833
¥231
54
¥285
$43,355
2,742
$46,097
$2,778
649
$3,427
The business transferred was included in the electronic devices segment.
(b) The subsidiary’s equity transfer
As of February 2, 2011, the Company and Sony executed an agreement for transferring all of the equity of
Suzhou Epson Co., Ltd. (“Suzhou Epson”), to the Sony Group. As part of its SE15 long-range corporate vision
and mid-range business plan, Epson is completing business structure reforms in its small- and medium-sized
TFT LCD business. In implementing these reforms, in April 2010 Epson transferred to the Sony Group certain
58
assets of the small- and medium-sized display front-end process manufacturing-related business operated by its
subsidiary, Epson Imaging Devices Corporation ("Epson Imaging"). Epson has now determined that it would
also be beneficial to transfer Suzhou Epson, which undertook the back-end and touch panel assembly processes
of Epson Imaging's display business, to the Sony Group.
Outline of transfer
Transferred to: Sony (China) Limited
Outline of Suzhou Epson:
Company name Suzhou Epson Co., Ltd.
Business activities Production of small-and medium-sized TFT LCD displays
Net sales ¥59,913 million ($720,541 thousand) (fiscal year ended March 31, 2011)
Total assets ¥19,443 million ($233,830 thousand) (as of March 31, 2011)
Total liabilities ¥8,034 million ($96,620 thousand) (as of March 31, 2011)
Ownership before transfer Seiko Epson Corporation 100% (including indirect ownership)
Agreed-upon purchase price and date of transfer:
Agreed-upon purchase price CNY 775 million (¥9,827 million, calculated at the foreign exchange
rate as of March 31, 2011; $118,184 thousand)
Ownership after transfer -%
Date of transfer Planned for the first half of the fiscal year ending March 31, 2012
The business transferred was included in the electronic devices segment.
6.
Inventories
Losses recognized and charged to cost of sales as a result of valuations as of March 31, 2010 and 2011, were
¥30,115 million and ¥30,654 million ($368,659 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 market value (carrying value) 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, 2011, comprised the
following:
Held-to-maturity debt securities
March 31, 2011
Millions of yen
Thousands of U.S. dollars
Commercial paper
¥9,999
$120,253
59
National government bonds
Total
109
¥10,108
1,310
$121,563
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 and
2011, were as follows:
Other securities
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
Millions of yen
March 31, 2011
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
¥6,188
66,000
189
¥4,049
-
-
Total
¥72,378
¥4,049
(¥771)
(-)
(-)
(¥771)
¥9,466
66,000
189
¥75,655
Thousands of U.S. dollars
March 31, 2011
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
$74,432
793,746
2,273
$48,682
-
-
($9,272)
(-)
(-)
$113,842
793,746
2,273
Total
$870,451
$48,682
($9,272)
$909,861
For the years ended March 31, 2010 and 2011, 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, the related gains and losses for the year ended March 31, 2010, were ¥551
million, ¥394 million and ¥29 million, respectively. The total sales of other securities, the related gains and
60
losses for the year ended March 31, 2011, were ¥108 million ($1,298 thousand), ¥6 million ($72 thousand) and
¥26 million ($312 thousand), respectively.
Unlisted securities, which were carried at costs of ¥967 million and ¥1,428 million ($17,173 thousand) at March
31, 2010 and 2011 respectively, are not included in this table because market quotations are unavailable, and it is
therefore extremely difficult to estimate their market value.
The amounts of investments in unconsolidated subsidiaries and affiliates, which were included in the investment
securities account at March 31, 2010 and 2011, were ¥2,804 million and ¥2,131 million ($25,628 thousand),
respectively.
8. Short-term and long-term loans payable
Short-term loans payable and long-term loans payable at March 31, 2010 and 2011, comprised the following:
Millions of yen
March 31
2010
Amount
Amount
2011
Average
interest
rate
Thousands
of
U.S. dollars
March 31,
2011
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
Unsecured bonds issued by the Company
¥21,739
35,728
1,059
¥31,129
42,093
461
0.84%
1.07
-
-
-
-
$374,371
506,229
5,544
151,593
107,500
1,533
30,000
20,000
30,000
20,000
-
973
-
20,000
30,000
20,000
20,000
1.62
-
1.05
1.44
1.65
1.70
0.58
2015
1,292,844
2017
2010
2012
2011
2012
2015
11,716
-
240,529
360,793
240,529
240,529
Total
¥311,655
¥272,157
$3,273,084
Average interest rates are calculated using weighted-average interest rates on short-term loans payable, long-term
loans payable and bonds payable, as of March 31, 2011.
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 loans payable outstanding as of March 31, 2011, were as follows:
Year ending March 31
Millions of yen
2012
2013
2014
2015
Total
Thousands of
U.S. dollars
$506,229
366,806
901,986
24,052
¥42,093
30,500
75,000
2,000
¥149,593
$1,799,073
61
The maturities of lease obligations outstanding as of March 31, 2011, were as follows:
Year ending March 31
Millions of yen
Thousands of
U.S. dollars
$5,544
4,859
4,185
2,345
240
72
¥461
402
348
195
20
6
¥1,434
$17,245
Thousands of
U.S. dollars
$360,793
481,058
240,529
¥30,000
40,000
20,000
¥90,000
$1,082,380
2012
2013
2014
2015
2016
Thereafter
Total
2012
2013
2016
Total
The maturities of bonds outstanding as of March 31, 2011, were as follows:
Year ending March 31
Millions of yen
9. Goodwill
Epson had goodwill and negative goodwill as of March 31, 2010 and 2011. Goodwill is 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, 2010 and 2011, were as follows:
Millions of yen
March 31
2010
¥3,703
830
2011
¥2,754
122
Thousands of
U.S. dollars
March 31,
2011
$33,120
1,467
Goodwill
Negative goodwill
62
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. In certain cases, additional severance costs
may be provided.
The funded status of these plans as of March 31, 2010 and 2011, was as follows:
Thousands of
Millions of yen
U.S. dollars
March 31
March 31,
2010
2011
2011
Projected benefit obligations
¥229,649
¥233,973
$2,813,866
Plan assets at fair value
Unfunded status
Unrecognized items:
193,268
197,622
2,376,693
36,381
36,351
437,173
Actuarial gains (losses)
(17,081)
(16,828)
(202,381)
Prior service cost reduction from plan amendment
Provision for retirement benefits - net
Prepaid pension cost
（476）
(219)
18,822
19,303
1,186
1,213
(2,646)
232,146
14,588
Provision for retirement benefits
¥20,008
¥20,516
$246,734
In addition to the above-mentioned provision for retirement benefits, additional severance costs of ¥5,772
million ($69,416 thousand), which related to business structure improvement, were recorded in provision for
retirement benefits as of March 31, 2011.
63
The composition of net pension and severance costs for the years ended March 31, 2010 and 2011, 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
Thousands of
Millions of yen
U.S. dollars
Year ended
Year ended March 31
March 31,
2010
2011
2011
¥8,257
¥7,744
5,944
6,064
(5,720)
(6,263)
6,999
3,952
257
257
15,737
11,755
3,581
3,613
$93,132
72,928
(75,321)
47,528
3,104
141,371
43,451
¥19,319
¥15,368
$184,822
In addition to the above-mentioned net pension and severance costs, additional severance costs of ¥6,239 million
($75,033 thousand), which related to specific reorganization programs, were recorded in business structure
improvement expenses for the year ended March 31, 2011.
The assumptions used for the actuarial computation of the retirement benefit obligations for the years ended
March 31, 2010 and 2011, were primarily as follows:
Discount rate
Long-term rate of return on plan assets
11. Net assets
Year ended March 31
2010
2011
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.
64
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.
The Company paid the following cash dividends of retained earnings to its registered shareholders at the ends of
the fiscal year and interim periods during the years ended March 31, 2010 and 2011:
Cash dividends per share
Cash dividends
Yen
Year ended March 31
2010
2011
¥7.00
-
¥7.00
¥10.00
¥10.00
¥20.00
U.S. dollars
Year ended
March 31,
2011
$0.12
$0.12
$0.24
Year-end
Interim
Total
Millions of yen
Year ended March 31
2010
2011
¥1,374
-
¥1,374
¥1,997
¥1,997
¥3,995
Thousands
of
U.S. dollars
Year ended
March 31,
2011
$24,016
$24,016
$48,045
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 effective dates of the distribution for year-end and interim cash dividends, which
were paid during the year ended March 31, 2011, were June 23, 2010, and December 3, 2010, respectively.
The proposed cash dividends of retained earnings of the Company for the year ended March 31, 2011, approved
at the general shareholders’ meeting, which was held on June 20, 2011, were as follows:
Cash dividends per share
Cash dividends
Yen
¥10.00
U.S. dollars
$0.12
Millions of yen
¥1,997
Thousands
of
U.S. dollars
$24,016
The effective date of the distribution was June 21, 2011.
65
12. Net income (loss) per share
Calculation of net income (loss) per share for the years ended March 31, 2010 and 2011, is as follows:
Millions of yen
Year ended March 31
Thousands of
U.S. dollars
Year ended
March 31,
2010
2011
2011
Net income (loss) attributable to common shares
(¥19,791)
¥10,239
$123,138
Weighted-average number of common shares outstanding
199,225
199,794
Thousands of shares
Net income (loss) per share
(¥99.34)
¥51.25
$0.61
Yen
U.S. dollars
Diluted net loss per share is not calculated herein since a net loss was incurred and Epson had no dilutive
potential common shares outstanding during the years ended March 31, 2010. Diluted net income per share is not
calculated herein since Epson had no dilutive potential common shares outstanding during the year ended March
31, 2011.
66
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, 2010 and 2011.
The significant components of deferred tax assets and liabilities as of March 31, 2010 and 2011, were as follows:
Deferred tax assets:
Net operating tax loss carry-forwards
Property, plant and equipment and intangible assets
(Impairment loss and excess of depreciation)
Inter-company profits on inventories and write downs
Provision for retirement benefits
Provision for bonuses
Devaluation of investment securities
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
2010
2011
Thousands of
U.S. dollars
March 31,
2011
¥52,509
¥65,424
$786,819
44,082
29,439
354,046
20,207
6,331
4,146
2,900
2,966
1,808
14,558
149,510
(131,482)
18,028
20,820
8,803
5,673
2,842
2,252
1,910
21,381
158,549
(138,170)
20,378
(8,324)
(2,613)
(1,683)
(344)
(1,493)
(14,459)
¥3,568
(7,504)
(2,613)
(744)
(197)
(1,701)
(12,760)
¥7,617
250,390
105,868
68,226
34,179
27,083
22,970
257,201
1,906,782
(1,661,707)
245,075
(90,246)
(31,425)
(8,947)
(2,369)
(20,483)
(153,470)
$91,605
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.
67
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
2011
2010
40.4%
40.4%
Tax rate differences in overseas subsidiaries
Entertainment expenses, etc. permanently non-tax deductible
Changes in valuation allowance
Other
532.9
204.0
(3,168.4)
15.8
(39.8)
22.2
7.1
2.5
Income tax rate per statements of income
(2,375.4%)
32.3%
14. Selling, general and administrative expenses
The significant components of selling, general and administrative expenses for the years ended March 31, 2010
and 2011, were as follows:
Millions of yen
Year ended March 31
Thousands of
U.S. dollars
Year ended
March 31,
2010
2011
2011
Salaries and wages
¥73,239
¥76,609
$921,334
Advertising
Sales promotion
Shipping costs
Research and development costs
Allowance for doubtful accounts
Other
Total
15,303
16,052
14,325
32,316
517
89,485
14,918
15,420
14,815
23,986
266
84,236
¥241,241
¥230,253
179,410
185,447
178,171
288,466
3,199
1,013,113
$2,769,140
15. Research and development costs
Research and development costs, which are included in the cost of sales and selling, general and administrative
expenses, totaled ¥68,849 million and ¥54,377 million ($653,962 thousand) for the years ended March 31, 2010
and 2011, respectively.
68
16. Business structure improvement expenses
Business structure improvement expenses for the year ended March 31, 2011, comprised expenses related to the
termination of the small- and medium-sized displays business.
17. Loss on disaster
Loss on disaster for the year ended March 31, 2011, comprised incurred losses related to the Great East Japan
Earthquake.
18. Leases
As of March 31, 2010, capital leases, mainly comprised of plants, production equipment in the electronic devices
segment, host computers and computer terminals.
As of March 31, 2011, capital leases, mainly comprised of uninterruptible power supply, host computers and
computer terminals.
Future lease payments for non-cancelable operating leases as a lessee at March 31, 2010 and 2011, were as
follows:
Future lease payments
2010
2011
Millions of yen
March 31
Thousands of
U.S. dollars
March 31,
2011
Due within one year
Due after one year
¥2,810
8,872
¥2,337
6,671
$28,105
80,229
Total
¥11,682
¥9,008
$108,334
69
19. Cash flow information
Cash and cash equivalents as of March 31, 2010 and 2011, were as follows:
Cash and deposits
Short-term investment securities
Short-term loans receivables
Millions of yen
March 31
Thousands of
U.S. dollars
March 31,
2010
2011
2011
¥193,117
¥125,807
$1,513,012
51,511
10,000
76,009
10,000
914,119
120,264
Less:
Short-term loans payable (overdrafts)
Time deposits due over three months
Short-term investment securities due over three
months
Cash and cash equivalents
(0)
(27)
(11)
(2)
(27)
(10)
(24)
(324)
(120)
¥254,590
¥211,777
$2,546,927
The Company obtained marketable securities, the fair value of which was \9,918 million and \10,008 million
($120,360 thousand) as of March 31, 2010 and 2011, respectively, as deposit for the short-term loans receivables
above.
70
20. Derivative instruments
The table below lists notional amounts and fair value of derivatives as of March 31, 2010 and 2011, by
transaction and type of instrument, excluding derivatives qualifying for hedge accounting.
Currency-related transactions
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)
Millions of yen
March 31, 2011
Notional
amounts
Fair value
Unrealized
gains
(losses)
¥18,241
15,547
190
1,039
98
5
2,867
1
1,746
¥39,738
(¥328)
(788)
0
(39)
(2)
(0)
30
0
78
(¥1,048)
(¥328)
(788)
0
(39)
(2)
(0)
30
0
78
(¥1,048)
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)
Sterling pound (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)
Indonesia rupiah (sold U.S. dollar)
Total
71
Instruments
Forward exchange contracts:
Sold -
U.S. dollar (purchased Japanese yen)
Euro (purchased Japanese yen)
Sterling pound (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)
Indonesia rupiah (sold U.S. dollar)
Total
Thousands of U.S. dollars
March 31, 2011
Notional
amounts
Fair value
Unrealized
gains
(losses)
$219,425
186,975
2,285
12,495
1,178
60
34,479
12
20,998
$477,907
($3,944)
(9,477)
0
(469)
(24)
(0)
360
0
938
($12,616)
($3,944)
(9,477)
0
(469)
(24)
(0)
360
0
938
($12,616)
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 and 2011, by
transaction and type of instrument, qualifying for hedge accounting.
(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
Millions of yen
March 31, 2011
Notional
amounts
Fair value
Forward exchange contracts:
Sold -
Euro (purchased Japanese yen)
Purchased -
U.S. dollar (sold Japanese yen)
Forecasted transactions in
foreign currency sales
Forecasted transactions in
foreign currency purchase
¥24,454
(¥598)
1,976
44
Total
¥26,430
(¥553)
72
Instruments
Hedged items
Thousands of U.S. dollars
March 31, 2011
Notional
amounts
Fair value
Forward exchange contracts:
Sold -
Euro (purchased Japanese yen)
Purchased -
U.S. dollar (sold Japanese yen)
Forecasted transactions in
foreign currency sales
Forecasted transactions in
foreign currency purchase
$294,095
($7,179)
23,764
529
Total
$317,859
($6,650)
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
Millions of yen
March 31, 2011
Notional
amounts
Due after
one year
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
¥50,093
¥50,000
Instruments
Hedged items
Thousands of U.S. dollars
March 31, 2011
Notional
amounts
Due after
one year
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
$602,441
$601,322
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 21 “Financial risk management and fair value of financial instruments.”
21. Financial risk management and fair value of financial instruments
Financial risk management principles
73
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. Epson principally manages its exposure to fluctuations in exchange rates on a net basis
and mainly uses forward exchange contracts to reduce the exposures.
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
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.
74
Interest rate swaps are utilized to hedge against possible future fluctuations in interest rates on loans. Interest rate
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 as of March 31, 2010 and 2011, were 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)
-
Investments in unconsolidated subsidiaries and affiliates of ¥2,804 million, unlisted securities of ¥967 million, 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.
75
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, 2011
Carrying
value
¥125,807
140,564
76,009
9,754
Fair value
¥125,807
140,564
76,009
9,754
¥352,136
¥352,136
72,833
31,129
51,112
90,000
149,593
72,833
31,129
51,112
90,755
151,816
Unrealized
gains
(losses)
-
-
-
-
-
-
-
-
¥755
2,222
Total
¥394,668
¥397,646
¥2,977
Derivative instruments
(¥1,602)
(¥1,602)
-
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)
Thousands of U.S. dollars
March 31, 2011
Carrying
value
$1,513,012
1,690,487
914,119
117,306
Fair value
$1,513,012
1,690,487
914,119
117,306
$4,234,924
$4,234,924
875,923
374,371
614,696
1,082,380
1,799,073
875,923
374,371
614,696
1,091,459
1,825,795
Unrealized
gains
(losses)
-
-
-
-
-
-
-
-
$9,079
26,722
Total
$4,746,443
$4,782,244
$35,801
Derivative instruments
($19,266)
($19,266)
-
Derivative instruments in the table above represent a net amount.
Unlisted securities of ¥1,428 million ($17,173 thousand) at March 31, 2011 are not included above because there
is no market value and it is therefore extremely difficult to estimate their fair value.
76
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 investment 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. 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. The fair value of loans payable based on fixed 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.
Limitations
Fair value estimates are based on relevant market information. These estimates involve uncertainties and
therefore changes in assumptions could affect the estimates.
22. Contingent liabilities
Contingent liabilities for guarantee of employees’ housing loans from banks and others were \1,413 million and
\1,090 million ($13,108 thousand) as of March 31, 2010 and 2011, respectively.
23. 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.
77
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, 2010 and
2011, and related balances on March 31, 2010 and 2011, 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
2011
2010
Thousands of
U.S. dollars
Year ended
March 31,
2011
¥18
23
¥18
21
$216
252
Millions of yen
Year ended March 31
2011
2010
Thousands of
U.S. dollars
Year ended
March 31,
2011
¥1
¥1
$12
78
24. Segment information
From the current fiscal year, Epson adopted ASBJ Statement No.17, “Revised Accounting Standard for
Disclosures about Segments of an Enterprise and Related Information” (Revised on March 27, 2009) and its
implementation guidelines, ASBJ Guidance No.20, “Guidance on Accounting Standard for Disclosures about
Segments of an Enterprise and Related Information,” issued on March 21, 2008. As a result, segment
information for the years ended March 31, 2010 and 2011 are based on the revised standard.
(a) Summary of reporting segments
Epson and its subsidiaries conduct manufacturing and sales of products worldwide under the management of the
Company’s operations divisions. In order for the board of directors to determine the allocation of resources and
assess business results, the operations divisions make individual financial reports, and correspond to business
segments that are subject to regular review.
Epson has consolidated these business segments into three reporting segments based on the type and
characteristics of products and services, and on manufacturing and sales methods. These are the
information-related equipment segment, the electronic devices segment and the precision products segment.
Epson conducts development, manufacturing and sales within its reporting segments as follows.
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, label writers and personal computers.
The electronic devices segment mainly includes crystal units, crystal oscillators, quartz sensors, optical devices,
CMOS LSIs, HTPS-TFT panels for 3LCD projectors and small- and medium-sized LCDs.
The precision products segment mainly includes watches, watch movements, plastic corrective lenses, precision
industrial robots, IC handlers and industrial inkjet equipment.
79
(b) Measurement of the amount of sales, income (loss), assets and other in each reporting segment
The accounting policies of the reporting segments are the same as “Basis of presenting consolidated financial
statements”.
Segment income (loss) is based on operating income (loss).
Transfer prices between operating segments are on an arm’s length basis.
(c)
Information of the amount of sales , income (loss), assets and other in each reporting segment
The following table summarizes the reporting segment information of Epson for the years ended March 31, 2010
and 2011:
Net sales:
Millions of yen
Year ended March 31, 2010
Reporting segments
Electronic
devices
Precision
products
Total
Information-
related
equipment
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
Customers
¥711,378
¥215,534
¥56,284
¥983,197
¥1,182
¥984,379
1,314
712,692
32,466
248,001
1,461
57,746
35,243
1,018,440
71,748
1,529
(1,311)
71,966
282
1,465
(100)
35,526
1,019,905
¥983
(35,526)
(34,542)
¥985,363
-
985,363
71,866
(53,639)
18,227
302,253
154,693
45,696
502,643
1,411
504,055
366,035
870,090
24,319
10,455
3,842
38,618
38
38,656
8,446
47,103
12,502
9,862
1,876
24,240
7
24,247
2,941
27,189
\-
¥866
\-
¥866
\-
¥866
¥38
¥905
80
Inter-segment
Total
Segment
income (loss)
Segment
assets
Other
Depreciation
and
amortization
Increase in
property, plant,
equipment and
intangible
assets
Amortization of
goodwill
Millions of yen
Year ended March 31, 2011
Reporting segments
Electronic
devices
Precision
products
Total
Information-
related
equipment
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
Net sales:
Customers
¥701,879
¥203,491
¥66,628
¥971,999
1,039
702,918
27,743
231,235
1,647
68,276
30,430
1,002,430
70,151
5,569
3,307
79,028
¥788
490
1,279
(286)
¥972,788
30,921
1,003,709
¥875
(30,921)
(30,046)
¥973,663
-
973,663
78,741
(46,032)
32,709
311,486
142,000
46,087
499,574
837
500,412
297,816
798,229
21,638
9,820
3,381
34,840
38
34,879
6,092
40,971
17,813
9,965
1,856
29,634
5
29,639
2,324
31,963
\-
¥910
\-
¥910
\-
¥910
¥38
¥949
Inter-segment
Total
Segment
income (loss)
Segment
assets
Other
Depreciation
and
amortization
Increase in
property, plant,
equipment and
intangible
assets
Amortization of
goodwill
Thousands of U.S. dollars
Year ended March 31, 2011
Reporting segments
Electronic
devices
Precision
products
Total
Information-
related
equipment
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
Net sales:
Customers
$8,441,131
$2,447,276
$801,298
$11,689,705
$9,489
$11,699,194
$10,523
$11,709,717
Inter-segment
12,495
333,662
19,820
365,977
5,893
371,870
(371,870)
-
Total
Segment
income (loss)
Segment
assets
Other
Depreciation
and
amortization
Increase in
property, plant,
equipment and
intangible
assets
Amortization of
goodwill
8,453,626
2,780,938
821,118
12,055,682
15,382
12,071,064
(361,347)
11,709,717
843,680
66,975
39,771
950,426
(3,451)
946,975
(553,602)
393,373
3,746,085
1,707,757
554,263
6,008,105
10,079
6,018,184
3,581,683
9,599,867
260,241
118,099
40,661
419,001
469
419,470
73,266
492,736
214,228
119,843
22,321
356,392
60
356,452
27,949
384,401
$-
$10,944
$-
$10,944
$-
$10,944
$469
$11,413
81
Notes;
1.
Intra-group services are categorized within “Other.”
2. Adjustments were as follows.
Net sales
Year ended March 31
Corporate expenses
Eliminations
Total
Millions of yen
2010
2011
Thousands of U.S. dollars
2011
¥3,196
(37,738)
(¥34,542)
¥3,764
(33,810)
(¥30,046)
$45,267
(406,614)
($361,347)
Segment income (loss)
Year ended March 31
Corporate expenses [Note]
Eliminations
Total
Millions of yen
2010
2011
Thousands of U.S. dollars
2011
(¥53,831)
191
(¥53,639)
(¥46,440)
408
(¥46,032)
($558,508)
4,906
($553,602)
[Note] Corporate expenses that are categorized under adjustments within segment income comprise expenses that do not
correspond to the reporting segments. These include expenses relating to research and development for new businesses and
basic technology, and general corporate expenses.
Segment assets
Year ended March 31
Millions of yen
2010
2011
Thousands of U.S. dollars
2011
¥378,169
(12,134)
¥366,035
¥310,168
(12,351)
¥297,816
$3,730,221
(148,538)
$3,581,683
Corporate expenses
Eliminations
Total
Other
(1) Depreciation and amortization that is categorized under adjustments comprises expenses that do not correspond to the
reporting segments. It includes expenses relating to research and development for new businesses and basic technology, and
general corporate expenses.
(2) Increase in property, plant, equipment and intangible assets;
Corporate expenses
Intangible assets [Note]
Total
Year ended March 31
Millions of yen
2010
2011
Thousands of U.S. dollars
2011
¥1,689
1,252
¥2,941
¥2,173
151
¥2,324
$26,134
1,815
$27,949
[Note] Intangible assets are non-subject to regular review as capital expenditure.
(3) Amortization of goodwill that is categorized under adjustments does not correspond to the reporting segments.
3.
Segment income (loss) has been adjusted to match consolidated operating income (loss).
82
(d)
Information of geographic areas
Sales by country:
The following table summarizes the amount of revenue from external customers for the year ended March 31,
2011:
Japan
The United States
China（including Hong Kong）
Other
Total
Net sales
¥370,124
¥134,203
¥107,848
¥361,487
¥973,663
Millions of yen
Year ended March 31, 2011
Japan
The United States
China（including Hong Kong）
Other
Total
Net sales
$4,451,294
$1,613,986
$1,297,029
$4,347,408
$11,709,717
Thousands of U.S. dollars
Year ended March 31, 2011
[Note] Each country’s net sales are based on the location of the customers.
Property, plant and equipment by country:
The following table summarizes property, plant and equipment by countries for the year ended March 31, 2011:
Millions of yen
Year ended March 31, 2011
Japan
Other
Total
Property, plant and equipment
¥165,402
¥48,220
¥213,623
Thousands of U.S. dollars
Year ended March 31, 2011
Japan
Other
Total
Property, plant and equipment
$1,989,200
$579,952
$2,569,152
83
(e)
Information of impairment loss
The following table summarizes information of impairment loss in each reporting segments for the year ended
March 31, 2011:
Information-
related
equipment
¥208
Information-
related
equipment
$2,501
Impairment loss
Impairment loss
Millions of yen
Year ended March 31, 2011
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
¥1,052
¥8
¥0
¥428
¥1,698
Thousands of U.S. dollars
Year ended March 31, 2011
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
$12,676
$96
$0
$5,147
$20,420
[Note] Impairment loss that is categorized under corporate expenses comprises losses that do not correspond to the reporting
segments. It includes losses relating to research and development for new businesses and basic technology, and general corporate
losses.
(f)
Information of goodwill
The following table summarizes information of goodwill in each reporting segments for the year ended March
31, 2011:
Millions of yen
Year ended March 31, 2011
Information-
related
equipment
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
Goodwill
\-
¥2,664
\-
\-
¥89
¥2,754
Thousands of U.S. dollars
Year ended March 31, 2011
Information-
related
equipment
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
Goodwill
$-
$32,050
$-
$-
$1,070
$33,120
[Note] Goodwill that is categorized under corporate expenses does not correspond to the reporting segments.
84
The following table summarizes information of amortization of negative goodwill and balance of negative
goodwill from the subsidiary’s acquisitions before April 1, 2010.
Millions of yen
Year ended March 31, 2011
Information-
related
equipment
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
Amortization of
negative goodwill
Negative goodwill
\-
\-
¥660
\-
¥48
¥122
\-
\-
\-
\-
¥708
¥122
Thousands of U.S. dollars
Year ended March 31, 2011
Information-
related
equipment
Electronic
devices
Precision
products
Other
Corporate
expenses
[Note]
Total
Amortization of
negative goodwill
Negative goodwill
25. Subsequent events
$-
$-
$7,937
$577
$-
$1,467
$-
$-
$-
$-
$8,514
$1,467
The Company issued straight bonds, as outlined below, under the following conditions established on June 7,
2011, pursuant to the comprehensive resolution approved by the Company's board of directors held on April 28,
2011.
The 6th Series unsecured straight bonds (with inter-bond pari passu clause)
Total amount of issuance: ¥20,000 million ($240,529 thousand)
Issue price: ¥100 purchase value of ¥100
Interest rate: 0.493% per annum
Payment date: June 14, 2011
Maturity date: June 13, 2014
Purpose for funds: Repayment of loans and redemption of bonds
The 7th Series unsecured straight bonds (with inter-bond pari passu clause)
Total amount of issuance: ¥20,000 million ($240,529 thousand)
Issue price: ¥100 purchase value of ¥100
Interest rate: 0.723% per annum
Payment date: June 14, 2011
Maturity date: June 14, 2016
Purpose for funds: Repayment of loans and redemption of bonds
85
26. 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.
86
Report of Independent Auditors
87
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
*
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
*
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
100.0
100.0
Manufacture and sales of
crystal devices, etc.
Rental of assets,
Interlocking directors
Manufacture of printer
components,
Loan of assets
Manufacture of printer
components and crystal
devices
Financial assistance
Epson Imaging Devices
Corporation
Tottori-shi,
Tottori
50
(million JPY)
Manufacture and sales
of electronic devices
100.0
Manufacture and sales of
LCDs, Rental of assets
U.S. Epson, Inc.
*
Long Beach,
U.S.A.
111,941
(thousand USD)
Regional headquarters
100.0
Epson America, Inc.
*
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.
*
Portland,
U.S.A.
31,150
(thousand USD)
Epson El Paso, Inc.
*
El Paso, U.S.A.
51,000
(thousand USD)
Epson Europe B.V.
*
Amsterdam,
Netherlands
95,000
(thousand EUR)
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment
Regional headquarters,
Sales of
information-related
equipment and
precision products
Epson (U.K.) Ltd.
Hemel
Hempstead,
UK
1,600
(thousand GBP)
Sales of
information-related
equipment
88
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
Regional headquarters in
Europe, Sales of printers
and other PC peripherals,
Guaranty of liabilities,
Interlocking directors
Sales of printers and other
PC peripherals
Guaranty of liabilities,
Interlocking directors
100.0
100.0
(100.0)
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
1,900
(thousand EUR)
Epson (China) Co., Ltd.
*
Beijing, China
1,211
(million CNY)
Epson Korea Co., Ltd. Seoul, Korea
1,466
(million KRW)
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
Sales of
information-related
equipment
Sales of
information-related
equipment
Regional headquarters,
sales of
information-related
equipment
Sales of
information-related
equipment
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.
*
Suzhou, China
1,043
(million CNY)
Manufacture of
electronic devices
89
100.0
(100.0)
Sales of printers and other
PC peripherals, and sales of
factory automation products,
Guaranty of liabilities,
Interlocking directors
100.0
(100.0)
Sales of electronic devices,
Guaranty of liabilities
100.0
(100.0)
Sales of printers and other
PC peripherals,
Interlocking directors
100.0
(100.0)
100.0
(100.0)
100.0
Sales of printers and other
PC peripherals,
Guaranty of liabilities,
Interlocking directors
Sales of printers and other
PC peripherals,
Guaranty of liabilities,
Interlocking directors
Regional headquarters in
China,
Sales of printers and other
PC peripheral,
Guaranty of liabilities
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)
Manufacture of
information-related
equipment
Epson Precision
(Hong Kong), Ltd.
*
Hong Kong,
China
81,602
(thousand USD)
Manufacture of
precision products
Epson Engineering
(Shenzhen) Ltd.
Shenzhen,
China
56,641 (thousand
USD)
Singapore Epson
Industrial
Pte. Ltd.
*
P.T. Indonesia Epson
Industry
*
Epson Precision
(Philippines), Inc.
*
Singapore
71,700
(thousand SGD)
Bekasi,
Indonesia
23,000
(thousand USD
Cabuyao,
Philippines
57,533
(thousand USD)
Manufacture of
information-related
equipment and
electronic devices
Manufacture of
information-related
equipment, electronic
devices and precision
products
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment and
electronic devices
Epson Toyocom
Malaysia Sdn. Bhd.
Kuala Lumpur,
Malaysia
16,000
(thousand MYR)
Manufacture of
electronic devices
80.0
(80.0)
Manufacture of printer
consumables, etc.,
Interlocking directors
100.0
Manufacture of watches,
etc.,
Interlocking directors
100.0
(100.0)
Manufacture of printers,
3LCD projectors and liquid
crystal panels, etc.,
Interlocking directors
100.0
Manufacture of printer
consumables,
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
3LCD projectors,
Interlocking directors
100.0
(100.0)
Manufacture of crystal
devices,
Interlocking directors
60 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. * indicates a specified subsidiary (“tokutei-kogaisha”).
3. 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.
90
Company name
Net sales Ordinary income
Net income
Total net assets
Total assets
Epson Sales Japan Corporation
204,577
Epson America, Inc.
Epson Europe B.V.
180,994
187,079
1,926
4,564
3,473
1,241
2,956
954
11,640
23,531
42,091
60,402
74,738
94,102
Figures for Epson America, Inc. and Epson Europe B.V. are included in consolidated business results.
(Millions of yen)
91
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
corporations
Foreign institutions and
others
Institutions Individuals
Japanese
individuals
and others
Total
Shares
less
than
one unit
(Shares)
Correct as of March 31, 2011
–
71
42
341
347
21
35,134
35,956
–
–
591,491
31,612
566,436
334,582
108
472,603 1,996,832 134,189
–
29.62
1.58
28.37
16.75
0.01
23.67
100.00
–
Category
Number of
shareholders
(Persons)
Number of
shares
owned
（Units）
Percentage
of shares
owned
(%)
Notes
1. 23,924 shares of treasury stock are included as 239 units in “Japanese individuals and others” and 24 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.”
92
3. Major shareholders
Name
Address
Correct as of March 31, 2011
Number of shares
held
Shareholding ratio
(%)
5-8 Ginza 3-chome, Chuo-ku, Tokyo
20,718,934
10.36
6-1 Ginza 5-chome, Chuo-ku, Tokyo
14,288,500
Aoyama Kigyo Kabushiki
Kaisha
Sanko Kigyo Kabushiki
Kaisha
The Master Trust Bank of
Japan, Ltd. (Trust account)
Japan Trustee Services Bank,
Ltd. (Trustee Account)
Seiko Holdings Corporation
11-3 Hamamatsu-cho 2-chome,
Minato-ku, Tokyo
8-11, Harumi 1-chome, Chuo-ku,
Tokyo
5-11 Ginza 4-chome, Chuo-ku,
Tokyo
Yasuo Hattori
Minato-ku, Tokyo
Seiko Epson Corporation
Employees’ Shareholding
Association
3-5, Owa 3-chome, Suwa-shi, Nagano
6,023,727
10,537,400
9,165,600
7,948,800
7,159,006
5,599,968
4,368,000
7.15
5.27
4.58
3.97
3.58
3.01
2.80
2.18
Noboru Hattori
Minato-ku, Tokyo
The Dai-ichi Mutual Life
Insurance Company
(Standing proxy: Trusut &
Custody Services Bunk, Ltd.)
Mizuho Corporate Bank, Ltd.
(Standing proxy: Trusut &
Custody Services Bunk, Ltd.)
13-1, Yurakucho 1-chome,
Chiyoda-ku, Tokyo)
(8-12, Harumi 1-chome, Chuo-ku,
Tokyo)
3-3, Marunouchi 1-chome,
Chiyoda-ku, Tokyo
(8-12, Harumi 1-chome, Chuo-ku,
Tokyo)
4,278,100
2.14
Total
－
90,088,035
45.08
Notes
1. 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
2. Mizuho Corporate Bank, Ltd., and its joint holders submitted a Report of Change as of March 7, 2011,
claiming that they held the Company’s shares as follows as of February 28, 2011. 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.
93
Name
Address
Mizuho Corporate Bank,
Ltd.
Mizuho Bank, Ltd.
Mizuho Securities Co.,
Ltd.
Mizuho Trust & Banking
Co., Ltd.
Total
3-3, Marunouchi 1-chome,
Chiyoda-ku, Tokyo
1-5, Uchisaiwai-cho 1-chome,
Chiyoda-ku, Tokyo
5-1, Otemachi 1-chome,
Chiyoda-ku, Tokyo
2-1, Yaesu 1-chome, Chuo-ku,
Tokyo
—
Number of
shares held
4,278,100
5,539,900
3,646,153
1,906,200
15,370,353
Shareholding ratio (%)
2.14
2.77
1.82
0.95
7.69
94
4. Epson stock price
(1) High and low stock prices for the previous five years
Year
Fiscal year
High (¥)
Low (¥)
65th year
March 2007
3,610
2,660
66th year
March 2008
67th year
March 2009
68th year
March 2010
69th year
March 2011
4,320
1,997
3,300
1,001
1,715
1,216
1,700
1,032
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 2010
November
December
January 2011
February
March
High (¥)
Low (¥)
1,362
1,240
1,493
1,283
1,523
1,363
1,555
1,354
1,423
1,309
1,457
1,032
Note
High and low stock prices noted above are based on the Tokyo Stock Exchange (First Section) data.
95
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)
96
3-3-5 Owa, Suwa, Nagano 392-8502, Japan
tel: +81-266-52-3131
http://global.epson.com