SEIKO EPSON CORPORATION
ANNUAL REPORT 2012
April 2011 - March 2012
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............................................................................................ 11
4. Plans for new additions or disposals ....................................................................................... 12
5. Major management contracts................................................................................................. 13
Risks Related to Epson’s Business Operations................................................................................ 14
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 2012.............................................................................................................. 30
6. Dividend policy ...................................................................................................................... 32
Corporate Governance .................................................................................................................. 33
1. Approach to corporate governance ......................................................................................... 33
2. Details of audit remuneration ................................................................................................. 40
3. Basic policy regarding company control ................................................................................. 41
Management ................................................................................................................................. 43
Index to Consolidated Financial Statements ................................................................................... 45
Consolidated Balance Sheets ...................................................................................................... 46
Consolidated Statements of Income ............................................................................................ 48
Consolidated Statements of Comprehensive Income ................................................................... 49
Consolidated Statements of Changes in Net Assets ...................................................................... 50
Consolidated Statements of Cash Flows...................................................................................... 52
Notes to Consolidated Financial Statements................................................................................ 53
Report of Independent Auditors .................................................................................................... 89
Additional Information ................................................................................................................. 90
1. Principal subsidiaries and affiliates ........................................................................................ 90
2. Distribution of ownership among shareholders ....................................................................... 94
3. Major shareholders................................................................................................................ 95
4. Epson stock price ................................................................................................................... 97
5. Corporate data and investor information................................................................................ 98
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
Information-related equipment
Devices and precision products
business segment
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
2007
2008
2009
2010
2011
2012
Millions of yen
Thousands of
U.S. dollars
2012
¥1,416,032
¥1,347,841
¥1,122,497
¥985,363
¥973,663
¥877,997
$10,682,528
916,330
444,703
87,744
30,310
(63,055)
―
―
―
―
356,773
306,430
50,343
3,476
902,970
395,197
83,927
29,124
(63,378)
―
―
―
―
368,449
310,871
57,577
52,045
769,850
311,626
72,697
31,828
(63,506)
―
―
―
―
289,443
291,031
(1,588)
(89,559)
712,692
248,001
57,746
19,714
(52,791)
―
―
―
―
259,469
241,241
18,227
(799)
(7,094)
19,093
(111,322)
(19,791)
84,690
73,104
89,603
82,870
63,955
79,209
82,058
55,624
78,406
68,849
25,937
47,395
702,918
231,235
68,276
1,279
(30,046)
713,936
212,670
61,446
(14,390)
262,963
230,253
32,709
15,381
10,239
54,377
31,813
41,159
―
―
―
―
―
691,801
174,811
17,316
(5,932)
248,846
224,219
24,626
15,622
―
―
―
―
―
8,417,094
2,126,913
210,695
(72,174)
3,027,691
2,728,069
299,622
190,071
5,032
61,223
52,106
38,908
37,651
633,970
473,390
458,097
160,229
112,060
44,253
56,542
32,395
26,678
324,589
(76,419)
(50,770)
(61,002)
(43,203)
(23,615)
(31,528)
(383,598)
83,810
(30,150)
61,289
(70,663)
(16,748)
(9,558)
13,338
(41,087)
8,780
(42,691)
(4,849)
(57,406)
(59,005)
(698,454)
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
Devices and precision products
business segment
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)
2007
2008
2009
2010
2011
2012
Millions of yen
Thousands of
U.S. dollars
2012
¥813,274
379,032
¥737,245
343,261
1,284,412
1,139,165
476,125
313,952
494,335
385,123
282,595
471,446
43,623
32,551
6,636
―
2,455
2,361
87,626
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
¥596,210
225,354
870,090
328,652
258,574
282,864
45,863
22,439
5,839
―
590
3,206
77,936
(¥36.13)
32.00
¥97.24
32.00
2,395.14
2,277.45
(¥566.92)
35.00
1,541.16
(¥99.34)
7.00
1,407.92
¥543,530
213,623
¥487,190
213,086
$5,927,606
2,592,602
798,229
315,422
211,999
270,808
740,769
313,314
179,314
248,140
9,012,884
3,812,082
2,181,700
3,019,102
44,711
20,659
5,985
―
245
2,951
74,551
¥51.25
20.00
55,841
―
―
16,101
249
3,112
75,303
26.22
26.00
1,347.71
1,377.60
$0.31
0.31
16.76
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
33.3
2.0
2.0
1.8
Notes
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥82.19 =U.S.$1 as of March 31, 2012.
2. In this table, cash dividends per share refers to the amount paid for each share in each fiscal year.
3. 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 products business and others. This segment mainly
includes the development, manufacture and sales of printers, 3LCD projectors, high-temperature polysilicon TFT
panels (“HTPS-TFT panels”) for 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 products business
The visual products business is responsible for the development, manufacture and sales of 3LCD projectors,
HTPS-TFT panels for 3LCD projectors, label printers and others.
Others
In Other business, PCs are sold in the Japanese market 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 products
business
Others
3LCD projectors,
HTPS-TFT panels
for 3LCD
projectors, label
printers and 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.
–
5
Epson Direct Corporation
(2) Devices and precision products business segment
This segment comprises the device business and precision products business. This segment mainly includes the
development, manufacture and sales of crystal oscillators, CMOS LSIs, watches, watch movements, plastic
corrective lenses for glasses and horizontally articulated robots.
Details of the main businesses are as follows.
Device business
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 handheld devices and information communications
equipment. Products are also developed and manufactured to respond to the needs of other businesses within the
Group.
Quartz device business
The quartz device business is responsible for the development, manufacture and sales of crystal units,
crystal oscillators and quartz sensors for industrial and consumer products in a wide range of markets.
The Company succeeded the sales function of the quartz device business of Epson Toyocom Corporation
through an absorption-type corporate split as of April 1, 2012.
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.
Precision products business
Based on their ultra-fine and ultra-precision processing technologies that originated in mechanical watches, and
high-density mounting technologies, the precision products business segment is the birthplace of Epson’s
micromechatronics technologies.
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. On April 10, 2012, the Company reached an agreement with HOYA
CORPORATION to transfer the optical product business of the Company to HOYA and concluded a basic
agreement on the same day.
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
Device business
Main products
[Quartz device
business]
crystal units, crystal
oscillators, quartz
sensors and others
Main subsidiaries and affiliates
Manufacturing companies
Sales companies
Epson Toyocom Corporation
Akita Epson Corporation
Epson Toyocom Malaysia
Sdn. Bhd.
Epson Toyocom Corporation
Epson Electronics America, Inc.
Epson Europe Electronics GmbH
6
Tohoku Epson Corporation
Singapore Epson Industrial
Pte. Ltd.
Epson Precision (Shenzhen)
Ltd.
Singapore Epson Industrial
Pte. Ltd.
Seiko Lens Service Center
Corporation
Philippines Epson Optical
Inc.
Epson Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Singapore Pte. Ltd.
Time Module (Hong Kong) Ltd.
—
Epson Engineering
(Shenzhen) Ltd.
Epson America, Inc.
Epson Deutschland GmbH
[Semiconductor
business]
CMOS LSIs and
others
[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
Precision
products business
(4) Other business segment
This segment comprises the businesses of subsidiaries that offer services for and within the Epson Group.
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, 2012
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
2,596
93
(43,888)
112
4,103
950
other
Overall
administration and
Other facilities
48
－
other
Printer development and
Information-related
component manufacturing
[3,171]
－
(－)
5,560
8
56
42
equipment
facilities
19,000
4,906
(189,347)
1,680
31,148
4,687
Other facilities
938
536
(179,759)
263
5,376
653
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.
Information-related
Suwa Minami Plant
equipment
(Fujimi-machi,
Devices and
Suwa-gun, Nagano)
precision products
Other
Liquid crystal panel and
factory automation
manufacturing facilities
Other facilities
Chitose Plant
(Chitose-shi,
Hokkaido)
Ina Plant
Information-related
Liquid crystal panel
equipment
manufacturing facilities
2,753
1,457
(Minowa-machi,
Devices and
Crystal device manufacturing
Kamiina-gun,
precision products
facilities
Nagano)
Fujimi Plant
Devices and
(Fujimi-machi,
precision products
Suwa-gun, Nagano)
Other
Semiconductor development
and design facilities
Research and development
facilities
Devices and
Semiconductor manufacturing
precision products
facilities
7,799
1,237
Sales facilities
3,406
2
Sakata Plant
(Sakata-shi,
Yamagata)
Hino Office
Devices and
(Hino-shi, Tokyo)
precision products
Shiojiri Plant
Devices and
(Shiojiri-shi, Nagano)
precision products
Matsushima Plant
Devices and
Plastic corrective lens
(Minowa-machi,
precision products
development and
1,230
804
8
[22,983]
3,637
[1,758]
453
591
306
(31,340)
434
1,786
796
[918]
1,443
6,545
4,656
(113,082)
647
13,293
1,414
[28,909]
1,375
(160,528)
125
138
5,725
202
2,424
2,012
(39,943)
89
4,652
693
10,482
2,038
418
14,936
1,020
[1,502]
1,996
(247,143)
2,104
(538,828)
8,303
(40,725)
1,019
265
11,406
76
11,789
[5,764]
421
(8,931)
64
2,520
176
353
617
418
Watch manufacturing facilities
1,647
763
(41,836)
165
3,595
Name of plant
(location)
Business segment
Type of facilities
Book value (Millions of yen)
Machinery,
Buildings and
equipment
structures
and
Land
(Area: m2)
Other
Total
vehicles
Number of
employees
(Persons)
Kamiina-gun,
Nagano)
(2) Domestic subsidiaries
manufacturing facilities
[31,978]
Correct as of March 31, 2012
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Number of
employees
Other Total
(Persons)
1,966
5
(189,490)
27
9,135
359
7,135
Printer component and
semiconductor manufacturing
4
1
facilities
[13]
－
(－)
235
241
2,086
Company name
(location)
Business segment
Type of facilities
Epson Toyocom
Corporation
(Hino-shi, Tokyo)
Devices and precision
Crystal device manufacturing
products
facilities
Tohoku Epson
Information-related
equipment
Devices and precision
products
Information-related
Corporation
(Sakata-shi,
Yamagata)
Akita Epson
Corporation
(Yuzawa-shi, Akita)
equipment
Printer component and crystal
Devices and precision
device manufacturing facilities
1,298
159
677
(68,992)
129 2,264
868
products
(3) Overseas subsidiaries
Company name
(location)
Business segment
Type of facilities
Correct as of March 31, 2012
Book value (Millions of yen)
Buildings and
structures
Machinery,
Land
equipment and
vehicles
(Area:
m2)
Number of
employees
Other Total
(Persons)
Information-related
equipment
Devices and precision
products
Information-related
equipment
Devices and precision
products
Information-related
equipment
Epson Precision
(Hong Kong) Ltd.
(Hong Kong, China)
Singapore Epson
Industrial Pte. Ltd.
(Singapore)
P.T. Indonesia Epson
Industry
(Bekasi, Indonesia)
Epson Precision
(Philippines), Inc.
Information-related
equipment
(Cabuyao,
Philippines)
Epson Toyocom
Printer, liquid crystal
projector, liquid crystal panel,
watches and factory
1,769
3,551
automation manufacturing
facilities
Printer consumables
－
(－)
[64,104]
55
2,482 7,802
14,285
semiconductor and watch
2,813
2,468
(41,065)
582 5,919
4,550
manufacturing facilities
Printer manufacturing facilities
2,588
1,585
Printer and liquid crystal
projector manufacturing
facilities
4,433
1,299
(17,489)
972 6,763
7,152
[43,534]
－
(－)
[201,753]
57
1,133 5,307
12,024
[173,200]
314
(32,437)
31 2,995
2,292
Malaysia Sdn. Bhd.
Devices and precision
Crystal device manufacturing
(Kuala Lumpur,
products
facilities
316
2,333
Malaysia)
9
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.
10
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 ¥38,908 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 segment
Investment for commercializing new products such as printers and 3LCD projectors and production capacity
expansion amounted to ¥29,510 million in the fiscal year under review.
Devices and precision products segment
Investment for commercializing new products such as crystal devices, watches and plastic corrective lenses, and
for rationalizing and upgrading and maintaining equipment and facilities for crystal devices, watches and plastic
corrective lenses amounted to ¥6,853 million in the fiscal year under review.
Other businesses and company-wide
Investment in R&D and other activities amounted to ¥2,545 million in the fiscal year under review.
11
4. Plans for new additions or disposals
Epson plans to invest ¥590 billion in capital expenditures for the consolidated fiscal year ending March 31, 2012.
Business segment
Information-related
equipment
Devices & Precision
Products
Planned amount of
capital
expenditures (100
millions of yen)
Main types and purposes of equipment and facilities
420
120
Reinforcing productivity, commercializing new products,
rationalizing, upgrading and maintaining equipment and facilities,
etc.
Commercializing new products, reinforcing productivity,
rationalizing, upgrading and maintaining equipment and facilities,
etc.
Other and overall
50 Investment for research and development, etc.
Total
590
–
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.
12
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 January 31, 2012, Seiko Epson and a consolidated subsidiary, Epson Toyocom Corporation, agreed upon and
concluded an agreement on an absorption-type corporate split to transfer the sales operation of Epson Toyocom’s
quartz device business to Seiko Epson, effective on April 1, 2012.
13
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 profits from its printer business.
Epson’s ¥691,801 million in sales from its information-related equipment business for the year ended March
2012 constituted 78.8% of Epson’s consolidated sales, which were ¥877,997 million. Inkjet and other printers,
including printer consumables, accounted for a large majority of the sales and profits of the same 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 Epson’s core printers and projectors and for certain electronic devices might continue to
decline primarily due to intensified competition and a shift in demand toward lower-priced products.
Epson is striving to improve profitability by reducing production costs by using low-cost designs. At the same
time, it is taking measures to fight 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 downward prices, 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*1 technology that Epson uses in its inkjet printers competes with the thermal*2 inkjet
technologies of other companies;
2) The 3LCD*3 technology 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 high-temperature polysilicon TFT liquid-crystal panels 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 have a higher market share in emerging markets than in developed
economies.
To counteract the loss in market share of genuine ink cartridges, Epson will pursue a policy of realizing customer
value by emphasizing the quality of its genuine products as well as by boosting user-friendliness with inkjet
printers tailored to customer needs in each market, such as models equipped with high-capacity ink tanks. 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 adversely be affected.
5. Market changes could affect Epson.
Epson is concentrating management resources on domains in which it can leverage its unique
strengths—printing, projection, devices and precision products—and on future growth areas that will support the
next generation as it seeks to strengthen its business foundations.
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 sell competitive products. In addition, reduced demand 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 adversely be affected.
6. 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.
7. 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 2012 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 2012, 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 manufacturing costs and lead times. There are, however, unavoidable risks
associated with overseas manufacturing and sales operations. These include but are not limited to changes in
national laws, ordinances, or regulations related to manufacturing 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.
8. 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’s competitive strength is backed by compact,
energy-saving and high-precision technologies that are the source of its core technologies and have produced
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advancements including Micro Piezo inkjet head, micro-display, sensing, GPS, image processing, energy-saving
and precision mechatronics technologies. By evolving and fusing these technologies into platforms, Epson will
continue develop and manufacture products that meet customer needs.
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 based on changes in technology, Epson sometimes
must undertake long-term investments or capital spending based on product and market 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 adversely be affected.
9. 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
customers’ needs, a decline in purchases of existing products as consumers anticipate new product introductions,
and competition between Epson’s existing and new products.
10. Procuring products entails risks for Epson.
Epson procures parts, semi-finished products and finished products from third parties, but it has generally
conducted transactions without entering into any long-term purchase agreements. However, certain inkjet printer
and other product parts are procured from a single source due to difficulty in procuring alternative parts from
other companies. Epson is developing reliable and efficient procurement processes by cooperatively engaging
with suppliers to maintain product quality, improve products and reduce 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 adversely be affected. In principle, Epson strives to procure parts and
the like from multiple suppliers.
11. 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
adversely be affected.
12. Fluctuations in foreign currency exchanges create risks for Epson.
A significant portion of Epson's sales are denominated in U.S. dollars or the euro. Epson is continuing to expand
its overseas procurement and move its production sites overseas, thereby attracting an increase in expenses in 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.
13. There are risks inherent in pension systems.
Epson has established defined-benefit pension plans 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 adversely be affected.
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14. 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 adversely be affected.
1) An objection might be raised or an application to invalidate might be filed against an intellectual property
right of Epson and, as a result, that right might be recognized as invalid.
2) A third party to whom Epson originally had not granted a license might come to possess a license as a result
of a merger with or acquisition of another third party, and 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 not originally 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
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.
6)
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.
15. 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, 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.
16. 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 adversely be affected.
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17. 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.
The Company and certain of its consolidated subsidiaries are currently under investigation by the European
Commission and other competition authorities regarding allegations of involvement in a liquid crystal display
price-fixing cartel. It is difficult at this time to predict the outcome of these investigations and when they may be
settled.
18. 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 ruling of the supreme court and referred the case back
to the supreme court for review. Then, in July 2011, the supreme court referred the case to the Court of Justice of
the European Union. 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.
19. Epson is vulnerable to certain risks in internal control over financial reporting.
Epson has established and operates internal controls to ensure the reliability of financial reporting.
With the establishment and operation of internal controls over financial reporting 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 in internal controls over financial reporting or material weaknesses in the internal controls, it might
adversely affect the reliability of Epson’s financial reporting.
20. 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.
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21. Epson might be severely affected in the event of a natural or other 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, leak of customer data, supply chain
disruption resulting from damage to parts suppliers, 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.
Although Epson is insured against losses arising from earthquakes, the scope of indemnification is limited.
22. 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 only represent a small percentage of Epson’s total net sales or income, but
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
The global economy continued to grow at a slow pace throughout the year under review, with mounting
uncertainty over the financial futures of some E.U. member states and soaring crude oil prices contributing to the
slowdown. The economic picture varied by region. In the U.S. economic growth was slowed by factors such as
continued high unemployment. In Europe, the economy was seen picking up in the first half, but it later stalled
under the weight of continued high unemployment rates and rising uncertainty about the financial futures of
several European countries. China and India recorded growth, mainly due to internal demand. As a whole, the
other countries of Asia also headed toward recovery. Japan, meanwhile, continued to struggled in the aftermath
of the March 11, 2011, earthquake and tsunami, but the economy began to gradually pick up in the second half
as government economic measures took effect.
The situation in the main markets of the Epson Group (“Epson”) was as follows.
Demand for consumer inkjet printers was weak due to soft markets, especially in Europe and North America.
Business inkjet printer demand picked up in China and other parts of Asia experiencing economic growth but
was moderated somewhat by spending restraints in the printing industry and other sectors due to economic
uncertainty. 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,
capital expenditure by retailers showed signs of a picking up in China and Singapore, but U.S. retailers remained
reluctant to invest. In projectors, sales of models for the education market were firm in China but soft in North
America, Europe, and Japan due to factors such as education budget cuts.
Demand for the main electronic device applications generally remained steady across the period.
New mobile phone demand, buoyed by demand in emerging markets such as India and China, was firm during
the first half of the year but showed signs of weakening in the second half. Meanwhile, a dizzying array of new
smartphones with faster transmission speeds provided traction for the upgrade market. The digital camera market
remained firm, with sales of SLR models particularly solid, while the tablet PC market also expanded. On the
other hand, the television and PC markets were generally weak in the advanced economies. Meanwhile, the
market for portable media players trended downward as the first round of demand wound down and as the
number of mobile phones with music player features increased.
In the precision products market, watch demand rebounded in America, Japan, and other parts of Asia but
showed signs of softening in Europe. Robot demand also increased in tandem with the rise in demand for
automobiles in overseas markets.
Epson has been taking action to restore profitability and rebuild the company's business foundations under the
first of two three-year business plans designed to achieve the SE15 Long-Range Corporate Vision of becoming a
community of robust businesses. In Fiscal 2011, the final year of the first three-year plan, Epson's performance
was affected the European financial crisis, the sustained strength of the yen, and a series of devastating natural
disasters. Epson responded to these challenges while carrying out the core strategies in the plan. Steady progress
in implementing these strategies enabled Epson to expand its business domains and product lineups, as well as to
reduce its total costs for a dramatically improved cost structure, thereby putting the company back on a path to
growth.
Extraordinary losses recorded for the 2011 fiscal year include a ¥6,052 million payment to settle a lawsuit
involving allegations of involvement in an liquid crystal display price-fixing cartel, a ¥2,125 million
extraordinary loss on disaster associated with charges in the aftermath of the northeastern Japan earthquake and
tsunami, and a ¥2,024 million loss incurred on the transfer of a subsidiary company when the small- and
medium-sized displays business was transferred.
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 ¥79.08 and ¥108.98, respectively. This represents an 8% appreciation in the value of the yen
against the dollar and a 4% appreciation in the value of the yen against the euro, year-over-year.
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Fiscal year net sales were ¥877,997 million ($10,682,528 thousand), down 9.8% year over year. Also on a year
over year basis, operating income was down 24.7% to ¥24,626 million ($299,622 thousand), ordinary income
declined 13.3% to ¥27,022 million ($328,774 thousand), and net income fell 50.9% to ¥5,032 million ($61,223
thousand).
A breakdown of the financial results in each reporting segment is provided below. Note that, from the first
quarter, in addition to consolidating the transferred small- and medium-sized displays business under the "Other"
segment, the old electronic devices segment and precision products segment have been combined and are being
reported together as the Devices and Precision Products Segment. Further, as of the third quarter, the visual
instruments business, which was under the information-related equipment segment, and the HTPS-TFT panels
for 3LCD projectors business, which was under the devices and precision products segment, were merged to
form the visual products business. The visual products business results are now reported under the
information-related equipment segment. The financial results corresponding to last fiscal year have been restated
in accordance with these segment changes for comparison purposes.
Information-Related Equipment Segment
Net sales in the Printer business as a whole declined. Consumer inkjet printer sales, including both hardware
units and consumables, as in all printer discussions below, declined. Although sales in Japan were brisk, sales in
other regions declined due to aggressive pricing by rivals and because Epson curtailed promotions in the
aftermath of the earthquake and tsunami. Unit shipments of large-format printers for enterprise were tempered
by the earthquake and tsunami yet still grew thanks to the launch of attractive new products in Europe and
America. Meanwhile, sales of consumables declined in conjunction with a lower rate of printer use in the
aftermath of the disaster in Japan and in a slowing economy. Page printer net sales suffered as the market shifted
toward entry-level models, causing average selling prices to drop. Page printer net sales were also hurt by a
decrease in consumables sales, the result of a smaller install base in the aftermath of the earthquake and tsunami.
SIDM printer unit shipments increased due to demand associated with China’s tax collection system. POS
system product unit shipments increased due to growth in sales of low- and medium-priced units to small- and
medium-sized retailers. The printer business as a whole was significantly impacted by the strong yen.
Net sales in the visual products business as a whole increased.
In visual instruments, unit shipments of 3LCD business projectors grew in general, but growth was especially
solid in Asia. Unit shipments of 3LCD home theatre projectors were buoyed by higher demand for full-HD and
3D models in the U.S. and Europe. The visual instruments business as a whole saw net sales increase, as unit
shipment growth more than offset falling average selling prices and the effects of yen appreciation.
The visual products business reported higher unit shipments of HTPS-TFT panels for 3LCD projectors, yet net
sales shrank under the weight of the strong yen and falling average selling prices.
Segment income in the information-related equipment segment declined. It was hurt by yen appreciation and the
effects of lower revenue resulting from decreased volume.
As a result of the foregoing factors, net sales in the information-related equipment segment were ¥691,801
million ($8,417,094 thousand), down 3.1% year over year, while segment income was ¥64,888 million
($789,488 thousand), down 8.7% year over year.
Devices and Precision Products Segment
Devices business net sales were down sharply. Quartz device sales were negatively impacted by ongoing price
erosion in AT-cut and tuning-fork crystals and by a drop in volume of high-speed crystal products in the
aftermath of the earthquake and tsunami. Net sales in this business were also lower as a result of some
opto-devices being transferred to the visual products business. Semiconductor shipments declined mainly due to
a decline in sales of LCD controllers and silicon foundry products, in part because of the effects of the disaster.
Precision product net sales declined slightly. In watches, net sales increased due to a rise in average selling
prices. Plastic eyeglass lens net sales were flat year on year because, while volume increased, average selling
prices plunged along with an increase in the share of low-price models. In factory automation systems, sales of
21
robots increased on a jump in orders from the automotive industry. On the other hand, sales of IC handlers
decreased due to sluggish demand from the PC and traditional mobile phone semiconductor industries.
Segment income in the devices and precision products segment declined despite a rebound in watch income and
a narrower loss in quartz devices. Income declined primarily due to lower revenue from semiconductors and IC
handlers.
As a result of the foregoing factors, net sales in the devices and precision products segment were ¥174,811
million ($2,126,913 thousand), down 17.8% year over year, while segment income was ¥4,629 million ($56,320
thousand), down 58.8% year over year.
Other
Net sales from other operations in the year under review were ¥17,316 million ($210,695 thousand), down
71.8% year over year. Segment loss was ¥1,545 million ($18,810 thousand) compared to a ¥3,581 million
segment loss recorded in the same period last year. Net sales decreased with the transfer of the small- and
medium-sized displays business, while a restructuring effort, including the transfer of this business, reduced
fixed costs and other expenses, leading to the narrower loss.
Adjustments
Adjustments to total income of reporting segments amounted to -¥43,345 million (-$527,376 thousand),
compared to a segment loss of ¥46,032 million in the same period last year. The loss mainly comprises selling,
general and administrative expenses for areas that do not correspond to the reporting segments, such as research
and development expenses for new businesses and basic technology, and general corporate expenses.
(2) Cash Flow Performance
Net cash provided by operating activities during the year was ¥26,678 million ($324,589 thousand) compared to
¥32,395 million in the previous fiscal year. While the Company recorded ¥15,622 million in income before
income taxes and minority interests, ¥37,651 million in depreciation and amortization, and a ¥4,822 million
increase in notes and accounts payable-trade, net cash provided by operation activities decreased primarily due
mainly to a ¥20,360 million increase in inventories and a payment of ¥6,061 million for business restructuring.
Net cash used in investing activities was ¥31,528 million ($383,598 thousand) compared to ¥23,615 million the
previous fiscal year. While the Company recorded an expenditure of ¥36,708 million for the purchase of
property, plant and equipment and purchase of intangible assets, and an expenditure of ¥1,940 million for the
acquisition of subsidiary shares, it had an income of ¥6,358 million from the transfer of a subsidiary company.
Net cash used in financing activities was ¥57,406 million ($698,454 thousand) compared to ¥42,691 the previous
year. The major components of this were a net decrease of ¥32,395 million in interest-bearing liabilities, ¥20,415
million for the acquisition of treasury stock, and ¥4,586 million in dividend payments.
As a result, cash and cash equivalents at the end of the fiscal year totaled ¥150,029 million ($1,825,392
thousand) compared to ¥211,777 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, 2012
(From April 1, 2011, to March 31, 2012)
(Millions of yen)
Change
compared to
previous year
(%)
Information-related equipment
Devices and precision products
Total for the reporting segments
Other
Total
678,555
163,583
842,139
2,021
844,161
104.0
78.3
97.8
3.4
91.8
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, 2012
(From April 1, 2011, to March 31, 2012)
(Millions of yen)
Change compared
to previous year
(%)
Information-related equipment
Devices and 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.
691,234
166,823
858,058
16,582
874,640
96.9
83.3
93.9
27.9
89.9
23
3. Analysis of financial condition and results of operations
(1) Analysis of operating results
Net Sales
Consolidated net sales decreased by ¥95,665 million (9.8%) to ¥877,997 million compared with the previous
consolidated fiscal year.
Sales in each reporting segment are discussed below. For comparison purposes, net sales for the previous fiscal
year have been recalculated using the method employed for the fiscal year under review.
The information-related equipment segment recorded net sales of ¥691,801 million, a year-over-year decline of
¥22,134 million (3.1%). The factors described below were major contributors to the decline.
Consumer inkjet printer sales in Japan were strong in the second half, but in other regions unit shipments
decreased due to the effects of the earthquake and tsunami in Japan and other factors. Page printer unit shipments
increased due to sales growth of new products in Japan and other parts of Asia, but consumables volume
decreased as demand in Japan shrank as a result of a drop in the printer utilization rate following the earthquake
and tsunami. Large-format business printer unit shipments increased due to growth in new product sales, but
consumables sales volume decreased as demand declined amid the economic slowdown. Meanwhile, although
net sales were hurt by erosion of average selling prices, serial-impact dot-matrix printer (SIDM) unit shipments
rose, with demand driven by China's tax collection system and by steady demand in other emerging economies.
The Company also recorded growth in unit shipments of 3LCD education projectors in emerging nations and of
full-HD and 3D projectors for home-theater applications. Yen appreciation also took a toll across the segment,
contributing to the decrease in segment net sales.
The devices and precision products segment recorded net sales of ¥174,811 million, a year-over-year decline of
¥37,859 million (17.8%). The factors described below were major contributors to the decline.
Quartz device net sales were negatively impacted by ongoing price erosion in AT-cut and tuning-fork crystals, a
drop in unit shipments of HS products (high-speed crystal oscillators for infrastructure applications) in the
aftermath of the earthquake and tsunami, and the transfer of some opto-device to the visual products business.
Semiconductor shipments declined mainly due to a decline in sales of LCD controllers and silicon foundry
products in the aftermath of the earthquake and tsunami. In factory automation systems, robot shipments
increased on a jump in orders from the automotive industry, but IC handler shipments decreased due to sluggish
demand from the PC and traditional mobile phone industries. On the other hand, watch average selling prices
rose.
In the "Other" segment, net sales were ¥17,316 million, a year-over-year decline of ¥44,130 million (71.8%).
This is primarily due to a decline in sales associated with the transfer of the small- and medium-sized liquid
crystal displays business.
Cost of sales and gross profit
The cost of sales was ¥629,151 million, a year-over-year decrease of ¥81,549 million (11.5%). The decrease in
cost of sales is primarily a reflection of lower net sales, which led to lower material costs, the strong yen, and a
decline in depreciation and amortization expenses due to continued curtailment of capital spending.
As a result, gross profit was ¥248,846 million, a ¥14,116 million (5.4%) decrease compared to the previous fiscal
year.
Selling, general and administrative expenses and operating income
Selling, general and administrative (SG&A) expenses were ¥224,219 million, down ¥6,033 million (2.6%) year
over year. In addition to the effect of the strong yen and lower labor costs, the Company reduced its R&D
expenses by continuing to rigorously screen and select spending proposals in the difficult economic environment.
Given the foregoing, the Company reported a ¥8,083 million (24.7%) drop in operating income, to ¥24,626
24
million.
Segment income in each reporting segment was as follows. For comparison purposes, segment income for the
previous fiscal year has been recalculated using the method employed for the fiscal year under review.
Segment income in the information-related equipment segment was ¥64,888 million, down ¥6,203 million
(8.7%) compared to the previous period. The dip in segment income is primarily a result of lower sales of
large-format business printers and consumer inkjet printers, but the effects of the strong yen were also felt across
the segment.
Segment income in the devices and precision products segment was ¥4,629 million, down ¥6,601 million
(58.8%) compared to the previous period. The Company saw watch income increase as revenue rose and costs
were cut. It also narrowed its losses in the quartz device business by lowering costs. Nevertheless, higher
expenses and lower net sales due to the strong yen and disaster in Japan, which caused semiconductor sales to
fall, took their toll on segment income.
Other segment loss was ¥1,545 million, a ¥2,035 million improvement compared to a ¥3,581 million loss in the
previous period.
As for adjustments, segment loss was ¥43,345 million, a ¥2,686 million smaller loss than 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
Net income was ¥2,395 million after non-operating expenses were subtracted from non-operating income. This
represents a ¥3,930 million increase in income from the ¥1,534 million net loss recorded in the previous fiscal
year. The main reason for the improvement is that the net gain on foreign exchange was ¥1,396 million in the
year under review, compared to a loss of ¥1,239 million in the previous period.
Ordinary income
Ordinary income was ¥27,022 million, down ¥4,152 million (13.3%) compared to the previous period.
Extraordinary income and losses
Net loss after subtracting extraordinary loss from extraordinary income was ¥11,399 million, a ¥4,393 million
improvement from the ¥15,793 million net loss recorded in the previous period. The Company recorded ¥9,909
million in business structure improvement expenses associated with the transfer and termination of the small-
and medium-sized displays business and ¥1,252 million in insurance income for the year. However, the
Company also recorded a ¥6,052 million loss on litigation to settle a suit alleging participation in a liquid crystal
display price-fixing cartel, a ¥2,125 million loss on disaster accompanying the earthquake and tsunami in
northeastern Japan, and a ¥2,024 million loss on transfer of subsidiary's equity along with the transfer of the
small- and medium-sized displays business.
Income before income taxes and minority interests
Epson thus recorded income before income taxes and minority interests of ¥15,622 million, an increase of ¥240
million (1.6%) from the previous year.
Income taxes
Income taxes were ¥10,404 million, a ¥5,433 million increase (109.3%) compared to the previous period. This
increase is primarily because, whereas the Company accrued deferred tax assets in the previous fiscal year as
Seiko Epson's non-consolidated results rebounded, it did not accrue them in the year under review. In addition,
the effective tax rate after the application of deferred tax accounting came to 66.6%.
Minority interests in income
25
Minority interests in income for the period under review were ¥185 million, an increase of ¥14 million (8.6%)
compared to the previous period.
Net income
As a result of the foregoing, Epson posted net income of ¥5,032 million, a ¥5,207 million decrease (50.9%) from
the previous year.
(2) Liquidity and capital resources
Cash flow
Net cash provided by operating activities in the period under review was ¥26,678 million, down ¥5,716 million
from the previous period. Among the factors contributing to increased cash flow were a ¥28,141 million effect
from an increase in notes and accounts payable-trade. Conversely, among the factors contributing to the decrease
in cash flow were a ¥9,221 million effect from an increase in notes and accounts receivable-trade, a ¥10,533
million effect from a decrease in the provision for bonuses, a ¥6,207 million payment for loss on litigation, and a
¥6,061 million payment for business restructuring.
Net cash used in investing activities totaled ¥31,528 million, up ¥7,913 million from the previous period. While
the Company had ¥6,358 million in income from the transfer of a subsidiary, the increase in net cash used in
investing activities was primarily due to a ¥6,112 million increase in payments for acquisitions of intangible
assets and tangible property, plant and equipment, as well as a ¥1,940 million payment to acquire subsidiary
company shares.
Net cash used in financing activities totaled ¥57,406 million, up ¥14,714 million from the previous period. While
repayment of interest-bearing liabilities reduced expenditures by ¥6,230 million, total cash used in financing
activities increased chiefly due to a ¥20,412 million increase in expenditures due to a purchase of treasury stock.
Due to these factors, as of March 31, 2012, cash and cash equivalents at the end of the period stood at ¥150,029
million, a drop of ¥61,747 million from the previous fiscal year-end, giving Epson sufficient liquidity.
The combined total of short- and long-term loans payable was ¥138,812 million, a decrease of ¥41,910 million
compared to the previous period, owing to progress in repaying general interest-bearing liabilities.
Long-term loans payable [excluding the current portion] amount to ¥77,500 million as of March 31, 2012, at a
weighted average interest rate of 1.54% and with a repayment deadline of January 2017. These borrowings were
obtained as unsecured loans primarily from banks.
Financial condition
Total assets as of March 31, 2012 stood at ¥740,769 million, a decrease of ¥57,459 million from the previous
fiscal year-end. The main reason for the decrease in total assets is that the total of cash and deposits and
securities decreased by ¥59,713 million, mainly due to repayment of interest-bearing liabilities and the
acquisition of treasury stock.
Total liabilities as at March 31, 2012, were ¥492,628 million, down ¥34,792 million from the previous fiscal
year-end. While this decrease in total liabilities was a result of a ¥10,000 million increase in financing by means
of bonds payable, the Company reduced its total short-term and long-term loans payable by ¥41,910 million as a
result of repayment of loans from financial institutions.
Net assets as of March 31, 2012 stood at ¥248,140 million, a decrease of ¥22,667 million from the previous
fiscal year-end. The main reason for the decrease was that shareholders' equity decreased by ¥19,969 million due
to the acquisition of treasury shares.
Working capital, defined as current assets less current liabilities, was ¥173,875 million, a decrease of ¥54,232
million compared with March 31, 2012.
26
The ratio of interest-bearing liabilities to total assets declined to 32.4% from 34.1% 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 ¥52,106 million. This included ¥26,817 million in the
information-related equipment segment, ¥7,541 million in the devices and precision products segment, and
¥17,747 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 Epson launched to market new inkjet printers that provide more than enough speed,
durability, and print quality for business use. In addition to a 100,000-print durability rating and a 580-sheet
paper capacity (with an optional paper tray), an Epson A4 model with a newly developed print head produces up
to 24 color prints per minute at 600-dpi resolution.
The visual products business developed what Epson believes is the world's first standalone consumer head
mounted display (HMD) with see-through screens that allow the wearer to simultaneously view projected images
and see his or her surroundings. Epson's unique optical technology and high-resolution displays combine to
produce beautiful images that appear larger the farther the user stares into the distance. (Perceived images are
equivalent to viewing a 320-inch display from 20 meters away.) With video content stored on a memory card, the
HMD works as a standalone player that does not require connection to other playback equipment. And, since the
battery lasts for six hours on a single charge, users can enjoy movies anywhere, at home or on the go, and in any
position.
Devices and precision products
In quartz devices, Epson developed a new inertial measurement unit (IMU)*1. Using an original approach that
combined QMEMS*2 quartz gyroscopic (angular rate) sensors*3 with semiconductor technology developed for
GPS and other positioning devices, the company commercialized what it believes is one of the smallest and most
energy-efficient of all industrial IMUs*4. And, while the IMU measures just 24 x 24 x 10 mm and consumes only
30 mA when operating at 3.3V, it nonetheless offers excellent measurement accuracy and stability.
In watches, Epson developed the world's first solar GPS watch. No matter where the wearer is on earth, the
watch quickly captures satellite data to pinpoint its location and current time zone. It recognizes all 39 time
zones, even when you don't, and the hands adjust automatically to the correct local time at the push of a button.
*1 A device for sensing inertial motion that consists of angular rate sensors on three axes and accelerometers
(sensors that measure changes of velocity per unit of time) in three directions
*2 QMEMS is a combination of “quartz,” a crystalline material that has excellent stability and precision, and
“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.
*3 A sensor that measures rotation angle (angular velocity) of an object per unit of time with respect to a
reference axis.
*4 As of the end of May 2011.
Other and corporate
Epson developed a thin, wrist-worn GPS running monitor. Believed to be the lightest device of its kind (as of
February 21, 2012), the monitor uses GPS signals to accurately measure and provide distance, pace, speed, time,
and other data. Despite its small size, the monitor has a remarkably accurate built-in GPS module. Strapped to a
28
wrist, it provides runners with accurate performance data on the fly, on any course, so that they can train with
maximum effectiveness and enjoyment. The running monitor can operate for up to 12 hours on a full charge with
GPS tracking on – more than enough time for long-distance events, from full marathons to trail runs.
29
5. Issues for Fiscal 2012
A number of megatrends continue to shape the business environment in which Epson operates. These
megatrends include, for example, the growing influence of emerging markets on the global economy and product
markets, as well as a heightened interest in pursuing sustainable industrial and economic activity. The
progression of these trends is transforming the social landscape and, along with it, the customer value that Epson
needs to provide.
Viewing these changes as an opportunity to access new avenues of growth, Epson has reassessed and is
reinforcing its strengths, and is concentrating its management resources on businesses that have growth potential.
For the past three years Epson has been working to reposition its businesses toward profitability and seize new
opportunities for growth under the company's SE15 Mid-Range Business Plan (FY2009-11), the first of two
three-year plans formulated to bring the company progressively closer to realizing the goals of SE15
Long-Range Corporate Vision, a strategic vision of how Epson wants to be in 2015. This year, in March, Epson
kicked off the second three-year plan, the SE15 Mid-Range Business Plan (FY2012-14).
The SE15 Long-Range Corporate Vision paints a picture of Epson as an indispensable company for society. The
company seeks to achieve this vision by focusing on the enhancement of its traditional core strengths in compact,
energy-saving, high-precision technologies—technologies that are also potentially strong assets for enabling
sustainable growth—, developing platforms, and providing products and services that delight customers around
the world.
The SE15 Mid-Range Business Plan (FY2012-14) calls for the Epson Group to channel its collective energy into
coping with a difficult competitive environment, to accelerate the speed with which business strategies are
executed, and to establish a firm map for achieving the SE15 Long-Range Corporate Vision.
Epson is concentrating its management resources in the areas below where it can continue to exploit its unique
strengths. It is looking to expand its existing business domains, develop future new businesses, and achieve the
fiscal 2015 financial objectives presented in SE15: 10% ROS and 10% or higher ROE on a continuous basis,
assuming net sales growth.
Management Policies and Basic Strategies in Each Business Domain
Printing
Epson will use its unique Micro Piezo technology to revolutionize printing in every segment of the printing
domain.
Epson will further extend the advantages of this technology (including broad ink and media compatibility and
outstanding durability, speed, and accuracy) and deploy it in a broad range of printing segments to revolutionize
printing processes. This will allow Epson to augment its solid position in the consumer inkjet printer market with
a beefed up presence in the office and emerging markets, as well as in the commercial and industrial sectors.
In addition, in the business systems business, Epson will achieve steady income growth by uncovering new
demand while maintaining a grip on the top share in existing segments.
Projection
In the projection domain, Epson will continue creating new realms for projected images and communication with
innovative micro-display and optics technologies.
Epson will seek to boost its competitiveness and expand its market share by further polishing its optical and
micro-display technologies, particularly its HTPS-TFT panels, the core devices at the heart of 3LCD projectors.
By doing so, Epson will aim to be No. 1 in all projector segments and continue creating new categories of
products.
Devices and Precision Products
Epson will establish businesses in the devices and precision products domain where it can leverage its unique
strengths and capture profits from the value it creates.
The devices business strives to create strong products that offer high customer value and to increase profitability
by combining unique QMEMS devices (extremely small, high-performance quartz micro-electromechanical
systems microfabricated in a crystalline material on a wafer) with semiconductor technology. In precision
products, Epson will build a business by focusing on segments where it can leverage its unique strength in
precision mechatronics.
30
New Domains
Epson will leverage its strengths to create unique core technologies and commercialize them in the optimum
form.
The company's compact, energy-saving, high-precision technologies have produced an extensive legacy of
unique technologies, including Micro Piezo inkjet head, micro-display, sensing, GPS, image processing,
energy-saving, and precision mechatronics technologies. Epson will continue to further refine and combine these
technologies to create platforms for new areas of business. In this way Epson will develop new products for the
health, sporting, and medical fields and help enable people to lead healthier, more reassuring, fuller lives. Epson
will also deploy its strong technologies in both existing and new areas, such as robotics, to spark production
process innovations and establish new categories of products that can help customers improve their production
efficiency.
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.
Given its policy of paying stable dividends, and in view of the fact that its core strategies are steadily yielding
results, the Company paid an annual dividend of 26 yen per share (including a 13-yen interim dividend).
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 28, 2011, by resolution
of the board of directors
June 20, 2012, by resolution of
the general shareholders’ meeting
Cash dividends
(Millions of yen)
Cash dividend per share
(Yen)
2,588
2,325
13
13
32
Corporate Governance
1. Approach to corporate governance
(1) Corporate governance system
Outline
Epson's basic approach to corporate governance is geared toward
▪ continuously increasing enterprise value; and
▪ reinforcing business checks and balances, practicing sound corporate ethics, and ensuring business
transparency and health.
The Company has a board of directors and a board of statutory auditors. The board of directors, which had 10
members as of the date the Annual Securities Report was submitted, 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
management bodies have been created to advise the president, deliberate issues to facilitate decision-making, and
oversee and enhance the execution of business.
The main corporate management bodies 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 discuss compliance management, focusing primarily on internal
control systems, and to deliberate issues relating to risks and the provision of internal controls.
Nomination Committee/ Compensation Committee
The Nomination Committee screens board of director candidates, and the Compensation Committee deliberates
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 looking to initiate fresh growth by developing and executing strategic measures based on the SE15
Second-Half Mid-Range Business Plan (FY2012-14), which is aimed at achieving the goals set forth in Epson's
"SE15" Long-Range Corporate Vision.
33
As it moves forward on the new mid-range business plan, the Company believes that it will be important to have
a governance system that strikes a good balance between business speed and efficiency on the one hand and
effective oversight of management on the other.
To achieve business speed and efficiency, the Company employs an agile, practical management organization
wherein directors who understand the situation inside the Company simultaneously oversee multiple key
business operations and always make decisions based on what is best for the Epson Group as a whole.
Meanwhile, to achieve effective oversight of management, the Company has selected one outside director to sit
on the board and has engaged independent outside auditors who dispense management advice not only from a
compliance perspective but also from a broader business perspective.
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
corporate 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
34
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.
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
View on independence
Epson, taking Tokyo Stock Exchange requirements for independent directors under advisement, selects outside
directors and outside statutory auditors who do not have potential conflicts of interest with general shareholders.
The outside director and the outside auditors that are currently engaged all meet these requirements.
Outside directors
Epson's board has one outside director. No special interests exist between the Company and the outside director.
The outside director, Toshiharu Aoki, was an executive at Nippon Telegraph and Telephone Corporation and at
NTT Data Corporation. Epson does not currently have a business relationship with Nippon Telegraph and
Telephone Corporation. Although Epson does have a business relationship with NTT Data Corporation, which
Epson has engaged primarily to build internal information systems, the transaction amount is insignificant when
compared to the net sales of both companies.
35
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. No special interests exist between the
Company and any of the outside statutory auditors.
Outside statutory auditor Yoshiro Yamamoto is a former Fuji Bank, Ltd. (now Mizuho Corporate Bank, Ltd.)
executive who has been retired from the bank for 10 years. He was invited to become an auditor because he fit
the needs of the Company and for no other reason, such as a recommendation by Fuji Bank, Ltd. Net
interest-bearing liabilities account for only a small percentage of the Company's total assets, and the Company's
dependence on bank loans is low. Furthermore, the Company deals with multiple financial institutions and does
not depend on Mizuho Corporate Bank, Ltd. for a high proportion of its borrowing. There is therefore no special
relationship between the Company and Mizuho Corporate Bank, Ltd., and Mizuho Corporate Bank, Ltd. does
not influence Epson's decision-making.
Outside statutory auditor Tatsuhiro Ishikawa is an attorney, but the Company has never engaged him to perform
duties under an advisory agreement or under any other separate agreement, nor does it plan to do so in the future.
Outside statutory auditor Kenji Miyahara was an executive at Sumitomo Corporation. Although the Company
trades with Sumitomo Corporation in materials and so on, the transaction amount is insignificant when compared
to the net sales of both companies.
There is no particular system of coordination between outside statutory auditors and audit functions in the
Group; however, statutory auditors actively consult with the internal Auditing 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.
(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 monthly salaries of directors are set according to their title, and in consideration of Epson’s business
performance. Director bonuses are paid only if the Company has achieved a level of profit that increases
corporate value. The desired level of profit is predefined by the board of directors, and the board of directors
submits to the general shareholders for approval a proposal for the total amount of director bonuses to be paid in
a given period, the amount to be commensurate with the level of performance with respect to profit.
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. Remuneration paid to directors does not include remuneration paid to personnel who hold the position of
481
121
(60)
481
121
(60)
10
5
(3)
-
-
(-)
603
603
15
-
director as an additional post.
2. 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.
3. 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.
4. The directors who retired at the closing of the general shareholders' meeting held on June 20, 2012, were
36
paid a combined total retirement benefit of ¥304 million based on the resolution of the general shareholders'
meeting held on June 23, 2006, on the payment of discontinued benefits for retiring directors. This amount
was recognized as a provision for allowance of directors' retirement benefits in last year's Annual Securities
Report.
5. Stock options are not granted.
(5) Stock holdings
Balance sheet total of stocks held for reasons other than pure investment
22 companies
¥8,434 million
Issuing company, number, and balance sheet total of stocks held for reasons other than pure investment
Previous fiscal year
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
37
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
Current Fiscal year
Company
Shares (stock)
NGK Insulators, Ltd.
3,757,000
Mizuho Financial Group, Inc.
15,008,880
Seiko Holdings Corporation
1,644,080
The Hachijuni Bank, Ltd.
489,500
Iwasaki Electric Co., Ltd.
1,000,000
Hakuto Co., Ltd.
King Jim Co., Ltd.
Marubun Corporation
Otuska Corporation
Joshin Denki Co., Ltd.
Pixelworks, Inc.
190,000
221,980
332,640
10,000
70,000
100,000
Balance sheet total
(millions of yen)
Reason held
4,437 Maintain and
strengthen
business ties
2,026 Maintain and
strengthen
business ties
327 Maintain and
strengthen
business ties
238 Maintain and
strengthen
business ties
174 Maintain and
strengthen
business ties
156 Maintain and
strengthen
business ties
147 Maintain and
strengthen
business ties
139 Maintain and
strengthen
business ties
67 Maintain and
strengthen
business ties
57 Maintain and
strengthen
business ties
18 Maintain and
strengthen
business ties
Stocks held for pure investment
None
(6) Accounting audits
(a) Names and other details of corporate public accountants performing audits
Name of CPA
Audit company
Takashi Ide
Ernst & Young
ShinNihon LLC
No. of successive years
performing audits
3
Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
Takahiro
Yamazaki
Ernst & Young
ShinNihon LLC
1
38
Designated and
Engagement Partner,
Certified Public
Accountant
Taisuke Ide
Ernst & Young
ShinNihon LLC
3
(b) Composition of auditing team
The auditing team comprises 33 staff including 10 certified public accountants, nine junior accountants, and 14
other accounting staff.
(7) Outline of contract limiting liability
The Company’s contract with the outside director and outside statutory auditors 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.
Limited liability is recognized only in cases where the outside director and the outside statutory auditors
performed their duties in good faith and were not grossly negligent.
(8) Number of directors
Epson’s Articles of Incorporation determine the maximum number of directors to be ten.
(9) Election and retirement of directors
According to its Articles of Incorporation, directors of the Company can be elected by a majority vote by at least
one third of shareholders with voting rights, and not through cumulative voting.
Provisions regarding the retirement of directors do not vary from the provisions of the Japanese Companies Act.
(10) Items for the General Shareholders’ Meeting that can be determined by the board of directors
Treasury stock acquisition
The Company’s Articles of Incorporation allow the Company to acquire treasury stock through stock market
trade and other means by resolution of the board of directors. This enables a more flexible capital policy in
response to a changing business environment.
Director and auditor exemption from liability
When liability falls under the requirements stipulated in Article 426, Paragraph 1, of the Japanese Companies
Act, the Company’s Articles of Incorporation allow the Company to exempt the directors and auditors from
liability for damages in Article 423, Paragraph 1, of the Japanese Companies Act up to the amount remaining
after the legal minimum liability is deducted from the total liability amount by resolution of the board of
directors. This allows the directors to fully apply themselves to their expected role of building an organization
capable of aggressive business expansion, and allows the statutory auditors to fulfill their functions accordingly.
Interim dividend
The Company’s Articles of Incorporation allow the Company to declare an interim dividend with a date of record
of September 30 every year by resolution of the board of directors. This provides the Company with flexibility in
paying dividends to shareholders.
(11) Special resolution requirements of the General Shareholders’ Meeting
The Company’s Articles of Incorporation set forth the requirements for a special resolution of the general
shareholders’ meeting stipulated in Article 309, Paragraph 2, of the Japanese Companies Act as a two-thirds
majority vote by at least one third of shareholders with voting rights. This policy is intended to ensure smooth
operation of the general shareholders’ meeting by relaxing the quorum requirements for special resolutions in the
general shareholders’ meeting.
39
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
144
124
268
13
-
13
145
94
240
66
-
66
(2) Other important remuneration
Previous fiscal year
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.
Fiscal year under review
Total payments for audits carried out on behalf of 66 consolidated overseas subsidiaries by auditing certified
public accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2012, amounted
to ¥356 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 IFRS.
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.
40
3. Basic policy regarding company control
At its meeting on April 30, 2008, Epson's board of directors agreed to a basic policy governing persons who
control our financial and business policy decisions (hereinafter the “basic policy”).
(1) Overview
Epson 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, nor
do they always 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) Summary of initiatives to help achieve the basic policy
1) Specific actions supporting actualization of the basic policy
In March 2009 Epson announced SE15 Long-Range Corporate Vision, a strategic vision of how the company
wants to be in the 2015 fiscal year. For the past three years the Company has been executing strategies in line
with the SE15 Mid-Range Business Plan (FY2009-11), the first of two three-year plans designed to achieve
the SE15 Long-Range Corporate Vision.
In the past three years the global economy climbed back from the economic crisis triggered by the Lehman
collapse before falling back under the weight of events such as the European debt crisis. In 2011, moreover,
the business environment was thrust into further upheaval by the skyrocketing yen and a series of natural
disasters, including the devastating earthquake and tsunami in Japan and flooding in Thailand.
Epson's financial performance was significantly impacted by these environmental changes, yet the company
still managed to gain traction for growth. This traction is being provided by steady progress in accomplishing
the core strategies set forth in SE15 (FY2009-11), which were to expand business domains and product lines
and to reduce total costs to dramatically improve the company's cost structure.
The new three-year business plan, the SE15 Mid-Range Business Plan (FY2012-14), is designed to enable
Epson to achieve the goals stated in the SE15 Long-Range Corporate Vision, regardless of environmental
conditions. Given the results achieved during the past three years under SE15 (FY2009-11), Epson will stay
the course and accelerate the execution of strategies.
2) Efforts in preventing parties who are deemed inappropriate based on Epson’s basic policy from gaining
control over the Company’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 Original Plan") to prevent large-scale acquisition of Epson shares after
shareholders approved the Original Plan at their general meeting held on June 25, 2008. The Original Plan,
which was approaching the end of its effective period, was subsequently revised in part, and the updated plan
("the Plan") was approved by shareholders at the June 20, 2011, general shareholders' meeting.
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
41
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 provisions, the
question of whether to invoke preventive provisions is subject to the assessment 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 to invoke preventive
provisions, paying the utmost consideration to that advice.
(3) Decisions made by the Epson board of directors regarding specific actions and the justification for
those decisions
The actions described in (2) 1) above were specifically formulated to enhance both Epson’s corporate value and
the common interests of its shareholders in a continuous and sustained manner. These actions support
actualization of the basic policy.
As well as having been introduced and updated in order to ensure and enhance corporate value and the common
interests of shareholders, the Plan is in accordance with the basic policy outlined in (1) above. Specifically, the
Plan guarantees fairness and objectivity, is reasonable, and supports Epson’s corporate value and the common
interests of its shareholders because, among other things, a) it was introduced (and updated) after being approved
by shareholders at the general shareholders’ meeting; b) it contains provisions for reasonable and objective
implementation; c) a special committee comprising members with a high degree of independence from Epson
management was established and activation of the Plan is subject to the assessment of that special committee; d)
the special committee may solicit expert opinions from third parties at Epson’s expense; and e) the Plan was
determined to be valid for approximately three years and may be abolished by the board of directors at any time.
The Plan is not in place to keep Epson executive officers in their posts.
42
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.
Name
Position
Current function
Minoru Usui
President
Chief Operating Officer,
Electronic Devices and Precision
Products Operations Segment,
Chief Operating Officer,
Microdevices Operations
Division, and General
Administrative Manager,
Business Infrastructure
Improvement Division
General Administrative
Manager, Corporate Strategy
Division
President, Epson Sales Japan
Corporation
Chief Operating Officer,
Information-related equipment
business segment
General Administrative
Manager, Human Resources
Division
General Administrative
Manager, Corporate Research &
Development Division
Chief Operating Officer, Visual
Products Operations Division
Deputy General Administrative
Manager, Corporate Strategy
Division
Masayuki Morozumi
Executive Vice
(Representative
Director)
President
(Representative
Director)
Kenji Kubota
Senior Managing
Director
(Representative
Director)
Seiichi Hirano
Managing Director
Tadaaki Hagata
Managing Director
Noriyuki Hama
Managing Director
Yoneharu Fukushima
Director
Koichi Kubota
Shigeki Inoue
Director
Director
Toshiharu Aoki
Outside Director
Toru Oguchi
Torao Yajima
Standing Statutory
Auditor
Standing Statutory
Auditor
Yoshiro Yamamoto
Outside Statutory
Tatsuhiro Ishikawa
Outside Statutory
Auditor
Auditor
43
Kenji Miyahara
Outside Statutory
Hiroshi Komatsu
Managing Executive
Auditor
John Lang
Officer
Managing Executive
Officer
Masataka Kamiyanagi
Managing Executive
Officer
Akihiko Sakai
Executive Officer
Akio Mori
Executive Officer
Kiyofumi Koike
Executive Officer
Ryuhei Miyagawa
Executive Officer
Koichi Endo
Executive Officer
Hiromi Taba
Motonori Okumura
Executive Officer
Executive Officer
Takashi Oguchi
Executive Officer
Yasukazu Kitamatsu
Executive Officer
Hideki Shimada
Executive Officer
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
Chairman and President, Epson
(China) Co., Ltd.
Deputy General Administrative
Manager, Business
Infrastructure Development
Division
Managing Director, Epson
Singapore Pte. Ltd
President, Epson Europe B.V.
Chief Operating Officer, Printer
Operations Division
President, P.T. Indonesia Epson
Industry
Chief Operating Officer,
Commercial Printer Operations
Division
General Administrative
Manager, Imaging Products Key
Components Research &
Engineering Division, and
Deputy Chief Operating Officer,
Printer Operations Division
44
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 ……………………….
46
48
49
50
52
53
45
Consolidated Balance Sheets
Assets
Current assets
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets
Property, plant and equipment
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Construction in progress
Other
Accumulated depreciation
Total property, plant and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets
Millions of yen
March 31,
2011
March 31,
2012
Thousands of U.S.
dollars
March 31,
2012
¥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
¥123,093
139,309
19,010
99,472
41,524
21,258
12,678
32,336
(1,493)
487,190
393,081
417,229
150,841
54,731
5,700
102
(808,600)
213,086
1,758
13,307
15,066
12,614
36
3,776
9,068
(68)
25,426
253,579
¥740,769
$1,497,663
1,694,962
231,293
1,210,268
505,219
258,644
154,252
393,470
(18,165)
5,927,606
4,782,589
5,076,396
1,835,271
665,908
69,351
1,266
(9,838,179)
2,592,602
21,389
161,917
183,306
153,473
438
45,942
110,344
(827)
309,370
3,085,278
$9,012,884
The accompanying notes are an integral part of these financial statements.
46
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 stock
Authorized - 607,458,368 shares
Issued - 199,817,389 shares
Capital surplus
Retained earnings
Treasury stock
March 31, 2012 - 20,924,404 shares
March 31, 2011 - 23,924 shares
Total shareholders' equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets
Millions of yen
March 31,
2011
March 31,
2012
Thousands of U.S.
dollars
March 31,
2012
¥72,833
¥77,427
$942,048
31,129
30,000
42,093
51,112
6,472
116
16,681
8,199
56,782
315,422
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
30,812
40,000
30,500
56,695
7,631
76
8,333
7,626
54,210
313,314
60,000
77,500
8,696
23,407
1,963
659
560
6,525
179,314
492,628
53,204
84,321
194,047
(20,453)
311,119
1,838
(1,013)
(65,502)
(64,676)
1,697
248,140
¥798,229
¥740,769
374,887
486,677
371,091
689,804
92,845
924
101,387
92,785
659,634
3,812,082
730,015
942,937
105,803
284,791
23,883
8,018
6,813
79,440
2,181,700
5,993,782
647,329
1,025,927
2,360,956
(248,849)
3,785,363
22,362
(12,325)
(796,945)
(786,908)
20,647
3,019,102
$9,012,884
The accompanying notes are an integral part of these financial statements.
47
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
Foreign exchange gains
Insurance income
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
Insurance income
Gain on revision of retirement benefit plan
Reversal of provision for product warranties
Gain on transfer of business
Other
Total extraordinary income
Extraordinary loss:
Loss on disaster
Loss on litigation
Loss on transfer of subsidiary's equity
Business structure improvement expenses
Provision for loss on litigation
Other
Total extraordinary losses
Income before income taxes and minority
interests
Income taxes-current
Income taxes-deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income
Millions of yen
Thousands of U.S.
dollars
March 31,
2011
March 31,
2012
March 31,
2012
¥973,663
710,700
262,963
230,253
32,709
938
1,562
－
360
4,089
6,951
4,225
1,239
944
2,076
8,485
31,174
2,274
118
－
873
513
372
4,152
4,755
－
－
9,909
2,013
3,267
19,945
15,381
9,121
(4,149)
4,971
10,409
170
¥10,239
¥877,997
629,151
248,846
224,219
24,626
$10,682,528
7,654,837
3,027,691
2,728,069
299,622
1,110
1,549
1,396
977
3,683
8,718
3,573
－
1,009
1,739
6,322
27,022
809
1,252
364
－
－
216
2,643
2,125
6,052
2,024
－
－
3,841
14,043
15,622
10,622
(218)
10,404
5,217
185
¥5,032
13,505
18,846
16,985
11,887
44,848
106,071
43,472
0
12,276
21,171
76,919
328,774
9,843
15,232
4,428
－
－
2,654
32,157
25,854
73,634
24,625
－
－
46,747
170,860
190,071
129,249
(2,652)
126,597
63,474
2,251
$61,223
The accompanying notes are an integral part of these financial statements.
48
Consolidated Statements of Comprehensive Income
Millions of yen
March 31,
2011
March 31,
2012
Thousands of U.S.
dollars
March 31,
2012
Income before minority interes ts
Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency trans lation adjus tment
Share of other comprehens ive income of as sociates accounted
for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to minority interests
¥10,409
¥5,217
(1,460)
(702)
(16,099)
(135)
(18,398)
(¥7,988)
(¥8,034)
¥46
(719)
(440)
(1,649)
1
(2,807)
¥2,409
¥2,181
¥228
$63,474
(8,748)
(5,353)
(20,075)
12
(34,164)
$29,310
$26,536
$2,774
The accompanying notes are an integral part of these financial statements.
49
Consolidated Statements of Changes in Net Assets
Shareholders' equity
Capital stock
Balance at the beginning of current period
Changes of items during the period
Total changes of items during the period
Balance at the end of current period
Capital surplus
Balance at the beginning of current period
Changes of items during the period
Total changes of items during the period
Balance at the end of current period
Retained earnings
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income
Total changes of items during the period
Balance at the end of current period
Treasury stock
Balance at the beginning of current period
Changes of items during the period
Purchase of treasury stock
Total changes of items during the period
Balance at the end of current period
Total shareholders' equity
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income
Purchase of treasury stock
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 beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Deferred gains or losses on hedges
Balance at the beginning of current 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 beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Millions of yen
March 31,
2011
March 31,
2012
Thousands of U.S.
dollars
March 31,
2012
¥53,204
¥53,204
$647,329
－
53,204
84,321
－
84,321
187,358
(3,995)
10,239
6,243
193,602
(35)
(2)
(2)
(38)
324,847
(3,995)
10,239
(2)
6,241
331,088
4,023
(1,464)
(1,464)
2,558
130
(702)
(702)
(572)
(47,705)
(16,106)
(16,106)
(63,812)
－
53,204
84,321
－
84,321
－
647,329
1,025,927
－
1,025,927
193,602
2,355,530
(4,586)
5,032
445
194,047
(38)
(20,415)
(20,415)
(20,453)
(55,797)
61,223
5,426
2,360,956
(462)
(248,387)
(248,387)
(248,849)
331,088
4,028,324
(4,586)
5,032
(20,415)
(19,969)
311,119
2,558
(719)
(719)
1,838
(572)
(440)
(440)
(1,013)
(55,797)
61,223
(248,387)
(242,961)
3,785,363
31,110
(8,748)
(8,748)
22,362
(6,972)
(5,353)
(5,353)
(12,325)
(63,812)
(776,383)
(1,690)
(1,690)
(65,502)
(20,562)
(20,562)
(796,945)
The accompanying notes are an integral part of these financial statements.
50
Total accumulated other comprehensive income
Balance at the beginning of current 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 beginning of current 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 beginning of current period
Changes of items during the period
Dividends from surplus
Net income
Purchase 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,
2011
March 31,
2012
Thousands of U.S.
dollars
March 31,
2012
(43,552)
(18,274)
(18,274)
(61,826)
1,568
(22)
(22)
1,545
282,864
(3,995)
10,239
(2)
(18,297)
(12,056)
¥270,808
(61,826)
(752,245)
(2,850)
(2,850)
(64,676)
1,545
152
152
1,697
(34,663)
(34,663)
(786,908)
18,798
1,849
1,849
20,647
270,808
3,294,877
(4,586)
5,032
(20,415)
(2,698)
(22,667)
¥248,140
(55,797)
61,223
(248,387)
(32,814)
(275,775)
$3,019,102
The accompanying notes are an integral part of these financial statements.
51
Consolidated Statements of Cash Flows
Net cash provided by (used in) operating activities
Income before income taxes and minority interests
Depreciation and amortization
Equity in (earnings) losses of affiliates
Amortization of goodwill
Loss on litigation
Loss on disaster
Business structure improvement expenses
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for retirement benefits
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on sales of noncurrent assets
Loss on retirement of noncurrent assets
Loss (gain) on sales of investment securities
Loss on transfer of subsidiary's equity
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in accrued consumption taxes
Increase (decrease) in notes and accounts payable-trade
Other, net
Subtotal
Interest and dividends income received
Interest expenses paid
Payments for loss on litigation
Payments for business restructuring
Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investments in subsidiaries resulting in change
in scope of consolidation
Proceeds from sales of investments in subsidiaries
resulting in change in scope of consolidation
Proceeds from transfer of equity in subsidiaries resulting in
change in scope of consolidation
Proceeds from transfer of business
Other, net
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents from newly
consolidated subsidiary
Millions of yen
Thousands of U.S.
dollars
March 31,
2011
March 31,
2012
March 31,
2012
¥15,381
41,159
(77)
240
－
4,755
9,909
(192)
2,309
(1,309)
329
(1,174)
4,225
(60)
(2,303)
895
19
－
8,225
(15,665)
(761)
(23,318)
2,826
45,413
2,023
(4,320)
－
(182)
(10,538)
32,395
(7)
260
(28,308)
2,844
(2,286)
－
53
－
4,062
(234)
(23,615)
10,092
－
(37,728)
20,000
(30,000)
(989)
(2)
(3,995)
(67)
(42,691)
(9,020)
(42,932)
254,590
119
¥15,622
37,651
(85)
873
6,052
2,125
－
(425)
(8,224)
(199)
3,374
(1,373)
3,573
(2,250)
(872)
760
(150)
2,024
(995)
(20,360)
2,005
4,822
4,345
48,294
2,292
(3,709)
(6,207)
(6,061)
(7,929)
26,678
(777)
162
(32,709)
1,723
(3,998)
(1,940)
132
6,358
－
(480)
(31,528)
(248)
500
(42,093)
40,000
(30,000)
(553)
(20,415)
(4,586)
(9)
(57,406)
509
(61,747)
211,777
－
$190,071
458,097
(1,034)
10,621
73,634
25,854
－
(5,170)
(100,060)
(2,421)
41,051
(16,705)
43,472
(27,375)
(10,609)
9,246
(1,825)
24,625
(12,106)
(247,718)
24,394
58,668
52,879
587,589
27,886
(45,127)
(75,520)
(73,743)
(96,496)
324,589
(9,453)
1,971
(397,968)
20,963
(48,643)
(23,603)
1,606
77,357
－
(5,828)
(383,598)
(3,017)
6,083
(512,142)
486,677
(365,007)
(6,728)
(248,414)
(55,797)
(109)
(698,454)
6,180
(751,283)
2,576,675
－
Cash and cash equivalents at end of period
¥211,777
¥150,029
$1,825,392
The accompanying notes are an integral part of these financial statements.
52
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.
The amounts in the accompanying consolidated financial statements and the notes are rounded down.
2. Number of group companies
As of March 31, 2012, the Company had 89 consolidated subsidiaries. It has applied the equity method in respect
to one unconsolidated subsidiary and six 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.
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.
53
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 translation adjustments and minority interest in subsidiaries.
(3) Cash and cash equivalents
Cash and cash equivalents included in the consolidated financial statements comprise cash on hand, bank
deposits that may be withdrawn on demand, and highly liquid investments purchased with initial maturities of
three months or less, and which present low risk of fluctuation in value.
(4) Financial instruments
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
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.
54
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.
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.
(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.
55
(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
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
56
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
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.
57
(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) Accounting Standard for Accounting Changes and Error Corrections
Effective from the year ended March 31, 2012, Epson adapted the Accounting Standards Board of Japan
(“ASBJ”) Statement No. 24, “the Accounting Standard for Accounting Changes and Error Corrections” and its
Guidance No.24, “the Guidance on Accounting Standard for Accounting Changes and Error Corrections” which
was issued on December 4, 2009.
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 ¥82.19 = U.S.$1, the exchange rate
prevailing as of March 31, 2012, has been used.
5. Business transfer
The subsidiary’s equity transfer
As of February 2, 2011, the Company and Sony Corporation executed an agreement for transferring all of the
equity of its subsidiary, Suzhou Epson Co., Ltd. (“Suzhou Epson”), to the Sony Group. The Company, as of July
1, 2011, transferred 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 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 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.
58
Outline of business transfer
Transferred to
Business activities
Date of transfer
Sony (China) Limited
Production of small-and medium-sized TFT LCD displays
July 1, 2011
Loss on transfer of subsidiary’s equity
¥2,024 million ($24,625 thousand)
Carrying amounts of assets and liabilities transferred as of June 30, 2011, were as follows:
Current assets
Noncurrent assets
Total
Current liabilities
Noncurrent liabilities
Total
Outline of the business
(a) Net sales
Millions of yen
¥21,361
1,043
¥22,404
Thousands of
U.S. dollars
$259,897
12,690
$272,587
¥11,882
$144,567
-
-
¥11,882
$144,567
¥14,747 million ($179,425 thousand)
(year ended March 31, 2012)
(b) Operating income
¥0 million ($0 thousand)
(year ended March 31, 2012)
6.
Inventories
Losses recognized and charged to cost of sales as a result of valuations as of March 31, 2011 and 2012, were
¥30,654 million and ¥31,031 million ($377,552 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 and 2012,
comprised the following:
Held-to-maturity debt securities
59
Millions of yen
March 31
2011
2012
Thousands of
U.S. dollars
March 31,
2012
Commercial paper
National government bonds
Total
¥9,999
109
¥10,108
-
¥100
¥100
-
$1,216
$1,216
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, 2011 and
2012, were as follows:
Other securities
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
Millions of yen
March 31, 2012
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
¥6,188
19,000
191
¥2,920
-
-
Total
¥25,379
¥2,920
(¥909)
(-)
(-)
(¥909)
¥8,199
19,000
191
¥27,391
Thousands of U.S. dollars
March 31, 2012
Gross unrealized
Cost
Gains
Losses
Market value
(carrying value)
Equity securities
Certificate of deposit
Other
Total
$75,290
231,171
2,323
$308,784
$35,539
-
-
$35,539
($11,059)
(-)
(-)
($11,059)
$99,770
231,171
2,323
$333,264
60
For the years ended March 31, 2011 and 2012, 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, 2011, were ¥108
million, ¥6 million and ¥26 million, respectively. The total sales of other securities, the related gains for the year
ended March 31, 2012, were ¥162 million ($1,971 thousand) and ¥41 million ($498 thousand), respectively.
Unlisted securities, which were carried at costs of ¥1,428million and ¥1,136 million ($13,821 thousand) at
March 31, 2011 and 2012 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, 2011 and 2012, were ¥2,131 million and ¥2,996 million ($36,452 thousand),
respectively.
8. Short-term and long-term loans payable
Short-term loans payable and long-term loans payable at March 31, 2011 and 2012, comprised the following:
Millions of yen
March 31
2011
Amount
Amount
2012
Average
interest
rate
¥31,129
42,093
461
¥30,812
30,500
407
0.95%
1.78
-
107,500
77,500
973
20,000
30,000
20,000
20,000
-
-
636
20,000
-
20,000
20,000
20,000
20,000
1.54
-
1.44
-
1.70
0.58
0.49
0.72
Thousands
of
U.S. dollars
March 31,
2012
Last due Amount
-
-
-
2017
2017
2012
-
2012
2015
2014
2016
$374,887
371,091
4,951
942,937
7,743
243,338
-
243,338
243,338
243,338
243,338
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
Unsecured bonds issued by the Company
Total
¥272,157
¥239,855
$2,918,299
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, 2012.
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, 2012, were as follows:
61
The maturities of lease obligations outstanding as of March 31, 2012, were as follows:
Year ending March 31
Millions of yen
Year ending March 31
Millions of yen
Thousands of
U.S. dollars
$371,091
912,521
24,333
6,083
¥30,500
75,000
2,000
500
¥108,000
$1,314,028
Thousands of
U.S. dollars
$4,951
4,480
2,591
450
194
24
¥407
366
213
37
16
2
¥1,043
$12,690
Thousands of
U.S. dollars
$486,676
243,338
243,338
243,338
¥40,000
20,000
20,000
20,000
¥100,000
$1,216,690
2013
2014
2015
2017
Total
2013
2014
2015
2016
2017
Thereafter
Total
2013
2015
2016
2017
Total
The maturities of bonds outstanding as of March 31, 2012, were as follows:
Year ending March 31
Millions of yen
9. Goodwill
Epson had goodwill and negative goodwill as of March 31, 2011 and 2012. Goodwill and negative goodwill are
amortized on a straight-line basis in accordance with Japanese accounting standards. Goodwill or negative
goodwill is recorded on the balance sheets after offsetting. The amounts of goodwill and negative goodwill
before offsetting as of March 31, 2011 and 2012, were as follows:
62
Millions of yen
March 31
2011
¥2,754
122
2012
¥1,832
74
Thousands of
U.S. dollars
March 31,
2012
$22,289
900
Goodwill
Negative goodwill
63
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, 2011 and 2012, were as follows:
Thousands of
Millions of yen
U.S. dollars
March 31
March 31,
2011
2012
2012
Projected benefit obligations
¥233,973
¥238,316
$2,899,573
Plan assets at fair value
Unfunded status
Unrecognized items:
197,622
201,870
2,456,138
36,351
36,446
443,435
Actuarial gains (losses)
(16,828)
(14,554)
(177,076)
Prior service cost reduction from plan amendment
Provision for retirement benefits - net
Prepaid pension cost
（219）
286
19,303
22,178
1,213
1,229
3,479
269,838
14,953
Provision for retirement benefits
¥20,516
¥23,407
$284,791
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.
The composition of net pension and severance costs for the years ended March 31, 2011 and 2012, was as
follows:
Thousands of
Millions of yen
U.S. dollars
Year ended
Year ended March 31
March 31,
2011
2012
2012
¥7,744
¥7,486
6,064
6,146
(6,263)
(6,473)
$91,081
74,777
(78,756)
3,952
8,085
98,371
64
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
257
147
11,755
15,391
3,613
4,153
1,788
187,261
50,529
¥15,368
¥19,544
$237,790
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, 2011 and 2012, were primarily as follows:
Discount rate
Long-term rate of return on plan assets
11. Net assets
Year ended March 31
2011
2012
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.
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, 2011 and 2012:
65
Cash dividends per share
Cash dividends
Thousands of
U.S. dollars
Year ended
March 31,
2012
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 effective dates of the
Yen
Year ended March 31
2011
2012
U.S. dollars
Year ended
March 31,
2012
Millions of yen
Year ended March 31
2011
2012
distribution for year-end and interim cash dividends, which were paid during the year ended March 31, 2012,
$24,297
$0.12
Year-end
were June 21, 2011, and December 2, 2011, respectively.
$31,488
$0.15
Interim
¥1,997
¥1,997
¥1,997
¥2,588
¥10.00
¥10.00
¥10.00
¥13.00
$55,797
Total
The proposed cash dividends of retained earnings of the Company for the year ended March 31, 2012, approved
¥23.00
¥20.00
¥3,995
¥4,586
$0.27
at the general shareholders’ meeting, which was held on June 20, 2012, were as follows:
Cash dividends per share
Cash dividends
Yen
¥13.00
U.S. dollars
$0.15
Millions of yen
Thousands of
U.S. dollars
¥2,325
$28,288
The effective date of the distribution was June 21, 2012.
The number of treasury stocks of the Company were increased by an amount equal to the number of 20,900,480
for the year ended March 31, 2012. It was comprised as follows.
Purchase by the resolution of the board of directors
Purchase from dissenting shareholders based on the Japanese
Companies Act
Purchase of the shares less than one unit
Number of shares
20,250,000
650,000
480
66
12. Net income (loss) per share
Calculation of net income (loss) per share for the years ended March 31, 2011 and 2012, is as follows:
Millions of yen
Year ended March 31
Thousands of
U.S. dollars
Year ended
March 31,
2011
2012
2012
Net income (loss) attributable to common shares
¥10,239
¥5,032
$61,223
Weighted-average number of common shares outstanding
199,794
191,885
Thousands of shares
Net income (loss) per share
Yen
U.S. dollars
¥51.25
¥26.22
$0.31
Diluted net income per share is not calculated herein since Epson had no dilutive potential common shares
outstanding during the years ended March 31, 2011 and 2012.
67
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, 2011 and 2012.
The significant components of deferred tax assets and liabilities as of March 31, 2011 and 2012, 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
2011
2012
Thousands of
U.S. dollars
March 31,
2012
¥65,424
¥78,788
$958,608
29,439
16,138
196,349
20,820
8,803
5,673
2,842
2,252
1,910
21,381
158,549
(138,170)
20,378
16,060
7,434
2,515
2,512
2,099
2,055
13,375
140,981
(121,063)
19,918
(7,504)
(2,613)
(744)
(197)
(1,701)
(12,760)
¥7,617
(7,728)
(2,277)
(213)
(73)
(1,944)
(12,236)
¥7,681
195,400
90,448
30,599
30,563
25,538
25,003
162,797
1,715,305
(1,472,965)
242,340
(94,026)
(27,704)
(2,591)
(888)
(23,677)
(148,886)
$93,454
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.
Following the promulgation on December 2, 2011 of the “Act for Partial Revision of the Income Tax Act, etc. for
the Purpose of Creating Taxation System Responding to Changes in Economic and Social Structures” (Act
No.114 of 2011) and the “Act on Special Measures for Securing Financial Resources Necessary to Implement
Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of 2011), Japanese
corporation tax rates will be reduced and the special reconstruction corporation tax, a surtax for reconstruction
funding after the Great East Japan Earthquake, will be imposed for the fiscal years beginning on or after April 1,
2012. In line with these revisions, the Company changed the statutory tax rate to calculate deferred tax assets and
liabilities from 40.4% to 37.8% for temporary differences which are expected to reverse during the period from
the fiscal year beginning on April 1, 2012 to the fiscal year beginning on April 1, 2014. Similarly, the Company
changed the statutory tax rate to calculate deferred tax assets and liabilities from 40.4% to 35.4% for temporary
differences which are expected to reverse from the fiscal year beginning on or after April 1, 2015.
As a result of this change, net deferred tax assets (after netting deferred tax liabilities), valuation difference on
68
available-for-sale securities and deferred gains or losses on hedges increased by ¥465million ($5,657 thousand),
¥37million ($450 thousand) and ¥3million ($36 thousand), respectively and income taxes-deferred decreased by
¥425million ($5,170 thousand).
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:
Tax rate differences in overseas subsidiaries
Entertainment expenses, etc. permanently non-tax deductible
Changes in valuation allowance
Other
Income tax rate per statements of income
14. Selling, general and administrative expenses
Year ended March 31
2011
2012
40.4%
40.4%
(39.8)
22.2
7.1
2.5
(24.9)
16.1
48.7
(13.7)
32.3%
66.6%
The significant components of selling, general and administrative expenses for the years ended March 31, 2011
and 2012, were as follows:
Millions of yen
Year ended March 31
Thousands of
U.S. dollars
Year ended
March 31,
2011
2012
2012
Salaries and wages
¥76,609
¥71,691
$872,259
Advertising
Sales promotion
Shipping costs
Research and development costs
Allowance for doubtful accounts
Other
Total
15. Research and development costs
14,918
15,420
14,815
23,986
266
84,236
16,559
20,714
18,809
21,526
143
74,774
201,472
252,025
228,847
261,905
1,739
909,822
¥230,253
¥224,219
$2,728,069
Research and development costs, which are included in the cost of sales and selling, general and administrative
expenses, totaled ¥54,377 million and ¥52,106 million ($633,970 thousand) for the years ended March 31, 2011
and 2012, respectively.
69
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 years ended March 31, 2011 and 2012, comprised incurred losses related to the Great
East Japan Earthquake.
18. Loss on litigation
Loss on litigation for the year ended March 31, 2012, comprised the settlement of the lawsuits concerning the
allegations of a liquid crystal display price-fixing cartel.
19. Leases
As of March 31, 2012, 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, 2011 and 2012, were as
follows:
Future lease payments
2011
2012
Millions of yen
March 31
Thousands of
U.S. dollars
March 31,
2012
Due within one year
Due after one year
¥2,337
6,671
¥2,135
6,990
$25,976
85,059
Total
¥9,008
¥9,126
$111,035
70
20. Cash flow information
Cash and cash equivalents as of March 31, 2011 and 2012 were as follows:
Millions of yen
March 31
Thousands of
U.S. dollars
March 31,
2011
2012
2012
Cash and deposits
¥125,807
¥123,093
$1,497,663
Short-term investment securities
Short-term loans receivables
76,009
10,000
19,010
8,000
231,293
97,335
Less:
Short-term loans payable (overdrafts)
Time deposits due over three months
Short-term investment securities due over
three months
Cash and cash equivalents
(2)
(27)
(10)
(9)
(54)
(10)
(109)
(669)
(121)
¥211,777
¥150,029
$1,825,392
The Company obtained marketable securities, the fair value of which was ¥10,008 million and ¥7,999 million
($97,323 thousand) as of March 31, 2011 and 2012, respectively, as deposit for the short-term loans receivables
above.
Detail of assets and liabilities for the company which became non-consolidated due to the business transfer.
Detail of assets and liabilities as of transferring date, agreed-upon purchase price and proceeds from sales were as
follows:
Current assets
Noncurrent assets
Current liabilities
Loss on transfer of subsidiary’s equity
Agreed-upon purchase price of SZE
Cash and cash equivalents of SZE
Deduction: proceeds from sales
Millions of yen
Thousands of
U.S. dollars
¥21,361
1,043
(11,882)
(1,043)
9,478
(3,119)
¥6,358
$259,885
12,690
(144,567)
(12,690)
115,318
(37,961)
$77,357
¥981 million ($11,935 thousand) is the variance of “loss on transfer of subsidiary’s equity” with the Consolidated
Statements of Income, is due to the influence of the exchange rate.
71
21. Derivative instruments
The table below lists notional amounts and fair value of derivatives as of March 31, 2011 and 2012, by
transaction and type of instrument, excluding derivatives qualifying for hedge accounting.
Currency-related transactions
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
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)
Purchased -
U.S. dollar (sold Japanese yen)
Euro (sold Japanese yen)
Indonesia rupiah (sold U.S. dollar)
Total
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)
Millions of yen
March 31, 2012
Notional
amounts
Fair value
Unrealized
gains
(losses)
¥7,924
23,938
187
1,145
44
54
48
2,375
¥35,718
(¥72)
(1,034)
（20）
(87)
0
（0）
0
（30）
(¥1,245)
(¥72)
(1,034)
（20）
(87)
0
（0）
0
（30）
(¥1,245)
72
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)
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, 2012
Notional
amounts
Fair value
Unrealized
gains
(losses)
$96,410
291,290
2,275
13,931
535
657
584
28,896
$434,578
($876)
(12,618)
（243）
(1,058)
0
（0）
0
($876)
(12,618)
（243）
(1,058)
0
（0）
0
（365）
($15,160)
（365）
($15,160)
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, 2011 and 2012, 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, 2011
Notional
amounts
Fair value
Euro (purchased Japanese yen)
Forecasted transactions in
¥24,454
(¥598)
Purchased -
U.S. dollar (sold Japanese yen)
foreign currency sales
Forecasted transactions in
foreign currency purchase
1,976
44
Total
¥26,430
(¥553)
73
Instruments
Hedged items
Millions of yen
March 31, 2012
Notional
amounts
Fair value
Forward exchange contracts:
Sold -
Euro (purchased Japanese yen)
Australian dollar
(purchased Japanese yen)
Purchased -
U.S. dollar (sold Japanese yen)
Forecasted transactions in
foreign currency sales
¥32,410
1,477
(¥933)
(57)
Forecasted transactions in
foreign currency purchase
963
21
Total
¥34,851
(¥969)
Instruments
Hedged items
Thousands of U.S. dollars
March 31, 2012
Notional
amounts
Fair value
Forward exchange contracts:
Sold -
Euro (purchased Japanese yen)
Australian dollar
(purchased Japanese yen)
Purchased -
U.S. dollar (sold Japanese yen)
Forecasted transactions in
foreign currency sales
$394,343
($11,351)
17,970
(693)
Forecasted transactions in
foreign currency purchase
11,716
255
Total
$424,029
($11,789)
The fair value is calculated based on prices obtained from financial institutions.
(b) Interest-related transactions
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
74
Instruments
Hedged items
Millions of yen
March 31, 2012
Notional
amounts
Due after
one year
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
¥50,000
¥30,000
Instruments
Hedged items
Thousands of U.S. dollars
March 31, 2012
Notional
amounts
Due after
one year
Interest rate swaps:
Pay-fixed, receive-floating
Floating interest rate in
long-term loans payables
$608,346
$365,007
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.”
22. Comprehensive income
Each component of other comprehensive income for the year ended March 31, 2012 was as follows:
Valuation difference on available-for-sale securities
Gains/（losses） arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred gains or losses on hedges
Gains/（losses） arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Foreign currency translation adjustment
Gains/（losses） arising during the year
Reclassification adjustments to profit or loss
Total
Millions of yen
March 31,
2012
Thousands of
U.S. dollars
March 31,
2012
(¥1,234)
(17)
(1,251)
533
(719)
1,831
(2,246)
(415)
(25)
(440)
(2,808)
1,159
(1,649)
($15,013)
(219)
(15,232)
6,484
(8,748)
22,277
(27,326)
(5,049)
(304)
(5,353)
(34,164)
14,089
(20,075)
Share of other comprehensive income of associates accounted for
using equity method
Gains/（losses） arising during the year
Total other comprehensive income
1
(¥2,807)
12
($34,164)
75
23. Financial risk management and fair value of financial instruments
Financial risk management principles
With the maintenance of funding an essential precondition, Epson places great emphasis on safety and liquidity,
and selects operational funding methods that are designed to ensure the maximum possible efficiency. Epson
uses methods such as bank loans and bonds to procure funds and others. Epson uses derivative instruments only
for hedging purposes and not for purposes of trading or speculation.
Risks associated with financial instruments
Operating receivables such as notes and accounts receivable-trade are exposed to counterparties’ credit risks.
Epson operates internationally, exposing its foreign operating receivables to the risk of fluctuations in foreign
currency exchange rates. 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
76
and payables that it expects to occur as a result of forecasted transactions. Forward exchange transactions are
executed in accordance with internal rules and policies based on foreign exchange management rules and
policies.
Interest rate swaps are utilized to hedge against possible future fluctuations in interest rates on loans. Interest rate
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, 2011 and 2012, 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, 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)
-
Derivative instruments in the table above represent a net amount.
77
Unlisted securities of ¥1,428 million 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.
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, 2012
Carrying
value
¥123,093
139,309
19,010
8,480
Fair value
¥123,093
139,309
19,010
8,480
¥289,894
¥289,894
77,427
30,812
56,695
100,000
108,000
77,427
30,812
56,695
100,534
109,429
Unrealized
gains
(losses)
-
-
-
-
-
-
-
-
¥534
1,429
Total
¥372,935
¥374,899
¥1,963
Derivative instruments
(¥2,215)
(¥2,215)
-
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, 2012
Carrying
value
$1,497,663
1,694,962
231,293
103,175
Fair value
$1,497,663
1,694,962
231,293
103,175
$3,527,093
$3,527,093
942,048
374,887
689,804
1,216,692
1,314,028
942,048
374,887
689,804
1,223,189
1,331,414
Unrealized
gains
(losses)
-
-
-
-
-
-
-
-
$6,497
17,386
Total
$4,537,459
$4,561,342
$23,883
Derivative instruments
($26,949)
($26,949)
-
Derivative instruments in the table above represent a net amount.
78
Unlisted securities of ¥1,136 million ($13,821 thousand) at March 31, 2012 are not included above because there
is no market value and it is therefore extremely difficult to estimate their fair value.
The fair value of financial instruments was calculated based on the following methods and premises:
(1) Cash and deposits, notes and accounts receivable-trade and short-term 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.
24. Contingent liabilities
Contingent liabilities for guarantee of employees’ housing loans from banks and others were ¥1,090 million and
79
¥528 million ($6,424 thousand) as of March 31, 2011 and 2012, respectively.
25. 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 owned 9.5% and 71.3% of the outstanding shares
of Sunritz, respectively as of March 31, 2011.
Mr. Yasuo Hattori, a vice-chairman and director of the Company, and his relatives have owned 26.65% and
52.52% of the outstanding shares of Aoyama Kigyo Kabushiki Kaisha (“Aoyama”), respectively as of March 31,
2012.
Epson has conducted the acquisition of 1,200,000 treasury stocks from Mr. Yasuo Hattori determined by a
resolution at its board of directors' meeting held on November 16, 2011 through the off-auction own share
repurchase trading system (ToSTNeT-3) on the Tokyo Stock Exchange, at the share price on November 16, 2011
(¥964 per share, $11.72 per share).
Epson has conducted the acquisition of 19,000,000 treasury stocks from Aoyama determined by a resolution at
its board of directors' meeting held on November 16, 2011 through the off-auction own share repurchase trading
system (ToSTNeT-3) on the Tokyo Stock Exchange, at the share price on November 16, 2011 (¥964 per share,
$11.72 per share). Aoyama had been an Epson’s major shareholder, but they haven’t been since this transaction.
A subsidiary of the Company has also entered into real estate lease agreements with Hamazawa Investment
Company (“Hamazawa”), which is a subsidiary of Sunritz, as of March 31, 2011.
The company and its subsidiary’s transactions with these related parties for the years ended March 31, 2011 and
2012, and related balances on March 31, 2011 and 2012, were as follows:
Transactions:
With Sunritz -
Rental expenses for real estates
With Mr. Yasuo Hattori -
Acquisition of treasury stock
With Aoyama -
Acquisition of treasury stock
With Hamazawa -
Rental expenses for real estates
Millions of yen
Year ended March 31
2012
2011
Thousands of
U.S. dollars
Year ended
March 31,
2012
¥18
-
-
21
-
-
¥1,156
$14,064
18,316
222,849
-
-
Millions of yen
Year ended March 31
2012
2011
Thousands of
U.S. dollars
Year ended
March 31,
2012
Balances:
With Sunritz -
Other investments
¥1
-
-
80
Segment information
(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 two 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 and the devices & precision products segment.
Epson decided to terminate the small- and medium-sized LCD business that was categorized under “Electronic
devices” in the prior fiscal year. As a result, Epson has changed the segment and categorized this business under
“Other” from the first quarter ended June 30, 2011.
In addition, Epson reviewed the management systems of the electronic devices and the precision products
segments. As a result, Epson has changed the segment and consolidated these reporting segments into “Devices
& precision products” from the first quarter ended June 30, 2011.
Further, Epson changed the management systems of the HTPS-TFT panels for 3LCD projectors business that
was categorized under “Devices & precision products” in the second quarter ended September 30, 2011. As a
result, Epson has changed the segment and consolidated these reporting segments into “Information-related
equipment” from the third quarter ended December 31, 2011.
Segment information for the three months and year ended March 31, 2011 and 2012 was calculated on the basis
of the review mentioned above from the first quarter ended June 30, 2010 and 2011.
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, HTPS-TFT panels for 3LCD projectors, label printers and personal
computers.
The devices & precision products segment mainly includes crystal units, crystal oscillators, quartz sensors,
CMOS LSIs, watches, watch movements, plastic corrective lenses, precision industrial robots, IC handlers and
industrial inkjet equipment.
81
(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 year ended March 31, 2011
and 2012:
Millions of yen
Year ended March 31, 2011
Reporting segments
Information-
related
equipment
Devices &
precision
products
Total
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
¥713,056
¥200,259
¥913,315
¥59,472
¥972,788
879
713,936
12,411
212,670
13,290
926,606
1,974
61,446
15,265
988,053
¥875
(15,265)
(14,390)
¥973,663
-
973,663
71,092
11,231
82,323
(3,581)
78,741
(46,032)
32,709
329,879
144,969
474,848
25,424
500,273
297,956
798,229
24,470
10,320
34,790
88
34,879
6,092
40,971
18,614
10,278
28,892
747
29,639
2,324
31,963
\-
¥910
¥910
\-
\910
¥38
¥949
Net sales:
Customers
Inter-segment
Total
Segment
income (loss)
Segment
assets
Other
Depreciation and
amortization
Increase in
property, plant,
equipment and
intangible assets
Amortization of
goodwill
82
Millions of yen
Year ended March 31, 2012
Reporting segments
Information-
related
equipment
Devices &
precision
products
Total
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
¥691,234
¥166,823
¥858,058
¥16,582
¥874,640
567
691,801
7,987
174,811
8,554
866,612
734
17,316
9,288
883,929
¥3,356
(9,288)
(5,932)
¥877,997
-
877,997
64,888
4,629
69,517
(1,545)
67,971
(43,345)
24,626
355,074
133,358
488,432
4,424
492,857
247,911
740,769
22,706
10,175
32,882
223
33,105
4,441
37,547
29,510
6,853
36,363
312
36,675
4,610
41,285
\-
¥883
¥883
\-
¥883
¥38
¥922
Thousands of U.S. dollars
Year ended March 31, 2012
Reporting segments
Information-
related
equipment
Devices &
precision
products
Total
Other
[Note 1]
Total
Adjustments
[Note 2]
Consolidated
statement of
income totals
[Note 3]
$8,410,196
$2,029,736
$10,439,932
$201,764
$10,641,696
$40,832
$10,682,528
6,898
97,177
104,075
8,931
113,006
(113,006)
-
8,417,094
2,126,913
10,544,007
210,695
10,754,702
(72,174)
10,682,528
789,488
56,320
845,808
(18,810)
826,998
(527,376)
299,622
4,320,161
1,622,557
5,942,718
53,838
5,996,556
3,016,328
9,012,884
276,275
123,798
400,073
2,713
402,786
54,045
456,831
359,047
83,379
442,426
3,796
446,222
56,089
502,311
$-
$10,743
$10,743
$-
$10,743
$474
$11,217
Net sales:
Customers
Inter-segment
Total
Segment
income (loss)
Segment
assets
Other
Depreciation and
amortization
Increase in
property, plant,
equipment and
intangible assets
Amortization of
goodwill
Net sales:
Customers
Inter-segment
Total
Segment
income (loss)
Segment
assets
Other
Depreciation and
amortization
Increase in
property, plant,
equipment and
intangible assets
Amortization of
goodwill
83
Notes;
1.
Intra-group services and small- and medium-sized LCD business are categorized within “Other.”
2. Adjustments were as follows.
Net sales
Corporate expenses [Note]
Eliminations
Total
Year ended March 31
Millions of yen
2011
2012
Thousands of U.S. dollars
2012
¥3,764
(18,154)
(¥14,390)
¥3,416
(9,348)
(¥5,932)
$41,562
(113,736)
($72,174)
Segment income (loss)
Year ended March 31
Corporate expenses [Note]
Eliminations
Total
Millions of yen
2011
2012
Thousands of U.S. dollars
2012
(¥46,440)
408
(¥46,032)
(¥43,650)
304
(¥43,345)
($531,074)
3,698
($527,376)
Segment assets
Year ended March 31
Corporate expenses [Note]
Eliminations
Total
Millions of yen
2011
2012
Thousands of U.S. dollars
2012
¥310,168
(12,212)
¥297,956
¥254,198
(6,286)
¥247,911
$3,092,809
(76,481)
$3,016,328
[Note] Corporate expenses 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.
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
2011
2012
Thousands of U.S. dollars
2012
¥2,173
151
¥2,324
¥2,233
2,377
¥4,610
$27,169
28,920
$56,089
[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).
84
(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 and 2012:
Millions of yen
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
Japan
The United States
China（including Hong Kong）
Other
Total
Net sales
¥313,940
¥120,199
¥109,115
¥334,741
¥877,997
Millions of yen
Year ended March 31, 2012
Japan
The United States
China（including Hong Kong）
Other
Total
Net sales
$3,819,686
$1,462,452
$1,327,594
$4,072,796
$10,682,528
Thousands of U.S. dollars
Year ended March 31, 2012
[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
and 2012:
Millions of yen
Year ended March 31, 2011
Japan
Other
Total
Property, plant and equipment
¥165,402
¥48,220
¥213,623
Millions of yen
Year ended March 31, 2012
Japan
Other
Total
Property, plant and equipment
¥162,597
¥50,488
¥213,086
Thousands of U.S. dollars
Year ended March 31, 2012
Japan
Other
Total
Property, plant and equipment
$1,978,306
$614,296
$2,592,602
85
(e)
Information of impairment loss
The following table summarizes information of impairment loss in each reporting segments for the year ended
March 31, 2011 and 2012:
Millions of yen
Year ended March 31, 2011
Information-
related
equipment
¥208
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
¥868
¥191
¥428
¥1,698
Impairment loss
Millions of yen
Year ended March 31, 2012
Information-
related
equipment
¥179
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
¥88
¥0
¥317
¥586
Impairment loss
Thousands of U.S. dollars
Year ended March 31, 2012
Information-
related
equipment
$2,177
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
$1,070
$0
$3,882
$7,129
Impairment loss
[Note] Corporate expenses 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
(f)
Information of goodwill
The following table summarizes information of goodwill in each reporting segments for the year ended March
31, 2011 and 2012:
Millions of yen
Year ended March 31, 2011
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
Goodwill
\-
¥2,664
\-
¥89
¥2,754
Millions of yen
Year ended March 31, 2012
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
Goodwill
\-
¥1,781
\-
¥50
¥1,832
86
Thousands of U.S. dollars
Year ended March 31, 2012
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
[Note]
Total
Goodwill
$-
$21,681
$-
$608
$22,289
[Note] Goodwill that is categorized under corporate expenses does not correspond to the reporting segments.
The following table summarizes information of amortization of negative goodwill and balance of negative
goodwill from the subsidiary’s acquisitions before April 1, 2010 for the year ended March 31, 2011 and 2012:
Millions of yen
Year ended March 31, 2011
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
Total
Amortization of
negative goodwill
Negative goodwill
\-
\-
¥708
¥122
\-
\-
\-
\-
¥708
¥122
Millions of yen
Year ended March 31, 2012
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
Total
Amortization of
negative goodwill
Negative goodwill
\-
\-
¥48
¥74
\-
\-
\-
\-
¥48
¥74
Thousands of U.S. dollars
Year ended March 31, 2012
Information-
related
equipment
Devices &
precision
products
Other
Corporate
expenses
Total
Amortization of
negative goodwill
Negative goodwill
$-
$-
$584
¥900
$-
$-
$-
$-
$584
$900
Information of gain on negative goodwill
(g)
Gain on negative goodwill did not occur during the year ended March 31, 2011 and 2012.
87
26. Other
The Company and related subsidiaries are subject to allegations concerning a liquid crystal
display 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 the United States and elsewhere by clients and others.
88
Report of Independent Auditors
89
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
100
(million JPY)
Manufacture and sales
of devices and
precision products
Tohoku Epson
Corporation
Sakata-shi,
Yamagata
480
(million JPY)
Akita Epson
Corporation
Yuzawa-shi,
Akita
80
(million JPY)
Manufacture of
information-related
equipment, devices
and precision products
Manufacture of
information-related
equipment, devices
and precision products
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 and
semiconductors,
Loan of assets
Manufacture of printer
components and crystal
devices
Financial assistance
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, devices
and precision products
Epson Electronics
America, Inc.
San Jose,
U.S.A.
10,000
(thousand USD)
Sales of devices and
precision products
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
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
100.0
Regional headquarters in
Europe, Sales of printers
and other PC peripherals,
Guaranty of liabilities,
Interlocking directors
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
Epson Deutschland
Dusseldorf,
5,200 Sales of
100.0 Sales of printers and other
90
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
GmbH
Germany
(thousand EUR) information-related
equipment, devices
and precision products
Epson Europe
Electronics GmbH
Munich,
Germany
2,000
(thousand EUR)
Sales of devices and
precision products
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)
Tianjin Epson Co., Ltd. Tianjin, China
172
(million CNY)
Epson Precision
(Hong Kong), Ltd.
*
Hong Kong,
China
81,602
(thousand USD)
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, devices
and precision products
Sales of
information-related
equipment, devices
and precision products
Regional headquarters,
sales of
information-related
equipment, devices
and precision products
Sales of
information-related
equipment
Manufacture of
information-related
equipment
Manufacture of
devices and precision
products
91
(100.0) PC peripherals, and sales of
factory automation products,
Guaranty of liabilities
100.0
(100.0)
Sales of electronic devices,
Guaranty of liabilities
100.0
(100.0)
Sales of printers and other
PC peripherals
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
Sales of printers and other
PC peripherals,
Guaranty of liabilities,
100.0
(100.0)
100.0
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
100.0
100.0
100.0
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
80.0
(80.0)
Manufacture of printer
consumables, etc.,
Interlocking directors
100.0
Manufacture of watches,
etc.,
Interlocking directors
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Epson Engineering
(Shenzhen) Ltd.
Shenzhen,
China
56,641 (thousand
USD)
Epson Precision
(Shenzhen) Ltd.
Shenzhen,
China
25,000 (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)
Epson Toyocom
Malaysia Sdn. Bhd.
Kuala Lumpur,
Malaysia
16,000
(thousand MYR)
Manufacture of
information-related
equipment, devices
and precision products
Manufacture of
devices and precision
products
Manufacture of
information-related
equipment, devices
and precision products
Manufacture of
information-related
equipment
Manufacture of
information-related
equipment and
electronic devices
Manufacture of
devices and precision
products
100.0
(100.0)
Manufacture of printers,
3LCD projectors, liquid
crystal panels and factory
automation products, etc.,
Interlocking directors
100.0
(100.0)
Manufacture of watches,
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,
Guaranty of liabilities,
Interlocking directors
100.0
(100.0)
Manufacture of crystal
devices,
Interlocking directors
58 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 devices and
precision products
33.3 Sales of watch movements
Five 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.
Company name
Net sales
Ordinary income Net income
Total net assets
Total assets
Epson Sales Japan Corporation
209,204
6,110
3,291
14,973
68,067
Epson America, Inc.
Epson Europe B.V.
168,398
174,920
3,563
2,462
25,810
76,469
2,005
1,424
30,245
90,923
(Millions of yen)
92
Figures for Epson America, Inc. and Epson Europe B.V. are included in consolidated business results.
93
2. Distribution of ownership among shareholders
Share ownership (100 shares per unit)
Government
and regional
public
bodies
Japanese
financial
institutions
Japanese
securities
companies
Other
Japanese
Foreign institutions and
others
corporations Institutions Individuals
Japanese
individuals
and others
Total
Shares
less
than
one unit
(Shares)
Correct as of March 31, 2012
–
65
36
326
313
24
34,615
35,379
－
–
621,776
18,816
375,813
302,926
124
677,426 1,996,881 129,289
–
31.14
0.94
18.82
15.17
0.01
33.92
100.00
－
Category
Number of
shareholders
(Persons)
Number of
shares
owned
（Units）
Percentage
of shares
owned
(%)
Notes
1. 20,924,404 shares of treasury stock are included as 209,244 units in “Japanese individuals and others” and 4
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.”
94
3. Major shareholders
Name
Address
Correct as of March 31, 2012
Number of shares
held
Shareholding ratio
(%)
6-1 Ginza 5-chome, Chuo-ku, Tokyo
14,288,500
Sanko Kigyo Kabushiki
Kaisha
The Master Trust Bank of
Japan, Ltd. (Trust account)
Japan Trustee Services Bank,
Ltd. (Trustee Account)
Seiko Holdings Corporation
Seiko Epson Corporation
Employees’ Shareholding
Association
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
3-5, Owa 3-chome, Suwa-shi,
Nagano
Yasuo Hattori
Noboru Hattori
Minato-ku, Tokyo
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.)
Mizuho Trust & Banking Co.,
Ltd., Employee pension trust,
Mizuho Bank account,
Beneficiary of the retrust,
Trust & Custody Services
Bank, 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)
Harumi Island Triton Square Office
Tower Z, 8-12, Harumi 1-chome,
Chuo-ku, Tokyo
12,742,100
8,310,100
7,948,800
6,334,127
5,964,206
5,599,968
4,368,000
7.15
6.37
4.15
3.97
3.16
2.98
2.80
2.18
4,278,100
2.14
4,076,900
2.04
Total
－
73,910,801
36.98
Notes:
1. Although the Company holds 20,924,404 shares of treasury stock, the Company is excluded from the above
list of major shareholders. (The ratio of the treasury shares held by the Company against the total number of
shares issued is 10.47%.)
2. Aoyama Kigyo Kabushiki Kaisha, which had been a major shareholder at the end of the previous fiscal year,
was no longer a major shareholder at the end of the fiscal year under review.
3. The shares held by Mizuho Trust & Banking Co., Ltd., Employee pension trust, Mizuho Bank account,
Beneficiary of the retrust, Trust & Custody Services Bank, Ltd., were contributed by Mizuho Bank to the trust
assets of the Employee pension trust.
4. JPMorgan Asset Management (Japan) Limited and its joint holders submitted a Major Shareholding Report to
the Director of the Kanto Local Finance Bureau as of May 11, 2011, claiming that they hold the Company’s
shares as follows as of April 29, 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.
95
Name
Address
Number of shares
held
Shareholding ratio (%)
JPMorgan Asset
Management (Japan)
Limited
JPMorgan Chase Bank
National Association
Total
Tokyo Building, 7-3, Marunouchi
2-chome, Chiyoda-ku, Tokyo
1111 Polaris Pkwy., Columbus,
OH 43240, USA
－
9,757,200
247,600
10,004,800
4.88
0.12
5.01
5. Mizuho Corporate Bank, Ltd., and its joint holders submitted a Report of Change as of January 20, 2012,
claiming that they held the Company’s shares as follows as of January 13, 2012. 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
Mizuho Corporate Bank,
Ltd.
Mizuho Bank, Ltd.
Mizuho Securities Co.,
Ltd.
Mizuho Trust & Banking
Co., Ltd.
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
Mizuho Asset
5-27, Mita 3-chome, Minato-ku,
Management Co., Ltd.
Tokyo
Total
—
Number of shares
held
4,278,100
5,539,900
3,606,763
3,644,300
339,800
17,408,863
Shareholding ratio (%)
2.14
2.77
1.81
1.82
0.17
8.71
6. Mitsubishi UFJ Financial Group, Inc., and its joint holders submitted a Major Shareholding Report as of April
2, 2012, claiming that they hold the Company’s shares as follows as of March 26, 2012. 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
The Bank of
Tokyo-Mitsubishi UFJ,
Ltd.
7-1, Marunouchi 2-chome,
Chiyoda-ku, Tokyo, Japan
Mitsubishi UFJ Trust and
4-5, Marunouchi 1-chome,
Banking Corporation
Chiyoda-ku, Tokyo
Mitsubishi UFJ Asset
4-5, Marunouchi 1-chome,
Management Co., Ltd.
Chiyoda-ku, Tokyo
Total
－
Number of shares
held
Shareholding ratio (%)
1,610,000
0.81
8,142,300
379,500
10,131,800
4.07
0.19
5.07
96
4. Epson stock price
(1) High and low stock prices for the previous five years
Year
Fiscal year
High (¥)
Low (¥)
66th year
March 2008
4,320
1,997
67th year
March 2009
68th year
March 2010
69th year
March 2011
70th year
March 2012
3,300
1,001
1,715
1,216
1,700
1,032
1,499
881
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 2011
November
December
January 2012
February
March
High (¥)
Low (¥)
1,143
881
1,063
928
1,109
981
1,060
926
1,118
951
1,241
1,081
Note
High and low stock prices noted above are based on the Tokyo Stock Exchange (First Section) data.
97
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)
98
3-3-5 Owa, Suwa, Nagano 392-8502, Japan
tel: +81-266-52-3131
http://global.epson.com