Epson Annual Report 2013

FY2013 Annual Report · Epson

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SEIKO EPSON CORPORATION

ANNUAL REPORT 2013

April 2012 - March 2013

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” or the “Group” refers to the Epson Group, while “the Company” may refer to
the Group or the parent company, Seiko Epson Corporation.

Table of Contents

Consolidated Financial Highlights............................................................................................................... 3

Information on the Company....................................................................................................................... 5

1. Overview of the business group ........................................................................................................... 5

2. Major equipment and facilities ............................................................................................................ 8

3. Overview of capital expenditures....................................................................................................... 10

4. Plans for new additions or disposals.................................................................................................. 11

5. Major management contracts ............................................................................................................ 12

Risks Related to Epson’s Business Operations ......................................................................................... 13

Business Conditions .................................................................................................................................... 19

1. Overview of business result ................................................................................................................ 19

2. Manufacturing, orders received and sales ........................................................................................ 22

3. Analysis of financial condition and results of operations................................................................. 23

4. Research and development activities ................................................................................................. 27

Corporate Governance ............................................................................................................................... 32

1. Approach to corporate governance.................................................................................................... 32

2. Details of audit remuneration............................................................................................................. 41

3. Basic policy regarding company control ........................................................................................... 42

Management ................................................................................................................................................ 44

Index to Consolidated Financial Statements............................................................................................. 46

Consolidated Balance Sheets .................................................................................................................. 47

Consolidated Statements of Comprehensive Income ........................................................................... 50

Consolidated Statements of Changes in Net Assets .............................................................................. 51

Consolidated Statements of Cash Flows................................................................................................ 53

Notes to Consolidated Financial Statements ......................................................................................... 54

Report of Independent Auditors ................................................................................................................ 88

Additional Information............................................................................................................................... 89

1. Principal subsidiaries and affiliates................................................................................................... 89

2. Distribution of ownership among shareholders................................................................................ 93

3. Major shareholders ............................................................................................................................. 94

4. Epson stock price................................................................................................................................. 97

5. Corporate data and investor information ......................................................................................... 98

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
business segment
Devices and precision products
business segment
Other

Eliminations and corporate

Gross profit
Selling, general and
administrative expenses
Operating income (loss)

Ordinary income
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

2008

2009

2010

2011

2012

2013

Millions of yen

Thousands of
U.S. dollars
2013

¥1,347,841

¥1,122,497

¥985,363

¥973,663

¥877,997

¥851,297

$9,051,536

902,970

395,197

83,927

29,124

(63,378)

―

368,449

310,871

57,577

63,263

52,045

769,850

311,626

72,697

31,828

(63,506)

―

289,443

291,031

(1,588)

5,301

(89,559)

712,692

248,001

57,746

19,714

(52,791)

―

259,469

241,241

18,227

13,875

(799)

19,093

(111,322)

(19,791)

82,870

82,058

63,955

79,209

55,624

78,406

68,849

25,937

47,395

702,918

231,235

68,276

1,279

(30,046)

713,936

―

691,801

688,029

7,315,566

212,670

174,811

156,872

1,667,963

61,446

(14,390)

262,963

230,253

32,709

31,174

15,381

10,239

54,377

31,813

41,159

17,316

(5,932)

248,846

224,219

24,626

27,022

15,622

1,273

5,122

234,439

213,184

21,255

17,629

(3,479)

13,535

54,472

2,492,706

2,266,710

225,996

187,442

(36,990)

5,032

(10,091)

(107,293)

52,106

49,923

530,813

38,908

37,651

43,155

39,320

458,851

418,075

112,060

44,253

56,542

32,395

26,678

42,992

457,118

(50,770)

(61,002)

(43,203)

(23,615)

(31,528)

(39,511)

(420,106)

61,289
(70,663)

(16,748)
(9,558)

13,338
(41,087)

8,780
(42,691)

(4,849)
(57,406)

3,480
21,298

37,001
226,454

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
Information-related equipment
business segment
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 (ordinary income/ average total
assets at beginning and end of year)
ROS
(operating income (loss) / net sales)

2008

2009

2010

2011

2012

2013

Millions of yen

Thousands of

U.S. dollars
2013

¥737,245

343,261

1,139,165

385,123

282,595

471,446

47,862

29,609

6,576

―

2,417

2,461

88,925

¥617,677

253,712

917,342

283,848

314,862

318,631

41,748

19,818

6,038

―

2,151

2,571

72,326

¥596,210

225,354

¥543,530

213,623

¥487,190

213,086

¥519,457

$5,523,211

217,388

2,311,419

870,090

328,652

258,574

282,864

45,863

22,439

5,839

―

590

3,206

77,936

798,229

315,422

211,999

270,808

44,711

20,659

5,985

―

245

2,951

74,551

740,769

313,314

179,314

248,140

778,547

326,688

193,052

258,806

8,278,011

3,473,568

2,052,652

2,751,791

―

55,841

50,823

16,101

13,859

249

3,112

75,303

241

3,838

68,761

¥97.24

32.00

2,277.45

(¥566.92)

35.00

1,541.16

(¥99.34)

7.00

¥51.25

20.00

¥26.22

26.00

1,407.92

1,347.71

1,377.60

(¥56.41)

20.00

1,435.20

($0.59)

0.21

15.25

39.3

4.2

5.2

4.3

33.0

(29.7)

0.5

(0.1)

32.3

(6.8)

1.6

1.8

33.7

3.7

3.4

33.3

2.0

3.5

2.8

33.0

(4.0)

2.3

2.5

Notes
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥94.05 =U.S.$1 as of March 31, 2013.
2. Ordinary income is a common item on financial statements in Japan, which is calculated by adding to or subtracting from operating

income items such as interest income, rent income, interest expenses and foreign exchange gains or losses.

3. In this table, cash dividends per share refers to the amount paid for each share in each fiscal year.
4. Shareholders’ equity is net assets excluding minority interests.

Information on the Company
1. Overview of the business group

Epson is mainly comprised of businesses responsible for the development, manufacture and sale of
information-related equipment, electronic devices, and precision products, as well as the provision of
related services.

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, printers for use in point-of-sale (“POS”) systems 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 area

Main products

Printer

Visual products

Others

Inkjet printers, page
printers,
SIDM printers,
large-format inkjet
printers and related
consumables, color
image scanners,
mini-printers,
printers for use in
POS systems and
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.

–

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 units, CMOS LSIs, watches, watch movements, and
precision industrial 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. Epson transferred its optical products business to Hoya
Corporation and Hoya Group companies on February 1, 2013.

Watch business
The watch business is responsible for the development, manufacture and sales of Seiko brand watches
and watch movements.

Factory automation systems business
The factory automation products business is responsible for the development, manufacture and sales
of precision industrial 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 area

Main products

Devices

[Quartz device
business]
crystal units, crystal
oscillators, quartz
sensors and others
[Semiconductor
business]
CMOS LSIs and
others

Main subsidiaries and affiliates

Manufacturing companies
Epson Toyocom
Corporation
Akita Epson Corporation
Epson Toyocom Malaysia
Sdn. Bhd.

Tohoku Epson Corporation
Singapore Epson Industrial

Pte. Ltd.

Sales companies
Epson Electronics America, Inc.
Epson Europe Electronics

GmbH

Epson Hong Kong Ltd.

Epson Taiwan Technology &

Trading Ltd.
Epson Singapore Pte. Ltd.

Precision
products

[Watch business]
Watches, watch
movements and
others
[Factory automation
systems business]
Precisoin industrial
robots, IC handlers,
industrial inkjet
equipment and
others

Epson Precision (Shenzhen)
Ltd.
Singapore Epson Industrial
Pte. Ltd.

Time Module (Hong Kong) Ltd.

Epson Engineering
(Shenzhen) Ltd.

Epson America, Inc.
Epson Deutschland GmbH
Epson (China) Co.,Ltd.

Notes:On April 1, 2013, Epson Toyocom Corporation changed its name to Miyazaki Epson Corporation,

and Epson Toyocom Malaysia Sdn. Bhd. changed its name to Epson Precision Malaysia Sdn. Bhd..

(4) Other business segment
This segment comprises the businesses of subsidiaries that offer services for and within the Epson Group.

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, 2013

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

2,390

(43,888)

3,858

867

other

Overall

administration and

Other facilities

－

other

Printer development and

Information-related

component manufacturing

[3,171]

－
(－)

5,560

equipment

facilities

17,690

5,600

(189,347)

1,126

29,977

4,422

Other

Research and development

facilities

Other facilities

1,047

731

(179,759)

198

5,615

724

Matsumoto Minami

Plant

Information-related

(Matsumoto-shi,

equipment

Nagano)

Toyoshina Plant

equipment

and design facilities

Information-related

3LCD projector development

(Azumino-shi,

Devices and

Factory automation

1,597

839

Nagano)

precision products

manufacturing facilities

Other

Other facilities

Suwa Minami Plant

Information-related

Liquid crystal panel

Suwa-gun, Nagano)

Other

Other facilities

Chitose Plant

(Chitose-shi,

Hokkaido)

Ina Plant

Information-related

Liquid crystal panel

equipment

manufacturing facilities

2,603

1,320

[1,758]

－
(－)

[108,004]

1,443

634

3,071

1,550

[28,909]

1,375

(160,528)

125

5,394

188

(Fujimi-machi,

equipment

manufacturing facilities

6,012

8,900

(113,082)

520

16,877

1,136

(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

2,213

1,343

(39,943)

3,782

608

9,689

1,475

363

13,524

968

Devices and

Semiconductor manufacturing

precision products

facilities

7,228

1,718

Sales facilities

3,240

Sakata Plant

(Sakata-shi,

Yamagata)

Hino Office

Devices and

(Hino-shi, Tokyo)

precision products

Shiojiri Plant

Devices and

(Shiojiri-shi, Nagano)

precision products

270

11,321

11,573

248

626

Watch manufacturing facilities

1,490

925

(41,836)

188

3,624

[5,764]

[22,989]

3,637

[1,502]

1,996

(247,143)

2,104

(538,828)

8,303

(40,725)

1,019

Tohoku Epson

Information-related

equipment

Devices and precision

products

Information-related

Corporation

(Sakata-shi,

Yamagata)

Akita Epson

Corporation

(Yuzawa-shi, Akita)

(2) Domestic subsidiaries

Company name
(location)

Business segment

Type of facilities

Correct as of March 31, 2013

Book value (Millions of yen)

Buildings and

structures

Machinery,

Land

equipment and

vehicles

(Area:
m2)

Other Total

Number of

employees

(Persons)

Printer component and

semiconductor manufacturing

facilities

－
(－)

248

255

1,789

equipment

Printer component and crystal

Devices and precision

device manufacturing facilities

1,400

157

677

(68,992)

114 2,349

807

products

(3) Overseas subsidiaries

Company name
(location)

Business segment

Type of facilities

Correct as of March 31, 2013

Book value (Millions of yen)

Buildings and

structures

Machinery,

Land

equipment and

vehicles

(Area:
m2)

Other

Total

Number of

employees

(Persons)

Information-related

Printer, 3LCD projector, liquid

equipment

crystal panel, watches and

Devices and precision

factory automation

products

manufacturing facilities

1,889

4,278

Printer consumables

semiconductor and watches

3,212

5,030

(41,065)

919

9,225

4,571

manufacturing facilities

Printer manufacturing facilities

2,831

3,027

Epson Precision

(Hong Kong) Ltd.

(Hong Kong, China)

Singapore Epson

Industrial Pte. Ltd.

(Singapore)

P.T. Indonesia Epson

Industry

(Bekasi, Indonesia)

Epson Precision

Information-related

equipment

Devices and precision

products

Information-related

equipment

(Philippines), Inc.

Information-related

Printer and 3LCD projector

equipment

manufacturing facilities

(Cabuyao,

Philippines)

Epson Toyocom

Malaysia Sdn. Bhd.

Devices and precision

Crystal device manufacturing

(Kuala Lumpur,

products

facilities

566

3,372

Malaysia)

6,603

2,588

(117,489)

2,022 11,809

10,725

2,673

8,842

11,393

－
(－)

[64,104]

[43,534]

－
(－)

[201,753]

595

1,800

7,658

8,052

[130,000]

356

(32,437)

4,333

2,488

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.

3. Overview of capital expenditures

Capital expenditures for the fiscal year under review were concentrated in key strategic areas, primarily on
new products and rationalizing, upgrading and maintaining equipment and facilities 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 ¥43,155 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 etc., and for
rationalizing, upgrading and maintaining equipment and facilities amounted to ¥33,447 million in the fiscal
year under review.

Devices and precision products segment
Investment for commercializing new products such as crystal devices and watches etc., and for
rationalizing, upgrading and maintaining equipment and facilities amounted to ¥7,939 million in the fiscal
year under review.

Other businesses and company-wide
Investment in R&D and other activities amounted to ¥1,768 million in the fiscal year under review.

4. Plans for new additions or disposals

Epson plans to invest ¥44.0 billion in capital expenditures for the consolidated fiscal year ending March 31,
2013. The Company has changed its business segments effective from the fiscal year ending March 31,
2014.

Business segment

Information-related
equipment
Devices & Precision
Products
Sensing & Industrial
solutions

Other and overall

Planned amount of
capital
expenditures (100
millions of yen)

Main types and purposes of equipment and facilities

300

110

Commercializing new products; rationalizing, upgrading and
maintaining equipment and facilities, etc.
Commercializing new products; rationalizing, upgrading and
maintaining equipment and facilities, etc.
Commercializing new products; rationalizing, upgrading and
maintaining equipment and facilities, etc.

20 Investment for research and development, etc.

Total

440

–

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.

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

Hewlett-Packard Company

U.S.A.

License to use patents relating to
information-related equipment

May 1, 2012 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

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 ¥688,029 million in sales from its information-related equipment business for the year ended
March 2013 constituted about 80% of Epson’s consolidated sales, which were ¥851,297 million. Inkjet
and other printers, including printer consumables, accounted for a large majority of the sales and profits of
this business. A decrease in sales of printers and printer consumables could have a material adverse effect
on Epson’s operating results.

2. Competition and other factors 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

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 a large number 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 registered trademarks of Texas Instruments Incorporated.

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 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 suitably adapted 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 Epson's operating results
could be adversely affected if Epson’s ink cartridge revenue declines because, for example, the market
share of non-genuine ink cartridges increases further and genuine ink cartridges lose market share or if
Epson must reduce the prices of Epson brand products. .

5. Sudden changes in the business environment could affect Epson.
Epson is concentrating management resources on domains in which it can leverage its unique
strengths—domains such as the printing systems business, visual communications business, sensing
systems business, and industrial solutions business—and on future growth areas that will support the next
generation as it seeks to strengthen its business foundations.
However, because technological innovation is so rapid and product life cycles so short 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, demand and capital expenditure trends in
Epson’s main markets, which move in tandem with the global economy, 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, or if Epson is unable to adequately
meet sudden fluctuations in demand in a major market, 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 around the world 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; slightly less than 70% of its consolidated sales for
the business year ended March 2013 were overseas. 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 2013, 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 advancements including Micro Piezo inkjet head, micro-display, sensing,
14

GPS, image processing, energy-saving and precision mechatronics technologies. By evolving and fusing
these technologies into platforms, Epson will continue to 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. Product lifecycles and the transition to new products makes Epson vulnerable to certain risks.
Epson manufactures and sells products that generally have short life cycles, such as consumer products.
Epson uses the local subsidiaries and branches in its global distribution network to gather accurate
information on product needs in different regions, and it strives to reduce time to market by establishing
development and design platforms. 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 providing
appropriate levels of compensation and appointing talented local staff in Group companies worldwide. 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 and 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.

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.

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.

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 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.

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 or 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, or violations of applicable statutes could interfere with Epson’s sales activities. They could also
potentially damage Epson's social credibility or result in a large civil fine. Any of these could 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 business internationally. Its primary businesses are the development, manufacture and sale
of information-related equipment, devices and precision products, and sensing and industrial solutions, as
well as the provision of related services. 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, and an inquiry was begun in
October 2012. 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.
In June 2010, Epson Europe B.V. ("EEB"), a consolidated subsidiary of Seiko Epson, brought a civil suit
against La SCRL Reprobel ("Reprobel"), a Belgium-based group that collects copyright royalties, seeking
restitution for copyright royalties for multifunction printers. These two lawsuits were adjoined. EEB's
claims were rejected at the first trial, but EEB, dissatisfied with the decision, intends to appeal.

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
17

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.

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 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, regulations, or licenses and the like pose risks for Epson.
Epson is a multinational corporation with operations around the globe. In addition to strengthening its sales
and marketing activities targeting new customers, including public institutions, the Company is entering
new areas, such as the health and medical markets, where there may be stricter requirements for
compliance with laws and regulations. Epson has strengthened its compliance framework and strives to
ensure compliance with all statutory requirements through internal training and awareness-building
programs. However, a statutory violation or the risk of one, the introduction of stricter statues, or the
imposition of tougher laws by relevant authorities could potentially damage Epson's social credibility or
result in a large civil fine. Not only that but Epson could see constraints placed on its business activities or
see the cost of complying with these statutes increase. Any of these could have a adverse impact on Epson's
financial performance and future business development.

Business Conditions

1. Overview of business result
(1) Operating results
In the year under review, the global economy as a whole grew slowly, largely due to the effects of
uncertainty over the financial futures of some E.U. member states and concerns over sharp fiscal tightening
in the U.S. Regionally, the U.S. economy showed signs of a pickup at the end of the period, with factors
such as a drop in the unemployment rate and an uptick in personal spending providing a boost. In Europe,
the economy showed continued weak movement due to factors such as high unemployment and uncertainty
about the financial futures of several European states. In Asia, the pace of economic expansion in China
slowed primarily because of sluggish Chinese exports. India also saw the rate of economic growth weaken,
with a high real interest rate a major factor. On the other hand, signs of a pickup in economic activity
driven primarily by internal demand were seen in other Asian countries. The Japanese economy stayed in a
holding pattern as exports and production declined in sympathy with the global economic slowdown, but
there were signs of a bottoming out owing to improvement in the export environment toward the end of the
period and the effects of economic and financial policies.

The situation in the main markets of the Epson Group ("Epson") was as follows.
Inkjet printer demand contracted in North America and Europe. Japan saw a sustained recovery in demand
across the first half before dropping off in the second half. Large-format inkjet printer shipments were
moderated by spending restraints in the printing and photo industries due to the murky economic outlook,
while demand was seen decelerating in the once firm Asian markets, especially in China. Serial impact
dotmatrix (SIDM) printer demand shrank in America, Europe and Japan and plummeted in China, where
SIDM printers are used in tax collection systems. POS system product shipments to Southeast Asia and to
small and medium-sized retailers in the Americas were solid during the period owing to an upswing in
capital expenditure. However, a continued reluctance to invest on the part of large European retailers
moderated sales. In 3LCD projectors demand growth was seen slowing in North America, Europe, and
China.
Demand for the main applications for electronic devices remained steady across the period, but there were
clear areas of strength and of weakness, depending on the product category. Smartphone demand continued
to expand, while conventional mobile phone demand continued to decline. In the PC market demand for
tablets was robust, while notebook and desktop PC sales slumped. In digital cameras, the market for SLR
(single-lens reflex) and MILC (mirrorless interchangeable-lens camera) models expanded, but smartphones
significantly eroded demand for compact cameras, especially in the latter half of the period.
In the precision products market, watch demand rebounded in Japan and other parts of Asia but showed
signs of softening in Europe and America. Robot demand increased in the first half primarily on higher
demand from electronics and IT manufacturers in China and Taiwan. However, signs of a general softening
of the market emerged in the second half, and IC handler demand weakened as chip makers curtailed
investments.

primarily a company that provides consumer imaging products into a company that once again posts strong
growth by creating and providing new information solutions and equipment for businesses and
professionals, as well as consumers.

The main extraordinary losses for the year under review included a ¥16,268 million ($172,971 thousand)
litigation loss resulting primarily from the payment of a settlement in a lawsuit involving allegations of
involvement in an LCD price-fixing cartel.
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 ¥83.11 and ¥107.14, respectively. This represents a 5% depreciation in the value of
the yen against the dollar and a 2% appreciation in the value of the yen against the euro, year-over-year.

As a result of the foregoing factors, net sales for the full fiscal year were ¥851,297 million ($9,051,536
thousand), down 3.0% from the prior year. Operating income was ¥21,255 million ($225,996 thousand),
down 13.7% from the prior year. Ordinary income was ¥17,629 million ($187,442 thousand), down 34.8%
from the prior year. And net loss was ¥10,091 million ($107,293 thousand), compared to net income of
¥5,032 million in the previous year.

A breakdown of the financial results in each reporting segment is provided below.

Information-Related Equipment Segment
The printer business as a whole reported a decline in net sales (including both printer units and
consumables).
In the inkjet printer business the average selling prices of inkjet models that use ink cartridges rose but
hardware unit shipments decreased, causing net sales in that category to decline. On the whole, however,
net sales in inkjet printer hardware grew thanks to unit shipment growth in high-capacity ink tank models.
Net sales of consumables for inkjet printers declined. Large-format printer (LFP) unit shipments declined in
the face of an ongoing slump in hardware demand in the printing industry, but new high-end products
bumped up average selling prices and, as a result, net sales. Even though shipments of LFP consumables
shrank in response to declining print volume in the printing industry, consumables net sales increased
thanks largely to the new LFPs in the high price zone, which helped increase average selling prices. Page
printer sales decreased primarily due to the effects of corporate cost cutting. Serial-impact dot-matrix
(SIDM) printer net sales decreased. In addition to erosion of average selling prices and lower unit volume
in China, where demand for SIDM printers used in tax collection systems was particularly robust in the
same period last year, net sales were also hurt by a decline in unit shipments in other parts of Asia and
Europe. POS systems product net sales grew. Although net sales were hurt by the effects of falling average
selling prices in the Americas and a decline in unit shipments in Europe, where customers were reluctant to
spend due to the slow economy, unit shipments increased on strong, steady demand from small- and
medium-sized retailers in the Americas and Southeast Asia. The printer business as a whole was affected
by the weaker yen.
Net sales in the visual products business increased.
The visual products business as a whole reported net sales growth thanks to an increase in 3LCD projector
unit shipments and foreign exchange effects.
Unit shipments of business 3LCD projectors increased in every region. Particularly large growth was seen
in entry-level and short-throw lens models. Home-theater 3LCD projector unit shipments also increased.
Demand in Europe was driven higher by major sporting events, while net sales benefited from an increase
in average selling prices due to strong sales of high-priced models such as full-HD (1080p) projectors.

Segment income in the information-related equipment segment declined. In addition to a decline in income
due to foreign exchange effects, segment income fell due to decreased income mainly from SIDM printers,
and POS systems products.

As a result of the foregoing factors, net sales in the information-related equipment segment were ¥688,029
million ($7,315,566 thousand), down 0.5% year over year, while segment income was ¥52,670 million
($560,032 thousand), down 18.8% year over year.

Devices and Precision Products Segment
Net sales in the devices business declined.
Crystal device net sales declined. Tuning-fork crystal net sales fell due to falls in unit shipments and
average selling prices. AT-cut crystal unit sales also declined despite unit shipment growth, as unit prices
plummeted.
Semiconductor net sales decreased. While silicon foundry order volume increased, net sales were heavily
impacted by a decline in unit shipments of LCD controllers and LCD drivers for automotive applications.
Net sales in the precision products business declined.
The watch business reported an increase in net sales. This revenue growth was primarily the result of
increases in unit shipments of solar GPS watches, solar radio-controlled watches, and high-end models, as
well as a jump in average selling prices. In factory automation systems, sales of robots increased on a jump
in orders from China and other regions in Asia. On the other hand, sales of IC handlers decreased due to
sluggish demand from semiconductor manufacturers serving the PC and mobile phone markets.

Segment income in the devices and precision products segment increased thanks to a rebound in crystal
device profit and increased watch profits.

As a result of the foregoing factors, net sales in the devices and precision products segment were ¥156,872
million ($1,667,963 thousand), down 10.3% year over year, while segment income was ¥7,658 million
($81,424 thousand), up 65.4% year over year.

Other
Net sales from other operations in the year under review were ¥1,273 million ($13,535 thousand), down
92.6% year over year. Segment loss was ¥1,191 million ($12,663 thousand), compared to a ¥1,545 million
segment loss recorded in the same period last year. The decrease in net sales is a result of the termination of
the small- and medium-sized display business.

Adjustments
Adjustments to the total income of reporting segments amounted to -¥37,883 million (-$402,797 thousand),
compared to -¥43,345 million recorded in the same period last year. Adjustments were mainly due to the
recording of income related to patents and to 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 ¥42,992 million ($457,118 thousand),
compared to ¥26,678 million in the previous fiscal year. Although certain factors such as a ¥3,479 million
loss before income taxes and minority interests and a payment of ¥10,692 million in income taxes had a
negative effect, cash flows from operating activities increased on the whole because of factors such as the
recording of ¥39,320 million in depreciation and amortization expenses and a ¥18,588 million decrease in
inventory.
Net cash used in investing activities was ¥39,511 million ($420,106 thousand), up from ¥31,528 million in
the previous fiscal year. Although the company recorded ¥3,147 million in income associated with a
business transfer, it also recorded ¥43,846 million for the purchase of property, plant and equipment and
the purchase of intangible assets.
Net cash from financing activities was ¥21,298 million ($226,454 thousand), compared to a negative cash
flow of ¥57,406 million in the previous fiscal year. While there was a ¥10,000 million net decrease in
bonds and a ¥4,651 million payment of dividends, net cash from financing activities increased mainly due
to a ¥36,462 million net increase in short-term and long-term loans payable.
As a result, cash and cash equivalents at the end of the fiscal year totaled ¥184,639 million ($1,963,200
thousand) compared to ¥150,029 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/

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, 2013
(From April 1, 2012, to March 31, 2013)
(Millions of yen)

Change
compared to
previous year
(%)

Information-related equipment

Devices and precision products

Total for the reporting segments

Other

Total

645,634

149,169

794,804

684

795,488

95.1

91.2

94.4

33.8

94.2

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, 2013
(From April 1, 2012, to March 31, 2013)
(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.

687,570

150,840

838,411

856

839,267

99.5

90.4

97.7

5.2

96.0

3. Analysis of financial condition and results of operations

(1) Analysis of operating results
Net Sales
Consolidated net sales decreased by ¥26,700 million, or 3.0%, to ¥851,297 million compared with the
previous consolidated fiscal year.

Sales in each reporting segment are discussed below.

The information-related equipment segment recorded net sales of ¥688,029 million, a year-over-year
decline of ¥3,772 million (0.5%). Although yen depreciation had a positive effect on net sales, the factors
described below were major contributors to the decline.
The inkjet printer business reported net sales growth overall even though printers that use ordinary ink
cartridges generated less revenue, despite higher average selling prices, due to a dip in unit shipments. Net
sales growth came from increased shipments of inkjet models that use high-capacity ink tanks.
Large-format printer unit shipments declined in the face of an ongoing slump in hardware demand in the
printing industry, but new high-end products bumped up average selling prices and, as a result, net sales.
Even though sales of LFP consumables shrank in response to declining print volume in the printing industry,
consumables net sales increased thanks largely to the new LFPs in the high price zone, which helped
increase average selling prices. Page printer sales declined primarily due to the effects of corporate cost
cutting. Serial-impact dot-matrix (SIDM) printer net sales decreased. In addition to erosion of average
selling prices and lower unit volume in China, where demand for SIDM printers used in tax collection
systems was particularly robust in the previous period, net sales were also hurt by a decline in unit
shipments in other parts of Asia and in Europe. POS systems product net sales grew. Although net sales
were hurt by the effects of falling average selling prices in the Americas and a decline in unit shipments in
Europe, where customers were reluctant to spend due to the slow economy, unit shipments increased on
strong, steady demand from small- and medium-sized retailers in the Americas and Southeast Asia. 3LCD
projector net sales increased. Unit shipments of business models increased in every region. Particularly
large growth was seen in entry-level and short-throw lens models. Home-theater unit shipments also
increased, as major sporting events in Europe caused a spike in demand. Net sales benefited additionally
from an increase in average selling prices due to strong sales of high-priced models such as full-HD
(1080p) projectors.

The devices and precision products segment recorded net sales of ¥156,872 million, a year-over-year
decline of ¥17,938 million (10.3%). Although yen depreciation had a positive effect on net sales, the factors
described below were major contributors to the decline.
Quartz device net sales declined. Tuning-fork crystal net sales fell due to falls in unit shipments and
average selling prices. AT-cut crystal unit sales declined despite unit shipment growth, as unit prices
plummeted. Semiconductor net sales decreased. While silicon foundry order volume increased, net sales
were heavily impacted by a decline in unit shipments of LCD drivers for automotive applications and LCD
controllers. The watch business reported an increase in net sales. This revenue growth was primarily the
result of increases in unit shipments of solar GPS watches, solar radio-controlled watches, and high-end
models, as well as a jump in average selling prices. In factory automation systems, sales of robots increased
on a jump in orders from China and other regions in Asia. On the other hand, sales of IC handlers decreased
due to sluggish demand from semiconductor manufacturers serving the PC and mobile phone markets.

In the "Other" segment, net sales were ¥1,273 million, a year-over-year decline of ¥16,043 million (92.6%).
This is primarily due to a decline in sales associated with the termination of the small- and medium-sized
liquid crystal displays business.

Cost of sales and gross profit
The cost of sales was ¥616,857 million, a year-over-year decrease of ¥12,293 million (2.0%). The decrease
in cost of sales is largely the result of lower material and processing costs associated with a decline in net

sales.

As a result, gross profit declined by ¥14,406 million, or 5.8%, to ¥234,439 million.

Selling, general and administrative expenses and operating income
Selling, general and administrative (SG&A) expenses declined by ¥11,035 million, or 4.9%, to ¥213,184
million. The decrease is mainly due to lower shipping costs, continued rigorous screening of spending
proposals because of the difficult economic environment, and reduced R&D spending.
As a result, operating income declined by ¥3,371 million, or 13.7%, ending at ¥21,255 million.

Segment income in each reporting segment was as follows.

Segment income in the information-related equipment segment was ¥52,670 million, down by ¥12,218
million (18.8%) compared to the previous period. The decline is primarily due to the effects of a drop in
sales of serial-impact dot matrix (SIDM) printers.

Segment income in the devices and precision products segment was ¥7,658 million, up ¥3,029 million
(65.4%) compared to the previous period. This increase is mainly due to higher income brought about by
cost reductions in quartz devices.

Other segment loss was ¥1,191 million, a ¥354 million improvement compared to the ¥1,545 million loss
incurred in the previous period.

As for adjustments, segment loss was ¥37,883 million, a ¥5,462 million improvement over the ¥43,345
million loss incurred in the previous period. Adjustments consisted primarily of patent royalties, R&D
expenses for basic research and new businesses that do not belong to a reporting segment, and SG&A
expenses, comprised of Head Office expenses.

Non-operating income and expenses
The net of non-operating income minus non-operating expenses was negative ¥3,625 million, a ¥6,021
million change from the ¥2,395 million in income posted in the previous period. The primary contributors
to the worsening of income were a decline in insurance payouts and a loss on foreign exchange totaling
¥2,944 million in the year under review, compared to a gain of ¥1,396 million in the previous period.

Ordinary income
Ordinary income was ¥17,629 million, a ¥9,393 million decline (34.8%) compared to the previous period.

Extraordinary income and losses
The net of extraordinary income minus extraordinary losses was negative ¥21,108 million, a ¥9,708 million
increase in loss from the ¥11,399 million loss recorded in the previous period. The expanded loss was
mainly due to an extraordinary loss of ¥25,792 million. Whereas the Company recorded a ¥14,043 million
extraordinary loss in the previous period due primarily to a litigation-related loss associated with the
payment of a settlement relating to allegations of involvement in an LCD price-fixing cartel, this fiscal year
the Company recorded a ¥16,268 million litigation-related loss, the majority of which was related to the
LCD price-fixing cartel settlement. Also this year the Company recorded a ¥4,605 million impairment
associated primarily with idle assets.

Income (loss) before income taxes and minority interests
Epson recorded a loss before income taxes and minority interests of ¥3,479 million, down ¥19,101 million
from the previous period.

Income taxes
Income taxes were ¥6,443 million, a ¥3,961 million (38.1%) decrease compared to the previous period. The
decrease is attributable to a decrease in overseas tax expenses compared to the previous period.

Minority interests in income
Minority interests in income for the period under review were ¥168 million, a decrease of ¥16 million
(8.9%) compared to the previous period.

Net income (loss)
Epson posted a net loss of ¥10,091 million, a ¥15,123 million decline compared to the previous period.

(2) Liquidity and capital resources
Cash flow
Net cash provided by operating activities was ¥42,992 million, an increase of ¥16,313 million compared to
the previous period. While certain factors negatively affected cash flow from operating activities, such as a
¥19,101 million decrease in income before income taxes and minority interests, which includes
litigation-related losses, and a ¥21,991 million effect from a decrease in trade accounts payable, cash from
operating activities increased on the whole due to additive factors such as a ¥38,948 million effect from a
decrease in inventory and a ¥12,635 million effect from an increase on provision for bonuses.

Net cash used in investing activities totaled ¥39,511 million, an increase of ¥7,983 million compared to the
previous period. This increase was mainly due to a ¥7,138 million increase in outlays associated with the
acquisition of property, plant and equipment and intangible assets.

Net cash provided by financing activities totaled ¥21,298 million. Cash used in financing activities
decreased by ¥78,705 million compared to the previous period. This is due to a ¥58,440 million net
increase in interest-bearing liabilities and a ¥20,414 million decrease in cash used in the acquisition of
treasury shares.

As a result of the foregoing factors, cash and cash equivalents at the end of the fiscal year stood at
¥184,639 million, an increase of ¥34,609 million compared to the end of the previous fiscal year, giving
Epson sufficient liquidity.

The total of short-term loans payable, long-term loans payable, and bonds payable was ¥271,126 million,
an increase of ¥32,314 million compared to the end of the previous fiscal year, due to increased borrowing
to ensure liquidity.

Long-term loans payable [excluding the current portion] amount to ¥52,500 million as of March 31, 2013,
at a weighted average interest rate of 0.79% and with a repayment deadline of November 2017. These
borrowings were obtained as unsecured loans primarily from banks.

Financial condition
Total assets were ¥778,547 million, an increase of ¥37,778 million compared to the end of the previous
fiscal year. The majority of this increase is accounted for by a ¥34,586 million increase in cash and deposits
and short-term investment securities.

Total liabilities were ¥519,740 million, an increase of ¥27,111 million compared to the end of the previous
fiscal year. While notes and accounts payable-trade declined by ¥20,177 million, total liabilities increased
mainly because of a ¥4,702 million increase in a provision for bonuses, a ¥5,896 million increase in the
provision for retirement benefits, and a ¥32,314 million total net increase in short-term loans payable,
long-term loans payable, and bonds payable.

Total net assets were ¥258,806 million, an increase of ¥10,666 million compared to the end of the previous
fiscal year. Although the company recorded a net loss and there was a ¥14,742 million decrease in retained
earnings due to the payment of dividends, total net assets increased chiefly due to weakening of the yen,
which led to a ¥25,160 million increase in foreign currency translation adjustments.

Working capital, defined as current assets less current liabilities, was ¥192,769 million, an increase of

¥18,894 million compared to the end of the previous fiscal year.

The ratio of interest-bearing liabilities to total assets increased to 34.9%. It was 32.4% at the end of the
previous fiscal year.

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 ¥49,923 million. This included ¥26,419 million in the
information-related equipment segment, ¥5,606 million in the devices and precision products segment, and
¥17,896 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 released compact new Colorio inkjet printers that support smartphone and
cloud printing and are approximately 40% smaller*1 than comparable Epson models from the previous year.
In the visual products business, Epson launched the world's thinnest*2 (44 mm) 3LCD mobile projectors.
The new projectors, which inherited a compact, lightweight (approx. 1.7 kg) body, provide improved
convenience with a split-screen feature. This feature allows a projector to simultaneously project video
content from two inputs side by side on a single screen so that users can, for example, compare data or
show meeting minutes alongside a presentation. Epson also launched new interactive projector models
equipped with electronic blackboard functions that allow users to write directly on images projected on a
wall or board with an electronic pen.
*1 Cubic size comparison
*2 As of the June 2012, according to Epson research.

Devices and precision products
In quartz devices, the Company used its core strength in QMEMS*3 fabrication technology to develop an
exceptionally accurate and stable quartz accelerance sensor. This accelerance sensor was combined with
semiconductor and software technologies to create compact commercial inclinometers and accelerometers
(three-axis sensor units) that provide stable measurements over extended periods of time with resolutions*4
of 0.001 degree (inclinometer) and 10 µG (accelerometer).
In the factory automation products business, Epson developed an IC test handler that can transport, test, and
sort up to 20,000 logic ICs*5 per hour, giving it world-class throughput*6.

*3 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 Corporation.

*4 Resolution is the measurement or detection capability of a sensor or device.
*5 A logic IC is a small integrated circuit that puts one of the individual functions required by various

logic circuits into a single package.
In the pick-and-place logic IC handler category. Calculated from the number of logic ICs that can be
transferred, inspected and sorted per hour. As of the June 2012, according to Epson research.

Other and corporate
The company commercialized "WristableGPS" running monitors. These wristwatch-like GPS monitors
collect and store accurate running data that runners can view and use to improve their times and maximum
the benefits of training. These monitors are equipped with an Epson-original, low-power GPS module and
can provide continuous measurement for up to 14 hours on a single charge. Thin, lightweight, breathable,
and easy to use, Epson's running monitors are comfortable and unobtrusive, allowing users to concentrate

on running.

5. Issues for Fiscal 2013

Epson began fiscal 2012 under the SE15 Second-Half Mid-Range Business Plan (FY2012-14), a three-year
income growth plan that upheld the basic direction of the strategies outlined in Epson's SE15 Long-Range
Corporate Vision but was predicated on revenue growth. Despite executing the plan, however, Epson found
itself forced to twice revise its financial forecasts downward in the first half of fiscal 2012, largely because
of a persistently difficult business environment.
Given this situation, Epson reviewed and revised the strategies and financial targets set forth in the SE15
Second-Half Mid-Range Business Plan and, in March 2013, established a new three-year plan, the Updated
SE15 Second-Half Mid-Range Business Plan (FY2013-15). We remain firmly committed to the course
charted in SE15 but the tactics and emphasis will change. Under the updated basic policy we will pursue a
basic strategy of managing our businesses so that they create steady profit while avoiding the singleminded
pursuit of revenue growth. Our top priority will be steady income and cash flow. To achieve this in existing
segments, we will readjust our product mixes and adopt new business models. Meanwhile, we will
aggressively develop markets in new segments. Epson will work steadily during the three years of the
updated plan to lay the foundation for a metamorphosis during which Epson will change from being
primarily a company that provides consumer imaging products into a company that once again posts strong
growth by creating and providing new information solutions and equipment for businesses and
professionals, as well as consumers.
The global economic situation remains as unpredictable as ever. While the economies of the U.S. and Japan
are showing signs of picking up, the pace of economic growth in China and other emerging nations is
slowing. Meanwhile, significant uncertainty remains about the future of the European economy in the face
of financial crises and other problems. Society is changing, shifting increasingly toward sustainable
industry and sustainable economic activity. This trend will likely alter the kind of customer value that
Epson will need to provide.
Under this type of business environment, we will remake Epson into a company that once again posts
strong growth. We will achieve this by focusing our management resources on strategic segments where we
can continue to leverage our unique strengths, by expanding our business segments, and by building
stronger new businesses that will carry the future. Ultimately, we aim to achieve 10% ROS and 10% or
better ROE on a sustained basis as early as possible during the mid-range business plan that starts in fiscal
2016, by which time Epson will have established a stable profit structure.

Management Policies and Basic Strategies in Each Business
The names of the business segments were changed as of April 2013, in conjunction with the establishment
of the updated mid-range business plan.

Printing Systems Business
In the printing systems business we will look to create an innovative printing environment by leveraging
inkjet technology. In inkjet printers we will, over the medium term, improve the model mix, realign the
product mix and business model, and boost competitiveness by launching inkjet units that sport a new print
head. At the same time, we will further enhance service and support, including IT solutions. In the business
systems business, we will achieve steady income growth by uncovering new demand while maintaining a
grip on the top share in existing segments.

Visual Communications Business
In the visual communications business we will create new forms of visual communication using
microdisplay technology. In projectors, we will strengthen Epson's position in existing product domains
and in new product domains, such as high-brightness projectors, by enhancing our ability to provide new
solutions and boosting our sales network. This will lead to the growth of new business domains and
profitability improvements. Head-mounted displays (HMD) have the potential to change the way we live
and work. Going forward, we will open up new applications and generate new value by unlocking the
potential of these products as hands-free information tools.

Microdevices and Precision Products Businesses
In these businesses we will use well-honed technology to continue creating unique products that rivals
cannot replicate. The microdevices business has shored up its profit structure by revamping its product
portfolio and cost structure. Going forward, we will secure steady income in this business by being a leader
in miniaturization and performance and by creating products that provide customer value. The precision
products business, undergirded by unique technology, will strive to improve profitability going forward by
strengthening its lineup of high-added-value products such as solar GPS watches and by growing its small
yet highly profitable metal powder and surface finishing businesses.

Industrial Solutions Business
In the industrial solutions business we will employ advanced mechatronics to create robots and production
systems that dramatically increase productivity. Epson's track record and a reputation for reliability have
made us the market share leader in SCARA robots (precision industrial robots) and 6-axis robots.
Meanwhile, Epson textile printing systems and label presses are steadily gaining traction in the market. We
will develop industrial solutions into a future core growth business by employing advanced mechatronics,
including unique inkjet and intelligent robot technologies, to create industrial robots, production equipment,
and inkjet systems that dramatically increase productivity.

Sensing Systems Business
The sensing systems business will use high-precision sensors to create new value to improve people's lives.
Over the past few years, we had been delving into Epson's storehouse of component and sensing systems
technologies to build new businesses around new sensing products, such as wristwatch-like GPS running
monitors and pulse monitors. Going forward, we will take larger strides in developing products for
applications in sports, healthcare, medicine, and industrial monitoring of facilities and infrastructure. These
products will be integrated with new cloud-based systems. Epson's innovative solutions will drive new
growth by converting raw data about the state of human and infrastructure health, for example, into a
practical and visual format.

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.

Based on the company's financial performance for the 2012 fiscal year as well as on a comprehensive
analysis of the company's financial situation, including mid-term financial performance trends and factors
such as cash flows, the Company paid an annual dividend of 20 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 31, 2012, by resolution
of the board of directors
June 24, 2013, by resolution of
the general shareholders’ meeting

Cash dividends
(Millions of yen)

Cash dividend per share
(Yen)

2,325

1,252

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 had nine
members, including one outside director, as of the date the Annual Securities Report was submitted. It
meets once a month and convenes extraordinary meetings as needed. The board of directors makes
decisions on basic management policies, key business operations, period-end closing, disclosure
timeframes, and other important issues. Various management bodies have been created to advise the board
of directors or president, deliberate issues to facilitate decision-making, and oversee and enhance the
execution of business. Epson's board of statutory auditors consists of five statutory auditors, including three
outside statutory auditors. It strives to ensure greater independence and transparency of audits.
The names of the outside director and outside auditors have been reported to the Tokyo Stock Exchange
(TSE) as they are considered to be independent directors/auditors as defined by the TSE.
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.

Compliance Committee
The Compliance Committee meets to hear and discuss important matters concerning Epson's compliance
programs. It reports its findings and offers opinions to the board of directors.

Nomination Committee/ Compensation Committee
As advisory bodies to the board of directors, the Nomination Committee screens board of director
candidates, and the Compensation Committee deliberates director remuneration issues.

Epson’s system of corporate governance is schematically represented below:

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
Updated SE15 Mid-Range Business Plan (FY2013-15), which is aimed at achieving the goals set forth in
Epson's "SE15" long-range corporate vision.
As it moves forward on the updated 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.
For this reason, the Company employs an agile, practical management organization wherein directors who
understand the situation inside the Company simultaneously oversee multiple key business operations,
while the outside director conducts checks to assure that business decisions make sense.
In addition, Epson employs an independent outside director and independent statutory auditors to ensure a
sound management audit function. The names of the outside director and outside auditors have been
reported to the Tokyo Stock Exchange (TSE) as they are considered to be independent directors/auditors as
defined by the TSE.

Internal control system
The Epson Management Philosophy defines the Company's top-level philosophies, goals, ambitions, and
mores. "Principles of Corporate Behavior," a business code of conduct that is shared across the Epson
Group, was established to realize these. The Company has installed a system of internal controls to ensure
that duties are executed properly and in compliance with laws and the Articles of Incorporation. Moreover,
the Company strives to steadily improve the level of internal control across the entire Epson Group, as
described below.
The board of directors passed a resolution at March 13, 2013 board meeting to select a Chief Compliance
Officer (CCO), establish a Compliance Committee, and create a dedicated compliance department,
effective April 1, 2013, in order to strengthen the compliance risk management function and organization.
The system is detailed below.

Compliance
(1) Epson established "Principles of Corporate Behavior" as a code for putting the Management

Philosophy into practice. The Company also established regulations that spell out things such as basic
compliance requirements and the organizational framework.

(2) The company selected a CCO to head an organization that oversees and monitors the execution of all

compliance operations.

(3) The Company also created a Compliance Committee to serve as an advisory body to the board of

directors. The Compliance Committee is chaired by the CCO and has as members the outside director,
outside statutory auditors, and a director appointed by the board of directors. The Compliance
Committee meets to hear and discuss important matters concerning Epson's compliance program. It
reports its findings and offers opinions to the board of directors.

(4) Compliance promotion and enforcement are supervised by the president of Seiko Epson. The chief
operating officers of Epson's operations divisions promote compliance programs within their
respective businesses and at subsidiaries consolidated under them. Group-wide compliance projects
are carried out by Head Office supervisory departments with the cooperation of departments in the
various operations divisions. A dedicated compliance department helps ensure the coverage and
effectiveness of compliance programs by monitoring compliance across the Epson Group and by
taking corrective action or making adjustments where needed.

(5) The Corporate Strategy Council, an advisory body to the president comprised of Company directors,
addresses important matters with respect to compliance promotion and enforcement. The Council
strives to ensure the effectiveness of compliance by exhaustively discussing and analyzing the state of
programs for assuring observance of statutes, internal regulations, business ethics and initiatives in key
areas.

(6) The Company strives to run an effective whistleblowing system by providing internal and external
routes for reporting compliance concerns. Employees are encouraged and are able to easily and
immediately report compliance violations via a variety of access platforms.

(7) The Company strives to enhance legal consciousness by providing Epson Group employees with

web-based training and other educational opportunities.

(8) The president of Seiko Epson periodically reports important compliance-related matters to the board

of directors and takes measures as needed to respond to issues.

(9) Epson's "Principles of Corporate Behavior" states that the Company will have no association

whatsoever with antisocial forces. The Company takes a firm stance in rejecting any and all contact
with antisocial forces that threaten social order and security.

Business execution system
(1) Epson is instituting a system that will ensure the appropriate and efficient execution of business. To
that end, Epson has established regulations governing organization management, job authorities, the
division of labor, and the management of affiliated companies while distributing power and authority
across the entire Group.

(2) Executive officers are required to report the matters below at least once every three months to the

board of directors.
• Current business performance and performance outlook
• Risk management responses
• Status of key business operations

Risk management
(1) Epson has established regulations that form the basis of its risk management system and has defined

the organization, procedures, and other key elements of this system.

(2) Overall responsibility for risk management resides with the president of Seiko Epson. The chief

operating officers of operations divisions promote risk management within their respective businesses
and at subsidiaries consolidated under them. Group-wide risk management projects are carried out by
Head Office supervisory departments with the cooperation of departments in the various operations
divisions. In addition, a department was set up to supervise risk management. This department strives
to mitigate risk through monitoring and supervision of the overall risk management program.

(3) The Management Strategy Council strives to ensure effective management of serious risks that could
have an egregious affect on society by dynamically and exhaustively discussing and analyzing action
to identify and control risks. Also, 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.

(4) The president periodically reports to the board of directors on critical risk management issues and

formulates appropriate measures to respond to these issues.

Ensuring the appropriateness of operations in the corporate group
(1) The Epson Group's management structure helps ensure that operations in the corporate group,
including subsidiaries, are conducted appropriately. Essentially, the Company is organized into
product-based divisions. Each division is headed by a chief operating officer who owns global
consolidated responsibility for that business. Meanwhile, supervisory functions within the Head Office
own global responsibility. Responsibility for providing the framework for business operations at
subsidiaries is owned by the head of each business. Group-wide corporate functions are the
responsibility of the heads of Head Office supervisory departments.

(2) The Company has business processes that enable business to be controlled on a Group level. This is

accomplished by internal regulations that require subsidiaries to report or acquire pre-approval for
certain business operations from the parent company, Seiko Epson, and by requiring issues that meet
certain criteria to be submitted to Epson's board of directors for resolution.

Safeguarding and management of work-related information
(1) 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.

(2) The Company strives to prevent the leak and loss of Epson Group internal information by managing
confidential information according to the level of sensitivity, in accordance with internal information
security regulations.

Audit system
(1) Statutory auditors have the authority to conduct interviews with directors and other personnel

whenever they deem such interviews necessary based on corporate regulations governing auditors and
audit procedures.

(2) Statutory auditors are also authorized to attend Corporate Strategy Council sessions, corporate

management meetings, and other 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.

(3) Epson has established a Corporate Auditors Office with a full-time staff to assist the statutory auditors

in their duties. The views of statutory auditors are given a great deal of weight in the evaluation and
transfer of personnel assigned to this office.

(4) Statutory auditors strive to improve audit effectiveness by consulting on a regular basis with the

internal audit organization and independent public accountants.

(5) Statutory auditors hold regular meetings with representative directors to directly assess business

operations.

(2) Internal audits
Epson's internal compliance system guards against potential legal and internal regulatory violations in
departmental operations, and the internal audit organization, with a staff of 19, directly reports to the
president the results of routine internal audits, including those conducted at Epson subsidiaries. The audit
organization evaluates the effectiveness of the governance process and requests improvements where
needed.

(3) Outside directors and outside statutory auditors
View on independence
The Epson board of directors has established criteria concerning the independence of outside directors. In
compliance with these criteria, it selects candidates for 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 the independence criteria.
The criteria concerning the independence of outside directors are listed below.

Outside director independence criteria
Epson does not select as candidates for outside director persons to whom any of the following apply:
(1) A person who receives significant business*1 from Epson or a person who has within the last five

years been employed as an executive officer*2 of a company that receives significant business from
Epson

(2) A person who is a major business partner*3 for Epson or a person who has within the last five years
been employed as an executive officer of a company that is a major business partner for Epson
(3) A consultant, an accounting professional such as a certified public accountant, or a legal professional
such as an attorney who, in the last three years, has received from Epson a large sum of money*4 or
other property for reasons other than director remuneration (including any person who has belonged to
or been employed as an executive officer or the like with a company, union or other group that has
received such property in the last three years)

(4) A person who is a major Epson shareholder*5 or a person who, within the last five years, has been an

executive officer or statutory auditor of a company that is a major Epson shareholder

(5) A person who is employed as an executive officer or statutory auditor of a company or other group in

which Epson is a major shareholder

(6) A person who has belonged within the last 10 years to an auditing company that has conducted a

statutory audit of Epson

(7) A person who has belonged to Epson's managing underwriter within the last 10 years
(8) A person who has received a large donation*6 from Epson (a person who belongs to a legal entity,

union or other group that has received a large donation from Epson and has been employed therein as
an executive officer or the equivalent)

(9) A person from a company that employs a former Epson employee as an outside director
(10) The spouse or other immediate family member of a person to whom any of items (1) through (9) apply
35

Notes
*1: A "person who receives significant business from Epson" is a person or supplier who has received

payments amounting to 2% or more of the person or supplier's annual consolidated sales for any fiscal
year in the last three years.

*2: An "executive officer" is an employee in a senior executive management position, including executive,

managing director, operating officer, or general manager or higher position.

*3: A "person who is a major business partner of Epson" is a person or customer who has furnished Epson
with payments amounting to 2% or more of Epson's annual consolidated sales for any fiscal year in
the last three years.

*4: A "large sum of money" is, in the case of an individual, an amount which, on average in any of the last
three years, is equal to ¥10,000,000 or more, or, in the case of a group, equivalent to 2% or more of
the group's total revenue.

*5. "Major shareholder" means a person who owns, either directly or indirectly, 10% or more of the

outstanding voting rights.

*6: A "large donation" is a donation in an amount which, on average in any of the last three years, exceeds

the greater of ¥10,000,000 or 30% of the group's total annual expenses.

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 has not had business transactions with Nippon Telegraph and
Telephone Corporation over the last three years. Although Epson had business transactions with NTT Data
Corporation, which Epson has engaged primarily to build internal information systems, NTT Data
Corporation is not considered a major supplier under Epson's outside director independence criteria.

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 more than 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 Kenji Miyahara was an executive at Sumitomo Corporation. Epson has not had
business transactions with Sumitomo Corporation over the last three years.
Outside statutory auditor Michihiro Nara is an attorney, but the Company has never engaged him or the law
office to which he belongs to perform duties under an advisory agreement or under any other separate
agreement, nor does it plan to do so in the future.
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 participate in the
Compliance Committee, which supervises compliance programs, 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

Directors
(including total for outside
directors)
Statutory auditors
(including total for outside
statutory auditors)

Total

Total remuneration
(millions of yen)

Remuneration breakdown
(millions of yen)

Basic salary

Bonuses

Number of
individuals

399
(15)

122
(60)

521

399
(15)

122
(60)

521

-
(-)

13
(1)

6
(3)

Notes
1. The numbers above include three directors and one statutory auditor who retired at the closing of the

general shareholders’ meeting on June 20, 2012.

2. Remuneration paid to directors does not include remuneration paid to personnel who hold the position

of director as an additional post.

3. Epson introduced a stock performance (stock-based) component to the remuneration system to link
remuneration more closely to share price, so Epson stock accounts for a portion of basic salary.
4. A resolution of the general shareholders’ meeting held on June 26, 2001, established the maximum
amount of remuneration at ¥70 million per month for directors and at ¥12 million per month for
statutory auditors.

5. A director and an outside statutory auditor, both of whom retired at the closing of the general

shareholders’ meeting held on June 24, 2013, will be paid a total of ¥80 million based on the resolution
of the general shareholders’ meeting held on June 23, 2006, on the payment of discontinued benefits for
retiring directors.

6. There is not system of bonuses for statutory auditors.
7. Stock options are not granted.

(5) Stock holdings
Balance sheet total of stocks held for reasons other than pure investment
26 companies

¥9,295 million

Issuing company, number, and balance sheet total of stocks held for reasons other than pure investment

Previous fiscal year

Company

Shares (stock)

NGK Insulators, Ltd.

3,757,000

Mizuho Financial Group, Inc.

15,008,880

Seiko Holdings Corporation

1,644,080

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

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

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

190,000

221,980

332,640

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

Balance sheet total
(millions of yen)

Reason held

3,805 Maintain and

strengthen
business ties
2,986 Maintain and

strengthen
business ties
692 Maintain and

strengthen
business ties
278 Maintain and

strengthen
business ties
193 Maintain and

strengthen
business ties
171 Maintain and

strengthen
business ties
155 Maintain and

strengthen
business ties
143 Maintain and

strengthen
business ties

Otuska Corporation

Joshin Denki Co., Ltd.

Pixelworks, Inc.

Stocks held for pure investment
None

10,000

70,000

100,000

102 Maintain and

strengthen
business ties
62 Maintain and
strengthen
business ties

20 Maintain and
strengthen
business ties

(6) Accounting audits
(a) Names and other details of corporate public accountants performing audits

Name of CPA

Audit company

No. of successive years
performing audits
4

Takashi Ide

Ernst & Young
ShinNihon LLC

Designated and
Engagement Partner,
Certified Public
Accountant
Designated and
Engagement Partner,
Certified Public
Accountant
Notes: Mr. Taisuke Ide, who was the Designated and Engagement Partner, Certificated Public Accountant,

Ernst & Young
ShinNihon LLC

Takahiro
Yamazaki

conducted the audit from the first to second quarter, FY2012.

(b) Composition of auditing team
The auditing team comprises 30 staff including 12 certified public accountants, three junior accountants,
and 15 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.

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

145

94
240

-
66

145

69
215

12
78

(2) Other important remuneration
Previous fiscal year
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.

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,
2013, amounted to ¥407 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.

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

Epson has executed a variety of actions designed to achieve the vision set forth in "SE15," a strategic
corporate vision established in March 2009 that describes what the Company wants to be like in the
2015 fiscal year. In the 2012 fiscal year, facing a business environment that was even harsher than
predicted, the Company decided to re-examine and adjust some of the strategies and financial targets in
the original plan. The result is the Updated SE15 Second-Half Mid-Range Business Plan (FY2013-15),
a three-year plan established in March 2013.
Under this plan the Company will readjust its product mixes and adopt new business models in existing
segments and aggressively develop markets in new business segments. Epson will move steadily
forward to transform itself from being primarily a provider of consumer imaging products into a
company that once again posts strong growth by creating and providing new information solutions and
equipment for businesses and professionals, as well as consumers.

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 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.

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

Kenji Kubota

President

(Representative
Director)

Senior Managing

Director
(Representative
Director)

Seiichi Hirano

Managing Director

Noriyuki Hama

Managing Director

Masataka Kamiyanagi

Managing Director

Yoneharu Fukushima

Director

Koichi Kubota

Director

Shigeki Inoue

Director

Toshiharu Aoki
Toru Oguchi

Torao Yajima

Yoshiro Yamamoto

Kenji Miyahara

Michihiro Nara

Hiroshi Komatsu

Outside Director
Standing Statutory

Auditor

Standing Statutory

Auditor

Outside Statutory

Auditor

Outside Statutory

Auditor

Outside Statutory

Auditor
Managing

Executive Officer

General Administrative
Manager, Management
Control Division, and
General Administrative
Manager, Compliance
Office
President, Epson Sales
Japan Corporation
General Administrative
Manager, Human
Resources Division
General Administrative
Manager, Intellectual
Property Division
General Administrative
Manager, Corporate
Research & Development
Division
Chief Operating Officer,
Printer Operations
Division
General Administrative
Manager, Business
Infrastructure
Development Division

Deputy General
Administrative Manager,
Business Infrastructure
Development Division

John Lang

Tadaaki Hagata

Akihiko Sakai

Kiyofumi Koike

Managing

Executive Officer

Managing

Executive Officer
Executive Officer

Executive Officer

Ryuhei Miyagawa

Executive Officer

Koichi Endo

Hiromi Taba

Executive Officer

Motonori Okumura

Executive Officer

Takashi Oguchi

Executive Officer

Yasukazu Kitamatsu

Executive Officer

Hideki Shimada

Executive Officer

Masayuki Kitamura

Executive Officer

Akihiro Fukaishi

Executive Officer

President and Chief
Executive Officer, Epson
America, Inc.
Vice President, Epson
America, Inc.
President, Tohoku Epson
Corporation
Chairman and President,
Epson (China) Co., Ltd.
Deputy General
Administrative Manager,
Business Infrastructure
Development Division, and
General Manager, Safety
Promotion Department
Managing Director, Epson
Singapore Pte. Ltd
President, Epson Europe
B.V.
General Administrative
Manager, Imaging
Products Key Component
Research & Engineering
Division
President, P.T. Indonesia
Epson Industry
Chief Operating Officer,
Commercial Printer
Operations Division
Deputy Chief Operating
Officer, Printer Operations
Division
Chief Operating Officer,
Microdevices Operations
Division
Chief Operating Officer,
Business Systems
Operations Division

Index to Consolidated Financial Statements
Seiko Epson Corporation and Subsidiaries

Consolidated Balance Sheets………………………………………..
Consolidated Statements of Operations……………………………
Consolidated Statements of Comprehensive Income……………
Consolidated Statements of Changes in Net Assets…………….…
Consolidated Statements of Cash Flows………………………….…
Notes to Consolidated Financial Statements ……………………….

47
49
50
51
53
54

Consolidated Balance Sheets
As of March 31, 2012 and 2013

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,
2012

March 31,
2013

Thousands of U.S.
dollars
March 31,
2013

¥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

3,776

9,068

(68)
25,426

253,579

¥106,678

132,289

70,012

95,853

45,677

21,998

14,765

33,582
(1,399)

519,457

395,133

420,835

162,368

51,878

4,451

120
(817,398)

217,388

887

12,481
13,368

13,440

5,307

9,594

(47)
28,332

259,089

¥740,769

¥778,547

$1,134,269

1,406,581

744,412

1,019,170

485,667

233,896

156,990

357,101

(14,875)

5,523,211

4,201,307

4,474,587

1,726,400

551,600

47,325

1,300

(8,691,100)

2,311,419

9,431

132,706

142,137

142,902

404

56,427

102,010

(499)

301,244

2,754,800

$8,278,011

The accompanying notes are an integral part of these financial statements.

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

Provion 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, 2013 - 20,925,261 shares

March 31, 2012 - 20,924,404 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,
2012

March 31,
2013

Thousands of U.S.
dollars
March 31,
2013

¥77,427

30,812

40,000

30,500

56,695

7,631

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

¥57,249

53,626

－

75,000

51,782

7,338

13,035

7,624

61,030

326,688

90,000

52,500

10,786

29,304

2,159

652

577

7,072

193,052

519,740

53,204

84,321

179,305

(20,453)

296,376

2,621

(1,911)

(40,342)

(39,631)

2,061

258,806

¥740,769

¥778,547

$608,708

570,186

－

797,448

550,579

78,022

138,596

81,063

648,956

3,473,568

956,937

558,213

114,683

311,578

22,955

6,932

6,135

75,219

2,052,652

5,526,220

565,699

896,555

1,906,485

(217,480)

3,151,259

27,868

(20,318)

(428,931)

(421,381)

21,913

2,751,791

$8,278,011

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Operations
For the years ended March 31, 2012 and 2013

Millions of yen

Thousands of U.S.
dollars

March 31,
2012

March 31,
2013

Net sales
Cost of sales

Gross profit

Selling, general and administrative expenses

Operating income

Non-operating income:
Interest income
Rent income
Foreign exchange gains
Other
Total non-operating income

Non-operating expenses:
Interest expenses
Foreign exchange losses
Other
Total non-operating expenses

Ordinary income

Extraordinary income:
Insurance income

Gain on revision of retirement benefit plan
Other
Total extraordinary income

Extraordinary loss:
Impairment loss
Loss on litigation
Loss on transfer of subsidiary's equity
Other
Total extraordinary losses

Income (loss) before income taxes and
minority interests

Income taxes-current
Income taxes-deferred

Total income taxes

Income (loss) before minority interests

Minority interests in income

Net income (loss)

¥877,997
629,151
248,846
224,219
24,626

1,110
1,549
1,396
4,661
8,718

3,573
－
2,748
6,322
27,022

1,252

364
1,025
2,643

586
6,052
2,024
5,380
14,043

15,622

10,622
(218)
10,404
5,217
185
¥5,032

¥851,297
616,857
234,439
213,184
21,255

805
1,200
－
2,321
4,327

3,041
2,944
1,967
7,953
17,629

4,463

－
220
4,684

4,605
16,268
－
4,919
25,792

(3,479)

7,964
(1,521)
6,443
(9,922)
168
(¥10,091)

$9,051,536
6,558,830
2,492,706
2,266,710
225,996

8,559
12,759
－
24,689
46,007

32,333
31,302
20,926
84,561
187,442

47,453

－
2,350
49,803

48,963
172,971
－
52,301
274,235

(36,990)

84,679
(16,172)
68,507
(105,497)
1,796
($107,293)

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Comprehensive Income

For the years ended March 31, 2012 and 2013

Income (loss) before minority interests
Other comprehensive income

Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Share of other comprehensive income of associates 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

Millions of yen

March 31,
2012

March 31,
2013

Thousands of U.S.
dollars
March 31,
2013

¥5,217

(¥9,922)

($105,497)

(719)
(440)
(1,649)

(2,807)
¥2,409

¥2,181
¥228

777
(897)
25,353

102

25,335
¥15,413

¥14,954
¥458

8,261
(9,537)
269,569

1,084

269,377
$163,880

$159,011
$4,869

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2012 and 2013

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 (loss)
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 (loss)
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,
2012

March 31,
2013

Thousands of U.S.
dollars
March 31,
2013

¥53,204

$565,699

－
53,204

84,321

－
84,321

193,602

(4,586)
5,032
445
194,047

(38)

(20,415)
(20,415)
(20,453)

331,088

(4,586)
5,032
(20,415)
(19,969)
311,119

2,558

(719)
(719)
1,838

(572)

(440)
(440)
(1,013)

(63,812)

(1,690)
(1,690)
(65,502)

－
53,204

84,321

－
84,321

－
565,699

896,555

－
896,555

194,047

2,063,230

(4,651)
(10,091)
(14,742)
179,305

(20,453)

(0)
(0)
(20,453)

(49,452)
(107,293)
(156,745)
1,906,485

(217,480)

(0)
(0)
(217,480)

311,119

3,308,004

(4,651)
(10,091)
(0)
(14,742)
296,376

1,838

783
783
2,621

(1,013)

(897)
(897)
(1,911)

(49,452)
(107,293)
(0)
(156,745)
3,151,259

19,543

8,325
8,325
27,868

(10,781)

(9,537)
(9,537)
(20,318)

(65,502)

(696,448)

25,160
25,160
(40,342)

267,517
267,517
(428,931)

The accompanying notes are an integral part of these financial statements.

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 (loss)
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,
2012

March 31,
2013

Thousands of U.S.
dollars
March 31,
2013

(61,826)

(2,850)
(2,850)
(64,676)

1,545

152
152
1,697

270,808

(4,586)
5,032
(20,415)
(2,698)
(22,667)
¥248,140

(64,676)

(687,686)

25,045
25,045
(39,631)

1,697

363
363
2,061

266,305
266,305
(421,381)

18,054

3,859
3,859
21,913

248,140

2,638,372

(4,651)
(10,091)
(0)
25,409
10,666
¥258,806

(49,452)
(107,293)
(0)
270,164
113,419
$2,751,791

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Cash Flows
For the years ended March 31, 2012 and 2013

Millions of yen

Thousands of U.S.
dollars

March 31,
2012

March 31,
2013

Net cash provided by (used in) operating activities

Income (loss) before income taxes and minority interests
Depreciation and amortization
Impairment loss
Equity in (earnings) losses of affiliates
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for retirement benefits
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on sales of noncurrent assets
Loss on retirement of noncurrent assets
Loss (gain) on sales of investment securities
Insurance income
Loss on litigation
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
Proceeds from insurance income
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
Cash and cash equivalents at end of period

¥15,622
37,651
586
(85)
873
(425)
(8,224)
(199)
3,374
(1,373)
3,573
(2,250)
(872)
760
(150)
(1,252)
6,052
2,024
(995)
(20,360)
2,005
4,822
5,884
47,042
2,292
(3,709)
1,252
(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
¥150,029

(¥3,479)
39,320
4,605
(132)
871
(265)
4,411
(715)
5,136
(1,018)
3,041
(4,570)
13
936
(5)
(4,463)
16,268
－
6,862
18,588
577
(17,169)
(4,230)
64,583
1,833
(3,099)
4,463
(14,095)
－
(10,692)
42,992

(0)
6
(39,816)
1,105
(4,030)
－

－

3,147
75
(39,511)

16,962
50,000
(30,500)
30,000
(40,000)
(417)
(0)
(4,651)
(94)
21,298
9,830
34,609
150,029
¥184,639

($36,990)
418,075
48,963
(1,403)
9,261
(2,817)
46,900
(7,602)
54,609
(10,824)
32,333
(48,591)
138
9,952
(53)
(47,453)
172,971
－
72,961
197,639
6,135
(182,551)
(44,966)
686,687
19,489
(32,950)
47,453
(149,867)
－
(113,694)
457,118

(0)
63
(423,349)
11,749
(42,849)
－

－

33,460
820
(420,106)

180,350
531,632
(324,295)
318,979
(425,305)
(4,433)
(0)
(49,452)
(1,022)
226,454
104,530
367,996
1,595,204
$1,963,200

The accompanying notes are an integral part of these financial statements.

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, 2013, the Company had 88 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.

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.

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.

In line with the fiscal year 2012 Japanese tax reforms, effective April 1, 2012, the Company and its

Japanese subsidiaries adopted the 200% declining-balance method for depreciation of property, plant and

equipment (excluding buildings) acquired on or after April 1, 2012. The adoption of the new method did

not have a material effect on Epson’s results of operations and financial position for the year ended March

31, 2013.

(7)

Intangible assets

Amortization of intangible assets is computed using the straight-line method. Amortization of software for

internal use is computed using the straight-line method over its estimated useful life, ranging from three to

five years.

(8)

Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that

the carrying amount of an asset may not be recoverable. This review is performed using estimates of future

cash flows. If the carrying value of a long-lived asset is considered to be impaired, an impairment charge is

recorded for the excess of the carrying value of the long-lived asset over its recoverable amount.

(9) Provision for bonuses

Provision for bonuses to employees is calculated on the basis of the estimated amounts that Epson is

obligated to pay its employees after the fiscal year-end for services provided up to the balance sheet dates.

Provision for bonuses to directors and statutory auditors are provided for the estimated amounts that the

Company is obligated to pay to directors and statutory auditors subject to the resolution of the general

shareholders’ meeting held subsequent to the fiscal year-end.

(10) Provision for product warranties

Epson provides an accrual for estimated future warranty costs based on the historical relationship of

warranty costs to net sales. Specific warranty provisions are made for those products where warranty

expenses can be specifically estimated.

(11) Provision for loss on litigation

Provision for loss on litigation is mainly provided for the estimated future compensation payment and

litigation expenses.

(12) Income taxes

The provision for income taxes is computed based on income before income taxes and minority interest in

the consolidated statements of income. The asset and liability approach is used to recognize deferred tax

assets and liabilities for the expected future tax consequences of temporary differences between the

carrying amounts and the tax basis of assets and liabilities.

The Company applies the consolidated tax return system for the calculation of income taxes. Under the

consolidated tax return system, the Company consolidates all wholly-owned domestic subsidiaries based on

Japanese tax regulations.

(13) Provision for retirement benefits

The Company and some of its Japanese subsidiaries recognize provision for retirement benefits to

employees based on the actuarial valuation of projected benefit obligation and the fair value of plan assets.

Other Japanese subsidiaries recognize provision for retirement benefits to employees based on the

voluntary retirement benefit payable at the year-end.

Pension benefits are determined based on years of service, basic rates of pay and conditions under which

the termination occurs, and are payable at the option of the retiring employee either in a lump-sum amount

or as an annuity. Contributions to the plans are funded through several financial institutions in accordance

with the applicable laws and regulations.

Unrecognized prior service costs are amortized based on the straight-line method over a period of five

years beginning at the date of adoption of the plan amendment. Unrecognized actuarial gains and losses are

amortized based on the straight-line method over a period of five years starting from the beginning of the

subsequent year.

Most of the Company’s foreign subsidiaries have various retirement plans, which are primarily defined

contribution plans.

(14) Provision for recycling costs

At the time of sale, provision for recycling costs is calculated based on the estimated future returns of

consumer personal computers.

(15) Revenue recognition

Revenue from sale of goods is recognized at the time when goods are shipped. Revenue from services is

recognized when services are rendered and accepted by customers.

(16) Research and development costs

Research and development costs are charged as incurred.

(17) Leases

Epson leases certain office space, machinery and equipment and computer equipment from third parties

using capital leases. Most of the capital leases are other than those under which ownership of the assets will

be transferred to the lessee at the end of the lease term, and are depreciated/amortized in accordance with

the straight-line method over the periods of the leases, assuming no residual value.

(18) Net income per share

Net income per share is computed based on the weighted-average number of common shares outstanding

during each fiscal period.

(19) Dividends

Dividends are charged to retained earnings in the fiscal year in which they are paid after approval by

shareholders. In addition to year-end dividends, the board of directors may declare interim cash dividends

by resolution to the registered shareholders as of September 30 of each year.

4. Accounting Standards Issued but Not Yet Effective

Accounting standard for retirement benefits

On May 17, 2012, the ASBJ issued “Accounting Standard for Retirement Benefits” (ASBJ Statement No.

26) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25), which

replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting

Council in 1998 with an effective date of April 1, 2000 and the other related practical guidance, being

followed by partial amendments from time to time through 2009.

Under the revised accounting standard, actuarial gains and losses and unrecognized prior service costs that

are yet to be recognized in profit or loss shall be recognized within net assets (accumulated other

comprehensive income), after adjusting for tax effects, and the deficit or surplus shall be recognized as a

liability (liability for retirement benefits) or asset (asset for retirement benefits). The retirement benefit

obligation can be attributed to each period either by the benefit formula basis or by the straight-line method

and the calculation method for the discount rate shall be changed.

Epson expects to apply the revised accounting standard from the fiscal year ended March 31, 2014 and

apply the revised calculation method for the projected benefit obligation and service cost from beginning of

the fiscal year ended March 31, 2015. As of March 31, 2013, the Company is in the process of measuring

the effects of applying the revised accounting standard on financial statements.

5. U.S. dollar amounts

U.S. dollar amounts presented in the accompanying consolidated financial statements and in these notes are

included solely for the convenience of readers. These translations should not be construed as

representations that 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

¥94.05 = U.S.$1, the exchange rate prevailing as of March 31, 2013, has been used.

6. Business transfer

The business transfer

As of November 16, 2012, the Company concluded an agreement with Hoya Corporation ("Hoya") about

the transfer of the optical products business of the Company and related subsidiaries to Hoya group. As a

result of this agreement, on February 1, 2013, the Company and related subsidiaries transferred their optical

products business to Hoya Group.

According to the terms of the deal, the two groups' related businesses will be merged and leveraged

worldwide.

Outline of business transfer

Transferred to

Business activities

Date of transfer

Hoya group

Development, manufacture and sales of eyeglass lenses

February 1, 2013

Loss on transfer of business

¥1,790 million ($19,032 thousand)

Transferred carrying amounts of assets and liabilities as of January 31, 2013, were as follows:

Current assets

Noncurrent assets

Total

Current liabilities

Noncurrent liabilities

Total

Millions of yen

¥1,224

3,317

¥4,541

Thousands of

U.S. dollars

$13,014

35,268

$48,282

Accounting treatment

Investments in the transferred optical products business of the Company and related subsidiaries are deemed

as liquidated, and the difference between the market value of proceeds received and the amount of

shareholders' equity corresponding to the transferred business is recognized as the loss on transfer.

Name of the reporting segment in which the business was included

Devices & precision products segment

Outline of the business

(a) Net sales

¥8,233 million ($87,538 thousand)

(year ended March 31, 2013)

(b) Operating income

¥173 million ($1,839 thousand)

(year ended March 31, 2013)

Inventories

Losses recognized and charged to cost of sales as a result of valuations as of March 31, 2012 and 2013,

were ¥31,031 million and ¥31,594 million ($335,927 thousand), respectively.

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, 2012 and

2013, comprised the following:

Held-to-maturity debt securities

Millions of yen
March 31

2012

2013

Thousands of
U.S. dollars
March 31,
2013

National government bonds

Total

¥100
¥100

¥104
¥104

$1,105
$1,105

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,

2012 and 2013, were as follows:

Other securities

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

Millions of yen
March 31, 2013
Gross unrealized

Cost

Gains

Losses

Market value
(carrying value)

Equity securities
Certificate of deposit

¥6,189
70,000

¥2,883
-

Total

¥76,189

¥2,883

(¥12)
(-)

(¥12)

¥9,059
70,000

¥79,059

Thousands of U.S. dollars
March 31, 2013
Gross unrealized

Cost

Gains

Losses

Market value
(carrying value)

Equity securities
Certificate of deposit

$65,806
744,284

$30,643
-

Total

$810,090

$30,643

($127)
(-)

($127)

$96,322
744,284

$840,606

For the years ended March 31, 2012 and 2013, the total amount of other-than-temporary impairments

charged to current income for securities with market value is not disclosed herein since it is insignificant to

the consolidated results. Impairments are principally recorded in cases where the fair value of other

securities with determinable market value has declined in excess of 30% of cost. Those securities are

written down to the fair value, and the resulting losses are included in current income for the period.

The total sales of other securities, and the related gains for the year ended March 31, 2012, were ¥162

million and ¥41 million, respectively. The total sales of other securities, and the related gains for the year

ended March 31, 2013, were ¥7 million ($74 thousand) and ¥5 million ($53 thousand), respectively.

Unlisted securities, which were carried at costs of ¥1,136 million and ¥897 million ($9,537 thousand) at

March 31, 2012 and 2013, 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 as of March 31, 2012 and 2013, were ¥2,996 million and ¥3,390 million

($36,044 thousand), respectively.

9. Short-term and long-term loans payable

Short-term loans payable and long-term loans payable at March 31, 2012 and 2013, comprised the

following:

Millions of yen
March 31

2012

Amount

2013
Average
interest
rate

¥30,812
30,500
407

¥53,626
75,000
374

0.77%
1.51
-

77,500

52,500

636
20,000
20,000
20,000
20,000
20,000
-
-

301
-
-
20,000
20,000
20,000
20,000
10,000

0.79

-
-
-
0.58
0.49
0.72
0.55
0.67

Thousands
of
U.S. dollars
March 31,
2013

Last due Amount

-
-
-

2017

2017
-
-
2015
2014
2016
2015
2017

$570,186
797,448
3,976

558,213

3,213
-
-
212,652
212,652
212,652
212,652
106,329

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
Unsecured bonds issued by the Company

Total

¥239,855

¥271,802

$2,889,973

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, 2013.

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 and 2013, were as follows:

Year ending March 31

2012

Millions of yen

Year ended March 31

¥30,500
75,000
2,000
500
-

2013

-
¥75,000
2,000
500
50,000

Thousands of
U.S. dollars
Year ended
March 31,
2013

-
$797,448
21,265
5,316
531,632

¥108,000

¥127,500

$1,355,661

2013
2014
2015
2017
2018

Total

The maturities of lease obligations outstanding as of March 31, 2012 and 2013, were as follows:

Millions of yen

Year ended March 31

Year ending March 31

2012

2013

2013
2014
2015
2016
2017
2018

Total

¥407
366
213
37
16
2

¥1,043

-
¥374
223
47
24
5

¥675

Thousands of
U.S. dollars
Year ended
March 31,
2013

-
$3,976
2,406
499
255
53

$7,189

The maturities of bonds outstanding as of March 31, 2012 and 2013, were as follows:

Millions of yen

Year ended March 31

¥40,000
20,000
20,000
20,000
-

2013

-
¥20,000
40,000
20,000
10,000

Thousands of
U.S. dollars
Year ended
March 31,
2013

-
$212,652
425,304
212,652
106,329

¥100,000

¥90,000

$956,937

Year ending March 31

2012

2013
2015
2016
2017
2018

Total

10. Goodwill

Epson had goodwill and negative goodwill as of March 31, 2012 and 2013. 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, 2012 and 2013, were as follows:

Millions of yen
March 31

2012

¥1,832
74

2013

¥912
25

Thousands of
U.S. dollars
March 31,
2013

$9,696
265

Goodwill
Negative goodwill

11. 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, 2012 and 2013, were as follows:

Thousands of

Millions of yen

U.S. dollars

March 31

March 31,

2012

2013

Projected benefit obligations

¥238,316

¥276,540

$2,940,350

Plan assets at fair value

Unfunded status

Unrecognized items:

201,870

217,702

2,314,747

36,446

58,837

625,603

Actuarial gains (losses)

(14,554)

(31,087)

(330,558)

Prior service cost reduction from plan amendment

286

215

Provision for retirement benefits - net

Prepaid pension cost

22,178

27,964

1,229

1,339

2,286

297,331

14,247

Provision for retirement benefits

¥23,407

¥29,304

$311,578

The composition of net pension and severance costs for the years ended March 31, 2012 and 2013, was as

follows:

Thousands of

Millions of yen

U.S. dollars

Year ended

Year ended March 31

March 31,

2012

2013

¥7,486

¥7,166

6,146

6,332

(6,473)

(5,293)

8,085

147

8,867

（71）

15,391

17,001

4,153

4,151

$76,193

67,325

(56,278)

94,279

（754）

180,765

44,136

¥19,544

¥21,152

$224,901

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

The assumptions used for the actuarial computation of the retirement benefit obligations for the years ended

March 31, 2012 and 2013, were primarily as follows:

Discount rate

Long-term rate of return on plan assets

Year ended March 31

2012

2013

2.5%

3.2

1.7%

2.5

12. Net assets

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, 2012 and 2013:

Cash dividends per share

Cash dividends

Yen

Year ended March 31

2012

2013

¥10.00
¥13.00

¥23.00

¥13.00
¥13.00

¥26.00

U.S. dollars
Year ended
March 31,
2013

$0.13
$0.13

$0.26

Year-end
Interim

Total

Millions of yen

Year ended March 31

2012

2013

¥1,997
¥2,588

¥4,586

¥2,325
¥2,325

¥4,651

Thousands of
U.S. dollars
Year ended
March 31,
2013

$24,720
$24,720

$49,452

The effective dates of the distribution for year-end and interim cash dividends, which were paid during the

year ended March 31, 2012, were June 21, 2011, and December 2, 2011, respectively. The effective dates of

the distribution for year-end and interim cash dividends, which were paid during the year ended March 31,

2013, were June 21, 2012, and December 7, 2012, respectively.

The proposed cash dividends of retained earnings of the Company for the year ended March 31, 2013,

approved at the general shareholders’ meeting, which was held on June 24, 2013, were as follows:

Cash dividends per share

Cash dividends

Yen

¥7.00

U.S. dollars
$0.07

Millions of yen

Th
U.

ousands of
S. dollars

¥1,252

$13,312

The effective date of the distribution was June 25, 2013.

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

13. Net income (loss) per share

Calculation of net income (loss) per share for the years ended March 31, 2012 and 2013, is as follows:

Millions of yen

Year ended March 31

Thousands of

U.S. dollars

Year ended

March 31,

2012

2013

Net income (loss) attributable to common shares

¥5,032

(¥10,091)

($107,293)

Weighted-average number of common shares outstanding

191,885

178,893

Thousands of shares

Net income (loss) per share

Yen

U.S. dollars

¥26.22

(¥56.41)

($0.59)

Epson had no dilutive potential common shares, such as convertible debt or warrants, outstanding during

the year ended March 31, 2012. Diluted net income per share is not calculated herein since a net loss was

incurred and Epson had no dilutive potential common shares outstanding during the year ended March 31,

2013.

14. 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 the year ended March 31, 2012 and 37.8 % for the year ended March 31, 2013.

The significant components of deferred tax assets and liabilities as of March 31, 2012 and 2013, were as

follows:

Deferred tax assets:

Net operating tax loss carry-forwards
Inter-company profits on inventories and write downs
Property, plant and equipment and intangible assets
(Impairment loss and excess of depreciation)

Provision for retirement benefits
Provision for bonuses
Devaluation of investment securities
One-time depreciation for assets
Provision for product warranties
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

2012

2013

Thousands of
U.S. dollars
March 31,
2013

¥78,788
16,060

¥90,826
18,925

$965,720
201,222

16,138

14,811

157,480

7,434
2,515
2,512
2,055
2,099
13,375
140,981
(121,063)
19,918

8,981
3,963
2,512
2,315
2,229
14,386
158,953
(135,886)
23,067

(7,728)
(2,277)
(213)
(73)
(1,944)
(12,236)
¥7,681

(11,203)
(1,236)
(341)
-
(1,001)
(13,782)
¥9,284

95,491
42,137
26,709
24,614
23,700
153,017
1,690,090
(1,444,827)
245,263

(119,117)
(13,141)
(3,625)
-
(10,656)
(146,539)
$98,724

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.

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:

Changes in valuation allowance
Tax rate differences in overseas subsidiaries
Entertainment expenses, etc. permanently non-tax deductible
Other

Income tax rate per statements of income

15. Selling, general and administrative expenses

Year ended March 31
2013
2012

40.4%

37.8%

48.7
(24.9)
16.1
(13.7)

(304.2)
60.7
52.2
(31.6)

66.6%

(185.2%)

The significant components of selling, general and administrative expenses for the years ended March 31,

2012 and 2013, were as follows:

Millions of yen

Year ended March 31

Thousands of

U.S. dollars

Year ended

March 31,

2012

2013

Salaries and wages

¥71,691

¥74,046

$787,304

Advertising

Sales promotion

Shipping costs

Research and development costs

Allowance for doubtful accounts

Other

Total

16,559

20,714

18,809

21,526

143

74,774

14,956

18,128

12,647

18,992

(5)

74,420

159,021

192,748

134,471

201,935

(53)

791,284

¥224,219

¥213,184

$2,266,710

16. Research and development costs

Research and development costs, which are included in the cost of sales and selling, general and

administrative expenses, totaled ¥52,106 million and ¥49,923 million ($530,813 thousand) for the years

ended March 31, 2012 and 2013, respectively.

17. Loss on litigation

Loss on litigation for the year ended March 31, 2012 and 2013, comprised the settlement of the lawsuits

concerning the allegations of a LCD price-fixing cartel.

18. Impairment losses

Epson’s business assets are generally grouped by business segment under the Company’s management

accounting system, and their cash flows are continuously monitored. Assets planned to be sold and idle

assets are separately assessed for impairment on the individual asset level. Impairment tests were

performed for both types of assets. The net book value of a business asset was reduced to its recoverable

amount when there was substantial deterioration in the asset’s future earning potential due to adverse

changes in the marketplace resulting in lower product prices or due to change in utilization plan. The

carrying value of assets planned to be sold and idle assets is reduced to its recoverable amount when their

net selling prices are substantially lower than their carrying values.

For the year ended March 31, 2013, Epson incurred impairment losses on its idle assets. The carrying value

of these assets was reduced to its recoverable amount. A reduction in value of ¥4,605 million ($48,963

thousand) was recognized in impairment losses account. The reduction mainly comprised ¥1,165 million

($12,387 thousand) for buildings and structures, and ¥2,821 million ($29,994 thousand) for land. The

recoverable amounts are determined using their net selling prices, which were assessed on the basis of

reasonable estimates.

19. Leases

As of March 31, 2013, 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, 2012 and 2013, were as

follows:

Future lease payments

2012

2013

Millions of yen
March 31

Thousands of
U.S. dollars
March 31,
2013

Due within one year
Due after one year

¥2,135
6,990

¥2,307
7,575

$24,529
80,553

Total

¥9,126

¥9,883

$105,082

20. Cash flow information

Cash and cash equivalents as of March 31, 2012 and 2013 were as follows:

Cash and deposits

Short-term investment securities

Short-term loans receivables

Less:

Short-term loans payable (overdrafts)

Time deposits due over three months

Short-term investment securities due over

three months

Cash and cash equivalents

Millions of yen

March 31

Thousands of

U.S. dollars

March 31,

2012

2013

¥123,093

¥106,678

$1,134,269

19,010

8,000

70,012

8,000

744,412

85,060

(9)

(54)

(10)

－

(39)

(12)

－

(414)

(127)

¥150,029

¥184,639

$1,963,200

The Company obtained marketable securities, the fair value of which was ¥7,999 million and ¥7,997

million ($85,029 thousand) as of March 31, 2012 and 2013, respectively, as deposit for the short-term loans

receivables above.

Detail of decreased assets and liabilities due to the transfer of business.

Detail of assets and liabilities as of transferring date and proceeds from the transfer of optical products

business were as follows:

Current assets

Noncurrent assets

Loss on transfer of business

Total

Unpaid amount of transfer of business

Proceeds from transfer of business

Thousands of

Millions of yen

U.S. dollars

¥1,224

3,317

(1,739)

2,802

345

¥3,147

$13,014

35,268

(18,490)

29,792

3,668

$33,460

¥51 million ($542 thousand) is the variance of “loss on transfer of business” with the Note of Business

transfer, is due to the influence of the exchange rate.

21. Derivative instruments

The table below lists notional amounts and fair value of derivatives as of March 31, 2012 and 2013, by

transaction and type of instrument, excluding derivatives qualifying for hedge accounting.

Currency-related transactions

Instruments

Forward exchange contracts:

Sell -

U.S. dollar (buy Japanese yen)
Euro (buy Japanese yen)
Sterling pound (buy Japanese yen)
Australian dollar (buy Japanese yen)
Euro (buy Singapore dollar)

Buy -

U.S. dollar (sell Japanese yen)
Euro (sell Japanese yen)
Indonesia rupiah (sell U.S. dollar)

Total

Instruments

Forward exchange contracts:

Sell -

U.S. dollar (buy Japanese yen)
Euro (buy Japanese yen)
Australian dollar (buy Japanese yen)
Euro (buy Singapore dollar)
Australian dollar (buy Singapore dollar)

Buy -

U.S. dollar (sell Japanese yen)
Euro (sell Japanese yen)
Indonesia rupiah (sell U.S. dollar)

Total

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)

Millions of yen
March 31, 2013

Notional
amounts

Fair value

Unrealized
gains
(losses)

¥13,453
15,745
1,267
48
4

8
6
2,551
¥33,086

(¥875)
(2,272)
(128)
0
(0)

（0）
（0）
（16）
(¥3,292)

(¥875)
(2,272)
(128)
0
(0)

（0）
（0）
（16）
(¥3,292)

Instruments

Forward exchange contracts:

Sell -

U.S. dollar (buy Japanese yen)
Euro (buy Japanese yen)
Australian dollar (buy Japanese yen)
Euro (buy Singapore dollar)
Australian dollar (buy Singapore dollar)

Buy -

U.S. dollar (sell Japanese yen)
Euro (sell Japanese yen)
Indonesia rupiah (sell U.S. dollar)

Total

Thousands of U.S. dollars
March 31, 2013

Notional
amounts

Fair value

Unrealized
gains
(losses)

$143,040
167,457
13,471
510
42

85
63
27,123
$351,791

($9,303)
(24,191)
（1,360)

0
(0)

(0)
(0)
（170）
($35,024)

($9,303)
(24,191)
（1,360)
0
(0)

(0)
(0)
（170）
($35,024)

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, 2012 and 2013, by

transaction and type of instrument, qualifying for hedge accounting.

(a) Currency-related transactions

Instruments

Hedged items

Millions of yen
March 31, 2012

Notional
amounts

Fair value

Forward exchange contracts:

Sell -

Euro (buy Japanese yen)
Australian dollar
(buy Japanese yen)

Buy -

Forecasted transactions in
foreign currency sales

¥32,410

1,477

(¥933)

(57)

U.S. dollar (sell Japanese yen)

Forecasted transactions in
foreign currency purchase

963

Total

¥34,851

(¥969)

Instruments

Hedged items

Forward exchange contracts:

Sell -

Euro (buy Japanese yen)
Australian dollar
(buy Japanese yen)

Buy-

Forecasted transactions in
foreign currency sales

U.S. dollar (sell Japanese yen)

Forecasted transactions in
foreign currency purchase

Millions of yen
March 31, 2013

Notional
amounts

Fair value

¥32,397

(¥1,717)

925

1,109

(7)

Total

¥34,432

(¥1,706)

Instruments

Hedged items

Forward exchange contracts:

Sell -

Euro (buy Japanese yen)
Australian dollar
(buy Japanese yen)

Buy -

Forecasted transactions in
foreign currency sales

U.S. dollar (sell Japanese yen)

Forecasted transactions in
foreign currency purchase

Thousands of U.S. dollars
March 31, 2013

Notional
amounts

Fair value

$344,477

($18,256)

9,835

11,791

(74)

191

Total

$366,103

($18,139)

The fair value is calculated based on prices obtained from financial institutions.

(b) Interest-related transactions

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

Millions of yen
March 31, 2013

Notional
amounts

Due after
one year

Interest rate swaps:

Pay-fixed, receive-floating

Floating interest rate in
long-term loans payables

¥30,000

－

Instruments

Hedged items

Thousands of U.S. dollars
March 31, 2013

Notional
amounts

Due after
one year

Interest rate swaps:

Pay-fixed, receive-floating

Floating interest rate in
long-term loans payables

$318,979

－

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 23 “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 and 2013, were 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

March 31,
2013

Thousands of
U.S. dollars
March 31,
2013

(¥1,234)
(17)
(1,251)
533
(719)

1,831
(2,246)
(415)
(25)
(440)

(2,808)
1,159
(1,649)

¥913
(14)
899
(122)
777

(4,374)
3,636
(737)
(160)
(897)

25,353
-
25,353

$9,707
(149)
9,558
(1,297)
8,261

(46,507)
38,671
(7,836)
(1,701)
(9,537)

269,569

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)

102
¥25,335

1,084
$269,377

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 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 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, 2012 and 2013, 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, 2012

Carrying
value

¥123,093
139,309
19,010
8,480

Fair value

¥123,093
139,309
19,010
8,480

¥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)

Derivative instruments in the table above represent a net amount.

Unlisted securities of ¥1,136 million 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.

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
Long-term loans payable (including current portion)

Millions of yen
March 31, 2013

Carrying
value

¥106,678
132,289
70,012
9,152

Fair value

¥106,678
132,289
70,012
9,152

¥318,132

¥318,132 -

57,249
53,626
51,782
90,000
127,500

57,249
53,626
51,782
90,311
128,202

Unrealized
gains
(losses)

-
-
-
-

-
-
-
¥311
702

Total

¥380,158

¥381,171

¥1,013

Derivative instruments

(¥5,000)

Instruments

Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Investment securities

Total

Thousands of U.S. dollars
March 31, 2013

Carrying
value

Fair value

Unrealized
gains
(losses)

$1,134,269
1,406,581
744,412
97,309

$3,382,571

-
-
-
-

Notes and accounts payable-trade
Short-term loans payable
Accounts payable-other
Bonds payable
Long-term loans payable (including current portion)

608,708
570,186
550,579
956,937
1,355,661

608,708
570,186
550,579
960,243
1,363,125

-
-
-
$3,306
7,464

Total

$4,042,071

$4,052,841

$10,770

Derivative instruments

($53,163)

Derivative instruments in the table above represent a net amount.

Unlisted securities of ¥897 million ($9,537 thousand) at March 31, 2013 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

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 ¥528 million

and ¥391 million ($4,157 thousand) as of March 31, 2012 and 2013, respectively.

25. Related party transactions

Mr. Yasuo Hattori, who was 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).

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). Aoyama had been an Epson’s major shareholder, but they haven’t been since this

transaction.

The company and its subsidiary’s transactions with these related parties for the years ended March 31, 2012

and 2013, and related balances on March 31, 2012 and 2013, were as follows:

Transactions:

With Mr. Yasuo Hattori -

Acquisition of treasury stock

With Aoyama -

Acquisition of treasury stock

Millions of yen

Year ended March 31
2013
2012

Thousands of
U.S. dollars
Year ended
March 31,
2013

¥1,156

18,316

26. 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 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, precision industrial robots, IC handlers and industrial inkjet

equipment.

(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,

2012 and 2013:

Net sales:

Customers

Inter-segment

Total

Segment income (loss)

(Operating income)

Segment

assets

Other

Depreciation and
amortization

Increase in
property, plant,
equipment and
intangible assets

Amortization of
goodwill

Millions of yen

Year ended March 31, 2012

Reporting segments

Information-

equipment

Devices &
precision
products

Total

Other
[Note 1]

Total

Adjustments
[Note 2]

Consolidated

¥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

¥38

¥922

Millions of yen

Year ended March 31, 2013

Reporting segments

Information-

equipment

Devices &
precision
products

Total

Other
[Note 1]

Total

Adjustments
[Note 2]

Consolidated

¥687,570

¥150,840

¥838,411

458

688,029

6,031

156,872

6,490

844,901

¥856

416

1,273

¥839,267

¥12,029

¥851,297

6,907

846,175

(6,907)

5,122

851,297

52,670

7,658

60,329

(1,191)

59,138

(37,883)

21,255

367,600

118,980

486,580

3,734

490,314

288,232

778,547

26,229

8,739

34,968

35,065

4,114

39,179

33,447

7,939

41,386

41,395

2,018

43,413

¥883

¥36

¥919

Thousands of U.S. dollars

Year ended March 31, 2013

Reporting segments

Information-

equipment

Devices &
precision
products

Total

Other
[Note 1]

Total

Adjustments
[Note 2]

Consolidated

$7,310,697

$1,603,827

$8,914,524

$9,101

$8,923,625

$127,911

$9,051,536

4,869

64,136

69,005

7,315,566

1,667,963

8,983,529

4,434

13,535

73,439

8,997,064

(73,439)

54,472

9,051,536

560,032

81,424

641,456

(12,663)

628,793

(402,797)

225,996

3,908,560

1,265,071

5,173,631

39,702

5,213,333

3,064,678

8,278,011

278,884

92,918

371,802

1,031

372,833

43,743

416,576

355,630

84,412

440,042

440,138

21,456

461,594

$9,388

$383

$9,771

Net sales:

Customers

Inter-segment

Total

Segment income (loss)

(Operating income)

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)

(Operating income)

Segment

assets

Other

Depreciation and
amortization

Increase in
property, plant,
equipment and
intangible assets

Amortization of
goodwill

Notes;

Intra-group services and small- and medium-sized LCD business are categorized within “Other.”

2. Adjustments were as follows.

Net sales

Year ended March 31

Corporate expenses [Note]
Eliminations
Total

Segment income (loss)
(Operating income)

Corporate expenses [Note]
Eliminations
Total

Millions of yen

2012

2013

Thousands of U.S. dollars
2013

¥3,416
(9,348)
(¥5,932)

¥12,082
(6,960)
¥5,122

$128,475
(74,003)
2
$54,47

Year ended March 31

Millions of yen

2012

2013

Thousands of U.S. dollars
2013

(¥43,650)
304
(¥43,345)

(¥38,160)
277
(¥37,883)

($405,742)
2,945
7)
($402,79

Segment assets

Year ended March 31

Corporate expenses [Note]
Eliminations
Total

Millions of yen

2012

2013

Thousands of U.S. dollars
2013

¥254,198
(6,286)
¥247,911

¥295,982
(7,749)
¥288,232

$3,147,070
(82,392)
8
$3,064,67

[Note] Corporate expenses comprise expenses that do not correspond to the reporting segments. These include income related

to patents and 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

2012

2013

Thousands of U.S. dollars
2013

¥2,233
2,377
¥4,610

¥1,759
259
¥2,018

$18,703
2,753
$21,45
6

[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.

(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, 2012 and 2013:

Millions of yen

Year ended March 31, 2012

Japan

The United States

China（including Hong Kong）

Other

Total

Net sales

¥313,940

¥120,199

¥109,115

¥334,741

¥877,9 7
9

Japan

The United States

China（including Hong Kong）

Other

Total

Net sales

¥266,644

¥139,067

¥102,500

¥343,085

¥851,297

Millions of yen

Year ended March 31, 2013

Japan

The United States

China（including Hong Kong）

Other

Total

Net sales

$2,835,130

$1,478,649

$1,089,845

$3,647,912

$9,051,536

Thousands of U.S. dollars

Year ended March 31, 2013

[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,

2012 and 2013:

Property, plant and equipment

¥162,597

¥50,488

¥213,086

Japan

Other

Total

Millions of yen

Year ended March 31, 2012

Property, plant and equipment

¥155,176

¥62,212

¥217,3

Japan

Other

Total

Millions of yen

Year ended March 31, 2013

Property, plant and equipment

$1,649,930

$661,489

$2,311,4

Japan

Other

Total

Thousands of U.S. dollars

Year ended March 31, 2013

(e)

Information of impairment loss

The following table summarizes information of impairment loss in each reporting segments for the year ended

March 31, 2012 and 2013:

Millions of yen

Year ended March 31, 2012

Information-
related
equipment
¥179

Devices &
precision
products

Other

Corporate
expenses
[Note]

Total

¥88

¥0

¥317

¥58
6

Impairment loss

Millions of yen

Year ended March 31, 2013

Information-
related
equipment
¥551

Devices &
precision
products

Other

Corporate
expenses
[Note]

Total

¥133

¥3,920

5
¥4,60

Impairment loss

Thousands of U.S. dollars

Year ended March 31, 2013

Information-
related
equipment
$5,858

Devices &
precision
products

$1,414

Other

Corporate
expenses
[Note]

Total

$41,691

$48,963

Impairment loss

[Note] Corporate expenses comprise expenses that do not correspond to the reporting segments. These include income related to

patents and 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, 2012 and 2013:

Millions of yen

Year ended March 31, 2012

Information-
related
equipment

Devices &
precision
products

Other

Corporate
expenses
[Note]

Total

Goodwill

¥1,781

¥50

¥1,83
2

Millions of yen

Year ended March 31, 2013

Information-
related
equipment

Devices &
precision
products

Other

Corporate
expenses
[Note]

Total

Goodwill

¥898

¥14

¥91
2

Thousands of U.S. dollars

Year ended March 31, 2013

Information-
related
equipment

Devices &
precision
products

Other

Corporate
expenses
[Note]

Total

Goodwill

$9,548

$148

6
$9,69

[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, 2012 and 2013:

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

Millions of yen

Year ended March 31, 2013

Information-
related
equipment

Devices &
precision
products

Other

Corporate
expenses

Total

Amortization of
negative goodwill

Negative goodwill

¥48

¥25

¥48

¥25

Thousands of U.S. dollars

Year ended March 31, 2013

Information-
related
equipment

Devices &
precision
products

Other

Corporate
expenses

Total

Amortization of
negative goodwill

Negative goodwill

$510

$265

$510

$265

(g)

Information of gain on negative goodwill

Gain on negative goodwill did not occur during the year ended March 31, 2012 and 2013:

Report of Independent Auditors

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

U.S. Epson, Inc.
*

Long Beach,
U.S.A.

111,941
(thousand USD)

Holding company

100.0

Consolidated subsidiaries

Epson Sales Japan
Corporation
*

Shinjuku-ku,
Tokyo

4,000
(million JPY)

Sales of
information-related
equipment

Epson Direct
Corporation

Matsumoto-shi,
Nagano

150
(million JPY)

Epson Toyocom
Corporation

Miyazaki-shi,
Miyazaki

100
(million JPY)

Tohoku Epson
Corporation

Sakata-shi,
Yamagata

100
(million JPY)

Akita Epson
Corporation

Yuzawa-shi,
Akita

80
(million JPY)

Sales of
information-related
equipment

Manufacture of
devices and precision
products

Manufacture of
information-related
equipment, devices
and precision products

Epson America, Inc.
*

Long Beach,
U.S.A.

40,000
(thousand USD)

Regional headquarters,
Sales of
information-related
equipment, devices
and precision products

Epson Electronics
America, Inc.

Epson Portland Inc.

San Jose,
U.S.A.

Portland,
U.S.A.

Epson El Paso, Inc.
*

El Paso,
U.S.A.

51,000
(thousand USD)

10,000
(thousand USD)

Sales of devices and
precision products

31,150
(thousand USD)

Manufacture of
information-related
equipment

Epson Europe B.V.
*

Amsterdam,
Netherlands

95,000
(thousand EUR)

Regional headquarters,
Sales of
information-related
equipment

100.0

Sales of printers and other
PC peripherals,
Interlocking directors,
Financial assistance,
Rental of assets

100.0
(100.0)

Sales of PCs, etc.,
Rental of assets

100.0

Manufacture of crystal
devices, etc.

100.0

Manufacture of printer
components and
semiconductors,
Loan of assets

Manufacture of printer
components and crystal
devices,
Financial assistance,
Leasing of assets

Holding company in
Americas,
Interlocking directors

Regional headquarters in
Americas,
Sales of printers and other
PC peripherals and sales of
factory automation products,
Interlocking directors

Sales of electronic devices

100.0
(100.0)

Manufacture of printer
consumables

100.0
(100.0)

Manufacture of printer
consumables

100.0

Regional headquarters in
Europe,
Sales of printers and other
PC peripherals,
Interlocking directors,
Guaranty of liabilities

Company name

Location

Paid-in capital or
amount invested

Main business

Ownership
percentage of
voting rights (%)

Relationship between parent
company and subsidiary

Epson (U.K.) Ltd.

Hemel
Hempstead,
UK

1,600
(thousand GBP)

Epson Deutschland
GmbH

Dusseldorf,
Germany

5,200
(thousand EUR)

Sales of
information-related
equipment

Sales of
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)

Sales of
information-related
equipment

Regional headquarters,
Sales of
information-related
equipment, devices
and precision products

Sales of
information-related
equipment

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

100.0
(100.0)

Sales of printers and other
PC peripherals,
Guaranty of liabilities

100.0
(100.0)

Sales of printers and other
PC peripherals, and sales of
factory automation products,
Guaranty of liabilities

100.0
(100.0)

Sales of electronic devices,
Interlocking directors,
Guaranty of liabilities

100.0
(100.0)

Sales of printers and other
PC peripherals

100.0
(100.0)

Sales of printers and other
PC peripherals,
Guaranty of liabilities

100.0
(100.0)

Sales of printers and other
PC peripherals,
Guaranty of liabilities,

100.0

Regional headquarters in
China,
Sales of printers and other
PC peripherals and factory
automation products,
Interlocking directors,
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

Sales of printers and other
PC peripherals, and sales of
electronic devices,
Guaranty of liabilities

Regional headquarters in
Asia-Pacific,
Sales of printers and other
PC peripherals, and sales of
electronic devices,
Interlocking directors,
Guaranty of liabilities

100.0

Sales of printers and other
PC peripherals,
Guaranty of liabilities

Company name

Location

Paid-in capital or
amount invested

Main business

Tianjin Epson Co., Ltd.

Tianjin,
China

172
(million CNY)

Manufacture of
information-related
equipment

Epson Precision
(Hong Kong), Ltd.
*

Hong Kong,
China

81,602
(thousand USD)

Procurement of
information-related
equipment components

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
devices and precision
products

Ownership
percentage of
voting rights (%)

Relationship between parent
company and subsidiary

80.0
(80.0)

Manufacture of printer
consumables, etc.,
Interlocking directors

100.0

100.0
(100.0)

Procurement of printer and
3LCD projector
components,
Interlocking directors

Manufacture of printers,
3LCD projectors, liquid
crystal panels and factory
automation products, etc.,
Interlocking directors

100.0
(100.0)

Manufacture of watches,
etc.,
Interlocking directors

100.0

Manufacture of printer
consumables,
semiconductors, and
watches, etc.,
Interlocking directors,
Guaranty of liabilities

100.0

Manufacture of printers,
Interlocking directors,
Guaranty of liabilities

100.0

Manufacture of printers and
3LCD projectors,
Interlocking directors,
Guaranty of liabilities

Manufacture of crystal
devices,
Interlocking directors,
Guaranty of liabilities

57 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. In addition to the above, the company has one unconsolidated equity method subsidiary.

4. The net sales (excluding eliminations of sales among consolidated subsidiaries) of Epson Sales Japan

Corporation, Epson America, Inc. and Epson Europe B.V. each amount to more than 10% of the consolidated
net sales. Key information about operations of those subsidiaries is as follows.

Company name

Net sales

Epson Sales Japan Corporation

Epson America, Inc.

191,564

188,927

Ordinary
income

(536)

3,796

Epson Europe B.V.

177,147

(1,045)

(Millions of yen)

Net income

Total net assets Total assets

(284)

2,418

(987)

10,925

58,229

18,681

87,036

20,964

75,204

Figures for Epson America, Inc. and Epson Europe B.V. are included in consolidated business results.

2. Distribution of ownership among shareholders