ANNUAL REPORT 2016
SEIKO EPSON CORPORATION
April 2015 - March 2016
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
quickly introduce new products and services, 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.
1
Table of Contents
Consolidated Financial Highlights ............................................................................................................... 3
Information on the Company ....................................................................................................................... 7
1. Overview of the business group............................................................................................................ 7
2. Major equipment and facilities .......................................................................................................... 11
3. Overview of capital expenditures ....................................................................................................... 13
4. Plans for new additions or disposals .................................................................................................. 14
5. Major management contracts ............................................................................................................ 15
Risks Related to Epson’s Business Operations ......................................................................................... 16
Business Conditions ..................................................................................................................................... 21
1. Overview of business results ............................................................................................................... 21
2. Manufacturing, orders received and sales......................................................................................... 25
3. Analysis of financial condition and results of operations ................................................................. 26
4. Research and development activities ................................................................................................. 29
5. Issues for Fiscal 2016 ........................................................................................................................... 31
6. Dividend policy .................................................................................................................................... 34
Corporate Governance ................................................................................................................................ 35
1. Approach to corporate governance .................................................................................................... 35
2. Details of audit remuneration ............................................................................................................. 49
3. Basic policy regarding company control ........................................................................................... 50
Management ................................................................................................................................................ 52
Index to Consolidated Financial Statements ............................................................................................. 55
Consolidated Statement of Financial Position ...................................................................................... 56
Consolidated Statement of Comprehensive Income ............................................................................. 58
Consolidated Statement of Changes in Equity ...................................................................................... 60
Consolidated Statement of Cash Flows .................................................................................................. 62
Notes to Consolidated Financial Statements ......................................................................................... 63
Report of Independent Auditors .......................................................................................................... 121
Additional Information ............................................................................................................................. 122
1. Principal subsidiaries and affiliates ................................................................................................. 122
2. Distribution of ownership among shareholders .............................................................................. 126
3. Major shareholders ........................................................................................................................... 127
4. Employee stock ownership plans ..................................................................................................... 128
5. Epson stock price ............................................................................................................................... 130
6. Corporate data and investor information ....................................................................................... 131
2
Consolidated Financial Highlights
Seiko Epson Corporation and Subsidiaries
For the years ended March 31
Statement of Comprehensive
Income
Revenue
Information-related equipment
business segment
Devices and precision products
business segment
Sensing and industrial solutions
business segment
Other
Adjustments
Printing Solutions
business segment
Visual Communications business
segment
Wearable & Industrial Products
business segment
Other
Adjustments
Gross profit
Selling, general and administrative
expenses
Profit from operating activities
Profit before tax
Profit for the period attributable to
owners of the parent company
Total comprehensive income for
the period
Statement of Cash Flows
Net cash provided by (used in)
operating activities
Net cash provided by (used in)
investing activities
Free cash flows
Net cash provided by (used in)
financing activities
Statement of Financial Position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Equity attributable to owners of
the parent company
IFRS
2014
Millions of yen
2015
2016
Thousands of
U.S. dollars
2016
1,008,407
1,086,341
1,092,481
9,695,429
841,228
907,296
148,779
156,297
16,174
23,396
1,333
891
1,390
(2,038)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
730,867
736,369
6,535,064
177,186
184,033
1,633,235
173,478
170,415
1,512,380
1,390
3,418
1,404
257
12,460
2,290
362,589
395,924
397,660
3,529,108
(272,501)
(294,648)
(312,708)
(2,775,186)
79,549
77,977
84,203
131,380
132,536
112,560
94,026
91,530
45,772
834,451
812,300
406,221
120,480
145,483
(1,469)
(13,036)
114,859
108,828
113,054
1,003,319
(41,244)
(32,735)
(51,558)
(457,561)
73,615
76,093
61,495
545,758
(56,567)
(55,392)
(67,171)
(596,121)
560,645
348,245
908,890
336,087
208,045
362,371
650,383
355,898
1,006,282
355,442
153,531
494,325
601,451
339,888
941,340
325,019
145,644
467,818
5,337,690
3,016,410
8,354,100
2,884,452
1,292,545
4,151,739
3
IFRS
2014
Millions of yen
2015
2016
Thousands of
U.S. dollars
2016
235.35
50.00
314.61
115.00
127.94
60.00
1,012.83
1,381.66
1,307.58
1.14
0.52
11.60
39.9
27.7
9.2
7.9
49.1
26.3
13.7
12.1
55,104
52,010
13,723
12,787
1,197
1,246
-
-
-
-
-
-
252
2,895
73,171
306
3,529
69,878
49.7
9.5
9.7
8.6
-
-
-
41,051
10,041
13,312
340
2,861
67,605
Per Share Data (yen and U.S. dollars)
Basic earnings per share (Note2)
Cash dividends per share (Note4)
Equity attributable to owners of the
parent company, per share (Note2)
Financial Ratios (%)
Equity attributable to owners of the
parent company, ratio
ROE (Profit for the period attributable to
owners of the parent company /
Beginning and ending balance average
equity attributable to owners of the parent
company)
ROA (Profit from operating activities /
Beginning and ending balance average
total assets)
ROS (Profit from operating activities /
Revenue)
Number of Employees
Information-related equipment
business segment
Devices and precision products
business segment
Sensing and industrial solutions
business segment
Printing Solutions
business segment
Visual Communications
business segment
Wearable & Industrial Products
business segment
Other
Corporate
Total
Notes
1. The Consolidated Financial Statements have been prepared on the basis of International Financial Reporting Standards (IFRS) from the year
ended March 31, 2014.
2. Seiko Epson Corporation (the “Company”) completed the Company’s ordinary shares split with an effective date of April 1, 2015. As a result,
each share of the Company’s ordinary shares was split into two shares. Basic earnings per share was calculated under the assumption that the
shares split took effect at the beginning of the year ended March 31, 2014.
3. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥112.68 =U.S.$1 as of March 31, 2016.
4. In this table, cash dividends per share refers to the amount paid for each share in each fiscal year.
5. Equity attributable to owners of the parent company is equity excluding non-controlling interest in subsidiaries.
4
For the years ended March 31
Statements of Income
Net sales
Information-related equipment
business segment
Devices and precision products
business segment
Other
Eliminations and corporate
Information-related equipment
business segment
Devices and precision products
business segment
Sensing and industrial solutions
business segment
Other
Eliminations and corporate
Gross profit
Selling, general and administrative
expenses
Operating income
Ordinary income
Income (loss) before income taxes
and minority interests
Profit (loss) attributable to owners
of parent
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 flows
Net cash provided by (used in)
financing activities
JGAAP
Millions of yen
2013
2012
2014
877,997
851,297
1,003,606
691,801
688,029
174,811
156,872
17,316
(5,932)
1,273
5,122
-
-
-
-
-
-
-
-
-
248,846
224,219
24,626
27,022
15,622
5,032
52,106
38,908
37,651
685,862
836,436
140,790
148,956
11,413
16,181
1,273
11,957
234,439
213,184
21,255
17,629
(3,479)
(10,091)
49,923
43,155
39,320
1,334
699
322,976
238,007
84,968
78,121
71,916
83,698
50,531
37,825
38,725
26,678
42,992
111,253
(31,528)
(39,511)
(4,849)
(57,406)
3,480
21,298
(39,519)
71,733
(56,567)
5
Balance Sheet
Current assets
Property, plant and equipment (net of
accumulated depreciation)
Total assets
Current liabilities
Non-current liabilities
Net assets
Number of Employees
Information-related equipment
business segment
Devices and precision products
business segment
Sensing and industrial solutions
business segment
Other
Corporate
Total
Per Share Data (Yen)
Net income (loss) (Note1)
Cash dividends (Note3)
JGAAP
Millions of yen
2013
2012
487,190
213,086
740,769
313,314
179,314
248,140
519,457
217,388
778,547
326,688
193,052
258,806
2014
602,452
216,170
865,872
313,636
200,505
351,730
55,841
50,823
55,104
16,101
13,859
13,723
-
249
3,112
75,303
26.22
26.00
-
241
3,838
68,761
(56.41)
20.00
1,197
252
2,895
73,171
233.94
50.00
976.41
40.3
27.6
9.5
8.5
Shareholders’ equity (Note1)
1,377.60
1,435.20
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 /net sales)
33.3
2.0
3.5
2.8
33.0
(4.0)
2.3
2.5
Notes
1. Seiko Epson Corporation (the “Company”) completed the Company’s ordinary shares split with an effective date of April 1, 2015. As a result,
each share of the Company’s ordinary shares was split into two shares. Basic earnings per share was calculated under the assumption that the
shares split took effect at the beginning of the year ended March 31, 2014.
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.
6
Information on the Company
1. Overview of the business group
Epson is primarily engaged in developing, manufacturing, selling, and providing services for products in the
printing solutions, visual communications, wearable and industrial products, and the other business.
Epson is organized into operations divisions that come under consolidated management. The majority of advanced
R&D and product development is conducted in Japan (by Corporate R&D and R&D organizations in the various
operations divisions), while manufacturing and sales activities are conducted around the world by Epson Group
manufacturing and sales companies, both in Japan and abroad.
A brief description of Epson’s various businesses is provided below along with a list of the main Epson Group
companies involved in each segment.
The business segments were changed from the current fiscal year.
Printing Solutions Business Segment
This segment comprises the printer business, professional printing business, and others. The businesses in this
segment leverage Epson’s original Micro Piezo and other technologies to develop, manufacture, and sell products.
The main activities of these businesses are described below.
Printer business
This business is primarily responsible for home and office inkjet printers, serial impact dot matrix (SIDM) printers,
page printers, and color image scanners, and related consumables.
Professional printing business
This business is primarily responsible for commercial inkjet printers, industrial inkjet printing systems, printers for
use in POS systems, label printers, and related consumables.
Others
This business sells PCs in the Japanese market through a domestic subsidiary.
7
The major Epson Group companies involved in this segment are listed in the table below.
Business area
Main products
Main Epson Group companies
Manufacturing companies
Sales companies
Printers
Inkjet printers, serial impact
dot matrix printers, page
printers, color image
scanners, and related
consumables, and others
Professional printing
Commercial inkjet printers,
industrial inkjet printing
systems, printers for use in
POS systems, label printers,
and related consumables, and
others
Tohoku Epson Corporation
Akita Epson Corporation
Epson Portland Inc.
Epson Telford Ltd.
Tianjin Epson Co., Ltd.
Epson Engineering (Shenzhen) Ltd.
P.T. Epson Batam
P.T. Indonesia Epson Industry
Epson Precision (Philippines), Inc.
Others
PCs and other equipment
－
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.
For.Tex S.r.l.
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.
P.T. Epson Indonesia
Epson (Thailand) Co., Ltd.
Epson Australia Pty. Ltd.
Epson India Pvt. Ltd.
Epson Sales Japan Corporation
Epson Direct Corporation
Visual Communications Business Segment
The businesses in this segment leverage Epson’s original microdisplay and projection technologies to develop,
manufacture, and sell 3LCD projectors for business, education, and the home; high-temperature polysilicon TFT
LCD panels for 3LCD projectors; and smart eyewear.
The major Epson Group companies involved in this segment are listed in the table below.
Business area
Main products
Main Epson Group companies
Manufacturing companies
Sales companies
Visual
communications
3LCD projectors,
high-temperature polysilicon
TFT LCD panels for 3LCD
projectors, smart eyewear,
and others
Epson Engineering (Shenzhen) Ltd.
Epson Precision (Philippines), Inc.
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.
P.T. Epson Indonesia
Epson (Thailand) Co., Ltd.
Epson Australia Pty. Ltd.
Epson India Pvt. Ltd.
8
Wearable & Industrial Products Business Segment
This segment comprises the wearable products business, robotics solutions business, and the microdevices
business.
The main activities of these businesses are described below.
Wearable products business
This business leverages its ultrafine and ultraprecision machining and processing technologies and its high-density
mounting and assembly technologies to develop, manufacture and sell watches, as well as to develop, manufacture
and sell useful products that use high-accuracy sensors to connect people and information.
Watch business
This business primarily develops, manufactures, and sells watches and watch movements.
Sensing system business
This business is primarily engaged in developing, manufacturing, and selling sensing systems and equipment
that have extremely accurate built-in sensors and that are used in the personal health and sports fields etc.
Robotics solutions business
This business uses advanced precision mechatronics and other technologies to develop, manufacture, and sell
industrial robots and other production systems that dramatically increase productivity.
Micro-devices and others business
This business designs, manufactures, and sells small, accurate, energy-efficient electronic devices for external
customers as well as for other businesses in the Epson Group. It also provides metal powders and surface finishing
services.
Quartz device business
This business provides crystal units, crystal oscillators, and quartz sensors for consumer, automotive, and
industrial equipment applications.
Semiconductor business
This business provides CMOS LSIs and other chips mainly for consumer electronics and automotive
applications.
Others
This business develops, manufacturers, and sells a variety of high-performance metal powders for use as raw
materials in the production of electronic components, etc. This business also provides high-value-added surface
finishing in a wide variety of industrial fields.
9
The major Epson Group companies involved in this segment are listed in the table below.
Business area
Main products
Wearable products
Watches
Wristwatches, watch
movements, and others
Sensing systems and
equipment
Main Epson Group companies
Manufacturing companies
Sales companies
Epson Precision (Shenzhen) Ltd.
Orient Watch (Shenzhen) Ltd.
Epson Precision (Johor) Sdn. Bhd.
Orient Watch Co., Ltd.
Epson Hong Kong Ltd.
Akita Epson Corporation
Epson Sales Japan Corporation
Robotics solutions
Industrial robots, IC handlers,
and others
Epson Engineering (Shenzhen) Ltd.
Microdevices and
others
Quartz devices
Crystal units, crystal
oscillators, quartz sensors,
and others
Miyazaki Epson Corporation
Epson Precision Malaysia Sdn. Bhd.
Semiconductors
CMOS LSIs, and others
Tohoku Epson Corporation
Singapore Epson Industrial Pte. Ltd.
Others
Metal powders, surface
finishing
Epson Atmix Corporation
Singapore Epson Industrial Pte. Ltd.
Epson Sales Japan Corporation
Epson America, Inc.
Epson Deutschland GmbH
Epson (China) Co., Ltd.
Epson Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Electronics America, Inc.
Epson Europe Electronics GmbH
Epson Hong Kong Ltd.
Epson Taiwan Technology &
Trading Ltd.
Epson Singapore Pte. Ltd.
Other Business Segment
This segment comprises the businesses of Epson Group companies that offer services for and within the Epson
Group.
10
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
As of March 31, 2016
Book value (Millions of yen)
Buildings and
structures
Machinery,
equipment
and
vehicles
Land
(Area: m2)
Other
Total
Number of
employees
(Persons)
1,247
(43,322)
[3,171]
－
(－)
5,753
(189,347)
[41,552]
3,764
(179,759)
[1,758]
－
(－)
[108,004]
1,443
(113,082)
[28,909]
1,375
(160,528)
129
(39,943)
[1,502]
1,996
(247,143)
2,177
(538,828)
7,627
(36,245)
1,047
(41,836)
[5,764]
74
2,947
507
81
836
53
3,017 40,089
5,219
95
5,301
546
1,858
4,647
1,477
1,012 20,341
939
900
7,037
211
180
4,196
436
907 11,541
1,091
787 13,479
60 10,597
352
5,784
51
210
711
Head Office
(Suwa-shi, Nagano)
Tokyo Office
(Shinjuku-ku,
Tokyo)
Hirooka Plant
(Shiojiri-shi,
Nagano)
Matsumoto Minami
Plant
(Matsumoto-shi,
Nagano)
Toyoshina Plant
(Azumino-shi,
Nagano)
Suwa Minami Plant
(Fujimi-machi,
Suwa-gun, Nagano)
Chitose Plant
(Chitose-shi,
Hokkaido)
Ina Plant
(Minowa-machi,
Kamiina-gun,
Nagano)
Overall
administration and
other
Overall
administration and
other
Printing solutions
Other
Other facilities
1,485
141
Other facilities
755
－
Printer development and
design and component
manufacturing facilities
Research and development
facilities
16,869
14,449
Printing solutions
Printer development and
design facilities
1,346
95
Visual
communications
Wearable &
Industrial products
Printing solutions
Visual
communications
Other
3LCD projector, smart
eyewear and factory
automation development and
design facilities
Printer component and liquid
crystal panel manufacturing
facilities
Research and development
facilities
1,825
963
5,080
12,804
Visual
communications
Liquid crystal panel
manufacturing facilities
2,152
2,609
Wearable &
Industrial products
Crystal device development
and design facilities
1,941
1,945
Fujimi Plant
(Fujimi-machi,
Suwa-gun, Nagano)
Wearable &
Industrial products
Other
Wearable &
Industrial products
Wearable &
Industrial products
Sakata Plant
(Sakata-shi,
Yamagata)
Hino Office
(Hino-shi, Tokyo)
Shiojiri Plant
(Shiojiri-shi,
Nagano)
Sensing systems and
semiconductor development
and design facilities
Research and development
facilities
Semiconductor
manufacturing facilities
Other
7,299
1,337
6,453
4,060
Sales facilities
2,908
1
Wearable &
Industrial products
Watch development, design
and manufacturing facilities
1,518
2,866
11
(2) Domestic subsidiaries
Business segment
Type of facilities
As of March 31, 2016
Book value (Millions of yen)
Buildings and
structures
Machinery,
equipment
and
vehicles
Land
(Area: m2)
Other
Total
Number of
employees
(Persons)
Printing solutions
Wearable &
Industrial products
Printer component and
semiconductor
manufacturing facilities
Printing solutions
Wearable &
Industrial products
Printer component and
sensing system
manufacturing facilities
1
16
2,311
146
Wearable &
Industrial products
Manufacturing facilities for
metal powders, etc.
2,508
1,679
－
(－)
650
(65,436)
409
(30,653)
[34,208]
763
781
1,888
423
3,533
825
172
4,770
250
Company name
(location)
Tohoku Epson
Corporation
(Sakata-shi,
Yamagata)
Akita Epson
Corporation
(Yuzawa-shi, Akita)
Epson Atmix
Corporation
(Hachinohe-shi,
Aomori)
(3) Overseas subsidiaries
Company name
(location)
Business segment
Type of facilities
As of March 31, 2016
Book value (Millions of yen)
Buildings and
structures
Machinery,
equipment
and
vehicles
Land
(Area: m2)
Other
Total
Number of
employees
(Persons)
Epson Engineering
(Shenzhen) Ltd.
(Shenzhen, China)
Printing solutions
Visual
communications
Wearable & Industrial
products
Singapore Epson
Industrial Pte. Ltd.
(Singapore)
Printing solutions
Wearable & Industrial
products
Printer, 3LCD projector, liquid
crystal panel and factory
automation manufacturing
facilities
Printer consumables, watch
component and semiconductor
manufacturing facilities and
surface finishing facilities
2,947
3,132
3,981
7,167
－
(－)
[64,104]
59
(41,065)
[51,492]
4,454 10,535
9,292
951 12,159
5,537
9,381
8,682
1,908
4,386
5,973
Printing solutions
Printer manufacturing facilities
Printing solutions
Visual
communications
P.T. Indonesia Epson
Industry
(Bekasi, Indonesia)
Epson Precision
(Philippines), Inc.
(Lipa, Philippines)
Epson Precision
Malaysia Sdn. Bhd.
(Kuala Lumpur,
Malaysia)
Notes
1. The above figures do not include consumption tax.
2. “Other” under the book value column includes tools, furniture and fixtures and other property, plant and
Crystal device manufacturing
facilities
－
(－)
[254,871]
563
(100,000)
[173,200]
Printer and 3LCD projector
manufacturing facilities
Wearable & Industrial
products
335
(32,437)
2,852 14,921
2,701 13,061
3,853
3,179
3,015
8,325
470
31
equipment, but does not include construction in progress.
3. Portions of land are leased from companies not included in consolidated accounts. The size of each area of
leased land is indicated in brackets [ ].
4. Tohoku Epson Corporation uses a portion of the facilities of the Sakata Plant.
5. Figures for Singapore Epson Industrial Pte. Ltd. and Epson Precision (Philippines), Inc., are included in
consolidated business results.
6. The above book value amounts are after adjustments for consolidated accounts.
12
3. Overview of capital expenditures
Capital expenditures for the consolidated fiscal year under review were concentrated in key strategic areas,
primarily 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 continued to carefully select
investments and efficiently utilize existing facilities in an effort to generate stable cash flow.
As a result of these efforts, total capital expenditures (including property, plant and equipment, software and lease
rights) amounted to ¥69.4 billion.
No equipment with significant impact on production capacity was sold or removed.
Capital expenditures in each business segment are discussed below.
Printing solutions segment
Investment used for commercializing new products such as printers, and for rationalizing, upgrading and
maintaining equipment and facilities amounted to ¥36.6 billion in the fiscal year under review.
Visual communications segment
Investment used for commercializing new products such as 3LCD projectors, and for rationalizing, upgrading and
maintaining equipment and facilities amounted to ¥10.7 billion in the fiscal year under review.
Wearable & Industrial products segment
Investment used for commercializing new products such as watches, sensing systems, factory automation products
and crystal devices, and for rationalizing, upgrading and maintaining equipment and facilities amounted to ¥10.2
billion in the fiscal year under review.
Other and overall
Investment in R&D and other activities amounted to ¥11.7 billion in the fiscal year under review.
13
4. Plans for new additions or disposals
Epson plans to allocate ¥80.0 billion to capital expenditures for the consolidated fiscal year ending March 31, 2017.
Business segment
Printing solutions
Visual
communications
Wearable &
Industrial products
Other and overall
Planned amount of
capital expenditures
(100 million yen)
Main type and purpose of equipment and facilities
460
110
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.
120 Investment in research and development, etc.
Total
800
–
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 upkeep of equipment and facilities.
14
5. Major management contracts
Reciprocal technical assistance agreements
Name of contracting
company
Name of other party
Country
Type of contract
Contract period
Seiko Epson
Corporation
Hewlett-Packard
Company
Seiko Epson
Corporation
International Business
Machines Corporation
U.S.A.
U.S.A.
Seiko Epson
Corporation
Seiko Epson
Corporation
Seiko Epson
Corporation
Microsoft Corporation
U.S.A.
Eastman Kodak Company U.S.A.
Xerox Corporation
U.S.A.
Seiko Epson
Corporation
Texas Instruments
Incorporated
U.S.A.
Seiko Epson
Corporation
Canon Incorporated
Japan
License to use patents relating
to information-related
equipment
License to use patents relating
to information-related
equipment
License to use patents relating
to information-related
equipment and software used
by such equipment
License to use patents relating
to information-related
equipment
License to use patents relating
to electrophotography and
inkjet printers
License to use patents relating
to semiconductors and
information-related equipment
License to use patents relating
to information-related
equipment
May 1, 2012 until the
expiry of the patents
April 1, 2006 until
the expiry of the
patents
September 29, 2006
until the expiry of the
patents
October 1, 2006 until
the expiry of the
patents
March 31, 2008 until
the expiry of the
patents
April 1, 2008 until
March 31, 2018
August 22, 2008 until
the expiry of the
patents
15
Risks Related to Epson’s Business Operations
At present, we have identified the following significant factors as risks that could have a materially adverse effect
on our future business, financial condition or operating results and that should thus be taken into account by
investors.
We strive 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. Our financial performance could be adversely affected by fluctuations in printer sales.
The ¥736.3 billion in revenue in the printing solutions segment in the year ended March 2016 accounted for
slightly less than 70% of Epson’s ¥1,092.4 billion in consolidated revenue. Inkjet printers (including printer
consumables) for the home, emerging markets, as well as for office and industrial applications accounted for a
large majority of our revenue and profit. Consequently, a decrease in revenue from printers and printer
consumables could have a materially adverse effect on our operating results.
2. Our financial performance could be adversely affected by competition.
Adverse effects of competition on sales
All of our products, including our core printer and projector products, are subject to the effects of vigorous
competition, which could cause, among other things, prices to fall, demand to shift toward lower-priced products,
and unit shipments to decline.
We are taking strategic action to address the risk of declines in prices, a shift of demand toward lower-priced
products, and unit shipments. On one hand, we must provide products tailored to customer needs in each market
along with high-value products and services. On the other hand, we must reduce manufacturing costs by increasing
design and development efficiency and by reducing fixed costs.
However, there is no assurance we will succeed in these efforts, and if we are unable to effectively counteract
downward pressure on prices, our operating results could be adversely affected.
Adverse effects of competition on technology
Some of the products that we sell contain technology that places Epson in competition against other companies. For
example:
- The Micro Piezo technology1 that we use in our inkjet printers competes with the thermal inkjet technologies2
of other companies;
- The 3LCD technology3 that we use in our projectors competes with other companies’ DLP technologies4, and
Epson’s projectors also compete against flat panel displays (FPDs)5 of other companies.
We believe that the technologies we use in these products have competitive advantage over the alternative
technologies of other companies. However, if consumer opinion with respect to our technologies changes, or if
other revolutionary technologies appear on the market and compete with our technologies, we could lose our
competitive advantage in technology and our operating results could be adversely affected.
1Micro Piezo technology is an inkjet technology created by Epson that manipulates piezoelectric elements to fire small droplets of
ink from nozzles.
2Thermal 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.
33LCD 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, green and blue) using special mirrors, the picture is created on separate LCDs for
each color, and then the picture is recombined without loss and projected on the screen.
4DLP 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.
5FPD encompasses a variety of thin electronic display technologies.
The emergence of new competitors
We presently face competition from powerful companies that have advanced technological capabilities, abundant
financial resources, or strong financial compositions. We also face competition from companies around the world
that have market recognition, strong supply capacities, or the ability to compete on price. There is, therefore, a
16
possibility that other companies could use their brand power, technological strength, ability to procure funds,
marketing power, sales skills, low-cost production ability, or other advantages to enter business areas where we are
active.
3. Sudden changes in the business environment could affect Epson.
Epson seeks to drive inkjet innovation, visual innovation, wearables innovation, and robotics innovation. We are
looking to achieve our vision for each business by providing value to customers in the form of smart technologies,
environmental benefits, and functional performance. Epson is executing plans and strategies based on a long-range
corporate vision and a mid-range business plan that we believe will enable us to establish a competitive advantage
in technology, which believe will be crucial for increasing our competitiveness. We are driving further advances in
our original core technologies, including Micro Piezo inkjet technology, microdisplays, sensing, and robotics, all of
which arose from the efficient, compact, and precision technologies that have become a part of Epson’s DNA over
many decades. By combining these technologies to create platforms, we are developing, manufacturing, and selling
products and providing services that match customer needs.
However, in the product markets and businesses where Epson is concentrating its management resources the pace
of technological innovation is typically rapid, and product life cycles are short. In addition, demand and investment
trends in Epson’s major markets could change along with global economic conditions and could affect sales of
Epson products. Moreover, there is no guarantee that the mid-range business plan and business strategies that
Epson is currently pursuing will succeed.
Epson will also strive to make rapid and smooth transition from existing products to new products by
understanding market and customer needs, investing and conducting research and development from a medium-
and long-range view based on product market forecasts, and creating development and design platforms.
However, if 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, its operating results could adversely be affected.
4. Our revenue and earnings could be adversely impacted by sales of third-party inkjet printer
consumables.
Ink cartridges, which comprise the bulk of consumables sold for inkjet printers, are an important source of revenue
and profit for Epson. However, third parties also supply ink cartridges and other inkjet printer consumables that can
be used in Epson printers. These alternative products are typically sold for less than genuine Epson brand
consumables and are more prevalent in emerging markets compared to the markets of developed countries.
To counter sales of third-party consumables for inkjet printers, we must emphasize the quality of genuine Epson
products and must look to continuously realize customer value by further enhancing customer convenience with
inkjet printers tailored to the needs of customers in each market. Printer models equipped with high-capacity ink
tanks are an example of such products. We also take legal measures if any of the patent rights or trademark rights
we hold over our ink cartridges are infringed upon.
However, there is no assurance that any of these efforts will be effective, and if our ink cartridge revenue declines
because unit shipments of Epson brand ink cartridges shrink as sales of third-party alternative products expand and
as we lose market share, or if we must lower the prices of Epson brand products to stay competitive, our operating
results could be adversely affected.
5. Expanding businesses overseas entails risks for Epson.
We continue to expand our businesses overseas, and overseas revenue accounted for approximately 75% of our
consolidated revenue for the business year ended March 2016. We have 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. We have also established many sales companies all over the world. As of the end of March 31,
2016, our overseas employees accounted for more than 70% of our total workforce.
We believe that our global presence provides many advantages. For example, it enables us to undertake marketing
activities aligned with the market needs of individual regions. It also makes us cost-competitive 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.
17
6. Procuring products from certain suppliers entails risks for Epson.
We procure some parts and materials from third parties, but we generally conduct ongoing transactions without
entering into long-term purchase agreements. We try to have multi-source relating to parts and materials. However,
certain parts and materials are procured from a single source because procuring them from an alternative supplier is
not possible. We must have procurement operations that are stable and efficient, so we work with our suppliers to
maintain product quality, improve products, and reduce costs. However, if our manufacturing and sales activities
were to be disrupted due to things such as supplier’s parts shortages or supplier’s quality problems, our operating
results could adversely be affected.
7. Problems could arise relating to quality issues.
The existence of quality guarantees on Epson products and the details of those guarantees differ from one customer
account to another, depending on the agreement we have 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, we could bear product liability or hold other
liability.
We could also be liable to a customer and could incur expenses for repairs or corrections on the grounds that we did
not adequately display or explain an Epson product’s features or performance. Furthermore, product quality
problems could cause loss of trust in Epson products, and we could lose major accounts or see a drop in demand for
our products, any of which might adversely affect our operating results.
8. Epson’s intellectual property rights activities expose Epson to certain risks.
Patent rights and other intellectual property rights are extremely important for maintaining our competitiveness. We
have independently developed many of the technologies we need, and we acquire patent rights, trademark rights,
and other forms of intellectual property rights for them both in Japan and overseas. We also license the intellectual
property rights for products and technologies by entering into agreements with other companies. We must
strengthen our intellectual property portfolio by placing personnel in key positions to manage our intellectual
property.
If any of the situations envisioned below relating to intellectual property were to occur, our operating results could
adversely be affected.
- An objection might be raised to, or an application to invalidate might be filed with respect to, an intellectual
property right of Epson, and as a result, that right might be recognized as invalid.
- A third party to whom we originally had not granted a license could come to possess a license as a result of a
merger with or acquisition by another party, potentially causing us to lose the competitive advantage conferred
by that intellectual property.
- New restrictions could be imposed on an Epson business as a result of a buyout or a merger with a third party,
-
and we could be forced to spend money to find a solution to those restrictions.
Intellectual property rights that we hold might not give us a competitive advantage, or we might not be able to
use them effectively.
- We or any of our customers could be accused by a third party of infringing on intellectual property rights, which
could force us to spend a large amount of time and money to resolve this and associated issues, or which could
interfere with our efforts to focus our management resources.
If a third-party’s claim of intellectual property right infringement were to be upheld, we could incur material
damage if required to pay large amounts in compensation or royalties or if forced to stop using the applicable
technology.
-
- A suit could be brought against Epson by an employee or other person seeking remuneration for an invention or
the like, potentially forcing us to spend significant time and money to resolve the issue and, depending on the
outcome, potentially requiring us to pay a large sum as remuneration.
9. 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 our
most important management policies, and we proactively engage in environmental conservation efforts on a variety
of fronts, in line with “Environmental Vision 2050” and our mid-range action plans. For example, we have
programs to develop and manufacture products that have a small environmental footprint. We also have programs
to reduce energy use, promote the recovery and recycling of end-of-life products, ensure compliance with
international substance regulations (primarily the RoHS Directive and REACH regulations in the EU), and improve
18
environmental management systems. Thanks to these efforts, we have not had any serious environmental issues to
date. In the future, however, it is possible that an environmental problem could arise that would require us to pay
damages and/or fines, bear costs for cleanup, or force a halt of production. Moreover, new regulations could be
enacted that would require major expenditures, and, if such a situation should occur, Epson’s operating results
could be adversely affected.
10. Epson faces risks concerning the hiring and retention of personnel.
We must 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. We
must hire and retain talented personnel by, for example, introducing compensation and benefit packages that are
commensurate with roles and by proactively promoting people with the right skills overseas. If we are unable to
continue to hire and keep enough of such employees, or if we are unable to pass along technologies and skills, we
could find it difficult or impossible to execute our business plans.
11. Fluctuations in foreign currency exchanges create risks for Epson.
A significant portion of our revenue is denominated in U.S. dollars or the euro. We expanded our overseas
procurement and moved our production sites overseas, so our dollar-denominated expenses currently exceed our
dollar-denominated revenue. On the other hand, our euro-denominated revenue is still significantly greater than our
euro-denominated expenses. On the whole, our revenues in other foreign currencies also significantly exceed our
expenses in those currencies. Also, although we use currency forwards and other means 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, euro, or other foreign currencies against the yen could adversely affect our financial situation and
financial results.
12. There are risks inherent in pension systems.
We have a defined-benefit pension plan and a lump-sum payment on retirement as defined-benefit plans.
We revised the defined-benefit retirement pension plan in April 2014 in response to a drop in the rate of return on
pension assets and an increase in the number of beneficiaries. The revisions are designed to enable us to adapt to
future market changes and maintain stable operations into the future. However, if 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, our
financial position and operating results could be adversely affected.
13. 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, in conjunction with this,
Epson’s market conditions and sales methods may come under investigation. Such investigations and proceedings,
or violations of applicable statutes, could interfere with our sales activities. They could also potentially damage
Epson’s credibility or result in a large civil fine. Any of these could adversely affect our operating results.
Seiko Epson and certain of its consolidated subsidiaries are currently under investigation by some 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.
14. Epson is at risk of material legal actions being brought against it.
Epson conducts businesses internationally. We are engaged primarily in the development, manufacture and sales of
printing solutions, visual communications equipment, and wearable and industrial products, as well as the
provision of services related thereto. Given the nature of these businesses, there is a possibility that an action could
be brought or legal proceedings could be started against Epson regarding, for example, intellectual property rights,
product liability, antitrust laws or environmental regulations.
As of the date we submitted our Annual Securities Report, Epson was contending with the following material
actions.
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. With Reprobel subsequently filing a suit against EEB, the two
lawsuits were adjoined. EEB’s claims were rejected at the first trial, but EEB, dissatisfied with the decision, intends
to appeal.
19
Apart from this, civil actions have been brought against Epson and certain of our consolidated subsidiaries by
customers in 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 our
operating results and future business could be affected, depending on the outcomes of suits and legal proceedings.
15. Epson is vulnerable to certain risks in internal control over financial reporting.
We are building and using internal controls to ensure the reliability of financial reporting. With the establishment
and operation of internal controls for financial reporting high on our list of important management issues, we have
been pursuing a Group-wide effort to audit and improve corporate oversight of our Group companies. However,
since there is no assurance that we will be able to establish and operate an effective internal control system on a
continuous basis, and since there are inherent limitations to internal control systems, if the internal controls that
Epson implements fail to function effectively, or if there are deficiencies in internal control over financial reporting
or material weaknesses in the internal controls, it might adversely affect the reliability of our financial reporting.
16. Epson is vulnerable to risks inherent in its tie-ups with other companies.
One of our business strategy options is to enter into 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 of tie-ups will succeed or contribute to our operating
results exactly as expected.
17. Epson could be severely affected in the event of a natural or other disaster.
We have research and development, procurement, manufacturing, logistics, sales and service sites around the globe,
and our operating results could be adversely affected by any number of unpredictable events, including but not
limited to natural disasters, pandemics involving new strains of the influenza virus, infection by computer viruses,
leaks or theft of customer data, failures of mission-critical internal IT systems, supply chain disruptions, and acts of
terrorism or war.
The central region of Nagano Prefecture, home to some of our key plants and offices, has numerous cities and
towns designated as “Areas Requiring Enhanced Measures to Respond to Earthquake 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.
We revised our earthquake-response policy after the new designation of Areas Requiring Enhanced Measures to
Respond to Disasters in April 2002, and we planned disaster drills, prepared earthquake disaster management and
response plans, and established business continuity plans to mitigate the effects of disasters to the extent possible.
However, if a major earthquake occurs in the central region of Nagano Prefecture, 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.
18. Laws, regulations, or licenses and the like pose risks for Epson.
Epson is a multinational corporation with a variety of business operations around the globe. We ensure compliance
with the laws and regulations of the countries in which we operate by building a robust compliance framework in
each country and each business and by communicating the nature and importance of compliance requirements
internally. To expand our businesses in the future, we must strengthen our sales and marketing activities that target
new customers, including public institutions, and we plan to develop new areas, such as the health and medical
markets, where greater adherence to all forms of relevant laws, regulations, and compliance (compliance with laws
and regulations) is demanded.
Compliance remains high on our list of important management issues, and we are developing measures to prevent
and control potential issues as appropriate. However, if we were to violate or potentially violate laws and
regulations relating to, among others, corruption, advertising and labeling, personal data and privacy protection, or
export control, or if the authorities were to introduce stricter laws and regulations or impose more stringent laws,
we could see our credibility damaged, could become subject to the imposition of a large civil fine, or could see
constraints placed on our business activities. We could also see the costs of complying with such laws and
regulations increase, and any of the foregoing could adversely affect our financial performance and future business
development.
20
Business Conditions
1. Overview of business results
(1) Operating results
The global economic recovery in the fiscal year under review lost momentum primarily due to an economic
deceleration in China and other emerging nations and plummeting resource prices. Regionally, the U.S.
economy continued to gradually expand, leading the Federal Reserve to raise interest rates in December after
seven years near zero, as job growth and an improved labor market fueled rising wages and buoyed
consumption, but a cautious approach to interest rate hikes is being taken. The Latin American economy slowed
due to falling prices for natural resources and currency devaluations. The European economy as a whole
continues to gradually recover, but elements of uncertainty remain, such as the refugee problem and Russian
recession. The Chinese economy is gradually decelerating. In other Asian countries, on the other hand, there
were signs that domestic demand was behind a pickup in economic activity. In Japan, employment and the
income environment continued to improve partly in response to government fiscal and monetary policies, but
the economy as a whole tread water due to factors such as uncertainty caused by an economic slowdown in
emerging countries and pressure on the earnings of exporters as a result of the surge in the value of yen after the
start of the year.
The situation in the main markets of the Epson Group (“Epson”) was as follows.
Inkjet printer demand was flat year on year in North America and Europe. Large-format inkjet printer demand
was firm in North America and Japan, but demand in Latin America was subdued due to the effects of economic
deceleration. Serial-impact dot-matrix (SIDM) printer demand was firm in China owing to upgrade demand in
the tax collection systems market, but demand continued to contract in the Americas and Europe. Demand for
point-of-sale (POS) system products remained stable in North America, Europe, and Japan.
Demand for projectors in the European education market was weak. It was also subdued in China largely due to
concerns about an economic downturn and in Latin America due to the effects of an economic slowdown.
Cell phones and digital cameras are the main applications markets for Epson’s electrical devices. In the cell
phone market, demand for feature phones continued to decline while demand for smart phones remained firm.
Demand in the digital camera market was subdued.
In the precision products market, demand for watches was generally firm in Europe but weakened in Japan in
the second half due to soft demand from overseas visitors and in China due to a slowdown in spending. Demand
for industrial robots increased in the electronics and electrical machinery industry in response to a growing need
for automation.
Against this backdrop, Epson established a new 10-year corporate vision called “Epson 25” that will steer
Epson’s activities up to the start of the 2025 fiscal year. At the same time, Epson introduced the Epson 25
Mid-Range Business Plan (FY2016-2018), a three-year plan for the first phase of work toward achieving the
Epson 25 vision. Epson 25 was created based on an understanding of the mega trends, changes, and other forces
that will shape Epson’s business in the future. It contains the following vision statement: “Creating a new
connected age of people, things and information with efficient, compact and precision technologies.” In line
with this vision, Epson will provide customer value in the form of smart technology, the environment, and
performance. The Mid-Range Business Plan (FY2016-2018) is a roadmap for the first phase of work toward
achieving the Epson 25 vision. During this phase Epson will sustain the momentum it gained by strategically
adopting new business models and developing new market segments under the previous corporate vision. At the
same time, it will move forward on product development while aggressively investing as needed to provide a
solid business foundation. Specifically, Epson will continue to grow by further increasing its competitive edge
in businesses where SE15 strategic initiatives were successful, and to quickly address issues and establish a path
to growth in businesses where Epson was unable to fully advance.
The average exchange rates of the yen against the U.S. dollar and of the yen against the euro during the 2015
fiscal year were ¥120.14 and ¥132.58, respectively. This represents a 9% depreciation in the value of the yen
against the dollar and a 4% appreciation in the value of the yen against the euro, year over year. The yen
appreciated against the currencies of some emerging countries in places such as Latin America.
21
Epson’s consolidated full-year financial results reflect the foregoing factors. Revenue was ¥1,092.4 billion, up
0.6% year over year. Business profit was ¥84.9 billion, down 16.1% year over year. Profit from operating
activities was ¥94.0 billion, down 28.4% year over year. Profit before tax was ¥91.5 billion, down 30.9% year
over year. Profit for the period was ¥46.0 billion, down 59.2% year over year.
Profit from operating activities in the previous fiscal year included a profit resulting from changes in the
defined-benefit plan in Japan that reduced past service costs by ¥30 billion. While tax expenses were lower in
the previous fiscal year due to the recognition of deferred tax assets arising from the carryforward of unused tax
losses, the profit for this fiscal year was weighed down by an increase in tax expenses due to the partial reversal
of deferred tax assets arising from the carryforward of unused tax losses.
(Note) Business profit is calculated by subtracting cost of sales and selling, general and administrative expenses
from revenue.
A breakdown of the financial results in each reporting segment is provided below.
The operations grouped within each segment changed effective in the first quarter of the current accounting
period in conjunction with a reorganization that took effect on April 1, 2015. The printing systems business,
which was included in the information-related equipment segment, the label printer business, which was
included in the visual communications business of the former information-related equipment segment, and the
industrial inkjet printing systems business, which was included in the former sensing and industrial solutions
segment, were merged and are reported under the printing solutions segment. Also, a new visual
communications segment was created. All the businesses in the former visual communications business, which
was included in the former information-related equipment segment, except the label printer business, are now
reported under this segment. In addition, the crystal devices, semiconductors, and precision products businesses,
all of which were included in the former devices and precision products segment, and the sensing systems and
industrial robots and IC handlers businesses, which were included in the former sensing and industrial solutions
segment, were merged. They are now reported under the wearable and industrial products segment.
Printing Solutions Segment
Printer business revenue increased, helped in part by foreign exchange effects.
Inkjet printer revenue increased despite a decline in ink cartridge printer shipments. Revenue jumped because
we continued to rapidly expand sales of high-capacity ink tank printers in Asia and elsewhere by reinforcing the
lineup and expanding the sales territory. Revenue from consumables also increased, the result of an improved
install base composition.
Page printer revenue decreased due to the result of Epson’s focus on selling high added value models and due to
a decrease in revenue from toners.
SIDM printer total revenue decreased. Although there was continuing stable demand in the Chinese tax
collection system market, and although passbook printer sales were driven higher by hardware and system
upgrade demand in both Europe and China, unit shipments declined due to the contraction of the European and
American markets and a decline in demand in Asian countries other than China.
Revenue in the professional printing business increased, helped in part by foreign exchange effects.
Large-format inkjet printer revenue declined as sales were weighed down by the effects of steep currency
devaluations and economic deceleration in Latin America, China’s slowing growth, and stepped up price-cutting
by competitors in the large photo and color proof printing markets. However, inkjet textile printer revenue grew,
driven by an expanded range of applications from apparel to small personal items and interior goods.
POS system product revenue grew primarily because of increased demand for compact receipt printers in the
Americas and Europe. Meanwhile, sales of label printers that enable on-demand in-house printing increased
along with a growing need for the use of color labels.
Segment profit in the printing solutions segment decreased due to a combination of factors, including ink
cartridge printer price competition in Japan and North America; the stronger U.S. dollar, which caused the cost
of products manufactured overseas to rise; and strategic investment and spending on mid-term growth.
As a result of the foregoing factors, revenue in the printing solutions segment was ¥736.3 billion, up 0.8% year
on year. Segment profit was ¥104.7 billion, down 6.0% year on year.
22
Visual Communications Segment
Visual communications revenue increased, owing in part to foreign exchange effects. 3LCD projector sales were
affected by downward pressure from the effects of a decrease in tender offers in the European education sector,
steep currency devaluations and economic deceleration in Latin America, and China’s slowing growth. However,
sales of new entry-level models were strong in Asia, and unit shipments and revenue increased in North America
and Japan.
Segment profit in the visual communications segment decreased primarily due to the decrease in tender offers in
the education sector, which led to a decline in sales of high added value products, the appreciation of the dollar,
which caused manufacturing costs for products produced overseas to rise, and strategic investment and spending
on mid-term growth.
As a result of the foregoing factors, revenue in the visual communications segment was ¥184.0 billion, up 3.9%
year on year. Segment profit was ¥15.5 billion, down 19.7% year on year.
Wearable and Industrial Products Segment
Although unit sales of watches and watch movements decreased, revenue in the wearable products business
increased primarily owing to higher average selling prices, a result of increased sales of luxury watch models,
and foreign exchange effects.
Revenue in the robotics solutions business increased. Although Epson did not receive a large order for industrial
robots as it did previous fiscal year, sales grew on increased orders in China, Japan, and Europe. IC handler
revenue decreased due to a combination of slowing growth in semiconductors for smartphones and dealer
inventory adjustments.
Revenue in the microdevices business decreased despite foreign exchange effects. In crystal devices, sales in the
automotive sector grew, but revenue fell due to a combination of price erosion and a decline in unit volume of
products used in for cell phones and other personal electronics. Semiconductor revenue decreased due to
worsening market conditions.
The surface finishing business, which developed new customers, and the metal powders business, which reported
strong sales of high-performance material powders for mobile equipment, both recorded revenue growth.
Segment profit in the wearable and industrial products segment decreased mainly as a result of lower
semiconductor sales in the microdevices business and higher manufacturing costs in the wearable products
business.
As a result of the foregoing factors, revenue in the wearable and industrial products segment was ¥170.4 billion,
down 1.8% year on year. Segment profit was ¥9.8 billion, down 5.0% year on year.
Other
Other revenue amounted to ¥1.4 billion, up 1.1% year on year. Segment loss was ¥0.5 billion compared to a ¥0.3
billion segment loss in the previous fiscal year.
Adjustments
Adjustments to the total profit of reporting segments amounted to negative ¥44.6 billion. (Adjustments in the
previous fiscal year were negative ¥39.6 billion.) The loss mainly comprises selling, general and administrative
expenses for areas that do not correspond to the reporting segments, such as research and development expenses
for new businesses and basic technology, and general corporate expenses.
23
(2) Cash Flow Performance
Net cash provided by operating activities during the year was ¥113.0 billion, compared to ¥108.8 billion in the
previous fiscal year. While recording ¥46.0 billion in profit for the period, net cash was positively affected by
factors such as the recording ¥45.9 billion in depreciation and amortization and the difference of ¥45.4 billion in
income taxes recorded and ¥20.7 billion in income taxes paid.
Net cash used in investing activities totaled ¥51.5 billion compared to ¥32.7 billion in the previous fiscal year.
Epson used ¥66.1 billion in the acquisition of property, plant and equipment and intangible assets. Proceeds
from sales of investment property provided ¥13.9 billion in cash.
Net cash used in financing activities totaled ¥67.1 billion compared to ¥55.3 billion in the previous fiscal year.
Epson recorded a ¥40.0 billion redemption of bonds issued and ¥25.0 billion in dividends paid.
As a result, cash and cash equivalents at the end of the fiscal year totaled ¥230.4 billion compared to ¥245.3
billion at the end of the previous fiscal year.
(3) Parallel disclosure
Differences between the main items on IFRS consolidated financial statements and those on consolidated
financial statements prepared based on Japanese accounting standards
(Expenses associated with post-employment benefits)
Under Japanese accounting standards, Epson wrote off actuarial gains and losses and past service costs over a
certain period of time. Under IFRS, remeasurements of net defined benefit liabilities (assets) are recognized in
full as other comprehensive income in the period in which they are incurred and transferred to retained earnings
immediately. Past service costs are recognized as a net loss either in the period when the plan is amended or
curtailed, or in the period when associated restructuring costs or termination benefits are recognized, whichever
is earlier. Since actuarial assumptions for defined benefit liabilities differ, retirement benefit costs are
additionally recognized.
Due to these effects, the cost of sales and selling, general and administrative expenses, and finance costs in the
previous fiscal year increased by ¥6.2 billion when calculated based on IFRS rather than Japanese standards,
while other operating income increased by ¥30.0 billion and other comprehensive income decreased by ¥1.5
billion. The cost of sales, selling, general and administrative expenses, and finance costs in the fiscal year
increased by ¥3.8 billion, while other comprehensive income decreased by ¥22.1 billion.
*Please refer to the following for Epson’s financial results for previous fiscal years:
http://global.epson.com/IR/
24
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, 2016
(From April 1, 2015, to March 31, 2016)
(Millions of yen)
Change
compared to
previous fiscal
year (%)
Printing solutions
Visual communications
Wearable & Industrial products
Total for the reporting segments
Other
Total
704,994
166,687
163,986
1,035,668
505
1,036,173
99.1
93.5
96.3
97.7
77.1
97.7
Notes
1. The above figures are based on sales prices. Intersegment transactions are offset and therefore eliminated.
2. The above figures do not include consumption tax.
3. The above figures include outsourced manufacturing.
(2) Orders received
Epson’s policy is to manufacture products based on sales forecasts. Accordingly, this section does not apply.
(3) Actual sales
The following table shows actual sales information by segment in the fiscal year under review.
Business segment
Year ended March 31, 2016
(From April 1, 2015, to March 31, 2016)
(Millions of yen)
Change
compared to
previous fiscal
year (%)
Printing solutions
Visual communications
Wearable & Industrial 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.
736,033
183,997
164,384
1,084,415
753
1,085,169
100.8
104.0
98.1
100.9
93.2
100.9
25
3. Analysis of financial condition and results of operations
(1) Analysis of operating results
Revenue
Consolidated revenue was ¥1,092.4 billion, a year-over-year increase of ¥6.1 billion (0.6%).
Revenue for each reporting segment is discussed below.
Revenue in the printing solutions segment was ¥736.3 billion, a year-over-year increase of ¥5.5 billion (0.8%).
The most significant factors that contributed to this change are as follows.
Inkjet printer revenue continued to sharply expand particularly in Asia despite a decline in ink cartridge printer
shipments, owing to a reinforced lineup of high-capacity ink tank printers and an expanded sales territory.
Revenue from consumables rose in conjunction with an improved composition of the install base. Page printer
revenue decreased due to a slump in consumables sales in addition to a decline in unit shipments, the result of
Epson’s focus on selling high added value models. SIDM printer revenue increased due to sustained steady
demand in the Chinese tax collection system market, as well as to hardware and system upgrade demand, which
fueled sales of passbook printers in Europe and China. On the other hand, unit shipments declined in Europe
and Americas due to a contraction of those markets and a decline in demand in Asian countries other than China.
Large-format inkjet printer revenue grew even though sales were weighed down by the effects of steep currency
devaluations and economic deceleration in Latin America, China’s slowing growth, and stepped up price-cutting
by competitors in the large photo and color proof printing markets. This revenue growth was driven by an
expanded range of applications for inkjet textile printers, from apparel to small personal items and interior
goods. POS system product revenue grew primarily because of increased demand for compact receipt printers in
the Americas and Europe. Meanwhile, revenue from label printers that enable on-demand in-house printing
increased along with a growing need for the use of color labels.
Revenue in the visual communications segment was ¥184.0 billion, a year-over-year increase of ¥6.8 billion
(3.9%). The most significant factors that contributed to this change are as follows.
3LCD projector revenue increased despite downward pressure on revenue from the effects of a decrease in
tender offers in the European education sector, steep currency devaluations and economic deceleration in Latin
America, and China’s slowing growth, as sales of new entry-level models were strong in Asia, and unit
shipments and revenue increased in North America and Japan.
Revenue in the wearable and industrial products segment was ¥170.4 billion, a year-over-year decrease of ¥3.0
billion (1.8%). The most significant factors that contributed to this change are as follows.
Quartz revenue decreased despite increased automotive sales. The decrease was due to a combination of price
erosion and a decline in unit volume of products used in for cell phones and other personal electronics.
Semiconductor revenue decreased primarily because of market weakness. Watch revenue increased despite a
decline in watch and watch movement unit shipments. The increase is attributed primarily to growth in sales of
premium watches, which lifted average selling prices, and foreign exchange effects. Despite the lack of a large
order such as that received in the previous fiscal year, industrial robot revenue grew on increased orders from
China, Japan, and Europe. IC handler revenue decreased due to a combination of slowing growth in smartphone
chips and dealer inventory adjustments. Revenue increased in the surface finishing business, which developed
new customers, and in the alloy powders business, which reported strong sales of high-performance material
powders for mobile equipment.
In the “other” segment, revenue was ¥1.4 billion, a 1.1% increase compared to the previous fiscal year.
Cost of sales and gross profit
Cost of sales was ¥694.8 billion, a year-over-year increase of ¥4.4 billion (0.6%). The increase in cost of sales is
primarily associated with foreign exchange effects.
As a result, gross profit was ¥397.6 billion, up ¥1.7 billion (0.4%) year over year.
Selling, general and administrative expenses and business profit
Selling, general and administrative (SG&A) expenses were ¥312.7 billion, an increase of ¥18.0 billion (6.1%).
The increase in selling, general and administrative expenses is primarily due to foreign exchange effects as well
26
as greater spending on advertising and sales promotions to increase brand recognition and increased spending
on research and development on new products.
As a result, business profit was ¥84.9 billion, down ¥16.3 billion (16.1%) year over year.
Segment profit (business profit) in each reporting segment was as follows.
Segment profit in the printing solutions segment was ¥104.7 billion, a year-over-year decrease of ¥6.7 billion
(6.0%). This decrease was due to a combination of factors, including but not limited to foreign exchange
effects; ink cartridge printer price competition in Japan and North America; the stronger U.S. dollar, which
caused the cost of products manufactured overseas to rise; and strategic investment and spending.
Segment profit in the visual communications segment was ¥15.5 billion, a year-over-year decrease of ¥3.8
billion (19.7%). In addition to foreign exchange effects, this decrease was largely due to a decrease in sales of
high added value products that was connected to a decline in education market orders in Europe.
Segment profit in the wearable and industrial products segment was ¥9.8 billion, a year-over-year decline of
¥0.5 billion (5.0%). This decline resulted from factors such as lower semiconductor revenue and higher watch
manufacturing costs.
Segment loss in the “other” segment was ¥0.5 billion, compared to a ¥0.3 billion loss in the previous fiscal year.
As for adjustments, segment loss increased to ¥44.6 billion compared to the ¥39.6 billion loss incurred in the
previous fiscal year. Adjustments consisted primarily of patent royalties and R&D expenses for basic research
that do not belong to a reporting segment, and SG&A expenses, primarily comprising expenses associated with
new businesses and Head Office functions.
Other operating income, other operating expenses, and profit from operating activities
Other operating income was ¥14.8 billion, a year-over-year decrease of ¥25.0 billion (62.9%). Other operating
income decreased mainly because the figure from the previous fiscal year included a ¥30.0 billion positive
effect associated with reduced past service costs accompanying changes in the defined-benefit plan in Japan.
Other operating expenses totaled ¥5.7 billion, a year-over-year decrease of ¥4.0 billion (41.5%). This decrease
was mainly due to the recording of a foreign exchange gain this fiscal year, whereas in the previous fiscal year
Epson recorded a ¥2.5 billion foreign exchange loss.
Finance income and finance costs
Finance income was ¥1.6 billion, a year-over-year decrease of ¥1.6 billion (49.5%). The decrease in finance
income was primarily due to a decrease in interest income. Finance costs were ¥4.2 billion, a year-over-year
increase of ¥1.9 billion (83.3%). The increase in finance costs was primarily due to an increase in foreign
exchange loss.
Profit before tax
The foregoing resulted in profit before tax of ¥91.5 billion, a year-over-year decrease of ¥41.0 billion (30.9%).
Income taxes
Income taxes were ¥45.4 billion, a year-over-year increase of ¥26.7 billion (143.8%). While tax expenses were
lower in the previous fiscal year due to the recognition of deferred tax assets arising from the carryforward of
unused tax losses, this fiscal year income taxes increased mainly due to an increase in tax expenses resulting
from the partial reversal of deferred tax assets arising from the carryforward of unused tax losses.
Profit for the year
Profit for the year was ¥46.0 billion, down ¥66.7 billion (59.2%) year over year.
(2) Liquidity and capital resources
Cash flow
Net cash provided by operating activities was ¥113.0 billion, an increase of ¥4.2 billion compared to the
previous fiscal year. Although the decrease in profit for the period and trade payables were a ¥66.7 billion and
¥8.9 billion negative impact, respectively, net cash provided by operating activities increased mainly because of
a ¥26.8 billion effect from increased net defined benefit liabilities, a ¥26.7 billion effect from increased income
taxes, and a ¥25.8 billion effect resulting from a decrease in inventories.
Net cash used in investing activities totaled ¥51.5 billion, increasing by ¥18.8 billion year on year. This increase
27
was mainly due to a ¥23.3 billion increase in outlays associated with the acquisition of property, plant and
equipment and intangible assets.
Net cash used in financing activities totaled ¥67.1 billion, increasing by ¥11.7 billion year on year despite a
¥28.3 billion net increase in short-term loans payable. This increase is chiefly due to the effects of a ¥12.1
billion increase in dividends paid, a ¥10.0 billion decline in proceeds from issuance of bonds, and a ¥20.0
billion increase in payments due to redemption.
As a result of the foregoing factors, cash and cash equivalents at the end of the fiscal year stood at ¥230.4
billion, a decrease of ¥14.8 billion compared to the end of the previous fiscal year, giving Epson sufficient
liquidity.
Total interest-bearing liabilities were ¥141.7 billion, down ¥44.2 billion compared to the end of the previous
fiscal year owing to repayment.
Long-term loans payable (excluding the current portion) at the end of the period totaled ¥50.0 billion, at a
weighted average interest rate of 0.68% due in 2017. These borrowings were obtained as unsecured bank loans.
Financial condition
Total assets were ¥941.3 billion, down ¥64.9 billion compared to the end of the previous fiscal year. While there
was a ¥17.2 billion increase in property, plant and equipment, total assets decreased mainly because of a ¥15.8
billion decrease in trade and other receivables, an ¥18.8 billion decrease in inventories, a ¥23.5 billion decrease
in deferred tax assets, and cash and cash equivalents decreased by ¥14.8 billion, in part due to the redemption of
bonds payable and dividends paid.
Total liabilities were ¥470.6 billion, down ¥38.3 billion compared to the end of the previous fiscal year. While
there was a ¥23.6 billion increase in net defined benefit liabilities, total liabilities decreased mainly because of a
¥9.4 billion decrease in trade and other payables and a ¥43.9 billion decrease in other financial liabilities
included in current and non-current liabilities accompanying the redemption of bonds payable.
The equity attributable to owners of the parent company totaled ¥467.8 billion, a ¥26.5 billion decrease
compared to the previous fiscal year end. Epson recorded a ¥46.0 billion profit for the period, but with retained
earnings flat year on year mainly due to decreases associated with the recording of ¥25.0 billion in dividend
payments and a ¥22.1 billion remeasurement of defined benefit plan net liabilities, the decrease in equity
attributable to owners of the parent company was largely due to a ¥25.0 billion decrease in other components of
equity, including a decrease in exchange differences on translation of foreign operations accompanying the rise
of the yen against some other currencies.
Working capital, defined as current assets less current liabilities, was ¥276.4 billion, a decrease of ¥18.5 billion
compared to the end of the previous fiscal year.
The ratio of interest-bearing liabilities to total assets declined to 15.1% from 18.5% at the end of the previous
fiscal year.
28
4. Research and development activities
Epson conducts research and development to create products and services that offer value that exceeds customer
expectations. We seek to create value by driving advances in Micro Piezo inkjet technology, microdisplays,
sensing, and robotics, all of which are unique core technologies that evolved from the efficient, compact, and
precision technologies that have become embedded in Epson’s DNA. Further value is added by developing
technology platforms that meet the needs of a wide spectrum of customers.
The R&D organizations in our operations divisions follow these basic guidelines to develop core technologies
and shared technology platforms that will strengthen Epson’s market position, in both the near and long term.
Meanwhile, the mission of Corporate R&D is to develop new and existing core technologies as well as shared
technology platforms so as to create new businesses and revolutionize existing ones.
Total R&D spending during the fiscal year was ¥53.1 billion. The printing solutions segment accounted for
¥22.1 billion, the visual communications segment for ¥10.2 billion, and the wearable and industrial products
segment for ¥6.5 billion. The “other” segment and corporate segment accounted for the remaining ¥14.1 billion.
The main R&D accomplishments in each segment are described below.
Printing solutions segment
The printer business launched as its flagship consumer inkjet printer model an A3 all-in-one that produces
stunning color and monochrome photographic prints thanks to Epson ClearChrome K2 ink, a new six-color dye
ink set that has red and grey ink in addition to the standard cyan, magenta, yellow, and black colors. This
product is Epson’s first consumer printer to come fully equipped with the Logical Color Conversion System
(LCCS), color-generating technology that is used in Epson’s Proselection series. LCCS realizes smooth
gradations, a wide color gamut, and stable image quality.
Epson also launched its fastest-ever A4 business inkjet printer, a model that also boasts a durability rating of
300,000 pages. This product eliminates the stress of waiting for your prints. Its PrecisionCore printhead
achieves speeds of approximately 24 images per minute (ipm)1 in both color and monochrome (compared to a
high of 20 ipm for the PX-M840F business inkjet printer). And, with only a short warm-up period needed, first
print time for both color and monochrome prints is only about seven seconds.
In the professional printing business, Epson launched new large-format inkjet printers, including a 10-color
pigment ink model equipped with UltraChrome HDX ink and an 8-color pigment ink model equipped with
UltraChrome HD ink. These printers produce denser blacks because Epson used new ink technology to increase
the volume of pigment particles in the photo black ink by about 50% compared to earlier ink2. As a result, they
are an excellent choice for high-end print applications, such as photos, posters, and proofs.
1
Images per minute (ipm) indicates the number of images that can be printed under the conditions for the
office category of the printing productivity measurement standard established by the International
Standards Organization.
2 As measured in tests conducted by Epson
Visual communications segment
Epson developed a new lineup of 3LCD projectors for business. The models in this lineup range from products
that offer 6,000 lumens3 of brightness to a series of laser projectors that deliver 25,000 lumens of brightness,
making them the brightest projectors on the market4. These laser projectors are the first LCD projectors on the
market to combine an inorganic phosphor wheel and inorganic LCD panels with a laser light source. The
superior reliability of the inorganic materials results in up to 20,000 hours5 of virtually maintenance-free use.
Epson also developed a sleek new third generation of Moverio smart glasses. These smart glasses are the first in
the Moverio series to use an optical engine with Epson’s 0.43-inch ultra-compact high-definition color silicon
organic light-emitting diode (OLED) displays, and the 100,000:1 contrast enables them to seamlessly merge the
projected digital content with the real world better than the previous generation, which had a contrast ratio of
230:1. In addition, Epson optimized the OLED displays specifically for smart glasses, reducing the size of the
optical lenses and making Moverio lighter than ever. In fact, the headset itself is 20% lighter than that of the
previous model.
Epson also launched sales of a smart headset with advanced features for professional use. The smart headset
was developed by using Moverio smart glasses in joint real-world tests in a variety of fields, suggesting ways
that smart glasses could help improve work processes, and sharing information about needs identified through
these activities with the development team. Binocular, see-through Moverio smart headsets drive greater
29
efficiency in the workplace by displaying large perceived images in the wearer’s field of vision and enabling
him or her to work hands-free.
3 Lumen is a unit that indicates the amount of light (the luminous flux) emitted from a light source.
4 The brightest on the market as of the end of December 2015, per Epson research.
5 The approximate time it takes for brightness to fall to 50% of the initial level.
Wearable and industrial products segment
In the wearable products business, Epson added new products to its line of GPS sports monitors
“WristableGPS”. Among them are new GPS trekking products “WristableGPS for Trek” equipped with Sensor
Fusion Technology, which combines data from multiple sensors to achieve measurements of greater accuracy,
thus providing trekkers with greater safety and peace of mind. Epson also released GPS running wearables that
offer full support for every activity level. The same wearable can estimate6 VO2 max (the maximum rate of
oxygen consumption per kilogram of body mass in one minute), an important indicator of aerobic physical
fitness, or simply record a person’s activity level with an activity tracking function.
Epson’s robotics solutions business developed a compact six-axis (vertically articulated) industrial robot that
can be installed in confined spaces thanks to what Epson believes is the world’s first retractable, folding arm on
a six-axis robot7. With a footprint of 600 mm x 600 mm, this robot occupies about 40% less floor space than
Epson’s earlier equivalent model and weighs only two-thirds as much. Also, with fewer maneuvers needed to
avoid collisions, cycle times8 are shortened by about 30%.
Epson’s microdevices business developed a small, extremely accurate atomic oscillator for communications
networks and industrial applications. This product is one-sixteenth the size of Epson’s earlier model (75cc vs.
1,200cc) yet provides the same level of long-term frequency stability, the result of an Epson-engineered VCSEL
(vertical cavity surface emitting laser) and specially designed IC. In addition, power consumption is one-sixth
that of the previous model owing to the optimization of the control system.
6 VO2 max is estimated from running speed and heart rate but can also be measured when the right running
conditions are met.
7 The arm was announced at the end of October 2015, making it the first on a six robot, per Epson research.
8 The time required to perform a certain defined task in a manufacturing process
Other and corporate
In November 2015 Epson announced the development of the PaperLab, the world’s first compact in-office
paper recycler that produces new paper from used paper (ordinary copier paper in A4 and A3 sizes) in an
essentially water-free process (a small amount of water is used to maintain humidity inside the machine)9.
Information on the used paper is completely and securely destroyed in the process. Epson, which sells
high-speed, energy-efficient business inkjet printers that deliver crisp, vivid output at a low cost per print, helps
customers improve the efficiency of their operations by providing value through printouts. In the future, we will
also develop a smart recycling business that will change the future of paper by enabling offices to recycle their
used paper and produce new paper on-site. Epson plans to commercialize the PaperLab in 2016. Enterprises and
government offices that install a PaperLab will be able to produce a variety of paper types—office paper of
different thicknesses, business card paper, and even colored and scented paper—right in a back office.
9 The first to use a dry papermaking process, per Epson research.
30
5. Issues for Fiscal 2016
Seiko Epson Corporation (“Epson”) will begin the 2016 fiscal year under a new 10-year corporate vision and a
new mid-range business plan. The Epson 25 Corporate Vision describes what Epson would like to achieve by
the start of the 2025 fiscal year. Meanwhile, the Epson 25 Mid-Range Business Plan (FY2016-18) is a
three-year plan for the first phase of work toward achieving the vision.
Epson will look to sustain growth and increase corporate value over the medium- to long term by steadily
executing the strategies described below.
(1) Epson 25 Corporate Vision
The Epson 25 Corporate Vision (hereafter called “Epson 25”), which was created based on an understanding of
the mega trends, changes, and other forces that will shape Epson’s business in the future, contains the following
vision statement: “Creating a new connected age of people, things and information with efficient, compact and
precision technologies.”
“Efficient, compact and precision technologies” are original technologies that will create the value that Epson
will provide to its customers in three areas: smart technologies, the environment, and performance.
Smart technologies. Use advanced products and software so customers can easily, conveniently, and
securely use our products anywhere and anytime.
Environment. Contribute to the development of a sustainable society by leveraging efficient, compact and
precision technologies to reduce the environmental impact of products and services across their life cycles.
Performance. Create new and higher value by providing outstanding products that contribute to customer
productivity, accuracy and creativity.
Advances in information and communication technology will interconnect vast amounts of information on the
Internet, causing cyber space to expand indefinitely. As a manufacturing company that specializes in generating
value in the real world, Epson will play an important role in “creating a new connected age of people, things
and information” by using attractive, advanced products as leverage to collaborate with IT companies and
increase the value of the technologies it provides to customers.
In this “new connected age” Epson aims to free people from repetitive manual labor and from unnecessary
wastes of time and energy. Epson’s goal is to heighten people’s creativity, and to create a sustainable and
affluent society in which people enjoy safe and healthy lifestyles.
In line with this vision, Epson will provide value in the form of smart technologies, the environment, and
performance in four areas of innovation: inkjet innovation, visual innovation, wearables innovation and robotics
innovation. Epson will drive innovations in these areas by achieving the vision in each of its businesses. To
support the realization of Epson 25, Epson will further strengthen its business infrastructure and company-wide
information systems in the areas of human resources, technology, manufacturing, sales, and the environment.
Epson set out financial performance targets in Epson 25. Assuming exchange rates of 115 yen to the U.S. dollar
and 125 yen to the euro, Epson will aim to achieve, by the 2025 fiscal year, ¥1,700 billion in revenue, ¥200
billion in business profit, a 12% return on sales (business profit*/revenue), and a 15% return on equity (profit
for the period/equity attributable to owners of the parent company).
* Business profit is very similar to operating income under Japanese accounting standards (J-GAAP), both conceptually and
numerically. Epson began using business profit as an indicator after adopting International Financial Reporting Standards
(IFRS) in FY2014 to facilitate comparisons with past results.
Vision in Each Business
Printing: inkjet innovation
Refine original Micro Piezo technology, and expand into high-productivity segments. Improve environmental
performance and create a sustainable printing ecosystem.
31
Visual communications: visual innovation
Refine original microdisplay and projection technologies, and create outstanding visual experiences and a
natural visual communications environment for every aspect of business and lifestyles.
Wearables: wearables innovation
Leverage our watchmaking heritage, refine timekeeping and sensing accuracy, and offer a sense of status and
fashion.
Robotics: robotics innovation
Combine our core technologies with sensing and smart technologies in manufacturing, expand applications, and
create a future in which robots support people in a wide variety of situations.
Microdevices: Support the four innovations
Contribute to Epson’s finished products and to the development of smart communications, power,
transportation and manufacturing systems with advanced Epson quartz timing and sensing solutions and
low-power semiconductor solutions.
(2) Epson 25 Mid-Range Business Plan (FY2016-2018)
The Epson 25 Mid-Range Business Plan (FY2016-2018) is a roadmap for the first phase of work toward
achieving the Epson 25 vision. During this phase Epson will sustain the momentum it gained by strategically
adopting new business models and developing new market segments under the previous corporate vision. At the
same time, it will move forward on product development while aggressively investing as needed to provide a
solid business foundation.
The basic strategy for achieving this will be to continue to grow by further increasing its competitive edge in
businesses where SE15 strategic initiatives were successful, and to quickly address issues and establish a path to
growth in businesses where Epson was unable to fully advance. Epson will look to ensure growth by creating
products and services that generate customer value in smart technologies, the environment, and performance, as
the Epson 25 aims to achieve. While taking care to grow profit over the short term, Epson will also invest
management resources as appropriate, quickly establish new business models, and strengthen its sales
organizations to achieve the Epson 25 vision. Epson will also position itself for future growth by pursing the
business strategies below and by building up its business infrastructure.
These moves will enable Epson to aim to achieve the following financial performance targets in FY2018, the
final year of the phase 1 plan. Assuming exchange rates of 115 yen to the U.S. dollar and 125 yen to the euro,
Epson will aim to achieve, by the 2018 fiscal year, ¥1,200 billion in revenue, ¥96 billion in business profit, an
8% return on sales, and a 10% or higher return on equity on a continuous basis.
Strategies in Each Business
In the printer business Epson will aim to establish a competitive advantage in the home printer market by
boosting the attractiveness of its products and to getting office market development on track with linehead
models.
In professional printing, Epson will establish a competitive advantage with hardware, improve support and
other organizational infrastructure, and achieve solid growth in new domains.
In visual communications Epson will further strengthen its presence in the projection market and use laser
light sources to pave the way to rapid growth in new markets.
In wearable products, Epson will lay the foundation for building wearables into a core business by refining
watch resources and combining them with sensors to create families of differentiated products.
In robotics solutions Epson will create a framework for growth on top of its technology base.
In microdevices, Epson will create a stable business platform in the quartz business by building
competitive strength. The semiconductor business, meanwhile, will create new core technologies and
devices.
32
Strengthening Business Infrastructure
Technology. Refine our efficient, compact and precision technologies, advance our actuator, optical
control, and sensor technologies, and bring in data communications technology to continue to create new
customer value.
Manufacturing. Provide timely products that others cannot easily imitate. Offer them at highly
competitive costs and quality.
Sales and support. Strengthen the office and industrial domains, establish optimum area sales
organization, improve products quality with a market-driven (market-in) approach, and transform the brand
image.
Environment. Expand initiatives to reduce environmental impacts across product and service life cycles
and supply chains.
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6. Dividend policy
The Company strives to sustain business growth through the creation of customer value and to generate stable
cash flow by improving profitability and using management resources efficiently. While the top priority is on
strategic investment in growth, the Company also actively returns profits in parallel with its efforts to build a
robust financial structure that is capable of withstanding changes in the business environment.
In line with this policy, the Company has set a consolidated dividend payout ratio in the range of 40% as a
medium-term target, the ratio based on profit after an amount equivalent to the statutory effective tax rate is
deducted from business profit, a profit category that shows profit from the Company’s main operations (and
which is very similar to operating income under Japanese accounting standards, both conceptually and
numerically). The Company intends to be more active in giving back to shareholders by agilely repurchasing
shares as warranted by share price, the capital situation, and other factors.
The Company’s dividend policy is to pay cash dividends twice a year. The year-end dividend is determined by
resolution of the general shareholders’ meeting and the interim dividend is determined at a meeting of the board
of directors.
Although there is evidence that the near-term economic environment has been deteriorating, the Company’s
full-year financial performance was in line with the outlook primarily as a result of strategic progress in the
Company’s businesses. The Company therefore has paid an annual dividend of ¥60 per share, as forecast at the
beginning of the fiscal year. (Epson declared a two-for-one stock split of the Company’s common shares,
effective April 1st, 2015.)
The Company’s Articles of Incorporation allow the Company to issue an interim dividend with a record date of
September 30 every year by resolution of the board of directors.
The Company’s distribution of retained earnings for the fiscal year under review is as follows.
Distribution of retained earnings for the fiscal year under review
Date approved
October 29, 2015, by resolution
of the board of directors
June 28, 2016, by resolution of
the general shareholders’ meeting
Cash dividends
(Millions of yen)
Cash dividend per share
(Yen)
10,733
10,733
30
30
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Corporate Governance
1. Approach to corporate governance
(1) Basic corporate governance principles
The general principles of corporate governance at Epson are as follows:
▪ Respect the rights of shareholders, and ensure equality.
▪ Bear in mind the interests of, and cooperate with, stakeholders, including shareholders, customers, local
communities, business partners, and Epson personnel.
▪ Appropriately disclose company information and maintain transparency.
▪ Directors, executive officers, and special audit & supervisory officers shall be aware of their fiduciary duties
and shall fulfill the roles and responsibilities expected of them.
▪ Engage in constructive dialogue with shareholders.
To achieve the goals declared in the Management Philosophy, promote sustainable growth, and increase
corporate value over the medium and long terms, Epson strives to continuously enhance and strengthen
corporate governance so as to realize transparent, fair, fast, and decisive decision-making. With the approval of
a resolution at the June 28, 2016 general shareholders’ meeting, Epson transitioned to a company with an Audit
& Supervisory Committee, as we believe this is the best structure for Epson to further improve the supervisory
function of the Board of Directors, improve discussions, and speed up decision-making.
As a company with an Audit & Supervisory Committee, Epson will further improve the supervisory function of
the Board of Directors, improve discussions, and speed up decision-making to further increase the effectiveness
of corporate governance.
(2) Corporate governance system
Outline
Structured as a company with an Audit & Supervisory Committee, Epson will strengthen its management
monitoring and supervisory functions. Moreover, by separating management supervision and operations
functions, we have built a structure that will allow rapid decision-making.
The main corporate management bodies and their aims are described below:
Board of Directors
The Board of Directors, with a mandate from shareholders, is responsible for realizing efficient and effective
corporate governance, through which Epson will accomplish its social mission, sustain growth, and maximize
corporate value over the medium and long terms. To fulfill these responsibilities, the Board of Directors will
exercise a supervisory function over general management affairs, maintain management fairness and
transparency, and make important business decisions, including decisions on things such as management plans,
business plans, and investments exceeding a certain amount.
The Board of Directors is composed of 12 directors, including five outside directors. Meetings of the Board of
Directors are held basically once per month and as needed. The Board of Directors makes decisions on basic
business policies, important business affairs, and other matters that the Board of Directors is responsible for
deciding as provided for in internal regulations. Business affairs that the Board of Directors is not responsible
for deciding are delegated to executive management, and the Board monitors these. To speed up business
decisions and increase business agility as a company with an Audit & Supervisory Committee, Epson expanded
the scope of affairs delegated to executive management from the Board of Directors and limits board
deliberations to only the most important issues. Epson, whose Corporate Governance Policy states that at least
one-third of the board members should be outside directors, will work to further improve the supervisory
function of the Board of Directors.
Audit & Supervisory Committee
The Audit & Supervisory Committee, with a mandate from shareholders, is responsible for independently and
objectively auditing and monitoring the execution of director duties and for ensuring the sound and sustained
growth of Epson. The Audit & Supervisory Committee has established criteria for properly evaluating
accounting auditors that are being considered for selection. Even after selecting them, the Audit & Supervisory
Committee verifies that accounting auditors possess the necessary independence and expertise. The Audit &
Supervisory Committee conducts audits in cooperation with internal audit departments, accounting auditors, and
others.
35
The Audit & Supervisory Committee is composed of four Audit & Supervisory Committee members, three of
whom are outside directors. It is chaired by a full-time member of the Audit & Supervisory Committee.
Meetings are held once per month and as needed.
Corporate Strategy Council
The Corporate Strategy Council is an advisory body to the president whose purpose is to help ensure that the
right decisions are made based on a range of opinions on the executive management side. Meetings of the
Corporate Strategy Council are where directors, executive officers, and special audit & supervisory officers
exhaustively examine important business topics that affect the Epson Group as a whole and matters on the
agenda for meetings of the Board of Directors.
Compliance Committee
The Compliance Committee’s function is to discuss the content of reports that it receives concerning important
compliance activities, and report its findings and communicate its opinions to the Board of Directors in order to
see that compliance activities are appropriately executed by line management.
As an advisory body to the Board of Directors, the Compliance Committee is composed of outside directors and
directors who are Audit & Supervisory Committee members. The Compliance Committee is chaired by a
full-time member of the Audit & Supervisory Committee. Meetings are held every half year and as needed.
A Chief Compliance Officer (CCO) is elected by the Board of Directors and supervises and monitors
compliance-related affairs on the whole. The CCO periodically reports the state of compliance affairs to the
Compliance Committee.
Nomination Committee and Compensation Committee
Epson has created a Nomination Committee and a Compensation Committee as advisory bodies to the Board of
Directors. These committees, which are composed primarily of outside directors, are designed to ensure
transparency and objectivity in the screening and nomination of candidates for director, executive officer, and
special audit & supervisory officer and in matters of director compensation. Both committees include outside
directors, who comprise the majority of members, the representative director/president, and the director in
charge of human resources. Directors who are full-time members of the Audit & Supervisory Committee can
attend meetings of either committee as observers.
Epson’s system of corporate governance is schematically represented below:
Reasons for adopting the current system of corporate governance
To promote sustainable growth and increase corporate value over the medium and long terms, Epson has
36
continuously sought to enhance and strengthen corporate governance to ensure that decision-making is
transparent, fair, fast, and decisive. The election of multiple outside directors and the establishment of
discretional advisory committees to nominate officers and determine compensation are some of the ways this is
being achieved.
With the approval of a resolution at the June 28, 2016 general shareholders’ meeting, Epson transitioned to a
company with an Audit & Supervisory Committee, as we believe this is the best structure for Epson to further
improve the supervisory function of the Board of Directors, improve discussions, and speed up
decision-making.
Internal control system
Epson’s Board of Directors approved a basic policy on the internal control system (a system for ensuring that
business is conducted suitably by the corporate group), and Epson has implemented the approved internal
control system. The Board of Directors also passed a resolution at the June 28, 2016 meeting of the Board of
Directors to partially amend Epson’s basic internal control system policy in conjunction with the transition to a
company with an Audit & Supervisory Committee. The content of the revised basic policy is described below.
Basic internal control system policy
The Company considers its Management Philosophy to be its most important business concept, and to realize it
Epson has established “Principles of Corporate Behavior” that are shared across the Group, including at
subsidiaries. The Company will establish the following basic policy regarding the internal control system (a
system for ensuring that business is conducted suitably by the corporate group) and provide an improved
internal control system for the Epson Group as a whole.
Compliance
(1) The Company will establish “Principles of Corporate Behavior” as a guide for putting the Management
Philosophy into practice. The Company will also establish regulations that spell out things such as basic
compliance requirements and the organizational framework.
(2) The Company has created a Compliance Committee to serve as an advisory body to the Board of Directors.
The Compliance Committee is chaired by a full-time member of the Audit & Supervisory Committee and
is composed of outside directors and members of the Audit & Supervisory Committee. The Compliance
Committee meets regularly and as needed to hear and discuss important matters concerning the Company’s
compliance program. It reports its findings and offers opinions to the Board of Directors. Accounting
auditors can attend meetings of the Compliance Committee as observers.
(3) A Chief Compliance Officer (CCO) is elected and supervises and monitors the execution of all compliance
operations. The CCO periodically reports the state of compliance affairs to the Compliance Committee.
(4) Compliance promotion and enforcement will be supervised by the president of Seiko Epson. Group-wide
compliance programs will be carried out by Head Office supervisory departments with the cooperation of
departments in the various operations divisions and subsidiaries. Compliance programs of the divisions and
their related subsidiaries will be promoted by the respective chief operating officers of the divisions. The
compliance management department helps to ensure the completeness 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 members of the Board of
Directors, etc. of the Company, will address important matters with respect to compliance promotion and
enforcement in the Epson Group as a whole, including subsidiaries. The Council will strive to ensure the
effectiveness of compliance by exhaustively discussing and analyzing the implementation of programs for
assuring observance of statutes, internal regulations, business ethics, and initiatives in high-risk and other
key areas.
(6) The Company, including its subsidiaries, will strive to provide an effective whistleblowing system.
Employees are encouraged and are able to easily and immediately report compliance violations using
internal and external hotlines and e-mail addresses. Controls are in place to protect whistleblowers from
reprisal, and allegations are reported to the Company’s Audit & Supervisory Committee, the Compliance
Committee, and the Corporate Strategy Council in a way that whistleblowers cannot be identified.
(7) The Company strives to enhance legal awareness by providing Epson Group employees with web-based
training and other educational opportunities.
37
(8) The president of Seiko Epson periodically reports important compliance-related matters to the Board of
Directors and take measures as needed to respond to issues.
(9) The Company’s “Principles of Corporate Behavior” states that the Company will have no association
whatsoever with antisocial forces (i.e., organized crime groups). 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) The Company formulates long-term corporate visions and mid-range business plans, and it sets clear
medium-and long-range goals for the Epson Group as a whole.
(2) The Company has instituted a system to ensure the appropriate and efficient execution of business. To that
end, the Company has established regulations governing organizational management, levels of authority,
the division of responsibilities, and the management of affiliated companies, thus distributing power and
authority across the entire Group.
(3) Personnel responsible for business operations report the matters below to the Board of Directors at least
once every three months.
• Current business performance and performance outlook
• Risk management responses
• Status of key business operations
Risk management
(1) The Company has established a basic risk management regulation that stipulates the risk management
system of the Company, including its subsidiaries, and that defines the organization, risk management
methods and procedures, and other basic elements of this system.
(2) Overall responsibility for risk management in the Epson Group, including subsidiaries, belongs to the
president of Seiko Epson. Group-wide risk management is carried out by Head Office supervisory
departments with the cooperation of the operations divisions and subsidiaries. Risks unique to an
individual business are managed by the chief operating officer of that business, including at subsidiaries
consolidated under them. The Company has also set up the risk management department, monitors overall
risk management Group-wide, makes corrections and adjustments thereto, and ensures the effectiveness of
risk management programs.
(3) The Corporate Strategy Council strives to ensure effective management of serious risks that could have an
egregious effect on society by dynamically and exhaustively discussing and analyzing ways 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 the Company’s prescribed crisis management program.
(4) The president of Seiko Epson periodically reports critical risk management issues to the Board of Directors
and formulates appropriate measures to respond to these issues, as needed.
Ensuring the appropriateness of operations in the corporate group
(1) The Group’s management structure helps to 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 regulation governing the management of affiliated companies that require subsidiaries to
report or acquire pre-approval for certain business affairs 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. The
Company has established regional head offices in certain regions to supervise local subsidiaries in order to
ensure the suitability and efficiency of operations Group-wide.
(3) Per the Basic Regulation for Internal Audits, internal audit departments serve as monitoring organizations
that are independent from the management and supervisory functions of the operations divisions and the
Head Office. Internal audit departments audit internal controls and the state of their implementation in all
Epson Group companies, including subsidiaries. The findings of the internal audit departments are
38
presented to the head of the audited organization along with requests for corrective action, where needed.
This information is also regularly reported to the president of Seiko Epson and to the Audit & Supervisory
Committee. In this way, Epson strives to optimize operations across the entire Group.
Safeguarding and management of work-related information
(1) Information on the performance of duties is safeguarded and managed in accordance with regulations
governing, among other things, document control, management approval, and contracts. All directors are
able to access this information at all times.
(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) The Audit & Supervisory Committee can interview directors who are not members of the Audit &
Supervisory Committee, executive officers, and other personnel whenever they deem necessary in the
performance of duties based on the Audit & Supervisory Committee Audit Regulation.
(2) Audit & Supervisory Committee members can attend Corporate Strategy Council sessions, corporate
management meetings, and other important business meetings that will enable them to conduct audits
based on the same information as that available to directors who are not members of the Audit &
Supervisory Committee. Members of the Audit & Supervisory Committee also routinely review important
documents related to management decision-making.
(3) An Audit & Supervisory Committee Office was set up to assist the duties of the Audit & Supervisory
Committee. The head of the Audit & Supervisory Committee Office serves as the Special Audit &
Supervisory Officer and assigns full-time personnel to the Audit & Supervisory Committee Office. The
head and personnel of the Audit & Supervisory Committee Office discharge their duties to assist the Audit
& Supervisory Committee, obeying the orders of the Audit & Supervisory Committee alone and not orders
from directors who are not members of the Audit & Supervisory Committee. Matters relating to the
personnel of the office must be approved in advance by the Audit & Supervisory Committee.
(4) To ensure that audits by the Audit & Supervisory Committee are systematic and effective, a framework has
been created to secure close cooperation between the internal audit departments and the Audit &
Supervisory Committee.
(5) If a situation involving the Audit & Supervisory Committee or cooperation with the internal audit
departments or other organizations is observed to interfere with the effectiveness of audits by the Audit &
Supervisory Committee, the Audit & Supervisory Committee can ask the representative director or Board
of Directors to take corrective action.
(6) The Audit & Supervisory Committee receives audit reports from internal audit departments and can issue
specific instructions to internal audit departments as needed. If the instructions issued to internal audit
departments by the Audit & Supervisory Committee and the president are in conflict, the president will
have the internal audit departments honor the instructions of the Audit & Supervisory Committee.
(7) Per the Audit & Supervisory Committee Audit Regulation, the Audit & Supervisory Committee can ask
directors who are not members of the Audit & Supervisory Committee, the compliance management
department, and the risk management department, as well as others to report or explain the state of
management within the Epson Group, including subsidiaries. It can also view supporting materials. The
Audit & Supervisory Committee can also ask, as needed, subsidiary company directors, corporate auditors,
internal audit departments, and other organizations to report the state of management of the subsidiary.
(8) The Audit & Supervisory Committee shall strive to enhance the effectiveness of audits by holding regular
discussions with accounting auditors.
(9) The Audit & Supervisory Committee and representative director regularly meet to enable the committee to
directly assess business operations.
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(10) Funds required by the Audit & Supervisory Committee to perform its duties are properly budgeted for in
advance. However, funds required to perform the duties of the Audit & Supervisory Committee in
emergency or extraordinary situations will be promptly paid in advance or refunded on each occasion.
(3) Internal audits
Audit & Supervisory Committee audits
Epson’s Audit & Supervisory Committee is composed of four directors, three of whom are outside directors.
Due to the need for someone who understands the Company’s internal control system, the fourth is a full-time
member of the Audit & Supervisory Committee who is highly knowledgeable about internal affairs.
Audit & Supervisory Committee members can attend meetings of the Corporate Strategy Council and other
important meetings as part of their efforts to properly monitor business affairs. They examine the legality and
suitability of actions taken by the directors by checking and confirming compliance and by supervising and
verifying things such as the state of the internal control system, including internal control over financial
reporting. When they deem it necessary, Audit & Supervisory Committee members can ask internal audit
departments to investigate affairs or can provide specific instructions regarding the performance of their duties.
In addition, the Audit & Supervisory Committee ordinarily conducts audits using internal audit departments but
can exercise its investigation authority to conduct its own audits if the effectiveness of audits conducted by the
internal audit departments is not being maintained.
Mr. Noriyuki Hama, a full-time member of the Audit & Supervisory Committee, has many years of experience
in finance and general accounting, while Audit & Supervisory Committee member Ms. Chikami Tsubaki is a
certified public accountant. Both have an appreciable degree of knowledge and insight into finance and
accounting.
Internal audits
Epson’s internal compliance system guards against potential legal and internal regulatory violations in
departmental operations. Internal audit departments serve as monitoring organizations that are independent from
the management and supervisory functions of the operations divisions and the Head Office. They audit internal
controls and the implementation of controls in all Epson Group companies, including subsidiaries.
Internal audit departments conduct internal audits based on an annual audit plan. After conducting internal
audits, they report their observations, including recommendations for improvements based on the facts, to the
president and to the Audit & Supervisory Committee in a timely manner. Internal audit departments also
regularly report the internal audit situation to the president and Audit & Supervisory Committee.
Interconnections among Audit & Supervisory Committee audits, internal audits, and accounting audits,
and the relationship of these audits to the internal control department
Epson’s internal audit departments regularly present their audit plans and audit results to the Audit &
Supervisory Committee. In response, the Audit & Supervisory Committee can, when it deems necessary, ask
internal audit departments to investigate affairs or can provide specific instructions regarding the performance
of their duties. The Audit & Supervisory Committee ordinarily conducts audits using internal audit departments
but can conduct its own audits if the effectiveness of audits conducted by the internal audit departments is not
being maintained.
Internal audit departments are seen as a keystone for internal control functions built by the president and
operations departments. On the other hand, to ensure the effectiveness and independence of audits by the Audit
& Supervisory Committee and internal audit departments, if the instructions issued to internal audit departments
by the Audit & Supervisory Committee and the president are in conflict, the president must have internal audit
departments honor the instructions of the Audit & Supervisory Committee.
The Audit & Supervisory Committee and the internal audit departments will thus proactively cooperate going
forward, but Epson set up an Audit & Supervisory Committee Office headed by the Special Audit &
Supervisory Officer as an organization dedicated to supporting the Audit & Supervisory Committee. The Audit
& Supervisory Committee Office is independent from executive management and supports the Audit &
Supervisory Committee, with a direct reporting line to it.
40
The Audit & Supervisory Committee and accounting auditors enhance the effectiveness of audits by
periodically discussing issues with one another. Accounting auditors have the right to observe meetings of the
Compliance Committee, which is made up of outside directors and a director who is a member of the Audit &
Supervisory Committee.
(4) Overview of limited liability agreements
The Company concludes agreements with non-executive directors that limit their liability for damages under
Article 423 (1), pursuant to the provisions of Article 427 (1) of the Companies Act. The maximum amount of
liability for damages under these agreements is limited to the amount provided for by laws and regulations. The
liability of the non-executive directors shall be limited only if they have acted in good faith and without gross
negligence in performing their duties.
(5) Outside directors
The role of outside directors
To ensure that outside directors are independent from the Company’s management team, have a broad view, and
are able to objectively supervise the making of important decisions, the Company has set forth the role of
outside directors in the Corporate Governance Policy as below. In principle, outside directors should comprise
at least one-third of the members of the Board of Directors.
(i) Monitoring of the management
- Monitoring of corporate executives through involvement in the officer election process and the
compensation determination process based on an evaluation of the business as a whole
- Monitoring of the business as a whole through the exercise of voting rights on important business
decisions made by the Board of Directors
(ii) Advisory function for improving business efficiency
(iii) Monitoring of conflicts of interest
- Monitoring of conflicts of interest between Epson and its directors and executive officers
- Monitoring of conflicts of interest between Epson and related parties
Principle of independence
The Company’s Board of Directors has established a “Standard of Outside Officers’ Independence” and, in
compliance with this standard, elects director candidates who are unlikely to have conflicts of interest with
general shareholders. All current outside directors satisfy the independence requirements of the standard.
Standard of Outside Officers’ Independence
The Company shall not nominate a person as an Outside Officer candidate who falls under any of the below.
(1) A person which deems the Company as a major business partner1, or in the case of a company, an
executing person2 of a contractor in the past five years.
(2) A person which the Company deems as a major business partner3, or in the case of a company, an
executing person of a customer in the past five years.
(3) A business consultant, certified public accountant or lawyer who has received monies, etc. (meaning a
large sum of money and other properties4) other than Officers’ remuneration from the Company in the past
three years, or in the case where the receiver of the monies, etc. is an entity including corporate entities
and unions, a quasi-executing person who has belonged to the payee’s group in the past three years.
(4) A major shareholder5 of the Company, or in the case of a company, an executing person or Audit &
Supervisory Board Member of the shareholder in the past five years.
(5) An executing person or Audit & Supervisory Board Member in a corporation of which the major
shareholder is the Company.
(6) A person who has belonged to an auditing firm which has conducted a legal accounting audit of the
Company in the past ten years.
(7) A person who has belonged to a leading managing underwriter of the Company in the past ten years.
(8) A payee of a large donation6, or in the case the receiver of the donation is an entry including corporate
entities and unions, a judicial partner, general partner, or quasi-executing person who has belonged to the
payee group at any time.
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(9) A person coming from a corporation which has a relationship of interlocking Outside Officers7 with the
Company.
(10) A spouse or relative within the second degree of kinship of a person having the interests listed above.
Notes
1
“Person which deems the Company as a major business partner” means a business partner (mainly
supplier) who has received payment not less than 2% of its consolidated net sales from the Company in
any fiscal year of the past three years.
“Executing person” means an Executive Officer, Executive Director or Operating Officer, employee
occupying a senior management position higher than general manager.
“Person which the Company deems as a major business partner” means a business partner (mainly buyer)
who has made payment not less than 2% of the Company’s consolidated net sales to the Company in any
fiscal year of the past three years.
“A large sum of money and other properties” means average compensation (other than Officers’
remuneration) which exceeds the below for the past three years:
i) no less than 10 million yen in the case where the payee is a person or
ii) no less than 2% of the annual revenues at any fiscal year in the case where the payee is a group.
“Major shareholder” means a shareholder who holds directly or indirectly no less than 10% of the voting
power.
“Large sum of donation” means a donation whose annual average in the past three years exceeds either;
i) 10 million yen or
ii) 30% of the annual expense of the group, whichever is higher.
“Interlocking Outside Officers” means mutual dispatch of Outside Officers between the Company and
another corporation.
2
3
4
5
6
7
Number of outside directors, selection criteria, and human, capital, business or other interests between
outside directors and the Company
Epson had five outside directors (of whom three are Audit & Supervisory Committee members) as of the
submission date of its the security report.
(i) Hideaki Omiya
Mr. Omiya has served as a Chairman of the Board of Mitsubishi Heavy Industries, Ltd. and has
considerable experience and insight as a chief executive and engineer. He has monitored corporate
management appropriately offering proposals actively regarding important decision making in
management from an objective and comprehensive perspective. Epson expects that he will monitor
corporate management appropriately aimed at achieving sustainable growth and improving the Company’s
corporate value over the medium to long term.
He was involved in business execution at Mitsubishi Heavy Industries, Ltd. Although the Company has
had transactions involving the purchase and sale of semiconductor manufacturing equipment with
Mitsubishi Heavy Industries, Ltd. in the past three years, these transactions are immaterial, totaling less
than 0.1% of the consolidated net sales of the Company and Mitsubishi Heavy Industries, Ltd. and thus
does not fall under the category of “major business partner” as prescribed in the “Standard of Outside
Officers’ Independence.” Epson has registered him as an Independent Director with the Tokyo Stock
Exchange.
He owns a small number of Epson shares, but there are no human, capital, business or other interests
between him and the Company.
(ii) Mari Matsunaga
Ms. Matsunaga has created new business models and has a considerable insight and experiences through
her involvement in the management of multiple companies as Outside Officers. Epson expects that she will
monitor corporate management appropriately aimed at achieving sustainable growth and improving the
Company’s corporate value over the medium to long term.
Although the Company has asked her to give speech in the past three years, the speaker expenses were less
than 500,000 yen and thus does not fall under the category of “a large sum of money and other properties”
as prescribed in the “Standard of Outside Officers’ Independence.” Epson has registered her as an
Independent Director with the Tokyo Stock Exchange.
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(iii) Michihiro Nara (outside director who is an Audit & Supervisory Committee member)
Mr. Nara has a high level of expertise as an attorney. He has considerable insight and experiences through
his involvement in the management of multiple companies as an independent outside officer and
achievements as an Outside Audit & Supervisory Board Member of the Company. Epson expects that he
will appropriately supervise and contribute to the soundness of the Company’s management aimed at
achieving sustainable growth and improving the Company’s corporate value over the medium to long term.
Although he has never been involved in corporate management except as an outside officer, we believe
that he will perform his duties as a Director who is Audit & Supervisory Committee member appropriately
because of the above reasons.
The Company has not entered into a consulting agreement, and has not conducted any consignment of
business activities under any individual agreement, with him who is an attorney-at-law, and the law office
to which he belongs. Epson has registered him as an Independent Director with the Tokyo Stock Exchange.
He owns a small number of Epson shares, but there are no human, capital, business or other interests
between him and the Company.
(iv) Chikami Tsubaki (outside director who is an Audit & Supervisory Committee member)
Ms. Tsubaki has a high level of expertise as a certified public accountant. She has a considerable insight
and experiences through her involvement in the management of multiple companies as independent outside
officer. Epson expects that she will appropriately supervise and contribute to the soundness of the
Company’s management aimed at achieving sustainable growth and improving the Company’s corporate
value over the medium to long term. Although she has never been involved in corporate management
except as an outside officer, we believe that she will perform her duties as a Director who is Audit &
Supervisory Committee member appropriately because of the above reasons.
The Company has not entered into a consulting agreement, and has not conducted any consignment of
business activities under any individual agreement, with she who is a certified public accountant, and there
is no transactional relationship. Epson has registered her as an Independent Director with the Tokyo Stock
Exchange.
(v) Yoshio Shirai (outside director who is an Audit & Supervisory Committee member)
Mr. Shirai has served as Directors at TOYOTA MOTOR CORPORATION, Hino Motors, Ltd. and Toyota
Tsusho Corporation, and has considerable insight and a wealth of experience as a corporate manager.
Epson expects that he will appropriately supervise and contribute to the soundness of the Company’s
management aimed at achieving sustainable growth and improving the Company’s corporate value over
the medium to long term.
He has served as a business executor at Hino Motors, Ltd. and Toyota Tsusho Corporation in the past five
years. The Company has had no transactions with Hino Motors, Ltd. and Toyota Tsusho Corporation in the
past three years, and thus, none of the aforementioned two companies falls under the category of “major
business partner” as prescribed in the “Standard of Outside Officers’ Independence.” He was an executive
at TOYOTA MOTOR CORPORATION until June 2007, but there have been no business transactions
between Epson and the TOYOTA MOTOR CORPORATION in the past three years. Epson has registered
him as an Independent Director with the Tokyo Stock Exchange.
(6) Officer compensation, etc.
(i) Compensation for performance through the 2015 fiscal year
Basic policy
- The policy on director and executive officer compensation is as follows.
(a) Compensation shall provide incentive to directors and executive officers to improve business
performance in order to increase corporate value in both the near, medium, and long terms.
(b) Compensation shall be sufficient to attract qualified persons both from within the Company and
from outside.
(c) Compensation shall be commensurate with period performance so that directors and executive
officers can demonstrate their management capabilities to the fullest during their tenure.
Compensation system
- Director and executive officer compensation shall consist of basic remuneration and bonuses.
- Bonuses shall be paid for the accomplishment of management responsibilities, in amounts
commensurate with performance. Outside directors are not eligible for bonuses.
- A portion of director and executive officer compensation is linked to the Company’s share price.
43
Directors and executive officers shall allocate a percentage of their basic remuneration, the percentage
to be separately decided by the Board of Directors, to the acquisition of Company shares through the
officer stock ownership plan. Participation in the officer stock ownership plan is optional for outside
directors.
- The compensation of corporate auditors is decided by board of corporate auditors and shall not exceed
the basic remuneration decided by resolution of general shareholders’ meeting. Participation in the
officer stock ownership plan is optional for corporate auditors, who are not eligible for bonuses.
Procedure for determining compensation
- Compensation is determined by an appropriate body, such as the general shareholders’ meeting and the
Board of Directors, after a fair, transparent, and rigorous review by the Director Compensation
Committee, which is composed mainly of outside directors and which issues an opinion, to ensure
transparency and objectivity.
Compensation paid
Category
Directors
(including total for outside
directors)
Corporate auditors
(including total for outside
corporate auditors)
Total
Total compensation
(millions of yen)
Compensation breakdown
(millions of yen)
Number of
individuals
Basic
remuneration
Bonus
359
(28)
96
(39)
455
94
(-)
-
(-)
94
454
(28)
96
(39)
550
10
(2)
5
(3)
15
Notes
1. The number of individuals above includes one corporate auditor who retired on January 31, 2016.
2. Epson introduced a stock performance (stock-based) component to the compensation system to link
compensation more closely to share price, so Epson stock accounts for a portion of the basic remuneration.
3. A resolution passed at the general shareholders’ meeting of June 26, 2001, established the maximum basic
remuneration at ¥70 million per month for directors and at ¥12 million per month for corporate auditors.
4. The compensation paid includes ¥94 million in director bonuses (bonuses to be paid to the eight directors,
excluding outside directors), which were approved at the June 28, 2016 annual general shareholders’
meeting. There is no bonus system for corporate auditors.
5. An outside corporate auditor who retired at the closing of the annual general shareholders’ meeting held on
June 28, 2016 will be paid a retirement benefit of ¥15 million pursuant to a resolution of the annual general
shareholders’ meeting held on June 23, 2006 on the payment of officer retirement benefits.
6. Stock options are not granted.
(ii) Compensation for performance in and after the 2016 fiscal year
The introduction of a more transparent and fair performance-linked stock compensation plan was approved
at the annual general shareholders’ meeting on June 28, 2016. The plan for officers is designed to
strengthen a sense of shared interest with shareholders and to show a commitment to sustaining growth and
increasing corporate value over the long term.
Basic policy
The basic policies regarding the officer compensation system are as follows.
Compensation for officers who have executive duties
(a) Compensation shall provide incentive to improve business performance in order to increase corporate
value in both the near, medium, and long terms.
(b) Compensation shall be sufficient to attract qualified persons both from within the Company and from
outside.
(c) Compensation shall be commensurate with period performance so that they can demonstrate their
management capabilities to the fullest during their tenure.
Compensation for officers who do not have executive duties
(a) The composition of compensation shall guarantee independence so that these officers can suitably
exert their general management supervisory function, etc.
44
(b) Compensation shall be sufficient to attract qualified persons both from within the Company and from
outside.
Compensation system
- Officer compensation consists of the following components: basic remuneration, bonus, and stock
compensation.
Basic remuneration
Basic remuneration is monetary compensation that is paid monthly in an amount decided by taking into
account all factors such as the officer’s position and responsibilities.
It reflects the results of performance evaluations based on criteria set according to the roles of the
officers.
Bonus
The bonus is monetary compensation that is paid once per year in an amount decided in accordance
with considerations such as the level of achievement with respect to annual operating performance
targets.
It reflects the results of performance evaluations based on criteria set according to the roles of the
officers.
Stock compensation
Under stock compensation, a trust scheme is used to deliver Company shares to officers, the number of
shares being based on points system, where in officers are awarded points depending on the level of
achievement with respect to medium- and long-term operating performance targets, such as business
profit, ROS and ROE.
- Given their role of fulfilling a general management supervisory function, etc., from a perspective that is
independent from executive functions, officers who do not have executive duties do not receive
performance and share price-linked bonuses and stock compensation.
Procedure for determining compensation
- Compensation is determined by general shareholders’ meeting and the Board of Directors or Audit &
Supervisory Committee, after a fair, transparent, and rigorous review by the Director Compensation
Committee, which is composed mainly of outside directors and which issues an opinion, to ensure
transparency and objectivity.
45
(7) Securities held by the Company
a. Balance sheet total of stocks held for reasons other than pure investment
20 companies
¥12,894 million
b.
Issuing company, number, and balance sheet total of stocks held for reasons other than pure
investment
Previous fiscal year
Special investment securities
Company
NGK Insulators, Ltd.
Shares
(stock)
3,757,000
Balance sheet total
(millions of yen)
Reason held
9,636 To maintain and strengthen the
Mizuho Financial Group, Inc.
15,008,880
3,168 To maintain and strengthen the
business relationship with a
supplier of key parts used in
Epson products
Seiko Holdings Corporation
1,644,080
The Hachijuni Bank, Ltd.
489,500
Hakuto Co., Ltd.
190,000
Marubun Corporation
332,640
King Jim Co., Ltd.
221,980
Otsuka Corporation
30,000
Joshin Denki Co., Ltd.
70,000
Pixelworks, Inc.
100,000
Nippon BS Broadcasting
Corporation
33,200
business relationship with a
source of steady funding and a
provider of financial services
996 To maintain and strengthen the
business relationship with a
major buyer of Epson products
415 To maintain and strengthen the
business relationship with a
source of steady funding and a
provider of financial services
272 To maintain and strengthen the
business relationship with a
major buyer of Epson products
263 To maintain and strengthen the
business relationship with a
major buyer of Epson products
180 To maintain and strengthen the
business relationship with a
major buyer of Epson products
153 To maintain and strengthen the
business relationship with a
major buyer of Epson products
66 To maintain and strengthen the
business relationship with a
major buyer of Epson products
60 To maintain and strengthen the
business relationship with a
supplier of key parts used in
Epson products
41 To maintain and strengthen the
business relationship with a
company whose parent company
is major buyer of Epson products
46
Fiscal year under review
Special investment securities
Company
NGK Insulators, Ltd.
Shares
(stock)
3,757,000
Balance sheet total
(millions of yen)
Reason held
7,810 To maintain and strengthen the
business relationship with a
supplier of key parts used in
Epson products
Mizuho Financial Group, Inc.
15,008,880
2,522 To maintain and strengthen the
Seiko Holdings Corporation
1,644,080
Marubun Corporation
332,640
The Hachijuni Bank, Ltd.
489,500
Hakuto Co., Ltd.
190,000
King Jim Co., Ltd.
221,980
Otsuka Corporation
30,000
Joshin Denki Co., Ltd.
70,000
Nippon BS Broadcasting
Corporation
33,200
Pixelworks, Inc.
100,000
c. Stocks held purely for investment purposes
None
business relationship with a
source of steady funding and a
provider of financial services
733 To maintain and strengthen the
business relationship with a
major buyer of Epson products
255 To maintain and strengthen the
business relationship with a
major buyer of Epson products
237 To maintain and strengthen the
business relationship with a
source of steady funding and a
provider of financial services
188 To maintain and strengthen the
business relationship with a
major buyer of Epson products
186 To maintain and strengthen the
business relationship with a
major buyer of Epson products
178 To maintain and strengthen the
business relationship with a
major buyer of Epson products
60 To maintain and strengthen the
business relationship with a
major buyer of Epson products
35 To maintain and strengthen the
business relationship with a
company whose parent company
is major buyer of Epson products
24 To maintain and strengthen the
business relationship with a
supplier of key parts used in
Epson products
47
(8) Accounting audits
(a) Names and other details of certified public accountants performing audits
Name of CPA
Audit company
No. of successive years
performing audits
Designated and Engagement
Partner,
Certified Public Accountant
Designated and Engagement
Partner,
Certified Public Accountant
Designated and Engagement
Partner,
Certified Public Accountant
Hidetoshi
Watanabe
Ernst & Young
ShinNihon LLC
Seiji
Yamamoto
Ernst & Young
ShinNihon LLC
Takahiro
Yamazaki
Ernst & Young
ShinNihon LLC
3
3
5
(b) Composition of auditing team
The auditing team comprises 52 staff including 23 certified public accountants, eight junior accountants, and 21
other accounting staff.
(9) Number of directors
Epson’s Articles of Incorporation provide for a maximum of nine directors who are not members of the Audit &
Supervisory Committee and a maximum of five directors who are members of the Audit & Supervisory
Committee.
(10) 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 Companies Act.
(11) Matters requiring resolutions of shareholders’ meetings that can be implemented by resolutions of
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 exemption from liability
When liability falls under the requirements stipulated in Article 426, Paragraph 1 of the Companies Act, the
Company’s Articles of Incorporation allow the Company to exempt the directors from liability for damages in
Article 423, Paragraph 1 of the 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.
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.
(12) 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 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 at the general
shareholders’ meeting.
48
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
158
66
225
2
2
5
149
65
214
0
3
4
(2) Other important remuneration
Previous fiscal year
Total payments for audits carried out on behalf of 63 consolidated overseas subsidiaries by certified public
accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2015, amounted to
¥562 million.
Fiscal year under review
Total payments for audits carried out on behalf of 64 consolidated overseas subsidiaries by certified public
accountants belonging to the Ernst & Young network for the fiscal year ended March 31, 2016, amounted to
¥590 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 certified public accountant was for various consultancy
services.
Fiscal year under review
Remuneration paid for non-audit work performed by the certified public accountant was for various consultancy
services.
(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.
49
3. Basic policy regarding company control
Epson’s board of directors agreed on 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 measures in support of the basic policy
1) Specific actions in support of the basic policy
In March 2016 the Company established the Epson 25 Corporate Vision, a document that describes Epson’s
goals over the decade between the 2016 and 2025 fiscal years. At the same time, the Company established
the Epson 25 Mid-Range Business Plan (FY2016-2018), a three-year plan for the first phase of work toward
achieving the Epson 25 vision.
Under the Phase 1 Mid-Range Business Plan Epson will build a robust foundation for business by sustaining
the results of successful strategic initiatives pursued to date, developing products for the future, and
aggressively investing as needed.
2) Efforts to deter parties who are deemed inappropriate based on Epson’s basic policy in 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 to prevent large-scale acquisition of Epson shares. The measures were
approved at the June 2008 Ordinary General Meeting of Shareholders and updated at the June 2011
Ordinary General Meeting of Shareholders. The old measures were formally reworded and shareholders
approved their updating at the June 24, 2014 Ordinary General Meeting of Shareholders. (The updated
measures are called “the Plan,” below.)
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 or make a takeover bid
for 20% or more of stock certificates outstanding 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 corporate value as a company or the common interest of its shareholders.
50
To prevent the Epson board of directors from making arbitrary decisions about using anti-takeover measures,
the decision to invoke preventive measures 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 anti-takeover
measures, and the Epson board of directors shall promptly accept or reject a resolution to invoke preventive
measures, 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 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 Ordinary General Meeting of Shareholders; 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 from the introduction and
update and may be abolished by the board of directors at any time. The Plan is not for keeping Epson executive
officers in their posts.
51
Management
Directors, audit & supervisory committee member and executive officers of the Company 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
Shigeki Inoue
President
(Representative
Director)
Senior Managing
Director
(Representative
Director)
Yoneharu Fukushima
Managing Director
Koichi Kubota
Managing Director
Masayuki Kawana
Director
Tatsuaki Seki
Director
Chief Operating Officer,
Wearable Products
Operations Division, and
General Administrative
Manager, Corporate
Planning Division
Chief Operating Officer,
Robotics Solutions
Operations Division, and
General Administrative
Manager, First Technology
Development Division
Chief Operating Officer,
Printer Operations
Division, and
Deputy General
Administrative Manager,
Corporate Planning
Division
General Administrative
Manager, Human
Resources Division, and
President, Orient Watch
Co., Ltd.
General Administrative
Manager, Management
Control Division
Hideaki Omiya
Mari Matsunaga
Noriyuki Hama
Michihiro Nara
Outside Director
Outside Director
Director
(Full-Time Audit
& Supervisory
Committee
Member)
Outside Director
(Audit &
Supervisory
Committee
Member)
52
Name
Chikami Tsubaki
Position
Outside Director
Current function
(Audit &
Supervisory
Committee
Member)
Yoshio Shirai
Outside Director
(Audit &
Supervisory
Committee
Member)
Tadaaki Hagata
Motonori Okumura
Managing
Executive Officer
Executive Officer
Junichi Watanabe
Executive Officer
Kiyofumi Koike
Executive Officer
Yasumasa Kitamatsu
Executive Officer
Hideki Shimada
Executive Officer
Masayuki Kitamura
Executive Officer
Akihiro Fukaishi
Executive Officer
Sunao Murata
Executive Officer
Yoshiyuki Moriyama
Executive Officer
Toshiya Takahata
Executive Officer
53
President, Epson Precision
(Philippines), Inc.
General Administrative
Manager, Second
Technology Development
Division
Chief Operating Officer,
Visual Products Operations
Division, and
General Administrative
Manager, Production
Planning Division
Chairman, Epson (China)
Co., Ltd.
Deputy General
Administrative Manager,
Second Technology
Development Division
Deputy Chief Operating
Officer, Printer Operations
Division
Chief Operating Officer,
Microdevices Operations
Division
Deputy Chief Operating
Officer, Professional
Printing Operations
Division
Chief Operating Officer,
Professional Printing
Operations Division
Deputy Chief Operating
Officer, Wearable Products
Operations Division
General Administrative
Manager, Intellectual
Property Division
Name
Position
Current function
Tsuyoshi Kitahara
Executive Officer
Naoyuki Saeki
Executive Officer
Nobuyuki Shimotome
Executive Officer
Kazuyoshi Yamamoto
Executive Officer
Munenori Ando
Executive Officer
Hitoshi Igarashi
Executive Officer
Keith Kratzberg
Executive Officer
Isamu Otsuka
Executive Officer
Taro Shigemoto
Special Audit &
Supervisory
Officer
Deputy General
Administrative Manager,
First Technology
Development Division
President, Epson Sales
Japan Corporation
Deputy General
Administrative Manager,
First Technology
Development Division
President, Epson Europe
B.V.
President, Epson (China)
Co., Ltd.
Deputy Chief Operating
Officer, Printer Operations
Division
President, Epson America,
Inc.
President, Epson Atmix
Corporation
54
Index to Consolidated Financial Statements
Seiko Epson Corporation and Subsidiaries
Consolidated Statement of Financial Position................................................................................................ 56
Consolidated Statement of Comprehensive Income ...................................................................................... 58
Consolidated Statement of Changes in Equity ............................................................................................... 60
Consolidated Statement of Cash Flows ........................................................................................................... 62
Notes to Consolidated Financial Statements .................................................................................................. 63
Report of Independent Auditors ................................................................................................................... 121
55
Consolidated Statement of Financial Position
Years ended March 31, 2015 and 2016:
Millions of yen
Notes
March 31,
2015
March 31,
2016
Thousands of
U.S. dollars
March 31,
2016
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income tax receivables
Other financial assets
Other current assets
Subtotal
Non-current assets held for sale
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment property
Investments accounted for using the equity
method
Net defined benefit assets
Other financial assets
Other non-current assets
Deferred tax assets
Total non-current assets
Total assets
8,35
9,35
10
11,35
12
13,15
14
17
23
11,35
12
18
245,330
167,482
220,426
1,963
3,544
11,539
650,287
96
650,383
227,257
19,170
4,758
3,232
7
25,345
5,958
70,168
355,898
1,006,282
230,498
151,660
201,608
1,232
1,674
14,335
601,010
441
601,451
244,463
18,179
1,967
1,605
-
21,962
5,122
46,587
339,888
941,340
2,045,598
1,345,935
1,789,208
10,933
14,856
127,247
5,333,777
3,913
5,337,690
2,169,533
161,332
17,456
14,243
-
194,905
45,496
413,445
3,016,410
8,354,100
56
Liabilities and equity
Liabilities
Current liabilities
Trade and other payables
Income tax payables
Other financial liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Other financial liabilities
Net defined benefit liabilities
Provisions
Other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Capital surplus
Treasury shares
Other components of equity
Retained earnings
Equity attributable to owners of the parent
company
Non-controlling interests
Total equity
Total liabilities and equity
Millions of yen
Notes
March 31,
2015
March 31,
2016
Thousands of
U.S. dollars
March 31,
2016
19,35
20,35
21
22
20,35
23
21
22
18
24
24
24
24
140,047
8,384
75,745
24,322
106,942
355,442
112,466
31,234
6,141
2,977
711
153,531
508,973
53,204
84,321
(20,464)
83,073
294,191
494,325
2,982
497,308
1,006,282
130,624
6,830
62,479
23,019
102,065
325,019
81,741
54,845
4,941
3,114
1,001
145,644
470,663
53,204
84,321
(20,471)
57,989
292,775
1,159,247
60,614
554,481
204,286
905,824
2,884,452
725,425
486,732
43,849
27,656
8,883
1,292,545
4,176,997
472,168
748,322
(181,673)
514,635
2,598,287
467,818
4,151,739
2,858
470,676
941,340
25,364
4,177,103
8,354,100
57
Consolidated Statement of Comprehensive Income
Years ended March 31, 2015 and 2016:
Millions of yen
Year ended
March 31,
Notes
2015
2016
Thousands of U.S.
dollars
Year ended
March 31,
2016
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Other operating income
Other operating expense
Profit from operating activities
Finance income
Finance costs
Share of profit of investments accounted for using the
equity method
Profit before tax
Income taxes
Profit from continuing operations
Loss from discontinued operations
Profit for the period
Other comprehensive income
Items that will not be reclassified subsequently to profit
or loss, net of tax
Remeasurement of net defined benefit liabilities (assets)
Net gain (loss) on revaluation of financial assets
measured at FVTOCI (Note)
Subtotal
Items that may be reclassified subsequently to profit
or loss, net of tax
Exchange differences on translation of foreign
operations
Net changes in fair value of cash flow hedges
Share of other comprehensive income of investments
accounted for using the equity method
Subtotal
Total other comprehensive income, net of tax
Total comprehensive income for the period
7,26
10,13,
14
13,14,
27
29
13,30
31
31
18
32
33
33
33
33
33
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
1,086,341
(690,416)
395,924
(294,648)
39,907
(9,802)
131,380
3,268
(2,320)
207
132,536
(18,631)
113,904
(1,118)
112,785
(1,512)
2,121
608
30,113
1,718
257
32,089
32,698
145,483
1,092,481
(694,821)
397,660
(312,708)
14,807
(5,732)
94,026
1,652
(4,252)
104
91,530
(45,421)
46,109
(42)
46,067
(22,161)
(2,610)
(24,771)
(21,309)
(1,215)
(240)
(22,765)
(47,536)
(1,469)
9,695,429
(6,166,321)
3,529,108
(2,775,186)
131,407
(50,878)
834,451
14,660
(37,733)
922
812,300
(403,097)
409,203
(373)
408,830
(196,671)
(23,163)
(219,834)
(189,121)
(10,782)
(2,129)
(202,032)
(421,866)
(13,036)
58
Profit for the period attributable to:
Owners of the parent company
Non-controlling interests
Profit for the period
Total comprehensive income for the period
attributable to:
Owners of the parent company
Non-controlling interests
Total comprehensive income for the period
Millions of yen
Year ended
March 31,
Notes
2015
2016
Thousands of U.S.
dollars
Year ended
March 31,
2016
112,560
225
112,785
144,841
642
145,483
Yen
Year ended
March 31,
Notes
2015
2016
45,772
294
46,067
(1,456)
(12)
(1,469)
406,221
2,609
408,830
(12,930)
(106)
(13,036)
U.S. dollars
Year ended
March 31,
2016
Earnings per share for the period:
Basic earnings per share for the period
Earnings per share from continuing operations for the
period:
Basic earnings per share for the period
Earnings per share from discontinued operations for the
period:
Basic loss per share for the period
34
34
34
314.61
127.94
317.74
128.06
1.14
1.14
(3.13)
(0.12)
(0.00)
59
Consolidated Statement of Changes in Equity
Years ended March 31, 2015 and 2016:
Equity attributable to owners of the parent company
Millions of yen
Other components of equity
Notes
24
25
As of April 1, 2014
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Acquisition of treasury shares
Dividends
Acquisition of subsidiary
Transfer from other components of equity to
retained earnings
Total transactions with the owners
As of March 31, 2015
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
Share capital
Capital surplus
Treasury shares
Remeasurement of net
defined benefit
liabilities (assets)
Net gain (loss) on
revaluation of financial
assets measured at
FVTOCI (Note)
Exchange differences
on translation of
foreign operations
Net changes in fair
value of cash flow
hedges
Total other
components of equity
Retained
earnings
Total equity
attributable to owners
of the parent
company
Non-controlling
interests
Total equity
53,204
-
-
-
-
-
-
84,321
-
-
-
-
-
-
(20,457)
-
-
-
(6)
-
-
-
-
(1,512)
(1,512)
-
-
-
5,332
-
2,253
2,253
-
-
-
45,046
-
29,821
29,821
-
-
-
(662)
-
1,718
1,718
-
-
-
49,716
-
32,281
32,281
-
-
-
195,587
112,560
-
112,560
-
(12,880)
-
362,371
112,560
32,281
144,841
(6)
(12,880)
-
2,385
225
416
642
-
(95)
50
364,757
112,785
32,698
145,483
(6)
(12,975)
50
-
-
-
-
53,204
-
84,321
(6)
(20,464)
1,512
1,512
-
(436)
-
-
(436)
7,149
-
74,868
-
1,055
1,075
1,075
83,073
(1,075)
-
-
-
(13,955)
294,191
(12,887)
494,325
(45)
2,982
(12,932)
497,308
60
Equity attributable to owners of the parent company
Millions of yen
Other components of equity
Notes
24
25
Share capital
Capital surplus
Treasury shares
Remeasurement of net
defined benefit
liabilities (assets)
Net gain (loss) on
revaluation of financial
assets measured at
FVTOCI (Note)
Exchange differences
on translation of
foreign operations
Net changes in fair
value of cash flow
hedges
Total other
components of equity
Retained
earnings
Total equity
attributable to owners
of the parent
company
Non-controlling
interests
Total equity
53,204
-
-
-
-
-
-
84,321
-
-
-
-
-
-
(20,464)
-
-
-
(6)
-
-
-
-
(22,160)
(22,160)
-
-
-
7,149
-
(2,600)
(2,600)
-
-
-
74,868
-
(21,252)
(21,252)
-
-
-
1,055
-
(1,215)
(1,215)
-
-
-
83,073
-
(47,229)
(47,229)
-
-
-
294,191
45,772
-
45,772
-
(25,044)
-
494,325
45,772
(47,229)
(1,456)
(6)
(25,044)
-
2,982
294
(307)
(12)
-
(111)
-
497,308
46,067
(47,536)
(1,469)
(6)
(25,155)
-
-
-
-
-
53,204
-
84,321
(6)
(20,471)
22,160
22,160
-
(15)
-
-
(15)
4,533
-
53,616
-
(160)
22,145
22,145
57,989
(22,145)
-
-
-
(47,189)
292,775
(25,050)
467,818
(111)
2,858
(25,162)
470,676
As of April 1, 2015
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Acquisition of treasury shares
Dividends
Acquisition of subsidiary
Transfer from other components of equity to
retained earnings
Total transactions with the owners
As of March 31, 2016
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
Notes
24
25
As of April 1, 2015
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Acquisition of treasury shares
Dividends
Acquisition of subsidiary
Transfer from other components of equity to
retained earnings
Total transactions with the owners
As of March 31, 2016
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
Thousands of U.S. dollars
Equity attributable to owners of the parent company
Other components of equity
Share capital
Capital surplus
Treasury shares
Remeasurement of net
defined benefit
liabilities (assets)
Net gain (loss) on
revaluation of financial
assets measured at
FVTOCI (Note)
Exchange differences
on translation of
foreign operations
Net changes in fair
value of cash flow
hedges
Total other
components of equity
Retained
earnings
Total equity
attributable to owners
of the parent
company
Non-controlling
interests
Total equity
472,168
-
-
-
-
-
-
748,322
-
-
-
-
-
-
(181,620)
-
-
-
(53)
-
-
-
-
-
-
472,168
-
748,322
(53)
(181,673)
-
-
(196,671)
(196,671)
-
-
-
196,671
196,671
-
63,465
-
(23,094)
(23,094)
-
-
-
664,429
-
(188,604)
(188,604)
-
-
-
9,363
-
(10,782)
(10,782)
-
-
-
(142)
-
-
(142)
40,229
-
475,825
-
(1,419)
737,257
-
(419,151)
(419,151)
-
-
-
196,529
196,529
514,635
2,610,852
406,221
-
406,221
-
(222,257)
-
4,386,979
406,221
(419,151)
(12,930)
(53)
(222,257)
-
26,465
2,609
(2,715)
(106)
-
(995)
-
4,413,444
408,830
(421,866)
(13,036)
(53)
(223,252)
-
(196,529)
-
-
-
(418,786)
2,598,287
(222,310)
4,151,739
(995)
25,364
(223,305)
4,177,103
61
Consolidated Statement of Cash Flows
Years ended March 31, 2015 and 2016:
Millions of yen
Year ended
March 31,
Notes
2015
2016
Thousands of U.S. dollars
Year ended
March 31,
2016
Cash flows from operating activities
Profit for the period
Depreciation and amortisation
Impairment loss and reversal of impairment loss
Finance (income) costs, net
Share of (profit) loss of investments accounted for using the equity
method
Loss (gain) on sales and disposal of property, plant and equipment,
intangible assets and investment property, net
Income taxes
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in net defined benefit liabilities
Other, net
Subtotal
Interest and dividend income received
Interest expenses paid
Payments for loss on litigation
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Proceeds from sales of investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Proceeds from sales of investment property
Purchase of investments in subsidiaries
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in current borrowings
Repayment of non-current borrowings
Proceeds from issuance of bonds issued
Redemption of bonds issued
Payments of lease obligations
Dividends paid
Dividends paid to non-controlling interests
Purchase of treasury shares
Net cash provided by (used in) financing activities
Effect of exchange rate changes 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
25
8
8
112,785
44,907
3,563
(948)
(207)
(4,288)
18,631
(2,279)
(19,252)
21
(25,355)
8,842
136,419
2,481
(1,552)
(859)
(27,660)
108,828
249
(37,045)
272
(5,738)
29
14,012
(1,097)
(3,417)
(32,735)
(30,167)
(2,000)
10,000
(20,000)
(241)
(12,880)
(95)
(6)
(55,392)
13,118
33,819
211,510
245,330
46,067
45,923
(2,210)
2,600
(104)
(6,886)
45,421
10,661
6,610
(8,915)
1,514
(3,215)
137,468
1,664
(1,218)
(4,144)
(20,715)
113,054
51
(59,614)
582
(6,538)
31
13,969
(500)
460
(51,558)
(1,819)
(86)
-
(40,000)
(103)
(25,044)
(111)
(6)
(67,171)
(9,155)
(14,832)
245,330
230,498
408,830
407,552
(19,613)
23,073
(922)
(61,111)
403,097
94,613
58,661
(79,117)
13,436
(28,514)
1,219,985
14,767
(10,809)
(36,776)
(183,848)
1,003,319
452
(529,055)
5,165
(58,022)
275
123,970
(4,437)
4,091
(457,561)
(16,152)
(763)
-
(354,987)
(914)
(222,257)
(995)
(53)
(596,121)
(81,266)
(131,629)
2,177,227
2,045,598
62
Notes to Consolidated Financial Statements
1. Reporting Entity
Seiko Epson Corporation (the “Company”) is a stock corporation domiciled in Japan. The addresses of the
Company’s registered head office and principal business offices are available on the Company’s website
(http://www.epson.jp). The details of businesses and principal business activities of the Company and its affiliates
(“Epson”) are stated in “7. Segment Information.”
2. Basis of Preparation
(1) Compliance with IFRS
Epson’s consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (hereinafter referred to as “IFRS”) as issued by the International Accounting Standards Board which are
applied based on the provision of Article 93 of Ordinance on Terminology, Forms and Preparation Methods of
Consolidated Financial Statements, as Epson meets the criteria of a “Specified Companies applying Designated
IFRS” defined under Article 1-2 of Ordinance on Terminology, Forms and Preparation Methods of Consolidated
Financial Statements.
(2) Basis of Measurement
Except for the financial instruments stated in “3. Significant Accounting Policies,” Epson’s consolidated financial
statements are prepared on the cost basis.
(3) Functional Currency and Presentation Currency
Epson’s consolidated financial statements are presented in Japanese yen (hereinafter referred to as “yen” or “¥”),
which is the functional currency of the Company. The units are in millions of yen unless otherwise noted, and
figures less than one million yen are rounded down.
The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of
readers outside Japan and have been made at the rate of ¥ 112.68 to U.S. $1 as of March 31, 2016.
(4) Reporting Period of Subsidiaries
The fiscal year end date of certain overseas subsidiaries is December 31, and Epson consolidates financial results
of those subsidiaries in conformity with the provisional settlement of accounts as of the consolidated fiscal year
end.
3. Significant Accounting Policies
(1) Basis of Consolidation
Consolidated financial statements of Epson include financial statements of the Company and subsidiaries, and
interests in investments in associates and joint ventures.
(A) Subsidiaries
A subsidiary is an entity that is controlled by Epson. Epson controls the entity when it is exposed, or has rights, to
variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. The acquisition date of a subsidiary is the date on which Epson obtains control of the subsidiary,
and the subsidiary is included in the consolidation from the date of acquisition until the date on which Epson loses
control.
All intergroup balances, transactions, unrealised profit or loss arising from intergroup transaction are eliminated on
consolidation. Comprehensive income for subsidiaries is attributed to the owners of the parent company and to the
non-controlling interests even if this results in the non-controlling interests having a deficit balance.
63
(B) Associates
An associate is an entity over which Epson has significant influence that is the power to participate in the financial
and operating policy decisions of the entity. Investments in associates are accounted for using the equity method
from the date on which Epson has the significant influence until the date on which it ceases to have the significant
influence.
(C) Joint Ventures
A joint venture is a joint arrangement whereby Epson and the other parties that have joint control of the
arrangement have rights to the net assets of the arrangement. The joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities, that significantly affect
the returns of the arrangement, require the unanimous consent of the parties sharing control. Epson accounts for
that investment using the equity method.
(2) Business Combinations
Each business combination is accounted for by applying the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of
the assets transferred by Epson, the liabilities incurred by Epson to former owners of the acquiree and the equity
interests issued by Epson. As the excess of the aggregate of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the fair value of the Epson’s previously held equity interest in the
acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed,
goodwill is recognised in the consolidated statement of financial position. If the difference is a negative monetary
value, the resulting gain is immediately recognised as profit in the consolidated statement of comprehensive
income. Acquisition-related costs incurred are recognised as expenses except for the costs to issue debt or equity
securities.
(3) Foreign Currency Translation
Consolidated financial statements of Epson are presented in Japanese yen, which is the functional currency of the
Company. Each company in Epson determines its functional currency and measures its results and financial
position in that currency.
Foreign currency transaction is translated into the functional currency at a spot exchange rate at the date of
transaction or a rate that approximates the actual rate at the date of the transaction. Foreign currency monetary
items are translated using the closing rate. Exchange differences arising on the settlement of monetary items or on
translating monetary items are recognised in profit or loss. However, exchange differences arising on financial
instruments designated as hedging instruments for net investments in foreign operations, financial assets measured
at fair value through other comprehensive income, and cash flow hedges are recognised in other comprehensive
income.
Assets and liabilities of foreign operations are translated into Japanese yen at the closing date, while income and
expenses of foreign operations are translated into Japanese yen at exchange rates at the dates of the transactions or
a rate that approximates the exchange rates at the dates of the transactions. All resulting exchange differences are
recognised in other comprehensive income. On the disposal of a foreign operation, the cumulative amount of the
exchange differences relating to that foreign operation is recognised in profit or loss in the period of disposition.
(4) Financial Instruments
Epson accounts for financial instruments in accordance with IFRS 9 “Financial Instruments” (announced in
November 2009, revised in October 2010), which Epson has early adopted.
(A) Financial Assets
(i) Initial Recognition and Measurement
Financial assets are classified into financial assets measured at fair value and amortised cost at initial recognition.
Financial assets are classified as financial assets measured at amortised cost if both of the following conditions
are met. Otherwise, they are classified as financial assets measured at fair value.
(a) The asset is held within a business model whose objective is to hold assets in order to collect contractual
cash flows.
(b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
64
For financial assets measured at fair value, each equity instrument is designated as measured at fair value through
profit or loss or as measured at fair value through other comprehensive income, except for equity instruments
held for trading purposes that must be measured at fair value through profit or loss. Such designations are applied
continuously.
All financial assets are initially measured at fair value plus transaction costs that are directly attributable to the
financial assets, except when classified in the category of financial assets measured at fair value through profit or
loss.
Epson recognises trade and other receivables on the date they are originated. All other financial assets are
recognised on the trade date when Epson becomes a party to the contractual provisions of the instrument.
(ii) Subsequent Measurement
After initial recognition, financial assets are measured based on the classification as follows:
(a) Financial Assets Measured at Amortised Cost
Financial assets measured at amortised cost are measured at amortised cost using the effective interest method.
(b) Financial Assets Measured at Fair Value
Financial assets other than those measured at amortised cost are measured at fair value.
Changes in fair value of financial assets measured at fair value are recognised in profit or loss. However,
changes in fair value of equity instruments designated as measured at fair value through other comprehensive
income are recognised in other comprehensive income and the cumulative change in fair value in other
comprehensive income is transferred to retained earnings when equity instruments are derecognised or the
decline in its fair value is significant. Dividends on the financial assets are recognised in profit or loss for each
fiscal year.
(iii) Derecognition
Financial assets are derecognised when the contractual rights to the cash flows from them expire or when they are
transferred in transactions in which substantially all the risks and rewards of ownership are transferred.
(B) Impairment of Financial Assets
At the end of each fiscal year, Epson assesses whether there is any objective evidence that financial assets
measured at amortised cost are impaired. Evidence of impairment includes significant financial difficulty of the
borrower or a group of borrowers, a default or delinquency in interest or principal payments, and bankruptcy of the
borrower. Epson assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant and collectively for financial assets that are not individually significant.
If there is any objective evidence that impairment losses on financial assets measured at amortised cost have been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows.
When impairment is recognised, the carrying amount of the financial asset is reduced by an allowance account and
impairment loss is recognised in profit or loss. If the amount of the impairment loss provided decreases due to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed in
profit or loss through the allowance account.
(C) Financial Liabilities
(i) Initial Recognition and Measurement
Financial liabilities are classified into financial liabilities measured at fair value through profit or loss and
financial liabilities measured at amortised cost. Epson determines the classification at initial recognition.
All financial liabilities are measured at fair value at initial recognition. However, financial liabilities measured at
amortised cost are measured at cost after deducting transaction costs that are directly attributable to the financial
liabilities.
(ii) Subsequent Measurement
After initial recognition, financial liabilities are measured based on the classification as follows:
(a) Financial Liabilities Measured at Fair Value through Profit or Loss
Financial liabilities measured at fair value through profit or loss include financial liabilities designated as
measured at fair value through profit or loss at initial recognition.
65
(b) Financial Liabilities Measured at Amortised Cost
Financial liabilities measured at amortised cost are measured at amortised cost using the effective interest
method.
(iii) Derecognition
Financial liabilities are derecognised when the obligation is discharged, canceled or expired.
(D) Offsetting a Financial Asset and a Financial Liability
A financial asset and a financial liability are offset and the net amount presented in the consolidated statement of
financial position when there is a legally enforceable right to set off the recognised amounts and Epson intends
either to settle on a net basis or to realise the asset and settle the liability simultaneously.
(E) Derivatives Accounting
Epson utilizes derivatives, including forward foreign exchange contracts and non-deliverable forwards, to hedge
foreign exchange and interest rate risks. These derivatives are initially measured at fair value when the contract is
entered into, and are subsequently remeasured at fair value.
Changes in fair value of derivatives are recognised in profit or loss in the consolidated statement of comprehensive
income. However, the gains or losses on hedging instruments relating to the effective portion of cash flow hedges
and hedges of net investments in foreign operations are recognised in other comprehensive income in the
consolidated statement of comprehensive income.
(F) Hedge Accounting
At the inception of a hedge, Epson formally designates and documents the hedging relationship to which hedge
accounting is applied and the objectives and strategies of risk management for undertaking the hedge. The
documentation includes identification of hedging instruments, the hedged items or transactions, the nature of the
risks being hedged and how the hedging instrument’s effectiveness is assessed in offsetting the exposure to changes
in the hedged item’s fair value or cash flows attributable to the hedged risks. Even though these hedges are
expected to be highly effective in offsetting changes in fair value or cash flows, they are assessed on an ongoing
basis and determined actually to have been highly effective throughout the financial reporting periods for which the
hedges were designated. Epson classifies hedging relationships that meet the qualifying criteria for hedge
accounting in the following categories and applies hedge accounting to the hedging relationships.
(i) Fair Value Hedge
The gain or loss on the derivative is recognised in profit or loss in the consolidated statement of comprehensive
income. The hedging gain or loss on the hedged items attributable to the hedged risks adjust the carrying amount
of the hedged item and is recognised in profit or loss in the consolidated statement of comprehensive income.
(ii) Cash Flow Hedge
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised
in other comprehensive income in the consolidated statement of comprehensive income, while the ineffective
portion is recognised immediately in profit or loss in the consolidated statement of comprehensive income.
The amounts of hedging instruments recognised in other comprehensive income are reclassified to profit or loss
when the transactions of the hedged items affect profit or loss. In cases where hedged items result in the
recognition of non-financial assets or liabilities, the amounts recognised in other comprehensive income are
accounted for as adjustments to the initial carrying amount of non-financial assets or liabilities.
When forecast transactions or firm commitments are no longer expected to occur, any related cumulative gains or
losses that have been recognised in other comprehensive income are reclassified to profit or loss. When hedging
instruments expire, are sold, terminated or exercised without the replacement or rollover of other hedging
instruments, or when the hedge designation is revoked, amounts that have been recognised in other
comprehensive income continue to be recognised in equity until the forecast transactions or firm commitments
occur.
(iii) Hedges of a Net Investment in Foreign Operation
Hedges of a net investment in foreign operation are accounted for similarly to cash flow hedges. The portion of
the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other
comprehensive income in the consolidated statement of comprehensive income, while the ineffective portion is
recognised in profit or loss in the consolidated statement of comprehensive income. On the disposal of the
foreign operation, the cumulative gain or loss on the hedging instrument relating to the effective portion of the
hedge that has been recognised in other comprehensive income is reclassified from equity to profit or loss.
66
(G) Fair Value of Financial Instruments
Fair value of financial instruments that are traded in an active market as of the end of fiscal year refers to quoted
market prices or dealer quotations.
If there is no active market, fair value of financial instruments is determined using appropriate valuation models.
(5) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits, and short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value
as such that has a short maturity of three months or less from the date of acquisition.
(6) Inventories
The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition.
Inventories are measured at the lower of cost or net realizable value, and the cost of inventories is assigned by
using the weighted-average cost formula. Net realizable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated costs necessary to make the sale.
(7) Property, Plant and Equipment
The cost of property, plant and equipment includes any costs directly attributable to the acquisition of the asset and
dismantlement, removal and restoration costs, as well as borrowing costs eligible for capitalisation.
After recognition as an asset, property, plant, and equipment is measured by using the cost model and is carried at
its cost less any accumulated depreciation and any accumulated impairment losses.
Except for assets that are not subject to depreciation such as land, assets are depreciated using the straight-line
method over their estimated useful lives. The estimated useful lives of major assets are as follows:
• Buildings and structures: 10 to 35 years
• Machinery and vehicles: 2 to 12 years
The estimated useful lives, depreciation method and residual value are reviewed at each fiscal year end and, if
expectations differ from previous estimates, the effect of changes in accounting estimates is recognised
prospectively.
(8) Intangible Assets
(A) Goodwill
Goodwill acquired in a business combination is measured at the amount recognised at the acquisition date less any
accumulated impairment losses.
Goodwill is not amortised and allocated to a cash-generating unit that is identified according to locations and types
of businesses. The cash-generating unit to which goodwill has been allocated is tested for impairment annually, and
whenever there is an indication that the unit may be impaired. An impairment loss is recognised in profit or loss in
the consolidated statement of comprehensive income and not reversed in a subsequent period.
(B) Intangible Assets other than Goodwill
The cost of a separately acquired intangible asset is measured initially at cost, and the cost of intangible asset
acquired in a business combination is its fair value at the acquisition date. The cost of internally generated
intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the
recognition criteria.
After initial recognition, an intangible asset is measured by using the cost model and is carried at its cost less any
accumulated amortisation and any accumulated impairment losses.
An intangible asset with a finite useful life is amortised using the straight-line method over its estimated useful life.
The estimated useful life of major intangible asset with a finite useful life is as follows:
• Software: 3 to 5 years
The estimated useful lives and amortisation method are reviewed at each fiscal year end and, if expectations differ
from previous estimates, the effect of changes in accounting estimates is recognised prospectively.
An intangible asset with an indefinite useful life or an intangible asset not yet available for use are not amortised
and tested for impairment annually, and whenever there is an indication that the intangible asset may be impaired.
(9) Leases
Epson classifies a lease as finance lease if it transfers substantially all the risks and rewards incidental to ownership
of an asset and a lease as operating lease if it does not transfer substantially all the risks and rewards incidental to
ownership of an asset.
67
At the commencement of the lease term, finance leases are recognised as assets and liabilities in the consolidated
statement of financial position at amounts equal to the fair value of the leased property or, if lower, the present
value of the minimum lease payments, each determined at the inception of the lease. Minimum lease payments are
apportioned between the finance charge and the reduction of the outstanding liability. The asset is depreciated
using the straight-line method over the shorter of the lease term and its estimated useful life which is consistent
with that for depreciable assets that are owned. Contingent rents are recognised as expenses in the periods in which
they are incurred.
Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term
in the consolidated statement of comprehensive income.
Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and
requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset or assets
(the asset) and the arrangement conveys a right to use the asset.
(10) Investment Property
Investment property is property held to earn rentals or for capital appreciation or both.
After recognition as an asset, investment property is measured by using the cost model and is carried at its cost less
any accumulated depreciation and any accumulated impairment losses.
Investment property is depreciated using the straight-line method over its estimated useful life. The estimated
useful life of major investment properties is 35 years.
(11) Impairment of Non-financial Assets
Epson assesses whether there is any indication that an asset may be impaired. If any such indication exists, or
irrespective of whether there is any indication of impairment, where impairment testing is required, the recoverable
amount of the asset is estimated. If it is not possible to estimate the recoverable amount for each asset, the
recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount
is measured at the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use.
If carrying amount of an asset or cash-generating unit exceeds its recoverable amount, an impairment loss is
recognised and the carrying amount of the asset is reduced to its recoverable amount. The impairment loss is
recognised in profit or loss. In determining an asset’s value in use, an estimate of the future cash flows expected to
derive from the asset are discounted to the present value, using pretax discount rates that reflect current market
assessments of the time value of money and the risks specific to the asset.
An impairment loss for goodwill is recognised in profit or loss in the consolidated statement of comprehensive
income and not reversed in a subsequent period. Epson assesses whether there is any indication that an impairment
loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any
such indication exists, the recoverable amount of that asset is estimated. If the recoverable amount exceeds the
carrying amount of the asset, an impairment loss is reversed to the carrying amount that would have been
determined (net of amortisation or depreciation) if no impairment loss had been recognised for the asset in prior
years.
(12) Non-current Assets Held for Sale and Discontinued Operations
Epson classifies a non-current asset or disposal group as held for sale if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use. The non-current asset or disposal group as
held for sale is available for immediate sale in its present condition and its sale is highly probable when Epson
management commits to a plan to sell the asset or disposal group.
Epson measures the non-current asset or disposal group classified as held for sale at the lower of its carrying
amount and fair value less costs to sell. The non-current asset is not depreciated or amortised while it is classified
as held for sale or while it is part of a disposal group classified as held for sale.
A discontinued operation is a component of an entity, that is a cash-generating unit or a group of cash-generating
units, that either has been disposed of, or is classified as held for sale, and (a) represents a separate major line of
business or geographical area of operations, (b) is part of a single co-ordinated plan to dispose of a separate major
line of business or geographical area of operations or (c) is a subsidiary acquired exclusively with a view to resale.
(13) Post-employment Benefits
Epson has defined benefit plans and defined contribution plans as post-employment benefits plans.
For each defined benefit plan, Epson calculates the present value of defined benefit obligations and the related
current service cost and past service cost, using the projected unit credit method. For a discount rate, a discount
period is set based on the estimated timing of benefit payments in each period, and the discount rate is determined
by reference to market yields as of the end of fiscal year on high quality corporate bonds for the period
corresponding to the discount period. The net defined benefit liability (asset) is measured by deducting the fair
value of any plan assets (including adjustments of the net defined benefit asset and the asset ceiling, if necessary)
68
from the present value of the defined benefit obligation. Net interest on the net defined benefit liability (asset) is
recognised in profit or loss. Remeasurements of the net defined benefit liability (asset) are recognised in other
comprehensive income and transferred to retained earnings immediately. Past service cost is recognised as an
expense at the earlier of when a plan amendment or curtailment occurs and when any related restructuring costs or
termination benefits are recognised.
The contribution payable to a defined contribution plan is recognised as an expense.
(14) Provisions
Epson recognises provision when it has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources embodying economic benefits is required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation.
Where the effect of the time value of money is material, the amount of a provision is measured at the present value
of the expenditures expected to be required to settle the obligation.
(15) Revenue
(A) Sale of Goods
Epson recognises revenue from the sale of goods when the significant risks and rewards of ownership of the goods
have been transferred to the buyers, Epson retains neither continuing managerial involvement nor effective control
over the goods sold, it is probable that the economic benefits associated with the transaction will flow to Epson,
and the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured
reliably. The risks and rewards of ownership of the goods are usually transferred at the time of delivery of the
goods to customers. The amount of revenue is measured at the fair value of the consideration received or receivable
taking into account the amount of any trade discounts and volume rebates.
(B) Interest
Interest is recognised using the effective interest method.
(C) Dividends
Dividends are recognised when the shareholder’s right to receive payment is established.
(D) Royalties
Royalties are recognised on an accrual basis in accordance with the substance of the relevant agreement.
(E) Rendering of Services
Revenues arising from rendering of services are recognised by reference to the stage of completion of the
transaction as of the end of fiscal year.
(16) Government Grants
A government grant is recognised at fair value when there is reasonable assurance that Epson will comply with the
conditions attaching to it, and that the grant will be received.
Grants related to assets are deducted in calculating the carrying amount of the asset.
Grants related to income are recognised in profit or loss on a systematic basis over the periods in which Epson
recognises as expenses the related costs for which the grants are intended to compensate.
(17) Borrowing Costs
Borrowing costs are interest and other costs incurred in connection with the borrowing of funds.
The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset,
that necessarily takes a substantial period of time to get ready for their intended use or sale, are capitalized as part
of the cost of that asset. Other borrowing costs are recognised as an expense in the period when they are incurred.
(18) Income Taxes
Income taxes are presented as the total of current tax expense and deferred tax expense.
Current tax is the amount of income taxes payable or recoverable and is recognised as an expense or income and
included in profit or loss for the period, except to the extent that the tax arises from a transaction which is
recognised either in other comprehensive income or directly in equity or a business combination. For the
calculation of the tax amount, Epson uses the tax rates and tax laws that have been enacted or substantively enacted
by the end of fiscal year.
Deferred tax expense is calculated based on a temporary difference that is the difference between the carrying
69
amount of the assets or liabilities in the consolidated financial statements and their tax bases. A deferred tax asset is
recognised for all deductible temporary differences, the carryforward of unused tax credits and unused tax losses to
the extent that it is probable that future taxable profit will be available against which they can be utilized. A
deferred tax liability is recognised for all taxable temporary differences.
A deferred tax liability is not recognised for taxable temporary differences when the deferred tax liability arises
from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not
a business combination and affects neither accounting profit nor taxable profit or loss at the time of the transaction.
Also a deferred tax liability is not recognised for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures to the extent that the timing of the reversal of the
temporary difference is controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
A deferred tax asset is not recognised for deductible temporary differences arising from investments in subsidiaries
and associates, and interests in joint ventures to the extent that it is not probable that the temporary difference will
reverse in the foreseeable future and that taxable profit will be available against which the temporary difference
can be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively
enacted by the end of fiscal year.
(19) Treasury Shares
Treasury shares are measured at their cost and deducted from equity. No gain or loss is recognised in profit or loss
on the purchase, sale or cancellation of the treasury shares. Any difference between the carrying amount and the
consideration paid is recognised in equity.
(20) Earnings per Share
Basic earnings per share are calculated by dividing profit or loss attributable to ordinary shareholders of the
Company by the weighted-average number of ordinary shares outstanding during the period, adjusting by the
number of treasury shares.
(21) Dividends
Year-end dividend distributions to the shareholders of the Company are recognised as liabilities in the period in
which the distribution is approved by the Annual Shareholders’ Meeting. Interim dividend distributions are
recognised as liabilities in the period in which the distribution is approved by Epson’s Board of Directors.
4. Significant Accounting Estimates and Judgments
The preparation of Epson’s consolidated financial statements includes management estimates and assumptions in
order to measure income, expenses, assets and liabilities, and disclosed contingencies as of the fiscal year end date.
These estimates and assumptions are based on the best judgment of management in light of historical experience
and various factors deemed to be reasonable as of the fiscal year end date. Given their nature, actual results may
differ from those estimates and assumptions.
The estimates and assumptions are continuously reviewed by management. The effects of a change in estimates and
assumptions are recognised in the period of the change and subsequent periods.
Among the above estimates and assumptions, the following were items that may have a material effect on the
amounts recognised in Epson’s consolidated financial statements:
(1) Impairment of Property, Plant and Equipment, Goodwill, Intangible Assets and Investment
Property
Epson performs an impairment test for property, plant and equipment, goodwill, intangible assets and investment
property when there is any indication that the recoverable amount has fallen below the carrying amount of the
assets.
The impairment test is performed by comparing the carrying amount and the recoverable amount of assets. If the
recoverable amount falls below the carrying amount, impairment losses are recognised. Recoverable amount is
determined with certain assumptions of useful life, future cash flow of an asset, discount rate and long-term growth
rate. These assumptions are based on the best estimates and judgments of management, but they could be affected
by variable and uncertain future economic conditions. Any changes in these assumptions could have a material
impact on Epson’s consolidated financial statements in future periods.
70
The method for calculating the recoverable amount is stated in “13. Property, Plant and Equipment.”
(2) Post-employment Benefits
Epson has several types of post-employment benefit plans, including defined benefit plans.
The present value of defined benefit obligations on each of these plans and the related service costs and others are
calculated based on actuarial assumptions. These actuarial assumptions require estimates and judgments on
variables, such as discount rates.
The actuarial assumptions are determined based on the best estimates and judgments of management, but they
could be affected by variable and uncertain future economic conditions. Any changes in these assumptions could
have a material impact on Epson’s consolidated financial statements in future periods.
These actuarial assumptions and related sensitivity analysis are stated in “23. Post-employment Benefits.”
(3) Provisions
Epson recognises various provisions, including provisions for product warranties and provisions for loss on
litigation, in the consolidated statement of financial position.
These provisions are recognised based on the best estimates of the expenditures required to settle the obligations,
taking into account risks and uncertainty related to the obligations as of the fiscal year end date.
Expenditures necessary for settling the obligations are calculated by taking all possible future results into account;
however, they may be affected by unexpected events or changes in conditions which may have a material impact
on Epson’s consolidated financial statements in future periods.
The nature and amount of recognised provisions are stated in “21. Provisions.”
(4) Income Taxes
Epson, which conducts business around the world, makes reasonable estimates of income tax to be paid to local tax
authorities in accordance with local laws and regulations, and recognises income taxes payable and current tax
expense based on these estimates.
Calculating income taxes payable and current tax expense requires estimates and judgments on various factors,
including, for example, the interpretation of tax regulations by taxable entities and the tax authority in the
jurisdiction or experience of prior tax investigation.
Therefore, there may be differences between the amount recognised as income taxes payable and current tax
expense and the amount of actual income taxes payable and current tax expense. These differences may have a
material impact on Epson’s consolidated financial statements in future periods.
In addition, deferred tax assets are recognised to the extent that it is probable that taxable income will be available
against which deductible temporary differences can be utilised. In recognising the deferred tax assets, Epson judges
the possibility of future taxable income and reasonably estimate the timing and amount of future taxable income
based on the business plan. The timing and amount of taxable income may be affected by variable and uncertain
future economic conditions, and changes could have a material impact on Epson’s consolidated financial
statements in future periods.
The content and amounts related to income taxes are stated in “18. Income Taxes.”
(5) Contingencies
With regard to contingencies, any items that may have a material impact on business in the future are disclosed in
light of all the available evidence as of the fiscal year end date and by taking into account the probability of these
contingencies and their impact on financial reporting.
The content of contingencies is stated in “39. Contingencies.”
5. Changes in Accounting Policies
There is no application of accounting standard and interpretation newly by Epson from the fiscal year 2015.
71
6. New Accounting Standards Not Yet Adopted
Basis of preparation by the date of approval of the consolidated financial statements, new accounting standards,
amended standards and new interpretations that have been issued, but have not been early adopted by Epson are as
follows.
The implications from adoption of these standards and interpretations are assessed by Epson.
IFRS
IFRS 9
Financial
Instruments
Mandatory adoption
(from the year
beginning)
January 1, 2018
Timing of
adoption by
Epson
Description of new and revised standards
To be determined Amendments to hedge accounting
Limited changes to classification and
measurement of financial assets, and
introduction of an expected credit loss
impairment model
IFRS 15 Revenue from
Contracts with
Customers
IFRS 16 Leases
January 1, 2018
To be determined Amendments to accounting treatment for
recognising revenue
January 1, 2019
To be determined Amendments to the principles for the
recognition, measurement, presentation
and disclosure of leases
Recognision of assets and liabilities for
most leases by lessees
Substantially unchanged in lessor
accounting
7. Segment Information
(1) Outline of Reportable Segments
The reportable segments of Epson are determined based on the operating segments that are components of Epson
about which separate financial information is available and are evaluated regularly by the Board of Directors in
deciding how to allocate resources and in assessing performance.
From the beginning of this fiscal year, Epson changed its organisational structure and the reportable segments into
three segments: “Printing Solutions”, “Visual Communications” and “Wearable & Industrial Products”. They are
determined by types of products, nature of products, and markets. Segment information for the year ended March
31, 2015 has been reclassified based on new reportable segments.
Epson conducts development, manufacturing and sales within its reportable segments as follows:
Reportable segments
Printing Solutions
Main products
Inkjet printers, serial impact dot matrix printers, page printers, color image scanners,
commercial inkjet printers, industrial inkjet printing systems, printers for use in POS
systems, label printers and related consumables, personal computers and others.
Visual Communications 3LCD projectors, HTPS-TFT panels for 3LCD projectors, smart eyewear and others.
Wearable & Industrial
Products
Watches, watch movements, sensing systems, industrial robots, IC handlers, crystal
units, crystal oscillators, quartz sensors, CMOS LSIs, Metal powders, surface
finishing and others.
72
(2) Revenues and Performances for Reportable Segments
Revenues and performances for reportable segments were as follows. Transactions between the segments were
mainly based on prevailing market prices.
FY2014: Year ended March 31, 2015
Printing
Solutions
Reportable segments
Visual
Communi-
cations
Wearable &
Industrial
Products
Millions of yen
Subtotal
Other
(Note 2)
Adjustments
(Note 3)
Consolidated
Revenue
External revenue
Inter-segment revenue
Total revenue
Segment profit (loss)
(Business profit)
(Note 1)
730,534
333
730,867
176,938
247
177,186
167,589
5,889
173,478
1,075,062
6,470
1,081,532
808
581
1,390
10,470
(7,052)
3,418
1,086,341
-
1,086,341
111,442
19,421
10,338
141,202
(318)
(39,608)
101,275
Other operating income
(expense)
Profit from operating activities
Finance income (costs), net
Share of profit of
investments accounted for
using the equity method
30,104
131,380
948
207
Profit before tax
132,536
Other items
Depreciation and
amortisation expense
Impairment loss and
Reversal of impairment
loss on other than
financial assets
Segment assets
Capital expenditures
Printing
Solutions
Reportable segments
Visual
Communi-
cations
Wearable &
Industrial
Products
Subtotal
Other
(Note 2)
Adjustments
(Note 4)
Consolidated
(23,011)
(7,242)
(8,075)
(38,329)
(20)
(6,127)
(44,478)
(38)
(81)
(590)
(710)
-
(2,852)
(3,563)
372,246
22,190
119,363
6,876
138,596
8,360
630,206
37,427
564
12
375,511
7,987
1,006,282
45,427
(Note 1) Segment profit (loss) (Business profit) is calculated by subtracting cost of sales and selling, general and
administrative expenses from revenue.
(Note 2) “Other” consists of the intra-group services.
(Note 3) Adjustments to segment profit (loss) (business profit) of (¥39,608) million comprised “Eliminations” of
¥334 million and “Corporate expenses” of (¥39,943) million. The corporate expenses included expenses relating to
research and development for basic technology, new businesses and general corporate expenses which are not
attributed to reportable segments.
(Note 4) Adjustments to segment assets of ¥375,511 million comprised “Eliminations” of (¥4,583) million and
“Corporate assets” of ¥380,095 million.
73
FY2015: Year ended March 31, 2016
Millions of yen
Reportable segments
Printing
Solutions
Visual
Communi-
cations
Wearable &
Industrial
Products
Subtotal
Other
(Note 2)
Adjustments
(Note 3)
Consolidated
Revenue
External revenue
736,033
183,997
164,384
1,084,415
Inter-segment revenue
336
35
6,031
6,403
753
651
7,312
1,092,481
(7,055)
-
Total revenue
736,369
184,033
170,415
1,090,819
1,404
257
1,092,481
Segment profit (loss)
(Business profit)
(Note 1)
104,740
15,593
9,817
130,150
(566)
(44,632)
84,951
Other operating income
(expense)
Profit from operating activities
Finance income (costs), net
Share of profit of
investments accounted for
using the equity method
Profit before tax
9,074
94,026
(2,600)
104
91,530
Other items
Depreciation and
amortisation expense
Impairment loss and
Reversal of impairment
loss on other than
financial assets
Segment assets
Reportable segments
Printing
Solutions
Visual
Communi-
cations
Wearable &
Industrial
Products
Subtotal
Other
(Note 2)
Adjustments
(Note 4)
Consolidated
(24,183)
(7,420)
(8,171)
(39,775)
(21)
(5,602)
(45,399)
(251)
(406)
(203)
(861)
-
3,071
2,210
Capital expenditures
36,623
10,763
10,293
57,680
348,610
108,097
130,867
587,576
638
40
353,125
941,340
11,701
69,423
(Note 1) Segment profit (loss) (Business profit) is calculated by subtracting cost of sales and selling, general and
administrative expenses from revenue.
(Note 2) “Other” consists of the intra-group services.
(Note 3) Adjustments to segment profit (loss) (business profit) of (¥44,632) million comprised “Eliminations” of
¥470 million and “Corporate expenses” of (¥45,102) million. The corporate expenses included expenses relating to
research and development for basic technology, new businesses and general corporate expenses which are not
attributed to reportable segments.
(Note 4) Adjustments to segment assets of ¥353,125 million comprised “Eliminations” of (¥3,999) million and
“Corporate assets” of ¥357,124 million.
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FY2015: Year ended March 31, 2016
Thousands of U.S. dollars
Reportable segments
Printing
Solutions
Visual
Communi-
cations
Wearable &
Industrial
Products
Subtotal
Other
(Note 2)
Adjustments
(Note 3)
Consolidated
Revenue
External revenue
6,532,073
1,632,925
1,458,857
9,623,855
Inter-segment revenue
2,991
310
53,523
56,824
6,683
5,777
64,891
9,695,429
(62,601)
-
Total revenue
6,535,064
1,633,235
1,512,380
9,680,679
12,460
2,290
9,695,429
Segment profit (loss)
(Business profit)
(Note 1)
929,535
138,383
87,122
1,155,040
(5,023)
(396,095)
753,922
Other operating income
(expense)
Profit from operating activities
Finance income (costs), net
Share of profit of
investments accounted for
using the equity method
Profit before tax
80,529
834,451
(23,073)
922
812,300
Other items
Depreciation and
amortisation expense
Impairment loss on
other than financial
assets
Segment assets
Reportable segments
Printing
Solutions
Visual
Communi-
cations
Wearable &
Industrial
Products
Subtotal
Other
(Note 2)
Adjustments
(Note 4)
Consolidated
(214,625)
(65,850)
(72,515)
(352,990)
(186)
(49,726)
(402,902)
(2,237)
(3,603)
(1,801)
(7,641)
-
27,254
19,613
3,093,824
959,327
1,161,403
5,214,554
5,662
3,133,884
8,354,100
Capital expenditures
325,027
95,518
91,347
511,892
354
103,861
616,107
(Note 1) Segment profit (loss) (Business profit) is calculated by subtracting cost of sales and selling, general and
administrative expenses from revenue.
(Note 2) “Other” consists of the intra-group services.
(Note 3) Adjustments to segment profit (loss) (business profit) of ($396,095) thousand comprised “Eliminations” of
$4,171 thousand and “Corporate expenses” of ($400,266) thousand. The corporate expenses included expenses
relating to research and development for basic technology, new businesses and general corporate expenses which
are not attributed to reportable segments.
(Note 4) Adjustments to segment assets of $3,133,884 million comprised “Eliminations” of ($35,480) million and
“Corporate assets” of $3,169,364 million.
75
(3) Geographic Information
The regional breakdowns of non-current assets and external revenues as of each fiscal year end were as follows:
Non-current Assets
Japan
China
Other
Total
Millions of yen
March 31,
2015
2016
Thousands of U.S. dollars
March 31,
2016
163,689
26,464
70,223
260,377
168,114
25,704
77,520
271,338
1,491,959
228,115
687,986
2,408,060
(Note) Non-current assets, excluding other financial assets, deferred tax assets and retirement benefits assets, are
segmented by the location of the assets.
External Revenue
Japan
The United States
China
Other
Total
Millions of yen
Year ended March 31,
2016
2015
Thousands of U.S. dollars
Year ended March 31,
2016
276,238
205,215
148,176
456,710
1,086,341
264,012
227,849
144,466
456,152
1,092,481
2,343,024
2,022,089
1,282,090
4,048,226
9,695,429
(Note) Revenue is segmented by country based on the location of the customers.
(4) Major Customers Information
Epson had no transactions with a single external customer amounting to 10% or more of total external revenue.
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8. Cash and Cash Equivalents
The breakdown of “Cash and cash equivalents” was as follows:
Cash and deposits
Short-term investments
Total
Millions of yen
March 31,
2015
111,330
134,000
245,330
2016
102,404
128,093
230,498
Thousands of
U.S. dollars
March 31,
2016
908,803
1,136,795
2,045,598
9. Trade and Other Receivables
The breakdown of “Trade and other receivables” was as follows:
Notes and trade receivables
Other receivables
Allowance account for credit losses
Total
Millions of yen
March 31,
2015
156,440
12,563
(1,521)
167,482
2016
140,623
12,463
(1,426)
151,660
Thousands of
U.S. dollars
March 31,
2016
1,247,985
110,605
(12,655)
1,345,935
Trade and other receivables are presented net of the allowance account for credit losses in the consolidated
statement of financial position.
Trade and other receivables are classified as financial assets measured at amortised cost.
10. Inventories
The breakdown of “Inventories” was as follows:
Merchandise and finished goods
Work in process
Raw materials
Supplies
Total
Millions of yen
March 31,
2015
140,825
54,360
19,250
5,989
220,426
2016
122,013
52,256
20,363
6,975
201,608
Thousands of
U.S. dollars
March 31,
2016
1,082,827
463,755
180,715
61,911
1,789,208
The amount of inventories included in cost of sales recognised as an expense totaled (¥676,128) million and
(¥687,289) million (($6,099,476) thousand) for the years ended March 31, 2015 and 2016, respectively.
Losses recognised as cost of sales as a result of valuations for the years ended March 31, 2015 and 2016 were
(¥32,138) million and (¥29,158) million (($258,768) thousand), respectively. In addition, Epson has no
inventories pledged as collateral.
77
11. Other Financial Assets
(1) The breakdown of “Other financial assets”
Derivative assets
Equity securities
Bonds receivable
Time deposits
Other
Allowance account for credit losses
Total
Current assets
Non-current assets
Total
Millions of yen
March 31,
2015
2016
3,181
19,639
108
44
5,980
(64)
28,889
3,544
25,345
28,889
1,383
16,060
88
37
6,119
(53)
23,637
1,674
21,962
23,637
Thousands of
U.S. dollars
March 31,
2016
12,273
142,527
780
328
54,323
(470)
209,761
14,856
194,905
209,761
Derivative assets are classified as financial assets measured at fair value through profit or loss, excluding a case
where hedge accounting is applied. Equity securities held for other than trading purposes are classified as financial
assets measured at fair value through other comprehensive income, and time deposits and bonds receivable are
classified as financial assets measured at amortised cost.
(2) Names of major equity securities measured at fair value through other comprehensive
income, their fair values and dividends received
Millions of yen
March 31, 2015
March 31, 2016
Thousands of U.S.
dollars
March 31, 2016
Fair value
Dividends
received
Fair value
Dividends
received
Fair value
Dividends
received
NGK Insulators, Ltd.
Mizuho Financial Group,
Inc.
9,636
3,168
93
105
7,810
2,522
123
69,311
116
22,381
1,091
1,029
Equity securities are held mainly for strengthening relationships with investees. Therefore, they are designated as
financial assets measured at fair value through other comprehensive income.
78
12. Other Assets
The breakdown of “Other current assets” and “Other non-current assets” was as follows:
Prepaid expense
Advances to suppliers
Other
Total
Current assets
Non-current assets
Total
Millions of yen
March 31,
2015
13,620
1,954
1,922
17,497
11,539
5,958
17,497
2016
13,887
1,724
3,845
19,457
14,335
5,122
19,457
Thousands of
U.S. dollars
March 31,
2016
123,242
15,299
34,202
172,743
127,247
45,496
172,743
79
13. Property, Plant and Equipment
(1) Schedule of Property, Plant and Equipment
The schedules of the cost, accumulated depreciation and accumulated impairment losses, and carrying amount of
“Property, plant and equipment” were as follows:
Millions of yen
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
Cost
As of April 1, 2014
Individual acquisition
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Transfer from construction
in progress
Other
As of M arch 31, 2015
Individual acquisition
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Transfer from construction
in progress
Other
As of M arch 31, 2016
Cost
As of M arch 31, 2015
Individual acquisition
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Transfer from construction
in progress
Other
As of M arch 31, 2016
470,871
810
1,416
(9,462)
(396)
(7,057)
6,968
5,332
(13)
468,469
3,997
717
(182)
(1,267)
(17,675)
(5,173)
9,267
195
458,348
440,677
6,682
44
-
-
(14,268)
14,422
14,134
(1,641)
460,050
7,658
253
-
(40)
(10,000)
(11,160)
16,038
(1,230)
461,570
170,468
7,613
145
-
-
(12,145)
14,004
5,184
24,001
2,561
580
-
-
-
(45)
334
5,714
(25,206)
(1,190)
184,611
8,787
62
-
(111)
(9,699)
(7,430)
6,112
85
182,418
(125)
4,143
43,874
-
-
-
(79)
(901)
(31,418)
(534)
15,084
-
-
-
(12)
4
24
(19)
3,137
764
-
-
-
(187)
(11)
-
(1,210)
2,492
Thousands of U.S. dollars
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
4,157,516
4,082,800
1,638,365
77,981
550
-
(985)
(86,075)
(65,938)
54,242
763
36,767
389,368
27,860
6,808
-
-
-
-
-
-
(701)
(1,670)
(7,996)
(126)
(278,815)
-
(4,758)
(10,756)
1,618,903
133,865
22,116
35,472
6,372
(1,615)
(11,245)
(156,860)
(45,908)
82,241
1,723
4,067,696
67,962
2,245
-
(354)
(88,746)
(99,041)
142,332
(10,908)
4,096,290
80
1,089,762
39,687
1,606
(9,462)
(396)
(33,529)
35,734
-
(2,989)
1,120,412
65,083
1,033
(182)
(1,418)
(37,641)
(24,678)
-
(2,694)
1,119,913
9,943,308
577,591
9,167
(1,615)
(12,584)
(334,052)
(219,009)
-
(23,936)
9,938,870
Accumulated Depreciation and
Accumulated Impairment Losses
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
Millions of yen
As of April 1, 2014
Depreciation expense (Note)
Impairment losses
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of M arch 31, 2015
Depreciation expense (Note)
Impairment losses
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of M arch 31, 2016
(337,763)
(9,398)
(2,960)
(765)
6,175
300
6,830
(3,185)
(35)
(340,803)
(8,797)
(725)
(43)
136
832
17,454
2,337
2
(381,837)
(14,186)
(249)
(43)
-
-
13,725
(10,445)
1,595
(391,441)
(15,443)
(149)
(79)
-
40
9,555
8,718
1,184
(146,481)
(14,129)
(135)
(128)
-
-
11,910
(11,674)
1,010
(159,629)
(13,888)
(357)
(47)
-
106
9,373
6,393
84
(329,606)
(387,615)
(157,965)
(0)
(1,122)
-
-
-
-
-
0
-
-
-
-
(161)
-
-
-
55
-
-
(105)
(9)
-
-
-
-
5
(2)
(152)
(1,280)
(38)
-
-
-
-
27
9
1,124
(157)
(867,205)
(37,724)
(3,345)
(937)
6,175
300
32,472
(25,307)
2,417
(893,155)
(38,168)
(1,395)
(169)
136
979
36,466
17,459
2,396
(875,449)
Accumulated Depreciation and
Accumulated Impairment Losses
Land, buildings
and structures
As of M arch 31, 2015
(3,024,520)
Depreciation expense (Note)
Impairment losses
Acquisition of subsidiary
Transfer to(from) investment
property
Transfer to(from) non-current
assets held for sale
Sale or disposal
Exchange differences on
translation of foreign operations
Other
(78,070)
(6,471)
(381)
1,206
7,394
154,898
20,740
54
Thousands of U.S. dollars
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
(3,473,917)
(137,051)
(1,416,657)
(123,251)
-
-
(11,379)
(357)
(1,322)
(701)
-
354
84,797
77,369
10,509
(3,168)
(417)
-
940
83,182
56,735
746
(1,419)
-
-
-
488
-
-
-
-
-
-
259
99
9,974
(7,926,473)
(338,729)
(12,380)
(1,499)
1,206
8,688
323,624
154,943
21,283
As of M arch 31, 2016
(7,769,337)
(Note) Depreciation expense for property, plant and equipment was included in cost of sales and selling, general
and administrative expenses in the consolidated statement of comprehensive income.
(3,439,962)
(1,401,890)
(2,925,150)
(1,404)
(931)
81
Millions of yen
Carrying Amount
As of April 1, 2014
As of March 31, 2015
As of March 31, 2016
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
133,107
127,665
128,741
58,839
68,609
73,955
23,986
24,982
24,452
5,183
4,143
14,978
1,438
1,856
2,335
222,556
227,257
244,463
Thousands of U.S. dollars
Carrying Amount
As of March 31, 2015
As of March 31, 2016
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Construction
in progress
Other
Total
1,132,996
1,142,546
608,883
656,328
221,708
217,013
36,767
132,934
16,481
20,712
2,016,835
2,169,533
The carrying amount of property, plant and equipment includes the carrying amount of the following leased assets:
Millions of yen
Leased Assets
As of April 1, 2014
As of March 31, 2015
As of March 31, 2016
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Total
223
109
63
62
98
188
116
76
46
402
284
298
Thousands of U.S. dollars
Leased Assets
As of March 31, 2015
As of March 31, 2016
Land, buildings
and structures
Machinery,
equipment and
vehicles
Tools, furniture
and fixtures
Total
977
559
869
1,677
674
408
2,520
2,644
(2) 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 losses recognised in the years ended March 31, 2015 and 2016, represent the losses related to idle
assets that Epson has no plan to use in the future, and the carrying amount was reduced to the recoverable amounts.
They were recognised as other operating expense in the consolidated statement of comprehensive income.
The recoverable amounts of these assets are determined using their fair values less disposal cost, which were
assessed on the basis of reasonable estimates such as a valuation by an external real estate appraiser. The valuation
is made in accordance with the income approach using Level 3 inputs which include the future cash flow.
82
14. Intangible Assets
The schedules of the cost, accumulated amortisation and accumulated impairment losses, and carrying amount of
“Intangible assets” were as follows:
Cost
Software
Patent rights
Millions of yen
Product
development
assets
Goodwill
Other
Total
Cost
Software
Patent rights
Goodwill
Other
Total
As of April 1, 2014
Individual acquisition
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2015
Individual acquisition
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2016
37,622
4,149
125
(2,385)
892
1,181
41,586
5,809
1
(1,544)
(792)
(303)
44,756
As of March 31, 2015
Individual acquisition
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2016
369,062
51,553
8
(13,702)
(7,028)
(2,698)
397,195
65,666
6,383
689
(2,417)
912
511
71,744
6,665
320
(1,578)
(1,182)
(2,075)
73,894
636,704
59,149
2,839
(14,004)
(10,489)
(18,414)
655,785
15,536
770
-
-
-
-
16,306
273
-
-
-
0
6,255
1,338
161
-
1
(336)
7,421
571
2
(0)
(11)
(2)
Product
development
assets
65,859
5,067
17
(0)
(97)
(26)
144,720
2,422
-
-
-
0
1,848
4,403
-
402
-
75
-
2,326
-
313
-
(57)
-
124
0
(32)
(57)
(333)
4,104
11
2
(33)
(320)
(1,770)
1,994
20,642
36,421
-
2,777
-
107
37
(302)
(505)
(2,859)
-
(15,690)
16,580
7,980
2,582
Thousands of U.S. dollars
147,142
70,820
22,914
17,714
83
Accumulated Amortisation and
Accumulated Impairment Losses
Software
Patent rights
Millions of yen
Product
development
assets
Goodwill
Other
Total
As of April 1, 2014
Amortisation expense (Note)
Impairment losses
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2015
Amortisation expense (Note)
Impairment losses
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2016
(28,005)
(3,839)
(3)
(114)
2,343
(582)
(476)
(30,678)
(4,666)
(31)
(0)
1,538
563
142
(33,132)
(12,219)
(1,036)
-
-
-
-
-
(13,255)
(1,037)
-
-
-
-
(0)
(14,293)
(3,541)
(1,380)
(77)
(112)
-
(18)
-
(5,130)
(1,363)
-
(0)
0
9
-
(6,484)
Thousands of U.S. dollars
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,953)
(556)
(5)
-
5
(0)
-
(3,509)
(382)
(0)
(0)
8
308
1,771
(1,805)
(46,719)
(6,813)
(86)
(227)
2,349
(600)
(476)
(52,574)
(7,449)
(32)
(0)
1,546
881
1,913
(55,715)
Accumulated Amortisation and
Accumulated Impairment Losses
Software
Patent rights
Product
development
assets
Goodwill
Other
Total
As of March 31, 2015
Amortisation expense (Note)
Impairment losses
Acquisition of subsidiary
Sale or disposal
Exchange differences on
translation of foreign operations
Other
As of March 31, 2016
(272,257)
(41,409)
(283)
(0)
13,649
4,996
1,268
(117,642)
(9,203)
(45,526)
(12,096)
-
-
-
-
(0)
-
(0)
0
79
-
(294,036)
(126,845)
(57,543)
-
-
-
-
-
-
-
-
(31,152)
(3,399)
(0)
(0)
71
2,743
15,708
(16,029)
(466,577)
(66,107)
(283)
(0)
13,720
7,818
16,976
(494,453)
(Note) Amortisation expense for intangible assets was included in cost of sales and selling, general and
administrative expenses in the consolidated statement of comprehensive income.
Carrying Amount
Software
Patent rights
Millions of yen
Product
development
assets
Goodwill
Other
Total
As of April 1, 2014
As of March 31, 2015
As of March 31, 2016
9,617
10,907
11,624
3,316
3,050
2,286
2,714
2,291
1,496
1,848
2,326
2,582
1,450
594
188
18,947
19,170
18,179
Thousands of U.S. dollars
Carrying Amount
Software
Patent rights
As of March 31, 2015
As of March 31, 2016
96,805
103,159
27,078
20,297
Product
development
assets
20,333
13,277
Goodwill
Other
Total
20,642
22,914
5,269
1,685
170,127
161,332
84
15. Finance Lease Transactions
Epson leases host computers and computer terminals as a lessee.
The total of future minimum lease payments, future finance costs and their present value for leased assets
recognised based on the finance lease contracts by maturity were as follows:
Not later than 1 year
Total of future minimum lease payments
Future finance costs
Present value
Later than 1 year and not later than 5 years
Total of future minimum lease payments
Future finance costs
Present value
Later than 5 years
Total of future minimum lease payments
Future finance costs
Present value
Total
Total of future minimum lease payments
Future finance costs
Present value
Millions of yen
March 31,
2015
2016
Thousands of
U.S. dollars
March 31,
2016
72
(2)
70
111
(2)
108
0
(0)
0
185
(4)
180
92
(3)
88
150
(5)
145
0
(0)
0
242
(9)
233
816
(36)
780
1,331
(44)
1,287
0
(0)
0
2,147
(80)
2,067
85
16. Operating Lease Transactions
(1) Future Minimum Lease Payments under Non-cancellable Operating Leases
The total of future minimum lease payments under non-cancellable operating leases was as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total
Millions of yen
March 31,
2015
4,497
8,663
1,529
14,690
2016
5,277
11,926
1,046
18,251
Thousands of
U.S. dollars
March 31,
2016
46,831
105,858
9,282
161,971
(2)Total of Minimum Lease Payments and Contingent Rents
The total of minimum lease payments and contingent rents of operating lease contracts recognised as an expense
was as follows:
Total of minimum lease payments
Contingent rents
Millions of yen
Year ended
March 31,
2015
7,399
114
2016
8,264
120
Thousands of
U.S. dollars
Year ended
March 31,
2016
73,340
1,064
86
17. Investment Property
(1) Schedule of Investment Property
The schedule of the carrying amount of “Investment property” was as follows:
Millions of yen
Year ended
March 31,
Balance at the beginning of the year
Expenditure after acquisition
Transfer from(to) property, plant and equipment
Depreciation expense
Impairment losses and reversal of impairment losses
Sale or disposal
Exchange differences on translation of foreign operations
Balance at the end of the year
Breakdown of “Balance at the beginning of the year”
Cost
Accumulated depreciation and accumulated impairment
losses
Total
Breakdown of “Balance at the end of the year”
Cost
Accumulated depreciation and accumulated impairment
losses
Total
2015
10,273
459
3,286
(170)
(126)
(8,972)
6
4,758
11,491
(1,217)
10,273
11,595
(6,837)
4,758
Thousands of
U.S. dollars
Year ended
March 31,
2016
42,225
-
409
(798)
32,277
(56,249)
(408)
17,456
2016
4,758
-
45
(90)
3,637
(6,335)
(46)
1,967
11,595
102,901
(6,837)
(60,676)
4,758
4,173
42,225
37,024
(2,205)
(19,568)
1,967
17,456
(2) Fair Value
The carrying amount and the fair value of “Investment property” were as follows:
Millions of yen
March 31, 2015
March 31, 2016
Thousands of
U.S. dollars
March 31, 2016
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Investment property
4,758
4,380
1,967
1,468
17,456
13,028
The fair value of investment property is determined on the basis of a valuation conducted by an external real estate
appraiser. The valuation is made in accordance with the income approach using Level 3 inputs which include the
future cash flow.
87
18. Income Taxes
(1) Deferred Tax Assets and Deferred Tax Liabilities
The breakdown of “Deferred tax assets” and “Deferred tax liabilities” by major causes of their occurrence were as
follows:
Inter-company profits and write downs on
inventories
Carryforward of unused tax losses
Net defined benefit liabilities
Fixed assets (Note 1)
Other
Total deferred tax assets
Undistributed profit
Fixed assets (Note 1)
Other
Total deferred tax liabilities
Net deferred tax assets (Note 2)
Millions of yen
March 31,
2015
2016
Thousands of
U.S. dollars
March 31,
2016
22,654
29,168
5,280
7,425
27,948
92,477
(14,186)
(3,813)
(5,019)
(23,020)
69,457
18,995
9,032
7,983
6,113
22,947
65,073
(12,922)
(3,078)
(3,486)
(19,488)
45,585
168,574
80,156
70,846
54,250
203,685
577,511
(114,678)
(27,316)
(30,955)
(172,949)
404,562
(Note 1) “Fixed assets” include impairment losses and excess of depreciation of property, plant and equipment,
intangible assets and investment property.
(Note 2) The difference between the net amount of deferred tax assets recognised in the years ended March 31,
2015 and 2016, less the respective net amounts of deferred tax assets recognised directly in equity and in other
comprehensive income, is mainly attributable to the impact of foreign exchange movements.
Epson assesses its ability to utilize carryforward of unused tax losses in future periods based on the Mid-Range
Business Plan and financial forecasts approved by the Board of Directors annually. This takes account of Epson’s
medium and long-term strategy and financial plans and the expected future economic outlook. The ability to utilize
carryforward of unused tax losses in future periods for recognising deferred tax assets also takes account of
material tax adjusting items, the expected future taxable income and the period (if any) in which carryforward of
unused tax losses might expire. Epson believes that the recognised deferred tax assets are probable and the tax
benefits can be realised based on the prior taxable income and the expected future taxable income when the
deferred tax assets can be recognised.
Epson does not recognise deferred tax assets for some carryforward of unused tax losses and some deductible
temporary differences. Epson reduces the amount of the deferred tax assets to the extent that it is no longer
probable that the tax benefits can be realised with based on an individual analysis of each company’s condition as a
result of assessing the recoverability of the deferred tax assets.
The amounts of carryforward of unused tax losses, for which deferred tax assets have not been recognised, as of
March 31, 2015 and 2016, were ¥8,247 million and ¥64,751 million ($574,645 thousand), respectively. The
amounts of deductible temporary differences, for which deferred tax assets have not been recognised, as of March
31, 2015 and 2016, were ¥240,737 million and ¥324,150 million ($2,876,730 thousand), respectively. The
deductible temporary differences are not expired under present tax laws. The expiration schedule of carryforward
of unused tax losses was as follows:
88
1st year
2nd year
3rd year
4th year
5th year and thereafter
Total
Millions of yen
March 31,
2015
2016
-
-
-
-
8,247
8,247
-
-
-
-
64,751
64,751
Thousands of
U.S. dollars
March 31,
2016
-
-
-
-
574,645
574,645
Epson has no taxable temporary differences associated with investments in subsidiaries for which deferred tax
liabilities have not been recognised as of March 31, 2015 and 2016.
(2) Tax Expense
“Tax expense” recognised as an expense was as follows:
Current tax expense
Deferred tax expense
Total
Millions of yen
Year ended
March 31,
2015
(23,216)
4,584
(18,631)
2016
(19,720)
(25,700)
(45,421)
Thousands of
U.S. dollars
Year ended
March 31,
2016
(175,008)
(228,089)
(403,097)
Deferred tax expense increased by ¥3,424 million and ¥1,575 million ($13,977 thousand) mainly due to the effect
of changes in Japanese applicable tax rates for the years ended March 31, 2015 and 2016, respectively.
Deferred tax expense includes the benefit arising from a previously unrecognised tax loss, tax credit or temporary
difference of a prior period, and expenses or benefits arising from write-downs of deferred tax assets or the reversal
of previous write-downs of deferred tax assets. These effects increased/decreased the deferred tax expense by
¥13,253 million and (¥11,740) million ($104,188 thousand) for the years ended March 31, 2015 and 2016,
respectively.
(3) Reconciliation of the Effective Tax Rate
The breakdown of major items that caused differences between the effective statutory tax rate and the actual tax
rate was as follows.
Epson is subject mainly to corporate tax, inhabitant tax, and enterprise tax, and the effective statutory tax rates
calculated based on these taxes were 35.4% and 32.8% for the years ended March 31, 2015 and 2016, respectively.
The Special Corporation Tax for Reconstruction has been abolished in this fiscal year. Foreign subsidiaries are
subject to income tax at their locations.
Effective statutory tax rate
Different tax rates applied to foreign subsidiaries
Expenses not deductible for tax purposes
Reassessment of recoverability of deferred tax assets
Other
Actual tax rate
%
Year ended
March 31, 2015
Year ended
March 31, 2016
35.4
(5.4)
(0.8)
(18.8)
3.7
14.1
32.8
(3.4)
1.0
16.7
2.5
49.6
89
19. Trade and Other Payables
The breakdown of “Trade and other payables” was as follows:
Notes and trade payables
Other payables
Total
Millions of yen
March 31,
2015
2016
80,359
59,688
140,047
69,972
60,651
130,624
Thousands of
U.S. dollars
March 31,
2016
620,979
538,268
1,159,247
Trade and other payables are classified as financial liabilities measured at amortised cost.
20. Other Financial Liabilities
The breakdown of “Other financial liabilities” was as follows:
Millions of yen
March 31,
2015
2016
Thousands of
U.S. dollars
March 31,
2016
%
Average interest
rate (Note 1)
Due
Derivative financial liabilities
Current borrowings
Current portion of non-current
borrowings
Current portion of bonds issued
(Note 2)
Non-current borrowings
Bonds issued (Note 2)
Other
Total
Current liabilities
Non-current liabilities
Total
259
35,380
53
39,978
50,533
59,853
2,153
188,211
75,745
112,466
188,211
823
31,104
500
29,989
50,000
29,928
1,874
7,303
276,038
4,437
266,143
443,734
265,601
16,650
144,220
1,279,906
62,479
81,741
144,220
554,481
725,425
1,279,906
-
1.15
0.65
-
0.68
-
-
-
-
-
-
2017
-
-
(Note 1) The average interest rate is calculated using the interest rate and outstanding balance as of March 31,
2016.
(Note 2) The summary of issuing conditions of the bonds issued was as follows:
90
Company
Name of bonds issued
Issue date
%
interest
rate
Collateral
Maturity date
Sep 3, 2010
0.58
Non
Sep 3, 2015
Millions of yen
March 31,
2015
2016
20,000
(20,000)
Thousands of
U.S. dollars
March 31,
2016
-
-
The Company
The Company
The Company
The Company
The Company
The Company
The Company
T he 5th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 7th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 8th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 9th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 10th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 11th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
T he 12th Series unsecured
straight bonds issued (with
inter-bond pari passu clause)
Jun 14, 2011
0.72
Non
Jun 14, 2016
20,000
Sep 12, 2012
0.55
Non
Sep 11, 2015
20,000
(20,000)
20,000
177,493
(20,000)
(177,493)
-
-
Sep 12, 2012
0.67
Non
Sep 12, 2017
10,000
10,000
88,746
Sep 11, 2013
0.33
Non
Sep 9, 2016
10,000
10,000
(10,000)
88,746
(88,746)
Sep 11, 2013
0.57
Non
Sep 11, 2018
10,000
10,000
88,746
Jun 13, 2014
0.35
Non
Jun 13, 2019
10,000
10,000
88,746
100,000
60,000
(40,000)
(30,000)
532,477
(266,239)
*The figures in parentheses represent the current portion of bonds issued.
Derivative financial liabilities were classified as financial liabilities measured at fair value through profit or loss
excluding those which hedge accounting was applied to, and bonds issued and borrowings were classified as
financial liabilities measured at amortised cost. There were no financial covenants on bonds issued and borrowings
that had a significant impact on Epson’s financing activities.
91
21. Provisions
The breakdown and the schedule of “Provisions” were as follows:
FY2014: Year ended March 31, 2015
Provision for product
warranties
Provision for
rebates
Asset retirement
obligations
Provision for
loss on
litigation
Other
provisions
Total
Millions of yen
As of April 1, 2014
Arising during the year
Utilised
Unused amounts reversed
Exchange differences on
translation of foreign
operations
As of March 31, 2015
Current liabilities
Non-current liabilities
Total
FY2015: Year ended March 31, 2016
10,100
10,699
(9,788)
(324)
690
11,376
10,043
1,333
11,376
7,443
7,973
(7,443)
-
(149)
7,823
7,823
-
7,823
1,431
102
(76)
-
17
1,474
30
1,443
1,474
3,452
1,076
(916)
-
5,371
6,429
(4,482)
(691)
(285)
(164)
3,326
6,461
866
2,460
3,326
5,558
902
6,461
27,799
26,280
(22,707)
(1,016)
108
30,463
24,322
6,141
30,463
Provision for product
warranties
Provision for
rebates
Asset retirement
obligations
Provision for
loss on
litigation
Other
provisions
Total
Millions of yen
As of April 1, 2015
Arising during the year
Utilised
Unused amounts reversed
Exchange differences on
translation of foreign
operations
As of March 31, 2016
Current liabilities
Non-current liabilities
Total
11,376
11,729
(10,831)
(514)
(575)
11,185
9,806
1,378
11,185
7,823
10,037
(7,823)
-
(965)
9,072
9,072
-
9,072
1,474
824
(66)
-
(21)
2,211
299
1,911
2,211
3,326
19
(3,265)
-
52
133
5
127
133
6,461
5,154
(6,038)
(94)
(124)
5,358
3,835
1,522
5,358
30,463
27,765
(28,025)
(608)
(1,634)
27,960
23,019
4,941
27,960
FY2015: Year ended March 31, 2016
Thousands of U.S. dollars
Provision for product
warranties
Provision for
rebates
Asset retirement
obligations
As of April 1, 2015
Arising during the year
Utilised
Unused amounts reversed
Exchange differences on
translation of foreign
operations
As of March 31, 2016
Current liabilities
Non-current liabilities
Total
100,958
104,089
(96,121)
(4,561)
(5,102)
99,263
87,034
12,229
99,263
69,426
89,075
(69,426)
-
(8,564)
80,511
80,511
-
80,511
92
Provision for
loss on
litigation
Other
provisions
29,517
168
(28,966)
-
57,367
45,762
(53,625)
(834)
Total
270,349
246,405
(248,723)
(5,395)
461
(1,110)
(14,501)
13,081
7,311
(585)
-
(186)
19,621
1,180
47,560
248,135
2,653
16,968
19,621
44
1,136
1,180
34,044
13,516
47,560
204,286
43,849
248,135
(1) Provision for product warranties
Epson recognises an accrual for estimated future warranty costs based on the rate of historical service contract
expenses to sales. Other specific warranty provisions are made for those products where future warranty expenses
can be specifically estimated. Most of these expenses are expected to be incurred in the next fiscal year.
(2) Provision for rebates
Epson recognises provisions for rebates, related to sales made on or prior to the fiscal year end, that are paid to
distributors or customers based on direct outcomes such as the sales performance or early payment. These expenses
are expected to be paid in the next fiscal year.
(3) Asset retirement obligations
Epson recognises a provision for retirement costs of property, plant and equipment for which Epson is required to
bear, and which derive from the acquisition, construction, development or normal use of such assets to the amount
that it is probable that Epson will pay in light of historical experience. These expenses are expected to be paid
mainly after five years or more. However, they may be affected by future business plans.
(4) Provision for loss on litigation
Epson recognises a provision for loss on litigation based on the estimated future compensation payment and
litigation expenses which need to be provided at each fiscal year end. These expenses are expected to be paid after
three years or more.
22. Other Liabilities
The breakdown of “Other current liabilities” and “Other non-current liabilities” was as follows:
Accrued expense
Accrued bonus to employees
Accrued employee’s unused paid vacations
Other
Total
Current liabilities
Non-current liabilities
Total
Millions of yen
March 31,
2015
26,916
34,124
25,069
23,809
109,920
106,942
2,977
109,920
2016
25,948
28,564
25,052
25,615
105,179
102,065
3,114
105,179
Thousands of
U.S. dollars
March 31,
2016
230,280
253,496
222,328
227,376
933,480
905,824
27,656
933,480
93
23. Post-employment Benefits
The Company and some Japanese subsidiaries have the following defined benefit plans: defined benefit corporate
pension plans and lump-sum severance plans. In addition, they also have defined contribution plans.
Some overseas subsidiaries have defined benefit plans and defined contribution plans.
Epson’s major defined benefit plans are administrated by the Corporate Pension Fund (the “Fund”) in accordance
with the Defined-Benefit Corporate Pension Act (Act No. 50 of 2001).
The benefits of defined benefit plans are determined based on conditions, such as years of service, the salary
proportional method based on average employee salaries for services or final base salaries for retirement benefits
and a funded method based on the points employees have earned for each year of service.
The Fund has a Board of Representatives consisting of representatives of the Company and its Japanese
subsidiaries and representatives of the plan participants in accordance with the rules of the Fund. The Board of
Representatives is responsible for changes in the rules of the Fund, dismissal of the board members including
members who execute operations related to the administration and investment of pension reserves for the Fund, and
resolutions of the business report and the closing of account.
(1)Schedule of Defined Benefit Obligations
The schedule of the defined benefit obligations was as follows:
Balance at the beginning of the year
Service cost
Interest cost
Remeasurement
Actuarial gains and losses arising from
changes in demographic assumptions
Actuarial gains and losses arising from
changes in financial assumptions
Past service cost and losses (gains) arising
from settlements
Exchange differences on translation of foreign
operations
Benefits paid
Balance at the end of the year
Millions of yen
Year ended
March 31,
2015
293,895
10,687
4,337
2016
293,035
10,480
3,673
Thousands of
U.S. dollars
Year ended
March 31,
2016
2,600,594
93,006
32,596
2,749
(2,811)
(24,946)
19,492
20,008
177,564
(30,071)
(2,270)
(20,145)
1,175
(2,039)
(18,095)
(9,229)
293,035
(8,625)
311,452
(76,544)
2,764,030
94
(2) Schedule of Plan Assets
The schedule of the plan assets was as follows.
Epson’s major defined benefit plans are regulated by maintaining a balance between the pension obligations and
plan assets through reviewing the financial condition of the fund that affects future benefits.
Epson plans to pay contributions of ¥8,038 million ($71,334 thousand) for the year ending March 31, 2017.
Balance at the beginning of the year
Interest income
Remeasurement
Return on plan assets
Gains (losses) arising from settlements
Exchange differences on translation of foreign
operations
Contributions by the employer
Contributions by plan participants
Benefits paid
Balance at the end of the year
Millions of yen
Year ended
March 31,
2015
237,543
3,807
20,257
-
396
7,345
1,223
(8,764)
261,808
2016
261,808
2,972
(4,993)
(2,270)
(1,310)
7,342
1,177
(8,119)
256,606
Thousands of
U.S. dollars
Year ended
March 31,
2016
2,323,464
26,384
(44,311)
(20,145)
(11,643)
65,157
10,445
(72,053)
2,277,298
(3)Schedule of Right to Reimbursement
As Epson’s major defined benefit plans are corporate defined benefit pension plans, there are no contributions from
third parties.
(4)Effect of Asset Ceiling
There was no effect from the asset ceiling.
(5) Reconciliation of Defined Benefit Obligations and Plan Assets
The reconciliation of the defined benefit obligations and plan assets to the net defined benefit liabilities or assets
recognised in the consolidated statement of financial position were as follows:
Funded defined benefit obligations
Plan assets
Subtotal
Unfunded defined benefit obligations
Net defined benefit liabilities or assets
recognised in the consolidated statement of
financial position
Net defined benefit liabilities
Net defined benefit assets
Net defined benefit liabilities and assets
recognised in the consolidated statement of
financial position
Millions of yen
March 31,
2015
286,837
(261,808)
25,029
6,198
2016
305,438
(256,606)
48,831
6,014
Thousands of
U.S. dollars
March 31,
2016
2,710,657
(2,277,298)
433,359
53,373
31,227
54,845
486,732
31,234
(7)
54,845
-
486,732
-
31,227
54,845
486,732
95
(6) Breakdown of Plan Assets
The breakdown of plan assets by major category was as follows:
Investments quoted in active markets
Equity securities
Bonds receivable
Alternative investments (Note 2)
Cash and deposits
Other
Total
Investments unquoted in active markets
Pooled funds (Equity securities)
Pooled funds (Bonds receivable)
General accounts of life insurance companies
(Note 1)
Alternative investments (Note 2)
Total
Millions of yen
March 31,
2015
2016
Thousands of
U.S. dollars
March 31,
2016
24,580
117
20,934
4,433
3,666
53,732
40,690
69,875
84,780
12,729
208,075
19,923
48
6,926
4,630
3,196
34,725
29,647
62,220
93,829
36,183
221,881
176,810
425
61,466
41,089
28,384
308,174
263,107
552,183
832,722
321,112
1,969,124
(Note 1) A certain interest rate and principal for the general accounts of life insurance companies are guaranteed by
life insurance companies.
(Note 2) Alternative investments are the investments through hedge funds, multi-asset funds, securitization funds
and other funds.
(Note 3) In plan assets, there are no transferable financial instruments, real estate held by Epson or other assets
used by Epson.
The investment strategy for Epson’s plan assets was as follows:
Epson’s plan assets under defined benefit plans are managed in accordance with the rules of the Fund for securing
stable returns in the middle- and long-term in order to ensure the redemption of the defined benefit obligations.
Epson sets a best qualified asset mix policy through performing pension ALM, which is combined management of
assets and liabilities by an external agency to secure stable returns. Epson invests plan assets consistently with the
asset mix policy which includes setting of the risk, target rate of return and composition ratio of plan assets by asset
category.
96
(7) Matters Related to Actuarial Assumptions
The major item of actuarial assumptions was as follows:
Discount rate
1.3
0.8
March 31, 2015
March 31, 2016
%
The valuation of defined benefit obligations reflects judgments on uncertain future events. The sensitivities of
defined benefit obligations due to changes of 1% in the discount rate as of March 31, 2016 were as follows. Each
of these sensitivities assumes that other variables remain fixed. Negative figures show a decrease in the defined
benefit obligations, while positive figures show an increase.
Discount rate (1% increase)
Discount rate (1% decrease)
Millions of yen
March 31,
2016
(45,953)
53,392
Thousands of
U.S. dollars
March 31,
2016
(407,818)
473,837
The weighted-average duration of the defined benefit obligations at March 31, 2016 was 15.4 years.
(8) Defined Contribution Plans
Expenses for the defined contribution plans were ¥17,875 million and ¥19,340 million ($171,636 thousand) for the
years ended March 31, 2015 and 2016, respectively.
97
24. Equity and Other Equity Items
(1) Share Capital and Capital Surplus
(A) Authorised Shares
The number of authorized shares as of March 31, 2015 and 2016 was 607,458,368 ordinary shares and
1,214,916,736 ordinary shares, respectively. Increase in the number of authorized shares during the year ended
March 31, 2016 resulted from the Company’s common shares split with an effective date of April 1, 2015.
(B) Fully Paid Issued Shares
The schedule of the number of issued shares, the amount of “Share capital” and “Capital surplus” was as follows:
a share
Millions of yen
Thousands of U.S. dollars
Number of ordinary
issued shares
(Note1)
Share capital
Capital surplus
Share capital
Capital surplus
As of April 1, 2014
Increase (decrease)
As of March 31, 2015
Increase (decrease) (Note2)
As of March 31, 2016
199,817,389
-
199,817,389
199,817,389
399,634,778
53,204
-
53,204
-
53,204
84,321
-
84,321
-
84,321
472,168
-
472,168
748,322
-
748,322
(Note1) The shares issued by the Company are non-par value ordinary shares that have no restriction on any
content of rights.
(Note2) Increase in the number of ordinary issued shares during the year ended March 31, 2016 resulted from the
Company’s common shares split with an effective date of April 1, 2015.
(2) Treasury Shares
The schedule of the number of treasury shares and the corresponding amount was as follows:
a share
Millions of yen
Number of shares
Amount
Thousands of
U.S. dollars
Amount
As of April 1, 2014
Increase (decrease) (Note1)
As of March 31, 2015
Increase (decrease) (Note2)
As of March 31, 2016
20,927,083
1,574
20,928,657
20,931,739
41,860,396
20,457
6
20,464
6
20,471
181,620
53
181,673
(Note1) Increase in the number of treasury shares during the year ended March 31, 2015 resulted from the purchase
of odd shares.
(Note2) Increase in the number of treasury shares during the year ended March 31, 2016 resulted from the purchase
of odd shares and the Company’s common shares split with an effective date of April 1, 2015.
(3) Other Components of Equity
(A) Remeasurement of net defined benefit liabilities (assets)
Remeasurement of net defined benefit liabilities (assets) comprise actuarial gain and loss on the present value of
defined benefit obligations and the return on plan assets excluding amounts included in net interest. The amount is
recognised as other comprehensive income when occurred and is transferred immediately from other components
of equity to retained earnings.
98
(B) Net gain (loss) on revaluation of financial assets measured at fair value through other comprehensive income
This is the valuation difference in fair value of financial assets measured at fair value through other comprehensive
income.
(C) Exchange differences on translation of foreign operations
This is a foreign currency translation difference that occurs when consolidating financial statements of foreign
operations are prepared in foreign currencies.
(D) Net changes in fair value of cash flow hedges
Epson uses derivatives for hedging to avoid the risk of fluctuation in future cash flows. This is the effective portion
of changes in fair value of derivative transactions designated as cash flow hedges.
25. Dividends
Dividends paid were as follows:
FY2014: Year ended March 31, 2015
(Resolution)
Annual Shareholders Meeting
(June 24, 2014)
Board of Directors
(October 31, 2014)
Class of shares
Ordinary shares
Ordinary shares
Millions of yen
Yen
Total dividends
Dividends
per share
Basis date
Effective date
6,618
6,261
37
March 31, 2014
June 25, 2014
35
September 30, 2014
December 5, 2014
FY2015: Year ended March 31, 2016
(Resolution)
Annual Shareholders Meeting
(June 25, 2015)
Board of Directors
(October 29, 2015)
Class of shares
Ordinary shares
Ordinary shares
FY2015: Year ended March 31, 2016
Millions of yen
Yen
Total dividends
Dividends
per share
Basis date
Effective date
14,311
10,733
80
March 31, 2015
June 26, 2015
30
September 30, 2015
December 4, 2015
(Resolution)
Annual Shareholders Meeting
(June 25, 2015)
Board of Directors
(October 29, 2015)
Class of shares
Thousands of U.S.
dollars
Total dividends
U.S. dollars
Dividends
per share
Basis date
Effective date
Ordinary shares
127,005
0.70
March 31, 2015
June 26, 2015
Ordinary shares
95,252
0.26
September 30, 2015
December 4, 2015
(Note) The Company completed the Company’s ordinary shares split with an effective date of April 1, 2015
based on the resolution by the Company’s Board of Directors on January 30, 2015. Dividends per share whose
basis date was prior to March 31, 2015 was stated by the actual dividends paid which was before the shares split.
Dividends whose basis dates were during the years ended March 31, 2015 and 2016, but whose effective dates
were subsequent to March 31, 2015 and 2016 were as follows:
99
FY2014: Year ended March 31, 2015
(Resolution)
Annual Shareholders Meeting
(June 25, 2015)
Class of shares
Millions of yen
Yen
Total dividends
Dividends
per share
Basis date
Effective date
Ordinary shares
14,311
80
March 31, 2015
June 26, 2015
FY2015: Year ended March 31, 2016
(Resolution)
Annual Shareholders Meeting
(June 28, 2016)
Class of shares
Millions of yen
Yen
Total dividends
Dividends
per share
Basis date
Effective date
Ordinary shares
10,733
30
March 31, 2016
June 29, 2016
FY2015: Year ended March 31, 2016
Class of shares
Thousands of U.S.
dollars
Total dividends
U.S. dollars
Dividends
per share
Basis date
Effective date
Ordinary shares
95,252
0.26
March 31, 2016
June 29, 2016
(Resolution)
Annual Shareholders Meeting
(June 28, 2016)
26. Revenue
The breakdown of “Revenue” was as follows:
Sale of goods
Royalty income
Other
Total
Millions of yen
Year ended
March 31,
2015
1,071,687
8,201
6,452
1,086,341
2016
1,080,551
4,137
7,793
1,092,481
Thousands of
U.S. dollars
Year ended
March 31,
2016
9,589,554
36,714
69,161
9,695,429
100
27. Selling, General and Administrative Expenses
The breakdown of “Selling, general and administrative expenses” was as follows:
Millions of yen
Year ended
March 31,
2015
(94,749)
(47,837)
(28,722)
(19,823)
(20,109)
(18,162)
(65,245)
(294,648)
2016
(98,355)
(53,172)
(32,284)
(22,624)
(21,269)
(16,590)
(68,410)
(312,708)
Thousands of
U.S. dollars
Year ended
March 31,
2016
(872,870)
(471,884)
(286,510)
(200,780)
(188,755)
(147,231)
(607,156)
(2,775,186)
Employee benefit expense
Research and development expense
Promotion expense
Advertising expense
Service contract expense
Transportation expense
Other
Total
28. Employee Benefit Expenses
The employee benefit expenses included in the consolidated statement of comprehensive income were as follows:
Salaries and wages
Legal welfare expense
Welfare expense
Expenses of post-employment benefits
Expense for defined contribution plans
Expense for defined benefit plans
Total
Millions of yen
Year ended
March 31,
2015
(206,796)
(19,660)
(10,653)
(17,875)
(12,303)
(267,289)
2016
(211,849)
(19,519)
(11,188)
(19,340)
(32,334)
(294,232)
Thousands of
U.S. dollars
Year ended
March 31,
2016
(1,880,094)
(173,225)
(99,290)
(171,636)
(286,972)
(2,611,217)
101
29. Other Operating Income
The breakdown of “Other operating income” was as follows:
Gain on sales of property, plant and equipment,
intangible assets and investment property
Income from reversal of impairment loss
Foreign exchange gain
Income from a revision of the defined benefit
plan (Note)
Other
Total
Millions of yen
Year ended
March 31,
2015
2016
5,270
-
-
30,071
4,564
39,907
7,733
3,828
931
-
2,314
14,807
Thousands of
U.S. dollars
Year ended
March 31,
2016
68,627
33,972
8,262
-
20,546
131,407
(Note) As a result of a revision to the defined benefit plan, Epson recognised a ¥30,071 million decline in expenses
associated with past service costs at the Company and certain domestic subsidiaries. This resulted in a ¥30,071
million increase in other operating income for the year ended March 31, 2015.
30. Other Operating Expense
The breakdown of “Other operating expense” was as follows:
Impairment loss
Loss on litigation
Loss on the disposal of property, plant and
equipment and intangible assets
Foreign exchange loss
Other
Total
Millions of yen
Year ended
March 31,
2015
(3,563)
(510)
(745)
(2,595)
(2,388)
(9,802)
2016
(1,618)
(829)
(755)
-
(2,529)
(5,732)
Thousands of
U.S. dollars
Year ended
March 31,
2016
(14,359)
(7,357)
(6,700)
-
(22,462)
(50,878)
102
31. Finance Income and Finance Costs
The breakdowns of “Finance income” and “Finance costs” were as follows:
Finance Income
Interest income
Dividend income
Foreign exchange gain (Note)
Other
Total
Finance Costs
Interest expense
Foreign exchange loss (Note)
Employee benefit expense
Other
Total
Millions of yen
Year ended
March 31,
2015
2,159
278
567
263
3,268
2016
1,275
340
-
36
1,652
Millions of yen
Year ended
March 31,
2015
(1,559)
-
(531)
(229)
(2,320)
2016
(1,319)
(2,177)
(700)
(55)
(4,252)
Thousands of
U.S. dollars
Year ended
March 31,
2016
11,315
3,017
-
328
14,660
Thousands of
U.S. dollars
Year ended
March 31,
2016
(11,705)
(19,320)
(6,212)
(496)
(37,733)
(Note) The increase or decrease in the fair value of currency derivatives is included in the foreign exchange gain
(loss).
103
32. Discontinued Operations
As of April 1, 2010, Epson transferred a part of its business and some assets in the field of small- and
medium-sized liquid crystal displays to Sony Corporation and Sony Mobile Display Corporation and terminated
the production operation at the end of December, 2010. The profit and loss related to allegations concerning a LCD
price-fixing cartel that occurred during the years ended March 31, 2015 and 2016 was classified into “Discontinued
operations”.
As of November 16, 2012, Epson concluded an agreement with Hoya Corporation (“Hoya”) about the transfer of
the optical products business of the Company and related subsidiaries to Hoya group.
After the Company and related subsidiaries transferred their optical products business to Hoya Group on February
1, 2013, the profit and loss related to the optical products business was classified into “Discontinued operations”.
(1) Reportable Segments
Small- and medium-sized liquid crystal displays business: Other
Optical products business: Other
(2) The analysis of profit and loss of discontinued operations
Selling, general and administrative expenses
Other operating income
Other operating expense
Loss from operating activities
Loss before tax
Loss from discontinued operations
Millions of yen
Year ended
March 31,
2015
2016
(459)
1,000
(1,659)
(1,118)
(1,118)
(1,118)
(42)
-
-
(42)
(42)
(42)
(3) The analysis of cash flow of discontinued operations
Millions of yen
Year ended
March 31,
2015
2016
Thousands of
U.S. dollars
Year ended
March 31,
2016
(373)
-
-
(373)
(373)
(373)
Thousands of
U.S. dollars
Year ended
March 31,
2016
Net cash provided by (used in) operating
activities
Total
(411)
(411)
(1,060)
(1,060)
(9,407)
(9,407)
104
33. Other Comprehensive Income
The amount arising during the year, reclassification adjustments to profit or loss and tax effects for each component
of “Other comprehensive income” were as follows:
FY2014: Year ended March 31, 2015
Millions of yen
Amount arising
Reclassification
adjustments
Before tax
effects
Tax effects
Net of
tax effects
Remeasurement of net defined benefit liabilities (assets)
Net gain (loss) on revaluation of financial assets
measured at FVTOCI (Note)
Exchange differences on translation of foreign operations
Net changes in fair value of cash flow hedges
Share of other comprehensive income of investments
accounted for using the equity method
Total
(1,016)
2,244
31,219
2,418
257
35,124
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
FY2015: Year ended March 31, 2016
-
-
(1,106)
149
-
(956)
(1,016)
2,244
30,113
2,568
257
34,167
(496)
(123)
-
(850)
-
(1,512)
2,121
30,113
1,718
257
(1,469)
32,698
Millions of yen
Amount arising
Reclassification
adjustments
Before tax
effects
Tax effects
Net of
tax effects
Remeasurement of net defined benefit liabilities (assets)
Net gain (loss) on revaluation of financial assets
measured at FVTOCI (Note)
Exchange differences on translation of foreign operations
Net changes in fair value of cash flow hedges
Share of other comprehensive income of investments
accounted for using the equity method
Total
(22,465)
(3,547)
(21,309)
175
(240)
(47,386)
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
FY2015: Year ended March 31, 2016
-
-
-
(1,953)
-
(22,465)
(3,547)
(21,309)
(1,777)
(240)
304
937
-
561
-
(22,161)
(2,610)
(21,309)
(1,215)
(240)
(1,953)
(49,340)
1,803
(47,536)
Thousands of U.S. dollars
Amount arising
Reclassification
adjustments
Before tax
effects
Tax effects
Net of
tax effects
Remeasurement of net defined benefit liabilities (assets)
Net gain (loss) on revaluation of financial assets
measured at FVTOCI (Note)
Exchange differences on translation of foreign operations
Net changes in fair value of cash flow hedges
Share of other comprehensive income of investments
accounted for using the equity method
Total
(199,369)
(31,478)
(189,121)
1,562
(2,129)
(420,535)
-
-
-
(17,332)
(199,369)
(31,478)
(189,121)
(15,770)
2,698
8,315
-
4,988
(196,671)
(23,163)
(189,121)
(10,782)
-
(2,129)
-
(2,129)
(17,332)
(437,867)
16,001
(421,866)
(Note) FVTOCI: Fair Value Through Other Comprehensive Income
105
34. Earnings per Share
Basis of calculating basic earnings per share
(1) Profit attributable to ordinary shareholders of the parent company
Profit from continuing operations attributable to owners
of the parent company
Loss from discontinued operations attributable to
owners of the parent company
Profit used for calculation of basic earnings per share
Millions of yen
Year ended
March 31,
2015
2016
Thousands of
U.S. dollars
Year ended
March 31,
2016
113,678
45,815
406,594
(1,118)
(42)
(373)
112,560
45,772
406,221
(2)Weighted-average number of ordinary shares outstanding during the year
Thousands of shares
Year ended March 31,
2015
Year ended March 31,
2016
Weighted-average number of
ordinary shares
357,779
357,775
(Note) The Company completed the Company’s ordinary shares split with an effective date of April 1, 2015
based on the resolution by the Company’s Board of Directors on January 30, 2015. As a result, each share of the
Company’s ordinary shares was split into two shares. Basic earnings per share was calculated under the
assumption that the shares split took effect at the beginning of the previous fiscal year.
106
35. Financial Instruments
(1) Capital Management
Epson selects the most effective fund management method focusing on the preservation of funds in view of
safeness and flexibility. In addition, Epson obtains financing from bank loans and bonds issued. Epson has a policy
not to transact derivatives for speculation purposes, but for avoiding the risks stated below.
Epson manages net interest-bearing debt, where cash and cash equivalents are deducted from interest-bearing debt,
and capital (equity attributable to owners of the parent company). The amounts were as follows:
Interest-bearing debt
Cash and cash equivalents
Net interest-bearing debt
Capital (equity attributable to
owners of the parent company)
Millions of yen
March 31,
2015
2016
185,978
(245,330)
(59,351)
494,325
141,755
(230,498)
(88,743)
467,818
Thousands of
U.S. dollars
March 31,
2016
1,258,020
(2,045,598)
(787,578)
4,151,739
Epson monitors financial indicators in order to maintain a well-balanced capital structure that ensures an
appropriate return on equity and a sound and flexible financial condition for future investment. Epson monitor
credit ratings for financial soundness and flexibility, and ROE (return on equity) for profitability, while focusing on
changes in the domestic and overseas environment.
(2) Financial Risk Management
Epson is exposed to financial risks (credit risks, liquidity risks, foreign exchange risks, interest rate risks, and
market price fluctuation risks) in the process of its business activities; and it manages risks based on a specific
policy in order to avoid or reduce said risks. The results of risk management are quarterly reported by the financial
and general accounting department to the Executive Committee of the Company.
Epson’s policy limits derivatives to transactions for the purpose of mitigating risks from transactions based on
actual demand. Therefore, Epson do not transact derivatives for speculation purposes or trading purposes.
107
(3) Credit Risk
Receivables, such as notes and trade receivables, resulting from the operating activities of Epson are exposed to
customer credit risks.
Epson holds mainly bonds receivable as investments of surplus funds and equity securities of customers and
suppliers to strengthen relationships with them; those securities are exposed to the issuers’ credit risks.
In addition, through derivative transactions that Epson conducts in order to hedge foreign exchange fluctuation
risks and interest rate fluctuation risks, Epson is exposed to the credit risks of the financial institutions which are
counterparties to these transactions.
In principle, Epson sets credit lines or transaction conditions with respect to trade receivables for counterparties
based on Epson’s Credit Control Regulation in order to prevent credit risks relating to counterparties. In addition,
the receivable balances of counterparties are monitored in order to mitigate the credit risks. The financial and
general accounting department of the Company regularly monitors the status of the occurrence and collection of
bad debts, and reports them to the Executive Committee of the Company. There is no over-concentrated credit risk
for a single customer.
With regard to the investment of cash surpluses and derivatives, Epson invests in bonds receivable and other
financial instruments with a certain credit rating and transacts with financial institutions with a high credit rating in
principle in order to prevent credit risks based on Epson’s Capital Management Regulation. In addition, the
financial and general accounting department of the Company regularly monitors the performances of these
transactions and reports the results to the Executive Committee of the Company.
The analysis of the aging of “Trade and other receivables” and “Other Financial Assets” that are past due but not
impaired as of March 31, 2016 was as follows. It includes amounts considered recoverable by credit insurance and
collateral.
Within 30 days
Over 30 days, within 60 days
Over 60 days, within 90 days
Over 90 days
Total
Millions of yen
March 31,
2016
Thousands of
U.S. dollars
March 31,
2016
5,973
536
140
247
6,898
53,027
4,756
1,242
2,192
61,217
Epson uses an allowance account for credit losses to record impairment losses on the uncollectible amounts of
individually significant trade receivables at the end of the reporting period and to record impairment losses on trade
receivables that are not individually significant at an amount based on the historical loan loss ratio at the end of the
reporting period. The allowance account for credit losses against the financial assets is included in “Trade and other
receivables” and “Other Financial Assets” in the consolidated statement of financial position.
The schedule of the allowance account for credit losses of “Trade and other receivables” and “Other Financial
Assets” was as follows:
Balance as of April 1
Addition (Note)
Decrease (utilised)
Decrease (reversal)
Other
Balance as of March 31
Millions of yen
March 31,
2015
2016
1,758
478
(483)
(311)
145
1,586
1,586
669
(724)
(12)
(39)
1,479
Thousands of
U.S. dollars
March 31,
2016
14,075
5,927
(6,425)
(106)
(346)
13,125
(Note) “Trade and other receivables” and “Other Financial Assets” for which impairment was recognised
individually at March 31, 2015 and 2016 were ¥52 million and ¥45 million ($399 thousand), respectively; and their
corresponding allowance account for credit losses were ¥52 million and ¥45 million ($399 thousand), respectively.
108
(4) Liquidity Risk
Epson raises funds by borrowings and bonds issued; however, these liabilities are exposed to the liquidity risk that
it would not be able to repay liabilities on the due date due to the deterioration of the financing environment.
Epson establishes a financing plan based on the annual business plan and the financial and general accounting
department of the Company regularly monitors and collects information on the balance of liquidity-in-hand and
interest-bearing debt and reports it to the Executive Committee of the Company. In addition, Epson manages
liquidity risks with the balance of liquidity-in-hand maintained at a proper level by working out the financing plan
on a timely basis, and by taking into consideration the financial environment.
The financial liability balance (including derivative financial instruments) by maturity was as follows:
FY2014: As of March 31, 2015
Carrying
amount
Contractual
cash flow
Due within
1 year
Due after 1
year through
2 years
Due after 2
years through
3 years
Due after 3
years through
4 years
Due after 4
years through
5 years
Due after
5 years
Millions of yen
Non-derivative financial liabilities
Trade and other payables
Borrowings
Bonds issued
Lease obligations
Other
Total
Derivative financial liabilities
Foreign exchange forward contract
Total
FY2015: As of March 31, 2016
140,047
85,966
99,831
180
1,973
327,999
259
259
140,047
85,966
100,000
185
1,973
328,172
140,047
35,433
40,000
72
3
215,557
259
259
259
259
-
533
30,000
51
98
30,682
-
-
-
50,000
10,000
31
108
60,140
-
-
-
-
10,000
18
419
10,438
-
-
Carrying
amount
Contractual
cash flow
Due within
1 year
Due after 1
year through
2 years
Due after 2
years through
3 years
Due after 3
years through
4 years
Due after 4
years through
5 years
Millions of yen
Non-derivative financial liabilities
Trade and other payables
Borrowings
Bonds issued
Lease obligations
Other
Total
Derivative financial liabilities
Foreign exchange forward contract
Total
FY2015: As of March 31, 2016
130,624
81,604
59,917
233
1,641
274,021
823
823
130,624
81,604
60,000
242
1,641
274,112
130,624
31,604
30,000
92
0
192,322
823
823
823
823
-
50,000
10,000
76
63
60,140
-
-
-
-
10,000
48
337
10,386
-
-
-
-
10,000
19
34
10,053
-
-
-
-
10,000
9
185
10,194
Due after
5 years
-
-
-
-
-
4
94
98
-
-
Carrying
amount
Contractual
cash flow
Due within
1 year
Due after 1
year through
2 years
Due after 2
years through
3 years
Due after 3
years through
4 years
Due after 4
years through
5 years
Due after
5 years
Thousands of U.S. dollars
Non-derivative financial liabilities
Trade and other payables
Borrowings
Bonds issued
Lease obligations
Other
Total
1,159,247
724,209
531,744
2,067
14,583
2,431,850
1,159,247
724,209
532,477
2,147
14,583
2,432,663
1,159,247
280,475
266,239
816
17
1,706,794
Derivative financial liabilities
Foreign exchange forward contract
Total
7,303
7,303
7,303
7,303
7,303
7,303
-
443,734
88,746
703
569
533,752
-
-
-
-
88,746
425
3,001
92,172
-
-
-
-
88,746
168
303
89,217
-
-
-
-
-
35
834
869
-
-
109
-
-
-
0
1,158
1,159
-
-
-
-
-
0
1,111
1,111
-
-
-
-
-
0
9,859
9,859
-
-
(5) Foreign Exchange Risk
Epson operates businesses globally and, therefore, is exposed to the following risks due to foreign exchange
fluctuation:
(A) The risk that the profit or loss and cash flow in each functional currency of Epson is influenced by foreign
exchange fluctuation as a result of external transactions and intergroup transactions, including the payment and
receipt of dividends, in currencies that are different from each functional currency of Epson.
(B) The risk that the equity of Epson is influenced by foreign exchange fluctuation when equity denominated in
each functional currency of Epson is translated into Japanese yen and consolidated.
(C) The risk that the profit or loss of Epson is influenced by foreign exchange fluctuation when profit or loss
denominated in each functional currency of Epson is translated into Japanese yen and consolidated.
Epson hedges against risk (A) using derivatives or foreign currency-denominated interest-bearing debt when future
cash flow is projected or when receivables and payables are fixed. As a rule, the net of foreign
currency-denominated operating receivables and payables is hedged mainly using forward foreign exchange
contracts.
Epson does not hedge against risk (B) and (C), in principle.
In order to mitigate risks mentioned above resulting from the foreign exchange fluctuation, in accordance with
Epson’s Foreign Exchange Management Regulation, Epson establishes a foreign currency hedge policy based on
the current conditions and forecast of the foreign exchange market, implements the aforementioned hedges under
the supervision of the Foreign Exchange Management Committee of the Company. The financial and general
accounting department of the Company regularly reports the performances to the Executive Committee of the
Company.
The breakdown of currency derivatives was follows:
Derivative transactions to which hedge accounting is not applied
Millions of yen
March 31,
Contract
amount
2015
Over one
year
Fair value
Contract
amount
2016
Over one
year
Fair value
Contract
amount
Thousands of U.S. dollars
March 31,
2016
Over one
year
Fair value
Foreign exchange forward contract
Buying
Selling
Non-Deliverable Forward
Selling
Total
3,238
34,957
2,940
41,136
Derivative transactions to which hedge accounting is applied
Contract
amount
2015
Over one
year
Foreign exchange forward contract
Selling
Non-Deliverable Forward
Selling
Total
37,030
8,172
45,203
-
-
-
-
-
-
-
(52)
1,383
36
1,367
4,146
32,978
2,754
39,879
Millions of yen
March 31,
Fair value
Contract
amount
2016
Over one
year
1,557
35,755
(44)
1,512
7,504
43,259
-
-
-
-
-
-
-
57
732
(24)
765
36,794
292,679
24,440
353,913
-
-
-
-
505
6,496
(212)
6,789
Thousands of U.S. dollars
Fair value
Contract
amount
March 31,
2016
Over one
year
Fair value
(Note)
28
317,315
(240)
(212)
66,595
383,910
-
-
-
248
(2,129)
(1,881)
(Note) Cash flow hedge is applied, and derivative transactions are measured at fair value in the consolidated
statement of financial position.
110
Foreign Exchange Sensitivity Analysis
In cases where each currency other than the functional currency that denominates the financial instruments held by
Epson as of March 31, 2016 increases by 10% in value against the functional currency, the impact on profit before
tax in the consolidated statement of comprehensive income was as follows.
The impact from the translation of functional currency-denominated financial instruments, and assets, liabilities,
income and expenses of foreign operations into Japanese yen is not included. Also, it is based on the assumption
that currencies other than the currencies used for the calculation do not fluctuate.
Millions of yen
March 31,
2016
Thousands of
U.S. dollars
March 31,
2016
Profit before tax
1,698
15,069
(6) Interest Rate Risk
Epson’s interest rate risk arises from cash equivalents and interest-bearing debt. Borrowings and bonds issued with
floating rates are subject to the effects of changes in future cash flows caused by the fluctuation of market interest
rates; while, borrowings and bonds issued with fixed rates are subject to the effects of changes in the fair value
caused by the fluctuation of market interest rates.
In response to the fluctuation of market interest rates, Epson reduces the interest rate risk by implementing an
interest rate swap and adjusting appropriate proportion of financing between floating rates and fixed rates.
In accordance with Epson’s Capital Management Regulation, the interest rate swap is approved by the finance
officer of the Company.
Interest Rate Sensitivity Analysis
In cases where the interest rate of financial instruments held by Epson as of March 31, 2016 increases by 100bp,
the impact on profit before tax in the consolidated statement of comprehensive income was as follows:
The analysis included financial instruments affected by interest rate fluctuation and based on the assumption that
other factors, including the impacts of foreign exchange fluctuation, were constant.
Millions of yen
March 31,
2016
Thousands of
U.S. dollars
March 31,
2016
Profit before tax
819
7,268
(7) Market Price Fluctuation Risk
With respect to equity securities, Epson regularly assesses the fair value and financial conditions of the issuers, and
reviews the portfolio held by taking into account the relationship with counterparty entities in accordance with
Epson’s Securities Operation Regulation.
Epson intends to hold equity instruments not for short-term trading but for long-term investment. Therefore, Epson
does not sell the instruments actively. The equity price fluctuation risks are calculated based on the price of equity
instruments at the fiscal year end. In cases where the equity price changes by 5% in value, the impact on other
comprehensive income before tax effects as of March 31, 2016 was ¥806 million ($7,152 thousand) due to the
changes in the fair value.
111
(8) Fair Value of Financial Instruments
(A) Fair value measurement
The fair values of financial assets and liabilities are determined as follows:
(Derivatives)
The fair values are calculated based on prices obtained from financial institutions.
(Equity securities and bonds receivable)
When market values for equity securities and bonds receivable are available, such values are used as the fair values.
The fair values of the equity securities and bonds receivable whose market values are unavailable are measured by
using the discounted cash flow method, price comparison method based on the prices of similar types of securities
and bonds and other valuation methods.
(Borrowings)
As current borrowings are settled on a short-term basis, the fair values approximate their carrying amounts. For
non-current borrowings with floating rates, it is assumed that the fair value is equal to the carrying amounts,
because the rates are affected in the short term by fluctuations in market interest rates, and because Epson’s credit
status has not greatly changed since they were implemented. The fair values of non-current borrowings with fixed
rates are calculated by the total sum of the principal and interest discounted using the interest rates that would be
applied if similar new borrowings were conducted.
(Bonds issued)
The fair values of bonds issued are determined based on market prices.
(Lease obligations)
The fair values are calculated based on the present value of the total amount discounted by the interest rate
corresponding to the period to maturity and the credit risk per each lease obligation classified per certain period.
(Other)
Other financial instruments are settled mainly on a short-term basis, and the fair values approximate the carrying
amounts.
112
(B) Fair values of financial instruments
The carrying amounts and the fair values of the financial instruments were as follows:
Millions of yen
March 31,
2015
2016
Thousands of U.S. dollars
March 31,
2016
Carrying
amount
Fair value
Carrying
amount
Fair value
Carrying
amount
Fair value
3,181
19,639
3,181
19,639
1,383
16,060
1,383
16,060
12,273
142,527
12,273
142,527
245,330
167,482
108
5,960
245,330
167,482
108
5,960
230,498
151,660
88
6,104
230,498
151,660
88
6,104
2,045,598
1,345,935
780
54,181
2,045,598
1,345,935
780
54,181
259
259
823
823
7,303
7,303
140,047
140,047
130,624
130,624
1,159,247
1,159,247
85,966
99,831
180
1,973
86,118
100,466
180
1,973
81,604
59,917
233
1,641
81,728
60,297
233
1,641
724,209
531,744
2,067
14,583
725,310
535,117
2,067
14,583
Financial assets measured at
fair value
Derivative financial assets
Equity securities
Financial assets measured at
amortised cost
Cash and cash equivalents
Trade and other receivables
Bonds receivable
Other
Financial liabilities measured at
fair value
Derivative financial liabilities
Financial liabilities measured at
amortised cost
Trade and other payables
Interest-bearing debt
Borrowings
Bonds issued
Lease obligations
Other
113
(C) Fair value hierarchy
The fair value hierarchy of financial instruments is categorized from Level 1 to Level 3 as follows:
Level 1: Fair value measured at quoted prices in active markets for identical assets or liabilities
Level 2: Fair value calculated using inputs other than quoted prices included within Level 1 that are observable,
either directly or indirectly
Level 3: Fair value calculated using valuation techniques including inputs unobservable input for the assets and
liabilities
Epson does not have any financial instruments for which there is significant measurement uncertainty and
subjectivity which needs to subdivide each level stated above for disclosure.
The transfers between levels in the fair value hierarchy are deemed to have occurred at the end of the reporting
period.
Classification by hierarchy regarding financial assets and liabilities measured at fair value
FY2014: As of March 31, 2015
Financial assets
Derivative financial assets
Equity securities
Total
Financial liabilities
Derivative financial liabilities
Total
FY2015: As of March 31, 2016
Financial assets
Derivative financial assets
Equity securities
Total
Financial liabilities
Derivative financial liabilities
Total
FY2015: As of March 31, 2016
Financial assets
Derivative financial assets
Equity securities
Total
Financial liabilities
Derivative financial liabilities
Total
Millions of yen
Level 1
Level 2
Level 3
Total
-
17,232
17,232
-
-
3,181
-
3,181
259
259
-
2,406
2,406
-
-
3,181
19,639
22,821
259
259
Millions of yen
Level 1
Level 2
Level 3
Total
-
14,006
14,006
-
-
1,383
-
1,383
823
823
-
2,054
2,054
-
-
1,383
16,060
17,444
823
823
Thousands of U.S. dollars
Level 1
Level 2
Level 3
Total
-
124,299
124,299
-
-
12,273
-
12,273
7,303
7,303
-
18,228
18,228
-
-
12,273
142,527
154,800
7,303
7,303
There were no transfers of financial instruments between Level 1 and Level 2 of the fair value hierarchy at the end
of each reporting period.
114
Classification by hierarchy regarding financial assets and liabilities not measured at fair value
FY2014: As of March 31, 2015
Millions of yen
Level 1
Level 2
Level 3
Total
Financial assets
Bonds receivable
Total
Financial liabilities
Borrowings
Bonds issued
Lease obligations
Total
FY2015: As of March 31, 2016
Level 1
-
-
-
-
-
-
-
-
-
-
-
-
108
108
86,118
100,466
-
186,584
-
-
-
-
180
180
108
108
86,118
100,466
180
186,765
Millions of yen
Level 2
Level 3
Total
88
88
81,728
60,297
-
142,025
-
-
-
-
233
233
88
88
81,728
60,297
233
142,259
Thousands of U.S. dollars
Level 1
Level 2
Level 3
Total
-
-
-
-
-
-
780
780
725,310
535,117
-
1,260,427
-
-
-
-
2,067
2,067
780
780
725,310
535,117
2,067
1,262,494
Financial assets
Bonds receivable
Total
Financial liabilities
Borrowings
Bonds issued
Lease obligations
Total
FY2015: As of March 31, 2016
Financial assets
Bonds receivable
Total
Financial liabilities
Borrowings
Bonds issued
Lease obligations
Total
The movement of financial instruments categorized within Level 3 of the fair value hierarchy was as follows:
Balance as of April 1
Gains and losses
Other comprehensive income
Sales
Other
Balance as of March 31
Millions of yen
Year ended
March 31,
2015
2016
Thousands of
U.S. dollars
Year ended
March 31,
2016
2,406
21,352
(319)
(32)
-
2,054
(2,841)
(283)
-
18,228
2,606
(174)
(25)
0
2,406
115
36. Principal Subsidiaries
Principal subsidiaries as of March 31, 2016 were as follows:
Company name
Location
Main business
Epson Sales Japan
Corporation
Epson Direct
Corporation
Shinjuku-ku, Tokyo
Printing solutions,
Visual communications,
Wearable & Industrial products
Matsumoto-shi, Nagano Printing solutions
Orient Watch Co., Ltd. Shinjuku-ku, Tokyo
Wearable & Industrial products
Miyazaki Epson
Corporation
Tohoku Epson
Corporation
Akita Epson
Corporation
Epson Atmix
Corporation
Miyazaki-shi, Miyazaki Wearable & Industrial products
Sakata-shi, Yamagata
Yuzawa-shi, Akita
Printing solutions,
Wearable & Industrial products
Printing solutions,
Wearable & Industrial products
Hachinohe-shi, Aomori Wearable & Industrial products
U.S. Epson, Inc.
Long Beach, U.S.A.
Holding company
Epson America, Inc.
Long Beach, U.S.A.
Regional headquarters,
Printing solutions,
Visual communications,
Wearable & Industrial products
Epson Electronics
America, Inc.
San Jose, U.S.A.
Wearable & Industrial products
Epson Portland Inc.
Portland, U.S.A.
Printing solutions
Epson El Paso, Inc.
El Paso, U.S.A.
Printing solutions
Epson Europe B.V.
Amsterdam, the
Netherlands
Epson (U.K.) Ltd.
Hemel Hempstead, UK
Epson Deutschland
GmbH
Epson Europe
Electronics GmbH
Dusseldorf, Germany
Regional headquarters,
Printing solutions,
Visual communications
Printing solutions,
Visual communications
Printing solutions,
Visual communications,
Wearable & Industrial products
Munich, Germany
Wearable & Industrial products
Epson France S.A.
Levallois-Perret, France
Epson Italia s.p.a.
Milan, Italy
Printing solutions,
Visual communications
Printing solutions,
Visual communications
For.Tex S.r.l.
Como, Italy
Printing solutions
Epson Iberica, S.A.
Cerdanyola, Spain
Printing solutions,
Visual communications
Epson Telford Ltd.
Telford, UK
Printing solutions
116
Ownership percentage of
voting rights (%) (Note)
100.0
100.0
(100.0)
100.0
100.0
100.0
100.0
100.0
100.0
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
Company name
Location
Main business
Ownership percentage of
voting rights (%) (Note)
Epson (China) Co., Ltd. Beijing, China
Epson Korea Co., Ltd.
Seoul, Korea
Epson Hong Kong Ltd. Hong Kong, China
Epson Taiwan
Technology & Trading
Ltd.
Taipei, Taiwan
Epson Singapore Pte.
Ltd.
Singapore
P.T. Epson Indonesia
Jakarta, Indonesia
Epson (Thailand)
Co., Ltd.
Epson Australia
Pty. Ltd.
Bangkok, Thailand
North Ryde, Australia
Epson India Pvt. Ltd.
Bangalore, India
Regional headquarters,
Printing solutions,
Visual communications,
Wearable & Industrial products
Printing solutions,
Visual communications
Printing solutions,
Visual communications,
Wearable & Industrial products
Printing solutions,
Visual communications,
Wearable & Industrial products
Regional headquarters,
Printing solutions,
Visual communications,
Wearable & Industrial products
Printing solutions,
Visual communications
Printing solutions,
Visual communications
Printing solutions,
Visual communications
Printing solutions,
Visual communications
Tianjin Epson Co., Ltd. Tianjin, China
Printing solutions
Epson Precision
(Hong Kong), Ltd.
Epson Engineering
(Shenzhen) Ltd.
Epson Precision
(Shenzhen) Ltd.
Orient Watch
(Shenzhen) Ltd.
Singapore Epson
Industrial Pte. Ltd.
Hong Kong, China
Shenzhen, China
Printing solutions,
Visual communications
Printing solutions,
Visual communications,
Wearable & Industrial products
Shenzhen, China
Wearable & Industrial products
Shenzhen, China
Wearable & Industrial products
Singapore
Wearable & Industrial products
P.T. Epson Batam
Batam, Indonesia
Printing solutions
P.T. Indonesia Epson
Industry
Epson Precision
(Philippines), Inc.
Epson Precision
Malaysia Sdn. Bhd.
Epson Precision
(Johor) Sdn. Bhd.
Bekasi, Indonesia
Printing solutions
Lipa, Philippines
Kuala Lumpur,
Malaysia
Printing solutions,
Visual communications
Wearable & Industrial products
Johor, Malaysia
Wearable & Industrial products
100.0
100.0
100.0
100.0
100.0
100.0
(100.0)
100.0
(100.0)
100.0
100.0
(100.0)
80.0
(80.0)
100.0
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
100.0
(100.0)
100.0
100.0
100.0
100.0
(100.0)
(Note) Ownership percentage of voting rights indicated inside parentheses refers to indirect ownership percentage.
117
37. Related Parties
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been
eliminated in consolidation and are not disclosed in this note. There were no significant transactions between the
Company, its subsidiaries and other related parties.
The remuneration of directors and other members of key management personnel was as follows:
Short-term remuneration
Millions of yen
Year ended
March 31,
2015
563
2016
550
Thousands of
U.S. dollars
Year ended
March 31,
2016
4,881
(Note 1) Epson introduced a stock performance (stock-based) remuneration system to link remuneration more
closely to share price, so a certain portion of short-term remuneration is allotted for the purchase of Epson Stock.
(Note 2) A director who retired at the closing of the general shareholders’ meeting held on June 24, 2014 receipted
a retirement benefit of ¥41 million based on the resolution of the general shareholders’ meeting held on June 23,
2006, on the payment of director retirement benefits.
(Note 3) A statutory auditor (outside statutory auditor) who retired at the closing of the general shareholders’
meeting held on June 28, 2016 is going to receipt a retirement benefit of ¥15 million ($133 thousand) based on the
resolution of the general shareholders’ meeting held on June 23, 2006, on the payment of director retirement
benefits.
38. Commitments
Commitments for the acquisition of assets were as follows:
Acquisition of property, plant and equipment
Acquisition of intangible assets
Total
Millions of yen
March 31,
2015
2016
4,706
1,519
6,226
6,048
1,682
7,730
Thousands of
U.S. dollars
March 31,
2016
53,674
14,927
68,601
118
39. Contingencies
Material litigation
In general, litigation has uncertainties and it is difficult to make reliable judgments for the possibility of an outflow
of resources embodying economic benefits and to estimate the financial effect.
Provisions are not recognised either if an outflow of resources embodying economic benefits is not probable or to
estimate the financial effect is not practicable. Epson was contending the following material actions.
(1) The liquid crystal display price-fixing cartel
The civil actions have been brought against the Company and certain of its consolidated subsidiaries by customers
in the U.S., regarding allegations of involvement in a liquid crystal display price-fixing cartel.
Moreover, the Company and certain of its consolidated subsidiaries are currently under investigation by a certain
anti-monopoly-related authority.
(2) The civil action on copyright fee of ink-jet printers
In June 2010, Epson Europe B.V. (“EEB”), a consolidated subsidiary of the Company, 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. After that, Reprobel also brought a civil suit against EEB. As a result,
these two lawsuits were adjoined. EEB’s claims were rejected at the first trial, but EEB, dissatisfied with the
decision, intends to appeal.
Verwertungsgesellschaft Wort (“VG Wort”), the organization for collecting copyright fees on behalf of copyright
holders in Germany, filed a civil lawsuit in January 2004 against Epson Deutschland GmbH (“EDG”), a
consolidated subsidiary of the Company, seeking payment of copyright fees for single-function printers. While
taking the court procedures, EDG had settlement discussions with VG Wort through Bundesverband
Informationswirtschaft, Telekommunikation und neue Medien e.V. (“BITKOM”), a German business association
of IT industry. Finally, BITKOM and VG Wort reached an agreement to settle, upon which the court dismissed the
case and it was closed.
40. Subsequent Events
Share repurchase
The Company resolved at the meeting of its Board of Directors held on April 28, 2016 to repurchase its own shares
pursuant to Article 156 of the Companies Act as applied by replacing the relevant terms pursuant to Article 165,
Paragraph 3 of the Act.
(1) Reason for the repurchase
To optimize capital efficiency and to further enhance shareholder returns
(2) Class of shares to be repurchased
Ordinary shares
(3) Total number of repurchasable shares
7 million shares (maximum) (1.95% of the total number of issued shares (excluding treasury stock))
(4) Total repurchase cost
10 billion yen (maximum)
(5) Repurchase period
May 2, 2016 - June 30, 2016
(6) Repurchase method
Through securities company using discretionary transactions method
119
41. Approval of Consolidated Financial Statements
The consolidated financial statements were approved by Minoru Usui (President and Representative Director) and
Tatsuaki Seki (Director and General Administrative Manager, Management Control Division) on June 28, 2016.
120
Report of Independent Auditors
121
Additional Information
1. Principal subsidiaries and affiliates
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
(Consolidated subsidiaries)
Epson Sales Japan
Corporation
*
Shinjuku-ku,
Tokyo
4,000
(million JPY)
Printing solutions,
Visual
communications,
Wearable & Industrial
products
100.0
Sales of the Company’s
products,
Interlocking directors,
Financial assistance,
Rental of assets
Epson Direct
Corporation
Matsumoto-shi,
Nagano
150
(million JPY)
Printing solutions
100.0
(100.0)
Sales of PCs, etc.,
Rental of assets
Orient Watch Co., Ltd.
Shinjuku-ku,
Tokyo
100
(million JPY)
Wearable & Industrial
products
100.0
Sales of watches,
Interlocking directors,
Financial assistance,
Rental and borrowing of
assets
Miyazaki Epson
Corporation
Miyazaki-shi,
Miyazaki
100
(million JPY)
Wearable & Industrial
products
100.0
Manufacture of crystal
devices
Tohoku Epson
Corporation
Sakata-shi,
Yamagata
100
(million JPY)
Akita Epson
Corporation
Yuzawa-shi,
Akita
80
(million JPY)
Printing solutions,
Wearable & Industrial
products
Printing solutions,
Wearable & Industrial
products
Epson Atmix
Corporation
Hachinohe-shi,
Aomori
450
(million JPY)
Wearable & Industrial
products
100.0
100.0
Manufacture of printer
components and
semiconductors,
Interlocking directors
Manufacture of printer
components and sensing
systems,
Financial assistance
100.0
Manufacture and sales of
metal powders, etc.,
Rental of assets
U.S. Epson, Inc.
*
Long Beach,
U.S.A.
126,941
(thousand USD)
Holding company
100.0
Epson America, Inc.
*
Long Beach,
U.S.A.
40,000
(thousand USD)
Regional headquarters,
Printing solutions,
Visual
communications,
Wearable & Industrial
products
Epson Electronics
America, Inc.
Epson Portland Inc.
Epson El Paso, Inc.
San Jose,
U.S.A.
Portland,
U.S.A.
El Paso,
U.S.A.
10,000
(thousand USD)
Wearable & Industrial
products
31,150
(thousand USD)
Printing solutions
51,000
(thousand USD)
Printing solutions
122
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
Manufacture of printer
consumables,
Interlocking directors
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
100.0
(100.0)
Distribution of printer
consumables,
Interlocking directors
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Epson Europe B.V.
*
Amsterdam,
the Netherlands
95,000
(thousand EUR)
Regional headquarters,
Printing solutions,
Visual
communications
Epson (U.K.) Ltd.
Hemel
Hempstead,
UK
1,600
(thousand GBP)
Printing solutions,
Visual
communications
Epson Deutschland
GmbH
Dusseldorf,
Germany
5,200
(thousand EUR)
Printing solutions,
Visual
communications,
Wearable & Industrial
products
100.0
Regional headquarters in
Europe,
Sales of printers and other
PC peripherals,
Interlocking directors,
Guaranty of liabilities
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
Epson Europe
Electronics GmbH
Munich,
Germany
2,000
(thousand EUR)
Wearable & Industrial
products
100.0
(100.0)
Sales of electronic devices,
Interlocking directors
Epson France S.A.
Levallois-
Perret, France
4,000
(thousand EUR)
Epson Italia s.p.a.
For.Tex S.r.l.
Milan,
Italy
Como,
Italy
3,000
(thousand EUR)
80
(thousand EUR)
Epson Iberica, S.A.
Cerdanyola,
Spain
1,900
(thousand EUR)
Printing solutions,
Visual
communications
Printing solutions,
Visual
communications
Printing solutions
Printing solutions,
Visual
communications
Epson Telford Ltd.
Telford, UK
8,000
(thousand GBP)
Printing solutions
Epson (China) Co., Ltd.
*
Beijing,
China
1,211
(million CNY)
Regional headquarters,
Printing solutions,
Visual
communications,
Wearable & Industrial
products
Epson Korea Co., Ltd.
Seoul,
Korea
1,466
(million KRW)
Printing solutions,
Visual
communications
Epson Hong Kong Ltd.
Hong Kong,
China
2,000
(thousand HKD)
Epson Taiwan
Technology & Trading
Ltd.
Taipei,
Taiwan
25,000
(thousand TWD)
Printing solutions,
Visual
communications,
Wearable & Industrial
products
Printing solutions,
Visual
communications,
Wearable & Industrial
products
123
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 printer
consumables, etc.
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
100.0
(100.0)
Manufacture of printer
consumables,
Interlocking directors
100.0
Regional headquarters in
China,
Sales of printers and other
PC peripherals, and sales of
factory automation products,
Interlocking directors
100.0
Sales of printers and other
PC peripherals
100.0
100.0
Sales of printers and other
PC peripherals, and sales of
watch movements, factory
automation products and
electronic devices
Sales of printers and other
PC peripherals, and sales of
factory automation products
and electronic devices,
Guaranty of liabilities
Company name
Location
Paid-in capital or
amount invested
Main business
Epson Singapore
Pte. Ltd.
Singapore
200
(thousand SGD)
P.T. Epson
Indonesia
Jakarta,
Indonesia
918,000
(thousand IDR)
Epson (Thailand)
Co., Ltd.
Bangkok,
Thailand
103,000
(thousand THB)
Epson Australia
Pty. Ltd.
North Ryde,
Australia
1,000
(thousand AUD)
Epson India
Pvt. Ltd.
Bangalore,
India
108,628
(thousand INR)
Regional headquarters,
Printing solutions,
Visual
communications,
Wearable & Industrial
products
Printing solutions,
Visual
communications
Printing solutions,
Visual
communications
Printing solutions,
Visual
communications
Printing solutions,
Visual
communications
Tianjin Epson Co., Ltd.
Tianjin,
China
172,083
(thousand CNY)
Printing solutions
Epson Precision
(Hong Kong), Ltd.
*
Epson Engineering
(Shenzhen) Ltd.
*
Hong Kong,
China
81,602
(thousand USD)
Shenzhen,
China
56,641
(thousand USD)
Printing solutions,
Visual
communications
Printing solutions,
Visual
communications,
Wearable & Industrial
products
Epson Precision
(Shenzhen) Ltd.
Shenzhen,
China
25,000
(thousand USD)
Wearable & Industrial
products
Ownership
percentage of
voting rights (%)
100.0
Relationship between parent
company and subsidiary
Regional headquarters in
Asia-Pacific,
Sales of printers and other
PC peripherals, and 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
100.0
100.0
(100.0)
Sales of printers and other
PC peripherals,
Guaranty of liabilities
Sales of printers and other
PC peripherals,
Interlocking directors,
Guaranty of liabilities
80.0
(80.0)
Manufacture of printer
consumables,
Interlocking directors
100.0
Procurement of printer and
3LCD projector components
100.0
(100.0)
Manufacture of printers,
3LCD projectors, liquid
crystal panels and factory
automation products, etc.,
Interlocking directors
100.0
(100.0)
Manufacture of watches,
etc.,
Interlocking directors
Orient Watch
(Shenzhen) Ltd.
Shenzhen,
China
37,748
(thousand CNY)
Wearable & Industrial
products
100.0
(100.0)
Manufacture of watches,
etc.,
Singapore Epson
Industrial
Pte. Ltd.
Singapore
71,700
(thousand SGD)
Wearable & Industrial
products
P.T. Epson Batam
Batam,
Indonesia
7,000
(thousand USD)
Printing solutions
100.0
100.0
(100.0)
P.T. Indonesia Epson
Industry
*
Bekasi,
Indonesia
23,000
(thousand USD
Printing solutions
100.0
Manufacture of
semiconductors, and surface
finishing,
Interlocking directors,
Guaranty of liabilities
Manufacture of printer
consumables,
Interlocking directors,
Guaranty of liabilities
Manufacture of printers,
Interlocking directors,
Guaranty of liabilities
124
Company name
Location
Paid-in capital or
amount invested
Main business
Ownership
percentage of
voting rights (%)
Relationship between parent
company and subsidiary
Epson Precision
(Philippines), Inc.
*
Lipa,
Philippines
157,533
(thousand USD)
Printing solutions,
Visual
communications
Epson Precision
Malaysia Sdn. Bhd.
Kuala Lumpur,
Malaysia
16,000
(thousand MYR)
Wearable & Industrial
products
Epson Precision
(Johor) Sdn. Bhd.
Johor,
Malaysia
22,800
(thousand MYR)
Wearable & Industrial
products
100.0
Manufacture of printers and
3LCD projectors,
Interlocking directors,
Guaranty of liabilities
100.0
Manufacture of crystal
devices,
Interlocking directors
100.0
(100.0)
Manufacture of watch
components,
Guaranty of liabilities
45 other companies
–
–
–
–
–
(Equity method affiliates)
Three companies
Notes
1. Ownership percentage of voting rights indicated inside parentheses refers to indirect ownership percentage.
2. * indicates a specified subsidiary (tokutei-kogaisha).
3. The revenue (excluding revenues among consolidated subsidiaries) of Epson Sales Japan Corporation and
Epson America, Inc. each amounts to more than 10% of the consolidated revenue. Key information on the
operations of these subsidiaries is as follows.
Company name
Revenue
Profit before
tax
Profit for the
period
Total equity
Total assets
(Millions of yen)
Epson Sales Japan Corporation
Epson America, Inc.
190,144
312,612
4,256
1,886
3,179
165
15,287
65,503
32,398
125,839
The amounts for Epson America, Inc. are included in consolidated business results.
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2. Distribution of ownership among shareholders
Category
Government and
Japanese
Japanese
regional public
financial
securities
bodies
institutions
companies
Other Japanese
corporations
Foreign institutions and
Japanese
others
individuals
Total
Institutions
Individuals
and others
Shares less
than one
unit (Shares)
Share ownership (100 shares per unit)
As of March 31, 2016
Number of
shareholders
(Persons)
Number of
shares owned
(Units)
Percentage of
shares owned
(%)
–
96
50
398
518
33
48,927
50,022
－
–
1,041,043
124,539
573,930
1,026,714
229
1,228,587 3,995,042
130,578
–
26.05
3.12
14.37
25.70
0.01
30.75
100.00
－
Notes
1. 41,860,396 shares of treasury stock are included as 418,603 units under “Japanese individuals and others” and 96
shares under “Shares less than one unit.”
2. Six units in the name of Japan Securities Depository Center, Inc. are included under “Other Japanese
corporations.”
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3. Major shareholders
Name
Address
Number of shares held
As of March 31, 2016
Shareholding
ratio (%)
Sanko Kigyo Kabushiki
Kaisha
Japan Trustee Services
Bank, Ltd. (Trustee
Account)
The Master Trust Bank
of Japan, Ltd. (Trust
account)
Seiko Holdings
Corporation
6-1 Ginza 5-chome, Chuo-ku,
Tokyo
8-11, Harumi 1-chome, Chuo-ku,
Tokyo
11-3 Hamamatsu-cho 2-chome,
Minato-ku, Tokyo
5-11 Ginza 4-chome, Chuo-ku,
Tokyo
Yasuo Hattori
Minato-ku, Tokyo
Noboru Hattori
Minato-ku, Tokyo
The Dai-ichi Life
Insurance Company,
Limited
(Standing proxy: Trust &
Custody Services Bank,
Ltd.)
Mizuho Trust & Banking
Co., Ltd., Retirement
benefit trust, Mizuho
Bank, Ltd. account,
Beneficiary of the
re-trust, Trust & Custody
Services Bank, Ltd.
Seiko Epson Corporation
Employees’
Shareholding
Association
NGK INSULATORS,
LTD.
13-1, Yurakucho 1-chome,
Chiyoda-ku, Tokyo
(Harumi Island Triton Square
Office Tower Z, 8-12, Harumi
1-chome, Chuo-ku, Tokyo)
Harumi Island Triton Square
Office Tower Z, 8-12, Harumi
1-chome, Chuo-ku, Tokyo
3-5, Owa 3-chome, Suwa-shi,
Nagano
2-56, Suda-cho, Mizuho-ku,
Nagoya-shi, Aichi
Total
－
20,000,000
16,635,900
16,440,000
12,000,000
11,932,612
11,199,936
5.00
4.16
4.11
3.00
2.98
2.80
8,736,000
2.18
8,153,800
2.04
7,677,116
1.92
6,900,000
119,675,364
1.72
29.94
Notes
1. Although the Company holds 41,860,396 shares of treasury stock, the Company is excluded from the above list
of major shareholders. (The ratio of the treasury shares held by the Company to the total number of shares issued
is 10.47%.)
2. The shares held by Mizuho Trust & Banking Co., Ltd., Retirement benefit trust, Mizuho Bank, Ltd. account,
Beneficiary of the re-trust, Trust & Custody Services Bank, Ltd., were contributed by Mizuho Bank, Ltd. to the
trust assets of the Retirement benefit trust.
127
4. Employee stock ownership plans
On March 16, 2016, Epson’s Board of Directors resolved to introduce a transparent & fair performance-linked
stock compensation plan for the Company’s directors and executive officers who have been engaged by the
Company (collectively referred to hereafter as “Eligible Officers,” and excluding outside directors and persons
such as Audit and Supervisory Committee members who are not directly engaged in the operations of the Company,
and persons residing outside Japan). The Plan, details regarding which were resolved at a meeting of the Board of
Directors on April 28, 2016, is intended to heighten directors’ sense of shared interest with shareholders and to
show a commitment to sustaining growth and increasing corporate value over the mid- to long-term.
The introduction of the Plan received approval at the 74th Ordinary General Meeting of Shareholders held on June
28, 2016.
(1) Summary of the Plan
The Plan employs a framework referred to as the officer compensation BIP (Board Incentive Plan) trust
(hereinafter, the “BIP Trust”). The BIP Trust is an incentive plan for officers modeled on the U.S. Performance
Share and Restricted Stock systems. The Plan provides the officers with Epson’s own shares, which will be
acquired through the BIP Trust based on the levels of achievement of operating performance targets.
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(6) Delivery of Epson
shares and cash
benefits
(3) Epson shares
(Joint trustee: The Master Trust Bank of Japan, Ltd.)
Mitsubishi UFJ Trust and Banking Corp.
Stock market
BIP Trust
Beneficiaries
The Eligible
Officers
(3) Payment of costs
(5) Instruction not to
exercise voting rights
Trust
administrator
1) Epson will establish share delivery regulations related to the content of the Plan.
2) In accordance with the trust agreement, Epson contributes funds on the trustee’s behalf within the scope of
approval by resolution at the General Meeting of Shareholders and establishes a trust with beneficiaries who are
the Officers who satisfy the beneficiary requirements (hereinafter, the “Trust”).
3) According to the trust administrator’s instructions, the Trust uses funds contributed as in 2) above as the source
of funds to acquire Epson shares from Epson (disposal of treasury shares) or in the stock market.
4) The allocation of surplus funds in the Trust for the Epson shares is handled in the same manner as for other
Epson shares, and is appropriated for necessary expenses for the Plan.
5) Throughout the trust period, voting rights are not to be exercised on Epson shares within the Trust.
6) During the trust period, the Eligible Officers are awarded a specific number of points each year based on their
position and other factors, in accordance with the share delivery regulations established in 1) above. Such points
128
fluctuate depending on the levels of achievement of the mid- to long-term operating performance targets of
Epson. Furthermore, Epson shares, which correspond to a certain proportion of such points, will be delivered to
the Eligible Officers, in principle, after the lapse of three years following the awarding of points. As regards
Epson shares corresponding to the remaining portion of points, the Eligible Officers will receive cash equivalent
to the amounts obtained through the conversion of such shares into cash within the Trust as prescribed in the
trust agreement.
7) If residual shares remain in the Trust at the expiry of the trust period in the event that operating performance
targets are not met during the trust period, Epson may continue to use the Trust by amending the trust
agreement and making additional contribution. Otherwise, Epson will acquire such residual shares, through
gratis transfer, and retire them by resolution of the Board of Directors.
8) Upon the termination of the Trust, residual assets remaining after allocation to beneficiaries are to be attributed
to Epson within the scope of trust expense reserve after subtracting funds for acquiring shares from the trust
money. The portion exceeding the trust expense reserve is planned to be donated to organization(s) having no
interests with Epson and any of its officers.
Note: The Trustor may continue the Plan by contributing additional money as funds for acquiring its own shares
for the Trust within the scope of the funds for acquiring shares, of which the amount is subject to approval
by resolution at the General Meeting of Shareholders.
(2) Overview of the trust agreement
1) Type of Trust
2) Purpose of the Trust
3) Trustor
4) Trustee (planned)
5) Beneficiaries
6) Trust administrator
7) Date of trust agreement (planned)
8) Trust period (planned)
9) Plan launch date (planned)
10) Exercise of voting rights
11) Class of shares to be acquired
12) Planned amount of initial trust money
13) Maximum amount of trust money (planned)
14) Method of acquiring shares
15) Period for acquiring shares (planned)
16) Vested rightholder
17) Residual assets
Monetary trust other than a designated individually operated
monetary trust (third party benefit trust)
Provide incentives to Eligible Officers
Epson
Mitsubishi UFJ Trust and Banking Corporation
(Joint trustee: The Master Trust Bank of Japan, Ltd.)
The Officers who meet the beneficiary requirements
A third-party specialist without relationship with Epson
August 2, 2016
August 2, 2016 through August 31, 2019
October 1, 2016
Voting rights not to be exercised
Common stock of Epson
320 million yen (including trust fees and expenses)
500 million yen (including trust fees and expenses)
Acquisition in the stock market
August 4, 2016 through August 31, 2016
Epson
Residual assets that Epson may receive as the vested
rightholder shall be within the scope of trust expense reserve
after subtracting funds for acquiring shares from the trust
money.
(3) Content of trust/stock related business
1) Trust-related business
2) Stock-related business
Mitsubishi UFJ Trust and Banking Corporation and The Master Trust Bank of
Japan, Ltd. will handle the trust-related business as trustees of the BIP Trust.
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. will handle the business
related to the delivery of Epson shares to the beneficiaries in accordance with a
business consignment agreement.
129
5. Epson stock price
(1) High and low stock prices for the previous five years
Year
Fiscal year
70th year
March 2012
71st year
March 2013
72nd year
March 2014
73rd year
Mar 2015
74th year
Mar 2016
High (¥)
Low (¥)
1,499
881
1,183
431
3,390
795
5,970
□2,333
2,752
□2,120
2,357
1,492
Notes
1. High and low stock prices noted above are based on Tokyo Stock Exchange (First Section) data.
2. The □ mark indicates the highest and lowest ex-rights prices after a stock split (the 2-for-1 stock split
implemented on April 1, 2015).
(2) High and low stock prices for the previous six months
Month
October 2015
November
December
January 2016
February
March
High (¥)
Low (¥)
Note
2,143
1,681
1,966
1,804
2,021
1,747
1,907
1,492
2,000
1,526
2,099
1,763
High and low stock prices noted above are based on Tokyo Stock Exchange (First Section) data.
130
6. Corporate data and investor information
(1) Company name
Seiko Epson Corporation
(2) Founded
(3) Head office
May 1942
3-5 Owa 3-chome, Suwa, Nagano 392-8502, Japan
Tel: +81-266-52-3131(main)
(4) Tokyo office
JR Shinjuku Miraina Tower, 4-1-6 Shinjuku, Tokyo
160-8801 , Japan
Tel: +81 3-5368-0700(main)
(5) Investor information
Closing of accounts
Regular general shareholders’ meeting
Date for confirmation to shareholders of
March 31
June
the cash dividend payment date
March 31
Date for confirmation to shareholders of
the interim cash dividend payment date
September 30
Transfer agent
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo
Agent’s business address
Stock Transfer Agency Department
Mitsubishi UFJ Trust and Banking Corporation
10-11, Higashisuna 7-chome, Koto-ku, Tokyo
Tel: +81-3-6701-5000
http://www.tr.mufg.jp/english/
Intermediary offices
Head Office and Branches of Mitsubishi UFJ Trust and
Banking Corporation
Posting of public notices
Public notices will be posted electronically. In the event of
accidents or other circumstances preventing the electronic
posting of information, such information will be made
available through the Nihon Keizai Shimbun newspaper
(Japanese)
Web address
http://www.pronexus.co.jp/koukoku/6724/6724.html
(Japanese)
131
3-3-5 Owa, Suwa, Nagano 392-8502, Japan
TEL: +81-266-52-3131
http://global.epson.com