Note: This document has been extracted and translated for reference purposes only from the Japanese original report (Yukashoken-Hokokusho) issued on June 26, 2024, which was created in accordance with the Financial Instruments and Exchange Act. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Annual Report 2024 SEIKO EPSON CORPORATION April 2023 - March 2024 1 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. 2 Annual Securities Report (82nd term) From April 1, 2023 to March 31, 2024 SEIKO EPSON CORPORATION (E01873) 3 Table of Contents Corporate Data and Investor Information ................................................................................................................ 4 Part 1. Company Information ................................................................................................................................... 5 I. Overview of Company ..................................................................................................................................... 5 1. Key financial data .......................................................................................................................................... 5 2. Company milestones ..................................................................................................................................... 6 3. Description of business .................................................................................................................................. 8 4. Subsidiaries and other affiliated entities ...................................................................................................... 13 5. Employees ................................................................................................................................................... 17 II. Overview of Business .................................................................................................................................... 20 1. Management policy, business environment and issues to be addressed, etc. ............................................... 20 2. Concept and initiatives of sustainability ...................................................................................................... 25 3. Risks related to Epson’s business operations .............................................................................................. 57 4. Management analysis of financial position, operating results and cash flows ............................................ 64 5. Major management contracts ...................................................................................................................... 69 6. Research and development activities ........................................................................................................... 70 III. Information About Facilities .......................................................................................................................... 76 1. Overview of capital expenditures ................................................................................................................ 76 2. Major equipment and facilities .................................................................................................................... 77 3. Plans for new additions or disposals ............................................................................................................ 79 IV. Information About Reporting Company ........................................................................................................ 80 1. Company’s shares, etc. ................................................................................................................................ 80 (1) Total number of shares, etc. .................................................................................................................... 80 (2) Subscription rights to shares ................................................................................................................... 80 (3) Exercises, etc. of moving strike convertible bonds, etc. ......................................................................... 80 (4) Changes in number of outstanding shares, share capital, etc. ................................................................. 80 (5) Distribution of ownership among shareholders ....................................................................................... 81 (6) Major shareholders .................................................................................................................................. 82 (7) Voting rights ............................................................................................................................................ 85 (8) Officer and employee stock ownership plans .......................................................................................... 87 2. Acquisition and disposal of treasury shares................................................................................................. 90 3. Dividend policy ........................................................................................................................................... 92 4. Corporate governance .................................................................................................................................. 93 (1) Overview of corporate governance ......................................................................................................... 93 (2) Officers .................................................................................................................................................. 105 (3) Internal audits ........................................................................................................................................ 116 (4) Officer compensation, etc. .................................................................................................................... 122 (5) Securities held by the Company ............................................................................................................ 128 V. Financial Information .................................................................................................................................. 131 Consolidated financial statements, etc. ............................................................................................................ 132 (1) Consolidated financial statements ......................................................................................................... 132 (2) Other ...................................................................................................................................................... 201 VI. Outline of Share-Related Administration of Reporting Company ............................................................... 202 VII. Reference Information of Reporting Company ........................................................................................... 203 1. Information about parent of reporting company ........................................................................................ 203 2. Other reference information ...................................................................................................................... 203 Part 2. Information About Reporting Company’s Guarantor, Etc. ........................................................................ 205 Report of Independent Auditors ....................................................................................................................... 206 4 Corporate Data and Investor Information (1) Company name Seiko Epson Corporation (2) Founded May 1942 (3) Head office 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 March 31 Regular general shareholders’ meeting June Date for confirmation to shareholders of 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 1-1, Nikkocho, Fuchu, Tokyo, Japan Tel: +81-42-204-0303 https://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). Public notice website address https://kmasterplus.pronexus.co.jp/main/corp/6/7/6724/index.html (Japanese) 5 Part 1. Company Information I. Overview of Company 1. Key financial data Consolidated financial highlights Millions of yen Thousands of U.S. dollars For the years ended March 31 2020 2021 2022 2023 2024 2024 Revenue 1,043,600 995,940 1,128,914 1,330,331 1,313,998 8,682,710 Profit before tax 39,713 44,933 97,162 103,755 70,094 463,171 Profit for the period attributable to owners of the parent company 7,733 30,922 92,288 75,043 52,616 347,678 Total comprehensive income for the period (3,869) 68,818 136,226 112,913 109,325 722,403 Equity attributable to owners of the parent company 503,746 550,924 665,628 727,352 810,992 5,358,918 Total assets 1,040,910 1,161,314 1,266,420 1,341,575 1,413,094 9,337,522 Equity attributable to owners of the parent company, per share Yen 1,456.20 Yen 1,592.36 Yen 1,923.68 Yen 2,194.02 Yen 2,445.52 $ 16.16 Basic earnings per share Yen 22.26 Yen 89.38 Yen 266.73 Yen 220.75 Yen 158.68 $ 1.05 Diluted earnings per share Yen 22.25 Yen 89.35 Yen 266.64 Yen 220.70 Yen 158.66 $ 1.05 Equity attributable to owners of the parent company ratio % 48.39 % 47.44 % 52.56 % 54.22 % 57.39 - Return on equity % 1.48 % 5.86 % 15.17 % 10.77 % 6.84 - Price earnings ratio Times 52.56 Times 20.14 Times 6.90 Times 8.52 Times 16.67 - Dividend payout ratio % 278.5 % 69.4 % 23.2 % 32.6 % 46.6 - Total shareholder return (Comparison index: TOPIX (Dividend included)) % 72.7 (90.5) % 113.5 (128.6) % 119.6 (131.2) % 126.2 (138.8) % 175.7 (196.2) - Net cash from (used in) operating activities 102,324 133,222 110,801 61,311 165,570 1,094,062 Net cash from (used in) investing activities (76,131) (57,448) (44,083) (61,602) (58,981) (389,737) Net cash from (used in) financing activities (283) 23,150 (51,771) (79,349) (65,395) (432,120) Cash and cash equivalents at end of period 196,245 304,007 335,239 267,380 328,481 2,170,555 Number of employees Persons 75,608 Persons 79,944 Persons 77,642 Persons 79,906 Persons 74,464 - (Note) The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS). U.S. dollar amounts are presented for the convenience of the readers. This translation should not be construed to imply that the yen amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars. The exchange rate of ¥151.335 = U.S.$1 at the end of the reporting period has been used for the purpose of presentation. 6 2. Company milestones Date Event 5/1942 Daiwa Kogyo, Ltd. established to manufacture watch parts, launching the watch business 5/1959 Sales & marketing taken over from the Suwa factory of Daini Seikosha Co., Ltd. (now Seiko Instruments Inc.) and the business name was changed to Suwa Seikosha, Ltd. 9/1959 Reorganized to form Suwa Seikosha Co., Ltd. 12/1961 Domestic manufacturing company Shinshu Seiki Co., Ltd. (later Epson Corporation) established 8/1968 Manufacturing company Tenryu Singapore Pte. Ltd. (now Singapore Epson Industrial Pte. Ltd.) established 9/1968 Mini-printer business launched 11/1973 Semiconductor business launched 2/1974 Manufacturing company Suwa Overseas Ltd. [now Epson Precision (Hong Kong) Ltd.] established 4/1975 Sales company Epson America, Inc. established Corrective lenses business launched (the business was transferred in 2/2013) 6/1975 EPSON established as a company brand in non-watch businesses Liquid crystal display business launched 7/1976 Quartz crystal device business launched 12/1978 Computer printer business launched 11/1979 Sales company Epson Deutschland GmbH established in Germany 10/1980 Sales company Epson Electronics Trading Ltd. (now Epson Hong Kong Ltd.) established 11/1982 Sales company Epson Electronics (Singapore) Pte. Ltd. (now Epson Singapore Pte. Ltd.) established 5/1983 Domestic sales company Epson Sales Japan Corporation established 1/1985 Domestic manufacturing company Shonai Electronics Industry Corporation (now Tohoku Epson Corporation) established 2/1985 Manufacturing company Epson Portland Inc. established in the U.S. 11/1985 Suwa Seikosha Co., Ltd. and Epson Corporation merged to form Seiko Epson Corporation 1/1987 Manufacturing company Epson Telford Ltd. established in the U.K. 1/1989 LCD projector business launched 9/1989 Sales company Epson Semiconductor GmbH (now Epson Europe Electronics GmbH) established in Germany 1/1990 Regional head office Epson Europe B.V. established in the Netherlands 1/1993 U.S. Epson, Inc. established 11/1993 Domestic sales company Epson Direct Corporation established 7/1994 Manufacturing company P.T. Indonesia Epson Industry established 2/1996 Manufacturing company Suzhou Epson Quartz Devices Co., Ltd. (later Suzhou Epson Co., Ltd.) established in China (all rights and obligations transferred in 7/2011) 11/1996 Sales company Epson Electronics America, Inc. established (absorbed by Epson America, Inc. in 4/2018) 4/1998 Regional head office Epson (China) Co., Ltd. established 3/2001 Orient Watch Co., Ltd. made a wholly owned subsidiary 6/2003 Seiko Epson shares listed on Section 1 of the Tokyo Stock Exchange 10/2004 Liquid crystal display business split off to form Sanyo Epson Imaging Devices Corporation 10/2005 Quartz device business split off to form Epson Toyocom Corporation (now Miyazaki Epson Corporation) 12/2006 Sanyo Epson Imaging Devices Corporation made a wholly owned subsidiary through the acquisition of additional shares. Business name changed to Epson Imaging Devices Corporation (certain assets of the small- and medium-sized LCDs business were transferred in 4/2010). Epson Imaging Devices was absorbed by Seiko Epson in 2/2017, with the latter the surviving company. 7 Date Event 11/2008 Additional shares of Orient Watch Co., Ltd. acquired in a takeover bid 3/2009 Orient Watch Co., Ltd. made a wholly owned subsidiary via an exchange of shares (the watch sales business was split off and absorbed in 4/2017, with Seiko Epson and Epson Sales Japan the succeeding companies) 4/2009 6/2009 Additional shares of Epson Toyocom Corporation (now Miyazaki Epson Corporation) acquired in a takeover bid Epson Toyocom Corporation (now Miyazaki Epson Corporation) made a wholly owned subsidiary via an exchange of shares (sales, marketing and certain other functions related to the quartz device business were split off and absorbed in 4/2012, with Seiko Epson the succeeding company) 4/2015 6/2016 7/2017 6/2018 3/2020 4/2022 Executed a 2-for-1 stock split of common shares Transitioned from a company with an audit & supervisory board to a company with an audit & supervisory committee Construction completed on a new factory at manufacturing subsidiary Epson Precision (Philippines), Inc. to expand production capacity for inkjet printers and projectors Construction completed on a new factory at the Hirooka Office in Nagano Prefecture to expand inkjet printhead production capacity Construction completed on a new building at the Hirooka Office in Nagano Prefecture to reinforce commercial and industrial printing R&D and production capacity Company stock transferred from the 1st Section of the Tokyo Stock Exchange to the Prime Market in conjunction with a reorganization of the Tokyo Stock Exchange’s market segments 8 3. Description of business Epson is primarily engaged in developing, manufacturing, selling, and providing services for products in the printing solutions, visual communications, manufacturing-related and wearables, and the other business. Epson is organized into operations divisions that come under global 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. Based on the Epson 25 Renewed corporate vision, the three reporting segments of Epson are printing solutions, visual communications, and manufacturing-related and wearables. Each reporting segment is the same as the segments used in “V. Financial Information, Consolidated financial statements, etc., (1) Consolidated financial statements, Notes to Consolidated Financial Statements, 6. Segment Information.” Printing Solutions Business Segment This segment comprises the office and home printing business, commercial and industrial printing business, and others. The businesses in this segment leverage Epson’s original Micro Piezo as well as dry fiber technology and other technologies to develop, manufacture, and sell products and provide services related thereto. The main activities of these businesses are described below. Office and home printing business This business is primarily responsible for office and home inkjet printers, serial impact dot matrix (SIDM) printers, page printers, color image scanners, dry process office papermaking systems, and related consumables. Commercial and industrial printing business This business is primarily responsible for inkjet printers for commercial and industrial applications, inkjet printheads, printers for use in POS systems, label printers, and related consumables. 9 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 Office and home printing business Inkjet printers for office and home, serial impact dot matrix printers, page printers, color image scanners, dry process office papermaking systems, and related consumables, and others Tohoku Epson Corporation Akita Epson Corporation Epson Portland Inc. Epson do Brasil Industria e Comercio Ltda. Epson Telford Ltd. Epson Como Printing Technologies S.r.l. Epson Engineering (Shenzhen) Ltd. Tianjin Epson Co., Ltd. PT. Epson Batam PT. Indonesia Epson Industry Epson Precision (Philippines), Inc. Epson Sales Japan Corporation Epson America, Inc. Epson do Brasil Industria e Comercio Ltda. Epson Europe B.V. Epson (U.K.) Ltd. Epson Deutschland GmbH Epson France S.A.S. Epson Italia S.p.A. Epson Como Printing Technologies S.r.l. Epson Iberica, S.A.U. Epson Middle East FZCO Epson (China) Co., Ltd. Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. PT. Epson Indonesia Epson (Thailand) Co., Ltd. Epson Philippines Corporation Epson Australia Pty. Ltd. Epson India Pvt. Ltd. Commercial and industrial printing business Commercial and industrial inkjet printers, inkjet printheads, printers for use in POS systems, label printers, and related consumables, and others Visual Communications Business Segment The businesses in this segment leverage Epson’s original microdisplay and projection technologies to develop, manufacture, and sell 3LCD projectors mainly for business, education, the home, and event as well as smart glasses and provide services related thereto. 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, smart glasses, and others Epson Engineering (Shenzhen) Ltd. Epson Precision (Philippines), Inc. Epson Sales Japan Corporation Epson America, Inc. Epson do Brasil Industria e Comercio Ltda. Epson Europe B.V. Epson (U.K.) Ltd. Epson Deutschland GmbH Epson France S.A.S. Epson Italia S.p.A. Epson Iberica, S.A.U. Epson Middle East FZCO Epson (China) Co., Ltd. Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. PT. Epson Indonesia Epson (Thailand) Co., Ltd. Epson Philippines Corporation Epson Australia Pty. Ltd. Epson India Pvt. Ltd. 10 Manufacturing-related and wearables Business Segment This segment comprises the manufacturing solutions business, wearable products business, microdevices business, and the PC business and develops, manufactures and sells the products below, and provides services related thereto. The main activities of these businesses are described below. Manufacturing solutions business This business leverages advanced precision mechatronics, high-accuracy sensing technology, software technology and other technologies to develop, manufacture, and sell industrial robots, compact injection molders and other production systems that dramatically increase productivity. Wearable products business This business leverages its ultrafine and ultraprecision machining and processing technologies, its high-density mounting and assembly technologies and high-accuracy sensing technology to develop, manufacture and sell wristwatches, watch movements and others. Microdevices and others business This business deals with small, accurate, energy-efficient devices for external customers, and also develops and manufactures devices tailored to needs of other businesses in the Epson Group. It also operates metal powders business and surface finishing services business. 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. PC business This business sells PCs in the Japanese market through a domestic subsidiary. 11 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 Manufacturing solutions Industrial robots, compact injection molders, and others Epson Engineering (Shenzhen) Ltd. Epson Sales Japan Corporation Epson America, Inc. Epson Deutschland GmbH Epson Italia S.p.A. Epson (China) Co., Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. Wearable products Wristwatches, watch movements, and others Akita Epson Corporation Orient Watch (Shenzhen) Ltd. Epson Precision (Thailand) Ltd. Epson Precision (Johor) Sdn. Bhd. Epson Sales Japan Corporation Epson Europe B.V. Epson (China) Co., Ltd. Epson Hong Kong Ltd. Microdevices and others Quartz devices Crystal units, crystal oscillators, quartz sensors, and others Miyazaki Epson Corporation Epson Precision (Thailand) Ltd. Epson Precision Malaysia Sdn. Bhd. Epson America, Inc. Epson Europe Electronics GmbH Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. 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. PC business PC, and others - Epson Sales Japan Corporation Epson Direct Corporation 12 The business activities diagram below shows the abovementioned points. Customers Seiko Epson Corporation Manufacturing companies Tohoku Epson Corporation Akita Epson Corporation Epson Portland Inc. Epson do Brasil Industria e Comercio Ltda. Epson Telford Ltd. Epson Como Printing Technologies S.r.l. Epson Engineering (Shenzhen) Ltd. Tianjin Epson Co., Ltd. PT. Epson Batam PT. Indonesia Epson Industry Epson Precision (Philippines), Inc. Printing Solutions Visual Communications Manufacturing-related and wearables Manufacturing companies Miyazaki Epson Corporation Tohoku Epson Corporation Akita Epson Corporation Epson Engineering (Shenzhen) Ltd. Orient Watch (Shenzhen) Ltd. Singapore Epson Industrial Pte. Ltd. Epson Precision (Thailand) Ltd. Epson Precision Malaysia Sdn. Bhd. Epson Precision (Johor) Sdn. Bhd. Manufacturing companies Epson Engineering (Shenzhen) Ltd. Epson Precision (Philippines), Inc. Manufacturing and sales company Epson Atmix Corporation Sales companies Epson Sales Japan Corporation Epson America, Inc. Epson Europe B.V. Epson Deutschland GmbH Epson Europe Electronics GmbH Epson Italia S.p.A. Epson (China) Co., Ltd. Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. Sales companies Epson Sales Japan Corporation Epson America, Inc. Epson do Brasil Industria e Comercio Ltda. Epson Europe B.V. Epson (U.K.) Ltd. Epson Deutschland GmbH Epson France S.A.S. Epson Italia S.p.A. Epson Iberica, S.A.U. Epson Middle East FZCO Epson (China) Co., Ltd. Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. PT. Epson Indonesia Epson (Thailand) Co., Ltd. Epson Philippines Corporation Epson Australia Pty. Ltd. Epson India Pvt. Ltd. Sales companies Epson Sales Japan Corporation Epson America, Inc. Epson do Brasil Industria e Comercio Ltda. Epson Europe B.V. Epson (U.K.) Ltd. Epson Deutschland GmbH Epson France S.A.S. Epson Italia S.p.A. Epson Como Printing Technologies S.r.l. Epson Iberica, S.A.U. Epson Middle East FZCO Epson (China) Co., Ltd. Epson Singapore Pte. Ltd. Epson Korea Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. PT. Epson Indonesia Epson (Thailand) Co., Ltd. Epson Philippines Corporation Epson Australia Pty. Ltd. Epson India Pvt. Ltd. (Note) All companies shown above are consolidated subsidiaries. Key Provision of products and services Supply of parts 13 4. Subsidiaries and other affiliated entities 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, Manufacturing-related and wearables 100.0 Sales of the Company’s products, Interlocking directors, Rental and borrowing of assets Financial assistance Miyazaki Epson Corporation Miyazaki-shi, Miyazaki 100 (million JPY) Manufacturing-related and wearables 100.0 Manufacture of crystal devices Tohoku Epson Corporation Sakata-shi, Yamagata 100 (million JPY) Printing solutions, Manufacturing-related and wearables 100.0 Manufacture of printer components and semiconductors Financial assistance Akita Epson Corporation Yuzawa-shi, Akita 80 (million JPY) Printing solutions, Manufacturing-related and wearables 100.0 Manufacture of printer components and watch movements, Financial assistance Epson Atmix Corporation Hachinohe-shi, Aomori 450 (million JPY) Manufacturing-related and wearables 100.0 Manufacture and sales of metal powders, synthetic quartz crystal, etc., Rental and borrowing of assets Epson Direct Corporation Shiojiri-shi, Nagano 150 (million JPY) Manufacturing-related and wearables 100.0 (100.0) Manufacture and sales of PCs, etc., Rental of assets Epson X Investment Corporation Chiyoda-ku, Tokyo 100 (million JPY) Other (Venture investment & development) 100.0 Venture investment company, Interlocking directors, Financial assistance U.S. Epson, Inc. * Los Alamitos, U.S.A. 126,941 (thousand USD) Holding company 100.0 Holding company in Americas, Interlocking directors Epson America, Inc. * Los Alamitos, U.S.A. 40,000 (thousand USD) Regional headquarters, Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 (100.0) Regional headquarters in Americas, Sales of printers, 3LCD projectors, industrial robots, and electronic devices, etc., Interlocking directors, Financial assistance Epson do Brasil Industria e Comercio Ltda. Sao Paulo, Brazil 25,773 (thousand USD) Printing solutions, Visual communications 100.0 (100.0) Manufacture and sales of printers, etc. and sales of 3LCD projectors, etc. Epson Portland Inc. Hillsboro, U.S.A. 31,150 (thousand USD) Printing solutions 100.0 (100.0) Manufacture of printer consumables, etc. 14 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, Manufacturing-related and wearables 100.0 Regional headquarters in Europe, Sales of printers, 3LCD projectors and watches, etc., Interlocking directors, Financial assistance Epson (U.K.) Ltd. Hemel Hempstead, UK 25,000 (thousand GBP) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc., Guaranty of liabilities Epson Deutschland GmbH Düsseldorf, Germany 5,200 (thousand EUR) Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 (100.0) Sales of printers, 3LCD projectors and industrial robots, etc. Epson Europe Electronics GmbH Munich, Germany 2,000 (thousand EUR) Manufacturing-related and wearables 100.0 (100.0) Sales of electronic devices Epson France S.A.S. Levallois- Perret, France 4,000 (thousand EUR) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson Italia S.p.A. Milan, Italy 3,000 (thousand EUR) Printing solutions, Visual communications Manufacturing-related and wearables 100.0 (100.0) Sales of printers and 3LCD projectors, industrial robots, etc. Epson Como Printing Technologies S.r.l. Como, Italy 170 (thousand EUR) Printing solutions 100.0 (100.0) Development, manufacture and sales of printers, etc. Epson Iberica, S.A.U. Barcelona, Spain 1,900 (thousand EUR) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson Middle East FZCO Dubai, United Arab Emirates 4,000 (thousand USD) Printing solutions, Visual communications 100.0 Sales of printers and 3LCD projectors, etc. Epson Telford Ltd. Telford, UK 22,000 (thousand GBP) Printing solutions 100.0 (100.0) Manufacture of printer consumables Epson (China) Co., Ltd. * Beijing, China 1,211 (million CNY) Regional headquarters, Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 Regional headquarters in China, Sales of printers, 3LCD projectors, industrial robots and electronic devices, etc. Epson Singapore Pte. Ltd. Singapore 200 (thousand SGD) Regional headquarters, Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 Regional headquarters in Southeast Asia, Sales of printers, 3LCD projectors and electronic devices, etc. 15 Company name Location Paid-in capital or amount invested Main business Ownership percentage of voting rights (%) Relationship between parent company and subsidiary Epson Korea Co., Ltd. Seoul, Korea 1,466 (million KRW) Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 Sales of printers, 3LCD projectors and industrial robots and electronic devices, etc. Epson Hong Kong Ltd. Hong Kong, China 2,000 (thousand HKD) Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 Sales of printers, 3LCD projectors, watch movements, industrial robots and electronic devices, etc. Epson Taiwan Technology & Trading Ltd. Taipei, Taiwan 25,000 (thousand TWD) Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 Sales of printers, 3LCD projectors, industrial robots and electronic devices, etc., Financial assistance PT. Epson Indonesia Jakarta, Indonesia 918,000 (thousand IDR) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson (Thailand) Co., Ltd. Bangkok, Thailand 215,308 (thousand THB) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson Philippines Corporation Pasig, Philippines 50,000 (thousand PHP) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson Australia Pty. Ltd. North Ryde, Australia 1,000 (thousand AUD) Printing solutions, Visual communications 100.0 Sales of printers and 3LCD projectors, etc. Epson India Pvt. Ltd. Bangalore, India 108,628 (thousand INR) Printing solutions, Visual communications 100.0 (100.0) Sales of printers and 3LCD projectors, etc. Epson Precision (Hong Kong) Ltd. Hong Kong, China 32,641 (thousand USD) Printing solutions, Visual communications 100.0 Management of components of printers and 3LCD projectors, etc. used for contract services Epson Engineering (Shenzhen) Ltd. * Shenzhen, China 56,641 (thousand USD) Printing solutions, Visual communications, Manufacturing-related and wearables 100.0 (100.0) Manufacture of printers, 3LCD projectors and industrial robots, etc. Orient Watch (Shenzhen) Ltd. Shenzhen, China 37,748 (thousand CNY) Manufacturing-related and wearables 100.0 (100.0) Manufacture of watches, etc. Tianjin Epson Co., Ltd. Tianjin, China 172,083 (thousand CNY) Printing solutions 100.0 (100.0) Manufacture of printer consumables, etc. Singapore Epson Industrial Pte. Ltd. Singapore 71,700 (thousand SGD) Manufacturing-related and wearables 100.0 Manufacture of semiconductors, and surface finishing, etc. PT. Epson Batam Batam, Indonesia 7,000 (thousand USD) Printing solutions 100.0 (100.0) Manufacture of printer consumables, etc., Guaranty of liabilities 16 Company name Location Paid-in capital or amount invested Main business Ownership percentage of voting rights (%) Relationship between parent company and subsidiary PT. Indonesia Epson Industry * Bekasi, Indonesia 23,000 (thousand USD) Printing solutions 100.0 Manufacture of printers, Interlocking directors Epson Precision (Thailand) Ltd. * Chachoengsao, Thailand 3,250,000 (thousand THB) Manufacturing-related and wearables 100.0 Manufacture of watches and crystal devices, Financial assistance Epson Precision (Philippines), Inc. * Lipa, Philippines 157,533 (thousand USD) Printing solutions, Visual communications 100.0 Manufacture of printers and 3LCD projectors Epson Precision Malaysia Sdn. Bhd. Kuala Lumpur, Malaysia 16,800 (thousand MYR) Manufacturing-related and wearables 100.0 Manufacture of crystal devices Epson Precision (Johor) Sdn. Bhd. Johor, Malaysia 52,800 (thousand MYR) Manufacturing-related and wearables 100.0 (100.0) Manufacture of watch components 36 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, Epson America, Inc. and Epson (China) Co., Ltd. each amounts to more than 10% of the consolidated revenue. Key information on the operations of these subsidiaries is as follows. (Millions of yen) Company name Revenue Profit before tax Profit for the period Total equity Total assets Epson Sales Japan Corporation 161,081 5,735 4,036 23,105 72,014 Epson America, Inc. 427,222 5,378 4,492 77,749 237,541 Epson (China) Co., Ltd. 137,630 6,500 4,540 41,210 75,902 Figures for Epson America, Inc. are included in consolidated business results. 17 5. Employees (1) Information about group As of March 31, 2024 Segment name Number of employees (Persons) Printing Solutions 49,991 Visual Communications 9,325 Manufacturing-related and wearables 11,093 Reportable segment total 70,409 Others 433 Corporate (company-wide) 3,622 Total 74,464 (Notes) 1. The number of employees indicates the number of full-time employees. 2. The number of employees represented as corporate (company-wide) refers to administrative staff not assigned to any particular business segment. (2) Information about reporting company As of March 31, 2024 Number of employees (Persons) Average age (Years) Average length of service (Years) Average annual salary (Thousands of yen) 13,083 43.4 18.6 8,009 Segment name Number of employees (Persons) Printing Solutions 6,067 Visual Communications 1,481 Manufacturing-related and wearables 2,421 Reportable segment total 9,969 Others – Corporate (company-wide) 3,114 Total 13,083 (Notes) 1. The number of employees indicates the number of full-time employees. 2. Average age, average length of service, and average annual salary have been calculated based on data for regular salaried employees at reporting companies. 3. Average annual salary includes bonuses and extra wages. 4. The number of employees represented as corporate (company-wide) refers to administrative staff not assigned to any particular business segment. (3) Status of labor union A labor union has been organized at the Company and some of its consolidated subsidiaries. As relations between management and labor of the Company and these consolidated subsidiaries are good, there are no particular matters to be reported here. 18 (4) Percentage of female workers in management positions, percentage of male workers taking childcare leave, and wage difference between male and female workers ① Seiko Epson Corporation Fiscal year under review (FY2023) Supplementary explanation Percentage of female workers in management positions (%) Percentage of male workers taking childcare leave (%) Wage difference between male and female workers (%) All workers Regular workers Non-regular workers 4.7 85.2 76.5 76.8 79.3 There are no differences in our wage system between wages for males and females of the same grade, but the low percentage of upper level positions and grades occupied by women are the primary reason for the differences. (Notes) 1. The percentage of female workers in management positions and the wage differences between male and female workers are calculated based on the provisions of the Act on the Promotion of Women’s Active Engagement in Professional Life (Act No. 64 of 2015). 2. The percentage of female workers in management positions is the female management position ratio for the organization of Seiko Epson Corporation. 3. The percentage of male workers taking childcare leave is based on the provisions of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Act No. 76 of 1991), and is calculated based on Article 71-4, item (i) of the Ordinance for Enforcement of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Ordinance of the Ministry of Labor No. 25 of 1991). 4. The wage differences between male and female workers represent the ratio of women’s wages to men’s wages. 5. The percentage of male workers taking childcare leave and the wage differences between male and female workers are calculated from the aggregate figures for employees hired by Seiko Epson Corporation (not including those seconded from other companies in the Group). 6. In terms of the wage difference between male and female workers, the wage difference at the managerial level is 97.9%. ② Consolidated subsidiaries For Epson Group companies in Japan with 101 or more regularly employed workers, the three items required of companies with 301 or more regularly employed workers by the Act on the Promotion of Women’s Active Engagement in Professional Life are disclosed (as of March 2024). The sum of the numbers of employees of Seiko Epson Corporation and the 10 Group companies in Japan listed below covers approximately 99% of the total number of employees in Japan. Fiscal year under review (FY2023) Supplementary explanation Company name Percentage of female workers in management positions (%) Percentage of male workers taking childcare leave (%) Wage difference between male and female workers (%) All workers Regular workers Non-regular workers Epson Sales Japan Corporation 6.9 95.0 84.0 78.5 120.7 Tohoku Epson Corporation 4.3 100.0 76.4 76.5 57.8 Wage difference between male and female non-regular workers is due to differences in the contracts of contract employees. Akita Epson Corporation 6.7 100.0 79.1 80.7 87.6 Miyazaki Epson Corporation 0.0 40.0 78.4 75.0 87.4 19 Fiscal year under review (FY2023) Supplementary explanation Company name Percentage of female workers in management positions (%) Percentage of male workers taking childcare leave (%) Wage difference between male and female workers (%) All workers Regular workers Non-regular workers Epson Avasys Corporation 19.2 66.7 76.8 77.9 47.7 Wage difference between male and female non-regular workers is due to differences in the contracts of contract employees. Epson Atmix Corporation 11.1 36.4 98.9 84.9 – All non-regular workers are men. Epson Direct Corporation 6.3 – 84.5 94.4 119.6 Regarding male workers taking childcare leave, there are none eligible. Epson Logistics Corporation 0.0 – 111.3 113.4 90.5 Regarding male workers taking childcare leave, there are none eligible. Epson Mizube Corporation 10.0 100.0 99.1 100.4 89.0 Epson Repair Corporation 0.0 100.0 74.5 78.0 122.4 (Notes) 1. The percentage of female workers in management positions and the wage differences between male and female workers are calculated based on the provisions of the Act on the Promotion of Women’s Active Engagement in Professional Life (Act No. 64 of 2015). 2. The percentage of female workers in management positions is the female management position ratio for the organization of each company (based on enrollment). 3. The percentage of male workers taking childcare leave is based on the provisions of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Act No. 76 of 1991), and is calculated based on Article 71-4, item (i) of the Ordinance for Enforcement of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Ordinance of the Ministry of Labor No. 25 of 1991). 4. The wage differences between male and female workers represent the ratio of women’s wages to men’s wages. 5. The percentage of male workers taking childcare leave and the wage differences between male and female workers are calculated from the aggregate figures for employees hired by each company (not including those seconded from other companies in the Group). ③ Consolidated (Seiko Epson Corporation and 10 Epson Group companies in Japan) Fiscal year under review (FY2023) Supplementary explanation Percentage of female workers in management positions (%) Percentage of male workers taking childcare leave (%) Wage difference between male and female workers (%) All workers Regular workers Non-regular workers 5.5 84.4 73.9 74.5 80.9 Aggregated values are shown with the scope of consolidation being ① Seiko Epson Corporation and ② Consolidated subsidiaries (10 Epson Group companies in Japan) in the above. 20 II. Overview of Business 1. Management policy, business environment and issues to be addressed, etc. All forward-looking statements hereunder were made at Epson’s discretion based on the forecasts and certain assumptions at the end of the fiscal year. These statements may differ from actual results and are not guarantees of the achievement. (1) Basic management policy Corporate Purpose is at the heart of all Epson’s corporate activities. We established the Corporate Purpose, “Our philosophy of efficient, compact and precise innovation enriches lives and helps create a better world,” in September 2022 to define the kind of value that Epson provides to society and to demonstrate both inside and outside the Company its unique reason for being and aspirations. Epson will provide new value to society by realizing the Corporate Purpose through its vision, based on its management philosophy, which is the universal concept of the Epson Way that defines the Group’s values and behavior. Through these efforts, we will strive to achieve sustainable growth and enhance corporate value over the medium to long term in the future. Philosophy Structure Epson Management Philosophy Epson aspires to be an indispensable company, trusted throughout the world for our commitment to openness, customer satisfaction and sustainability. We respect individuality while promoting teamwork, and are committed to delivering unique value through innovative and creative solutions. Purpose Our philosophy of efficient, compact and precise innovation enriches lives and helps create a better world. (2) Concept of “Epson 25 Renewed” Corporate Vision We have established “Epson 25 Renewed,” with the goal of achieving sustainability and enriching communities, which we have set as our aspirational goal to pursue into the future. At present, humanity is facing a wide range of social issues, including climate change. We believe that we have entered an era in which people aspire to achieve a variety of enrichment, including not only material and economic wealth, but also spiritual and cultural enrichment. Sustainability is a fundamental requirement for achieving this. With this background, Epson develops its business by always focusing on social issues as a starting point, considering what we can do to solve them, and how we can use our technologies to solve problems and contribute to society. ① “Epson 25 Renewed” vision statement We have established the vision statement for “Epson 25 Renewed,” which is “Co-creating sustainability and enriching communities to connect people, things, and information by leveraging our efficient, compact, and precision technologies and digital technologies.” We will provide solutions that connect people, things, and information in a smart manner to society as a whole, including people’s personal lives, industries, and manufacturing sites, in order to achieve our aspirational goal. The three most important initiatives in doing so are the environment, DX, and co- 21 creation. Environmental initiatives - Promote decarbonization and close the resource loop, develop environmental technologies, and provide products and services that reduce environmental impacts. DX initiatives - Contribute to customer success by building a robust digital platform, connecting people, things, and information, and co-creating solutions that continue to meet customer needs. Co-creation initiatives - Leveraging our technologies and product families, solve societal issues with partners by providing core devices and a place for co-creation and networking, as well as through collaboration and investment. ② “Epson 25 Renewed” policies While uncertainties in society are expected to continue, we will aim to secure profitability and seek future growth by focusing on priorities. Furthermore, we will also continue to strengthen our efforts for the environment, DX, and co- creation across business domains. Areas Applicable businesses Policies Growth areas Office printing, Commercial & industrial printing, Printhead sales, Production systems See environmental changes as an opportunity and invest management resources Mature areas Home printing, Projection, Watches, Microdevices Emphasize profitability through structural changes and efficiency improvements, etc. New areas Sensing, Environmental business Develop new technologies and businesses (3) Concept of Environmental Vision 2050 Epson has developed “Environmental Vision 2050,” a vision for environmental initiatives that are a prerequisite for a sustainable society, as follows, and has set goals to be achieved by 2050 and initiatives to realize these goals. Items Contents Vision statement Epson will become carbon negative and underground resource free1 by 2050 to achieve sustainability and enrich communities Goals 2030: Reduce total emissions in line with the 1.5°C scenario2 2050: Carbon negative and underground resource free1 Actions ● Reduce the environmental impacts of products and services and in supply chain ● Achieve sustainability in a circular economy and advance the frontiers of industry through creative, open innovation ● Contribute to international environmental initiatives 1 Non-renewable resources such as oil and metals 2 Target for reducing greenhouse gas emissions aligned with the criteria under the Science Based Targets initiative (SBTi) (4) Business and financial issues to be addressed with priority ① Policies and progress of innovation strategy and future initiatives We have established five innovation areas around customer value and societal issues in order to execute the strategy for realizing our goals. In the microdevices business that supports these innovation areas, we will contribute to the development of a smart communities with crystal semiconductor solutions enhanced with our efficient, compact, and precision technologies. 22 Office & home printing innovation In this area, we seek to lead the evolution toward distributed printing that reduce environmental impacts and increase work productivity through inkjet technology, paper recycling technology, and open solutions. In office printing, sales of line inkjet multifunction printers in the medium speed zone grew. Going forward, we will continue to work on cost reductions in response to customers’ demand for convenience and pricing. We will also review regional/partner strategies to enhance the appeal of the value of inkjet printers. In home printing, we will continue to engage in value promotion and strengthen support for sales channels of our large-capacity ink tank printers through promotions featuring our ambassadors. Commercial & industrial printing innovation In this area, we seek to offer inkjet technology and solutions that lead the digitalization of printing and contribute to lower environmental impacts and higher productivity. In the finished products business, we proceeded efficiently with expanding our product lineup through the platforming that we have been working on. In addition, the number of subscribers to Epson Cloud Solution PORT, which solves problems at customers’ production sites and improves operational efficiency, has been increasing steadily. The printhead sales business maintains steady sales growth mainly in the largest market, China. Epson will continue to lead the shift from analog to digital printing by developing products and services that combine environmental performance and productivity in the commercial and industrial fields. Manufacturing innovation In this area, we seek to innovate manufacturing by co-creating flexible high-throughput production systems that reduce environmental impacts. The manufacturing solutions business continued to face a challenging environment due to customer spending curbs following global economic slowdown and the emergence of Chinese manufacturers. In the future, in addition to continuing to work to strengthen competitiveness in product costs, we will develop and offer solutions that lower the barriers to automation through the utilization of sensors and other devices, and strengthen sales in Southeast Asia and India, to which production sites are shifting, aiming to achieve growth. Visual innovation In this area, we seek to connect people, things, information and services with inspiring video experiences and quality visual communications to support learning, working and lifestyles. The Projection business has been undergoing structural reforms and is already structured to earn profits efficiently. In FY2023, we steadily captured demand from the education sector in various countries. In the high-brightness projector area, we introduced strategic products and increased our market share. In the future, we will introduce new products to respond to the growing smart projector market for home use. We will also expand our efforts to strengthen contact with customers by utilizing digital technology and create value through co-creation. Lifestyle innovation In this area, we seek to utilize craftsmanship and co-create solutions that utilize sensing technologies to enrich diverse lifestyles. In the watches business, profitability is improving as a result of business restructuring, including lineup consolidation 23 and automation of production lines. We will proceed with reform toward building a business structure that is resilient to change. In FY2023, we launched the high value-added products of our own brand Orient Star in the market. Going forward, we will work to increase awareness of the Orient brand, especially overseas. In the sensing business, we will develop new businesses utilizing the sensor with an eye on the medium and long term. ② Strengthening business infrastructure In order to realize each innovation mentioned above, we are strengthening the business infrastructure as follows. Sales & marketing strategies ● Provide customer focused sales/support utilizing digital technology We have introduced CRM (customer relation management) in order to strengthen customer contact by standardizing and visualizing the sales activities of all group sales companies. In the future, we will further enhance customer value through reforms of sales process that utilize data (consulting, value added solutions, maintenance services, etc.), particularly in the service area. ● Focused strengthening of the organization according to region and business segment We have been strengthening personnel allocation to growth areas and improving operational efficiency in mature areas and will continue our efforts in the future. In addition, we have established a new company (Epson Middle East FZCO) to handle the Middle East and Africa regions. We will continue our efforts to strengthen sales in these regions. Production strategies ● Manufacturing innovation through automation and digitalization In our main products such as large-capacity ink tank printers, we are promoting the automation of assembly and inspection operations. Going forward, we will continue to work on increasing work productivity through automation focusing on processes with high introduction effects, training for equipment maintenance personnel and efficiency improvement utilizing digital technology. ●Establishment of distributed production system We are decentralizing production to build a risk-resistant and resilient supply chain, and the number of main products manufactured at multiple sites has increased significantly. We will continue to further promote distributed production. Technology development strategies ● Technology development that support innovation In order to support innovation in each business area, we are strengthening materials development and the introduction of AI and digital technology to manufacturing sites. In materials development, we are using simulation technology to develop elements that contribute to resource recycling and decarbonized society. In addition, at manufacturing sites, we are promoting the use of AI in inspection processes and other areas. In the future, we will extensively consider the use of AI in technology development and manufacturing sites to strengthen our competitiveness. HR strategies For details, please refer to “II. Overview of Business, 2. Concept and initiatives of sustainability, (3) Human capital and diversity.” ③ Financial targets We will shift to profitability-focused management to realize “Epson 25 Renewed” and seek to secure profitability and future growth by focusing on priorities without pursuing excessive sales growth. In accordance with this policy, we have set ROIC, ROE and ROS as financial targets. We will continue to emphasize profitability and capital efficiency, but we have revised financial targets for FY2025 in light of changes in the external environment. In the growth area, we will adhere to measures for addressing issues and transform Epson’s business portfolio. In addition, after taking into account the macro-economic environment and conservatively estimating revenue growth, we will proceed with improving profitability by reducing our fixed costs, with a view to achieving our financial goals. 24 Consolidated financial targets FY2020 (Result) FY2021 (Result) FY2022 (Result) FY2023 (Result) FY2025 (New target) ROIC3 5.6% 7.3% 7.1% 4.6% 7% or more ROE 5.9% 15.2% 10.8% 6.8% 8% or more ROS 6.2% 7.9% 7.1% 4.9% 7% or more 3 ROIC = Business profit after tax / (equity attributable to owners of the parent company + interest-bearing liabilities) ④ Cash allocation With the top priority on strategic investment in growth, cash flow generated will be used to actively return profits and improve the financial strength. 25 2. Concept and initiatives of sustainability The movement toward sustainability around the world is accelerating, with the expansion of ESG investment and the formulation of sustainability-related policies in various countries and regions. Against this backdrop, companies are increasingly being asked to take a stance on how to respond to the issues facing society through their business activities. Epson has been contributing to solving various social issues through the provision of its products and services. Going forward, under the banner of our Corporate Purpose, we will continue to work with our customers and partners from a long-term perspective with the goal of achieving sustainability and enriching communities by working to get sustainability of society synchronized with that of Epson. (1) Common to sustainability ① Governance Epson has established the Sustainability Promotion Office as an organization under the direct control of the President, with an Executive Officer and CFO appointed as its head and responsible for Group-wide sustainability activities (sustainable growth based on social needs). In addition, we have established the Sustainability Strategy Council as an advisory body to the President, which is composed of Outside Directors and Audit & Supervisory Committee Members, in addition to management-level personnel including the General Administrative Managers and Chief Operating Officers. The Sustainability Strategy Council formulates medium and long-term strategies for sustainability pertaining to the entire Group based on a review of social trends, reviews the status of implementation of activities, and deliberates on initiatives to address key issues. Furthermore, the Sustainability Management Committee has been established as a subordinate body of the Sustainability Strategy Council to discuss and examine specialized matters related to sustainability activities. This committee is composed of the heads of relevant functional supervisory departments, and submits reports to the Sustainability Strategy Council. The Sustainability Promotion Office serves as the secretariat for these two bodies and reports regularly to the Board of Directors to promote more effective sustainability activities. With respect to officer compensation, four key sustainability topics tied to materiality (decarbonization, supply chain, human rights and diversity, and governance) are linked to restricted stock compensation, from the perspective of building a more effective sustainability governance structure. ■ Executive organization chart 26 ② Strategy Epson has analyzed social issues and megatrends defined by SDGs, ISO26000 and others, examined its own strengths that can lead to social impact, and identified four materialities (achieve sustainability in a circular economy, advance the frontiers of industry, improve the quality of life, and fulfill our social responsibility) that are highly important issues for Epson to address to solve challenges in society. We aim to achieve sustainability and enrich communities through sustainability management, whereby we achieve business growth by solving social issues and solve more social issues by growing our business. ■ Epson’s sustainability management Materialities that form the fundamentals of Epson’s corporate management are based on social issues. We believe Epson’s corporate activities are the solutions to social issues. We step up our activities that pivot on social issues to achieve business growth, which, in turn, leads to solving even more societal issues and fostering mutual growth with society. This is how Epson enhances corporate value. To achieve this, we emphasize the need for strategic management and business transformation that aligns our sustainability goals with those of society. We have positioned this vision as our long-term vision “Epson 25 Renewed.” ■Four materialities and the identification process At Epson, we consider the following materialities as constituting the fundamentals of corporate management in expanding our businesses.This entails initiatives aimed at driving sustainable economic activities by achieving closed-resource-loop systems through effective use of resources such as electricity, energy and water as well as reduction in usage of underground resources to control climate change. This entails initiatives aimed at transforming conventional processes to contribute to the resolution of social issues. It is intended to help to make improvements to environmental pollution, labor and other issues by converting manufacturing processes from analog techniques to digital, for example. This entails making contributions on the health front to help people lead a healthy life, and making educational 27 contributions relating to people’s growth and maturity. We will enable people to select diverse lifestyles through products and services offered by Epson, and promote initiatives that contribute to an abundant and colorful life. This means that Epson is committed to fulfilling its corporate responsibility required to achieve sustainability and enrich communities. It entails initiatives that help to realize the ideal state expected of a company by society, such as dialogue with diverse stakeholders, environmental and social responsibility related to materials procured and suppliers, respect for human rights and promotion of diversity, and capabilities to ensure business continuity. 28 ■ Opportunities and risks by materiality, and topics to be addressed Based on the assessment of opportunities and risks for each materiality (key sustainability topic) as described below, we are working to achieve the goals of Epson 25 Renewed. Materiality: Achieve sustainability in a circular economy Key Sustainability Topics Opportunity (○) Risk (●) Decarbonization initiatives Closed resource loop initiatives Customer environmental impact mitigation Environmental technology development ○ Growing need for environmentally friendly products and services due to the introduction of a carbon tax, soaring electricity prices, rising waste disposal costs, and the need to produce the right amount of products and reduce resources ○ Market growth in the fields of global warming countermeasures and waste treatment and effective utilization of resources ○ Market growth in recycled plastics, bioplastics, and metal recycling due to the shift to a circular economy ● Growing momentum toward a paperless office from the perspective of forest protection awareness ● Increase in operating costs due to changes in policies and regulations ● Credit loss and damage to corporate value due to delayed response to decarbonization and resource recycling ● Damage to corporate value due to failure to achieve plans for or delays in the development of environmental technologies that will lead to a reduction in environmental impact Materiality: Advance the frontiers of industry Key Sustainability Topics Opportunity (○) Risk (●) Improving productivity through digitization and automation ○ Transition to resource-saving and highly efficient production processes due to diversifying consumer needs and the growing importance of environmental considerations ○ Decentralization of production plants for the purpose of BCP response based on factors such as geopolitical risk ● Loss of business opportunities due to delays in launching products and services that meet market demands ● Delays in developing easy-to-use solutions and digital services Improving working environment and educational environment ○ Changes of offices due to diversification of work styles and advancement of information technology ○ Increasing and broadening need for automation using robots to compensate for global labor shortages against a backdrop of declining birthrates and aging populations ○ Growing need for innovation in production systems to improve the working environment and strengthen the resilience of manufacturing sites ○ Increasing need to resolve stress burdens and lowered work efficiency due to reduced physical communication in telecommuting and web conferencing ○ Growing momentum to achieve common global decarbonization goals (reduction of CO2 emissions stemming from human mobility) ○ Increasing use of ICT to bridge the gap in learning places and opportunities in developing countries ○ Dissemination of digital educational materials and educational platforms ○ Expansion of the education market due to the increase in the number of people enrolled in school in emerging and developing countries ○ Resolving teacher and teaching support shortages ● Loss of business opportunities due to delays in launching products and services that meet market demands ● Continuation of labor-intensive system centered on human labor through the shift of production to regions with ample labor force (emerging and developing countries) ● Lack of human resources capable of implementing automation ● Decreased need to connect the real and remote due to increased office attendance following the decline of the coronavirus ● Intensifying competition with large-screen display devices other than projectors and personal terminals, and relative decline in the presence of our solutions ● Decrease in the need for printing in the education market due to the increased use of tablets and other electronic devices ● Delays in sound budgeting for and investment in education due to delayed economic development and political instability in developing countries 29 through ICT ○ Expansion of at-home study support programs Materiality: Improve the quality of life Key Sustainability Topics Opportunity (○) Risk (●) Proposing diverse lifestyles ○ Growing need for data utilization to help improve performance in various sports due to diversifying lifestyles ○ Emergence of new data service businesses such as health support ○ National government policy initiatives to extend healthy life expectancy as a response to the declining working-age population and increasing social security costs in the developed countries ● Decline in presence due to evolution of competing data services ● Impact on the data service business due to declining interest in health consciousness Realizing an abundant and colorful life ○ Demand for luxury goods that cater to diverse values, hobbies, and tastes ● Declining presence in the wearable device market due to changing values Materiality: Fulfill our social responsibility Key Sustainability Topics Opportunity (○) Risk (●) Increasing stakeholder engagement ○ Growing stakeholder interest in sustainability ● Loss of trust from stakeholders and damage to corporate value due to inappropriate responses to issues Realizing responsible supply chains ○ Growing worldwide interest in business and human rights ● Occurrence of human rights violations in the Company and its supply chain Respecting human rights and promoting diversity ○ Improvement in corporate performance by fostering a free and open organizational climate ○ Growing worldwide interest in business and human rights ○ Transformation in awareness and understanding of DE&I and social minorities ● Decreased engagement and lack of innovation due to slow progress in improving organizational culture ● Damage to corporate value in the event of serious human rights violations, including those in the supply chain ● Decreased engagement due to slow progress in DE&I Strengthening governance ○ Strengthening of the governance system leading to acceleration of strategy implementation and increased responsiveness to change ○ Competitiveness increase through appropriate risk-taking ● Delays in strategic progress and decreased organizational power due to governance failures ● Generation of losses and loss of public trust due to noncompliance ③ Risk management As the environment in which we operate grows more complex and uncertain, effectively dealing with risks that could have a significant impact on corporate activities will be essential in order to carry out business strategies and business objectives. Epson sees sustainability-related risks as risks that could significantly impact management and manages them appropriately. 30 ■ Risk management process ④ Metrics and targets ■ Materialities and key sustainability topics, KPI In order to effectively implement initiatives for the four materialities, which are high-priority issues that we should address to solve societal issues, we have selected 12 key sustainability topics, set key performance indicators (KPIs) for initiatives, reflected them in our Mid-Range Business Plan, and steadily taken initiatives. Identification of risks and opportunities Identify risks and opportunities for each materiality. Assessment of risks and opportunities Assess identified risks and opportunities through the Sustainability Strategy Council and the board of directors. Management of risks and opportunities Effectively manage risks and opportunities through the Sustainability Strategy Council and the board of directors. 31 ■ Key sustainability topics and achievements Materiality: Achieve sustainability in a circular economy Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Decarbonization initiatives Using energy-saving equipment and facilities, removing greenhouse gases, engaging suppliers, and pursuing carbon-free logistics to become carbon negative by 2050 - Scope 1 and 2 GHG emissions reduction ratio - Scope 3 GHG emissions (per unit of business profit) reduction ratio - Reduce by 65% compared to FY2017 - Reduce by 45% compared to FY2017 - Reduced by 80% compared to FY2017 - Reduced by 17% compared to FY2017 Using renewable electricity to achieve RE100 Renewable electricity adoption ratio Achieve 100% globally Achieved adoption ratio of 100% globally Closed-resource- loop initiatives Becoming underground resource1 free by 2050: - Using resources efficiently by reducing size and weight, using recycled materials, etc. - Establishing closed-loop production systems that minimize production losses Ratio of sustainable resources2 27% 32% Final landfilled rate3 ≤ 1% 0.6% Customer environmental impact mitigation Maximizing avoided emissions with products and services that have a lower environmental impacts4 Emissions avoided through products & services Commence the calculation based on a new calculation logic and determine target values 5 Environmental technology development Eliminating virgin plastics and closing resource loops by using Dry Fiber Technology to produce recycled materials and natural materials. - Packaging materials - Housing materials Progress of development process Expand the scope of practical application - Packaging: Development aimed at expanded use (cotton scraps) - Housings: Development of composite plastic materials (improved performance of materials) Establishment of high-added- value recycling technology for used metal Progress of development process Technology for high-value-added metal powders (molding material) for practical application Completed the development of elemental technology as a molding material, with PoC6 in progress 32 Materiality: Advance the frontiers of industry Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Increasing productivity through digitization and automation Leading the digitization of commercial and industrial printing with inkjet technology and diverse solutions, to create clean, space-efficient workplaces, reduce environmental impact, and improve productivity Sales growth rate of commercial and industrial inkjet printers compared to the previous year 10% 1% Improving working environment and improving educational environment Reducing environmental impact and improving productivity with inkjet technology and open solutions, to lead the evolution of home study and distributed office printing Sales growth rate of high-capacity inkjet printers for SOHO and home users compared to the previous year 5% (9)% Eliminating labor shortages through automation using robots Number of labor shortages eliminated7 28,000 persons 26,000 persons Providing a fair, natural, and comfortable communication environment without boundaries, combining the real and remote, with both a sense of presence and information content Number of co- creation and collaboration projects, or number of partners Number of co- creation and collaboration projects: 1 Number of co- creation and collaboration projects: 2 Creating homogeneous learning opportunities through smart, portable displays that enable large- screen communication in a compact form, to mitigate learning disparities stemming from differences in regional and social conditions Number of local demonstration programs through co-creation and collaboration Number of value demonstrations: 20 Number of value demonstrations: 29 33 Materiality: Improve the quality of life Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Proposing diverse lifestyles Enriching the diverse lifestyles of people through lifestyle-related disease prevention and helping people improve their sports performance by providing personalized value in an easy-to-understand visual manner using proprietary sensing technology and algorithms Percentage of revenue that the data business in support services8 accounts for 20% 22% Realizing an abundant and colorful life Providing attractive and high-quality products with our efficient, compact, and precision technologies and our artisanal skills, to enrich the diverse lifestyles of our customers Sales growth rate of attractive, high- quality products compared to the previous year 4% 4% 34 Materiality: Fulfill our social responsibility Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Increasing stakeholder engagement Responding to needs and social demands by strengthening dialogue with stakeholders Social support activities, monetary value of support ≥ 0.1% of sales 0.1% of sales Number of dialogs with shareholders and investors and reflecting opinions on management ≥ 200 meetings with shareholders & investors 240 times Evaluation indices of external evaluation agencies Acquire high recognition Acquired high recognition9 Realizing responsible supply chains Reinforcing supply chain BCM Impact on customers due to disruption and stagnation in supply chain (Aiming to have no impact on sales in FY2024) Achieve no impact on sales due to disruption in supply chain to the extent possible - Impact of supply chain disruption: None Realizing responsible supply chains CSR risk levels of suppliers CSR risk ranks of main suppliers: (Direct materials) - 0% high risk, ≤ 4% middle risk (Indirect materials) - 0% high risk (Direct materials) - High risk: 0% - Middle risk: 4.2% (Indirect materials) - High risk: 0% Realization of responsible sourcing of minerals - Conflict-free (CF) ratio of products - Survey response ratio10 - Release CF information for CF strategic products - Survey response ratio: 100% - Preparation for the disclosure of the result of CF information - Survey response ratio: 100% 35 Materiality: Fulfill our social responsibility Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Respecting human rights and promoting diversity Creating a free and open organizational culture Organizational climate assessment score for “strength to work in teams” - Motivation cloud engagement rating: BB - Number of workplaces with D rating: 31 - Motivation cloud engagement rating: BB - Number of workplaces with D rating: 45 Number of high risk workplaces with “general health risk” in the mental health check Reduce the number of high risk workplaces with “general health risk” from the previous year, heading toward zero11 The number of high- risk workplaces increased compared to FY2022 Implementation of harassment prevention measures (education and training, case sharing, appointment process, etc.), ensuring to report cases to the head office - Revise training content based on social trends, incidents and common issues - Hold training for those at consultation contact points on a periodic basis Made progress as planned for planned training, including the renewal of content - Identify company- wide trends - Confirm common operations and verify whether contact points with high operational burden should be outsourced partially Completed the selection of consultation contact points to be outsourced and prepared for the operation 36 Materiality: Fulfill our social responsibility Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Respect for human rights through dissemination of the new “Human Rights Policy” within the Group Embedding and improving the commitment for respecting human rights, human rights due diligence (DD) & remediation mechanisms Embed and improve PDCA cycle for respecting human rights - In Japan: Build a system for coordinating with various consultation contact points - Overseas: Develop a system for consolidating information and grasping the situation by clarifying reporting rules from contact points at respective local subsidiaries (PDCA cycle) - Continued activities for respecting human rights using RBA’s scheme - Re-assessed the risk of violating human rights and conducted human rights DD (Remediation mechanisms) - In Japan: Built cooperative structures for internal consultation points, and began using JaCER (*12) as a consultation point for those outside the Company. - Overseas: Started to pull together information on this project Utilizing human resources in a way that respects diversity - Female manager ratio (the Company) - 1 or more female executive officers by FY2025 (in Japan) - Female manager ratio: 5% - Female supervisory position ratio: 8% - Female manager ratio: 4.7% - Female supervisory position ratio: 7.7% 37 Materiality: Fulfill our social responsibility Key Sustainability Topics Initiative Topics Key Performance Indicators (KPI) FY2023 (Target) FY2023 (Result) Strengthening governance Reinforcement of compliance management platform Number of serious compliance violations13 0 cases 0 cases Enhancement of Group compliance level Implementation ratio of compliance training (e- learning) to all Group companies Completion rate in Epson Group: 100% Completion rate in Epson Group: 100% Maintenance and strengthening of governance structure to realize transparent, fair, prompt and decisive decision-making - Ratio of Outside Directors in the Board of Directors - Ratio of Outside Directors in Nomination & Compensation Committees - Maintain the ratio of Outside Directors on the board at ≥1/3 - Maintain the ratio of Outside Directors on the Nomination & Compensation Committees at ≥80% - Ratio of Outside Directors on the Board of Directors: Maintained 1/3 or more - Ratio of Outside Directors on the Nomination & Compensation Committees: Maintained 80% or more Strengthening information security Number of serious information security incidents 0 cases 0 cases 1 Non-renewable resources such as oil and metals 2 Ratio of sustainable resources (renewable resources + closed-loop materials + less depletable resources) to raw materials 3 Ratio of landfilled amount of production resources against the volume of resources input 4 Quantified the contribution of products and services toward GHG emissions reductions 5 Actual results for FY2023 will be disclosed on the Company website in early August 2024. https://corporate.epson/en/sustainability/initiatives/materiality.html 6 PoC (Proof of Concept): A process to verify the feasibility and actual effect, etc. of a new technology, etc. 7 Calculated based on the effectiveness of Epson’s internal projects 8 Business model that provides value by converting data based on algorithms 9 Sustainalytics: Low; FTSE: 4 or higher; Top 50 or higher in “Toyo Keizai CSR ranking” 10 Ratio of suppliers submitting responses to suppliers we have sent survey requests 11 Target-value control is performed for workplaces with 10 or more respondents. 12 JaCER: Japan Center for Engagement and Remedy on Business and Human Rights 13 Violation that correspond to timely disclosure matters 38 (2) Climate change (TCFD) Climate change is greatly impacting society and Epson sees it as a serious social problem. The goal of the Paris Agreement is to limit the increase in global average temperature to well below 2℃ compared to pre-industrial levels and to pursue efforts to limit it to 1.5℃. Epson has pledged to do its part by achieving its goal of reducing its total emissions in line with the 1.5℃ scenario by 2030. As stated in Environmental Vision 2050, which was announced along with the Epson 25 Renewed corporate vision, Epson seeks to become carbon negative and underground resource14 free by 2050 by decarbonizing and closing the resource loop. We are also providing products and services that have a smaller carbon footprint and are developing environmental technologies. Since indicating its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in October 2019, Epson has disclosed information (on governance, strategy, risk management, and metrics and targets) based on the TCFD framework so as to enable good communication with shareholders, investors, and a broad spectrum of other stakeholders. Epson decided to disclose the level of financial impact in 2021 in a quantitative manner for the first time. Furthermore, in 2022, Epson enhanced its disclosure of specific initiatives and achievements aimed at reducing GHG emissions in response to the update to the TCFD recommendations. Since 2023, Epson has enriched qualitative and quantitative information on the highlights and specific results of its initiatives to address climate-related risks and opportunities. 14 Non-renewable resources such as oil and metals ■ Scenario analysis findings We analyzed scenarios based on the TCFD framework to quantitatively assess the financial impact of climate-related risks and opportunities on Epson’s strategy. In a 1.5℃ scenario in which there is rapid decarbonization of society, we found that there is transitional risk of an increase in operating costs due to market changes, policies, and legislation, but we expect to limit the financial impact by strengthening products and services based on inkjet technology and paper recycling technology. Epson will spend approximately 100.0 billion yen (approximately 25.0 billion yen from 2021 to 2025 and approximately 75.0 billion yen from 2026 to 2030) over a period of 10 years ending in 2030 to accelerate decarbonization, close the resource loop, and develop environmental technology. The solution to climate-related risks aligns with the materialities we have set of achieving sustainability in a circular economy and advancing the frontiers of industry and will lead to opportunities for business expansion with Epson’s low environmental impact products and services that save electricity and reduce waste. These products and services will help to mitigate customers’ environmental impact and control climate change. Based on the results of these analyses, Epson will continue to try to maximize its opportunities while addressing recognized risks in order to achieve decarbonization, which we believe is a rational goal both for society and for Epson. On the other hand, even in a 4℃ scenario in which global warming has advanced because the world failed to take additional measures, we found that the impact of physical risks on our domestic and overseas sites due to the damages arising from weather extremes would be small. ① Governance Important matters related to climate change are supervised by the board of directors, which receives reports at least once a year from the Sustainability Strategy Council, an advisory body to the president that plans and reviews strategic sustainability activities for the Epson Group, including matters related to climate change. In addition, Seiko Epson’s president and representative director, who has ultimate responsibility and authority for climate-related issues, delegates responsibility for climate-related issues to the sustainability director, an Executive Officer and CFO. The sustainability director heads the Sustainability Promotion Office and oversees the execution of climate change initiatives, including TCFD. The executive organization is identical to that shown in “(1) Sustainability in general ① Governance.” 39 ② Strategy Epson has determined that achieving sustainability in a circular economy and advancing the frontiers of industry are material matters. To achieve these, we are reducing greenhouse gas (GHG) emissions by leveraging our efficient, compact, and precision technologies to drive innovation. Furthermore, to increase resilience against climate change, we have been implementing activities at regular meetings of the Environmental Strategy Council and its subcommittees to realize our Environmental Vision 2050. In FY2023, we reviewed the status of implementation of activities and submitted deliberations and reports to various management meetings, focusing on the following initiatives. Increasing resilience FY2023 initiatives & results Environmental Strategy Council Decarbonization - Finalized the roadmap for reductions over the medium term toward Scope 1 zero emissions (upgrades of facilities and equipment for electronification and switching of fuels). - Implemented sustainable and stable procurement of renewable energy and formulated a plan for in-house power generation. - Supplier engagement (surveys of suppliers’ reduction plans and switching to renewable energy, etc.) Closed resource loop - Started operating resource-loop indicators and targets to become underground-resource-free. - Formulated business-specific/company-wide medium-term plans for utilizing compact, lightweight and recycled materials and switching to sustainable resources. Customer environmental impact mitigation - Started calculation of objective and fair avoided emission for product genre that contributes to reducing the environmental impact of society. Environmental technology development - Materialized the topic of dry fiber technology application (developed packaging materials and cellulose composite bioplastics). - Developed an elemental technology for practical application of a high-value-added technology for metal powders. ■ Scenario analysis of climate-related risks and opportunities Epson identified and evaluated scenarios in the categories of transition risk, physical risk, and opportunity to evaluate the importance of climate-related risks and opportunities. Seven risks and opportunities were singled out for evaluation. We evaluated the business impact and financial impact of each on the basis of the scenarios corresponding to a temperature increase of 1.5℃ presented by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) as well as on the basis of internal and external information. 40 ■ Climate-related risks and opportunities in a 1.5℃ scenario The results of evaluating climate-related risks and opportunities based on scenario analysis are as follows. Category Evaluated risks & opportunities Actualization Business impacts Financial impact Transition risks Market changes Policy & laws and regulations Paper demand Short-term Impact - We were unable to detect a strong relationship between climate change and the change in paper demand, but demand for printing and communication paper is assumed to be on a declining trend. Even if the shift to paperless advances further due to changes brought about by COVID- 19 (such as the contraction of office printing because of decentralization), we expect only a limited financial impact from the strengthening of products and services based on inkjet technology and paper recycling technology (reduction of printing costs, reduction of environmental impacts, increase of ease of printing, appeal using usefulness of paper information). Small (Initiatives in Environmental Vision 2050) - Decarbonization - Closed resource loop - Environmental technology development Short-term Impact - Decarbonization of products, services, and supply chains as well as advanced initiatives in resource recycling are needed to respond to the shared global societal issues of climate change and resource depletion. - Scientific and specific solutions are necessary to develop environmental technologies linked with the rapid decrease of environmental impacts. Response to risks - Decarbonization ・ Renewable energy use ・ Energy-saving facilities & equipment ・ Greenhouse gas removal ・ Supplier engagement ・ Carbon-free logistics - Closed resource loop ・ Use resources effectively ・ Minimize production losses ・ Extend product service lives - Environmental technology development ・ Dry fiber technology applications ・ Naturally derived (plastic-free) materials ・ Material recycling (metal, paper) ・ CO2 absorption technology Invest a total of approximately ¥100.0 billion by 2030 Physical risks Acute Damage to business sites due to floods Long-term (End of 21st century) Impact - Based on the results of risk assessment for 36 sites (17 sites in Japan and 19 sites overseas), the changes in future operational risks due to flooding (rivers overflowing), high tides and drought are limited. - Short-term climate change risks to the supply chain will be addressed in line with our business continuity plans. Small Chronic Damage to business sites due to rising sea levels Impact on operations due to drought 41 Category Evaluated risks & opportunities Actualization Business impacts Financial impact Opportunities Products and services (Initiatives in “Environment Vision 2050”) - Customer environmental impact mitigation Short-term Assumed scenarios - The need for environmentally considerate products and services will increase due to the introduction of a carbon tax, soaring electricity prices, rising waste disposal costs, sustainable production volume, and reduced resource use. Business opportunities - In the growth areas defined in Epson 25 Renewed, we expect to grow revenue at a CAGR (compound annual growth rate) of 15% by providing 1) inkjet office printing, commercial & industrial inkjet printing and printheads that reduce environmental impacts, increase work productivity, and reduce printing costs; and 2) production systems with expanded use of new production devices to reduce environmental impacts. Large CAGR of 15% is expected in growth areas by FY2025 Environmental business Short-term Assumed scenarios - Market growth is expected in the areas of global warming prevention, waste treatment, and effective utilization of resources. - The shift to a circular economy is expected to drive market growth for recycled plastics, high-performance biomaterials, bioplastics and metal recycling. Business opportunities - Generate revenue by value transformation (enhancing functionality), eliminating plastics (packing and molding materials), creating new high-value-added materials and carrying out other measures through the establishment of technologies, such as applications of dry fiber technology, including paper recycling, development of naturally derived materials (elimination of plastics) and recycling of raw materials (metal and paper recycling) as effective solutions for combatting global warming and shifting to a circular economy. Medium Actualization Short term: < 10 years Medium term: 10-50 years Long term: > 50 years Financial impact Small: < 1 billion yen Medium: 1-10 billion yen Large: > 10 billion yen 42 Epson implemented the following initiatives in FY2023 to promote decarbonization, close the resource loop, develop environmental technology, and mitigate environmental impacts on the customer’s end. Category Evaluated risks & opportunities Initiatives implemented in FY2023 FY2023 quantitative results Transition risks Market changes Policy & laws and regulations Paper demand - In Office & Home Printing, sales of ink have been stable with a decrease in sales of ink cartridges offset by increases in sales of high-capacity ink bottles and ink for office shared printers in conjunction with the increased number of machines in the field. The financial impact of fluctuations in demand for paper in the market targeted by Epson was limited. Small15 Decarbonization - Completed switching 100% to renewable energy at all sites of the Epson Group globally16. - Developed a roadmap for long-term stable procurement of renewable energy and a plan to construct a biomass power plant, our first such in-house plant (operation to begin in 2026). ¥4.79 billion (breakdown) ·Investment: ¥1.54 billion ·Expenses: ¥1.73 billion ·Personnel expenses: ¥1.52 billion Cumulative input costs and investments for Environmental Vision 2050: ¥12.64 billion in total Closed resource loop - Expanded the use of recycled plastic products, and increased the long-term use of products through refurbishing/reuse. - Started construction of a new plant to recycle metal waste as materials for metal powder products (operation to begin in June 2025) (Epson Atmix). Environmental technology development - Coordinated with external parties for the development of new technologies for fiber recycling by applying dry fiber technology. Strengthened a system for the development of cellulose composite bioplastics and promoted the development. - Promoted the development of a technology for separating and collecting CO2 using a separation membrane and a CO2 absorption technology utilizing algae. Physical risks Acute Damage to business sites due to floods - Assessed risks based on the IPCC Sixth Assessment Report for 36 sites (17 in Japan, 19 in overseas)17. - Confirmed that the volatility in Epson’s future operation risk caused by floods (river flooding), high tide and drought is limited. Implemented BCP measures against the risk of inundation of facilities on lower floors of Toyoshina Plant18. – Chronic Damage to business sites due to rising sea levels Impact on operations due to drought Opportunities Products and services Customer environmental impact mitigation - Promoted initiatives in the growth areas (office printing, commercial & industrial printing, printhead sales, production systems) under “Epson 25 Renewed.” FY2020 →FY2023 Revenue CAGR +14.7% Environmental business - Started verification of a business model for fiber recycling with an eye to business development with dry fiber technology as the core technology – 15 Small financial impact: less than ¥1 billion 16 Excluding some sales offices and other leasehold properties 17 Assessed using IPCC climate change scenarios RCP 2.6 (2℃), RCP 8.5 (4℃) 18 A major domestic site with a long-term flooding risk (end of 21st century). 43 ③ Risk management As the environment in which we operate grows more complex and uncertain, effectively dealing with risks that could have a significant impact on corporate activities will be essential in order to carry out business strategies and business objectives. Epson sees climate-related issues as risks that could significantly impact management and manages them appropriately. Climate-related risk identification, assessment and management process 1. Study 2. Identify & assess 3. Manage - Considering the changes in the IPCC Sixth Assessment Report, conduct surveys on natural disaster risks caused by climate change at major sites in Japan and overseas. - Research social trends. - Identify risks and opportunities from the policies and actions in Epson 25 Renewed and Environmental Vision 2050. - Evaluate scenario analysis through the Sustainability Strategy Council and board of directors. - Effectively manage risks through the Sustainability Strategy Council and the board of directors. ④ Metrics and targets Epson aims to achieve the medium- and long-term greenhouse gas (GHG) emission reduction targets to realize Environmental Vision 2050. For this reason, we are working to reduce environmental impacts throughout the value chain by improving the environmental performance of our products, utilizing renewable energy, enhancing our business activities and taking other steps, based on our efficient, compact, and precision technologies. GHG reduction targets (general indication of aggressive total emissions reduction targets in line with the 1.5℃ scenario) Scopes 1, 2, 319 Reduce GHG emissions by 55% compared to FY2017 by FY2030. 19 Scope 1: Direct emissions from the use of fuel, etc., by the reporting company Scope 2: Indirect emissions from purchased energy Scope 3: Emissions from the reporting company’s value chain GHG reduction results (Scopes 1, 2) 44 FY2017 (Base year) FY2019 FY2020 FY2021 FY2022 FY2023 FY2025 (SBT) Scope 1 (Thousand tons of CO2e) 137 122 125 118 142 101 – Scope 2 (Thousand tons of CO2e) 455 363 345 230 93 15 Total for Scopes 1 and 2 (Thousand tons of CO2e) 592 486 470 348 235 117 391 Per unit of business profit (Thousand tons of CO2e/100 million yen) 0.79 1.19 0.76 0.38 0.24 0.18 – (Note) Totals do not add up in some cases due to rounding off of fractions. 45 (3) Human capital and diversity Concept and initiatives of human capital Epson is committed to contributing to the resolution of social issues through its business based on the Corporate Purpose, with the aim of enhancing corporate value and sustainable growth over the medium to long term. To achieve this, it is necessary to expand and create businesses through environmental, DX, and co-creation initiatives, in line with the positioning, strategies, and policies for each business domain defined in the long-term vision, Epson 25 Renewed. These activities are supported by efforts to strengthen the management base through human resource strategies. Epson is promoting the pillars of its human resource strategy, which are “allocate human resources to priority areas,” “strengthen human resource development” and “organizational activation,” in order to develop human resources who are capable of thinking autonomously about what services are required in a society undergoing change and how to provide solutions to social issues, and are capable of producing services and solutions, as well as to create an environment in which they can demonstrate their abilities. Basic approach to human resource strategy Epson is a company born and raised in Shinshu. Today, while maintaining its core functions and bases of operations in Shinshu, Epson has established 107 R&D, production, and sales bases in countries and regions outside Japan, which account for 80% or more of the revenue and 70% or more of the employees, and continues to develop its business globally. Therefore, at Epson, the key to our human resource strategy is to build a human resource base that will enable us to survive severe global competition and achieve our management objectives and business growth by proactively acquiring external human resources and achieving diversity, while turning local job security and the relatively long-term employment that comes with it into our strength. For this reason, the following are key points for Epson’s human resource strategy. We will accurately grasp various customer needs and promote business reform and innovation to respond quickly and flexibly. To this end, we will actively acquire specialists from outside the Company in growth and new fields in addition to highly specialized fields, as well as management personnel who can work from a managerial perspective. We will also provide our own staff with specialized training and conversion training to focus on areas to be strengthened and build optimal formations from a global perspective. Epson, as a “company where people continue to grow and develop their careers autonomously” over a long-term time horizon, provides various training programs, reskilling, rotation, internal recruitment systems, and other opportunities for challenge to enhance each employee’s ability to respond to changes in the internal and external environment. In addition, to build an optimal formation from a global perspective, we will develop and deploy human resources who can work globally, including overseas personnel. We will secure and take advantage of a diverse workforce, including women, non-Japanese, mid-career hires, people with disabilities, and older workers, in order to enhance creativity to realize innovation. We will also create a comfortable work environment that leverages our advantages as a regional company, such as our commitment to organizational culture, the natural environment of Shinshu, and proximity to work and home, to increase employee engagement and maximize the overall strength of the organization for continuous value creation. ① Governance The President appoints the Chief Human Resources Officer (CHRO) to be responsible for important matters related to human resource strategy, and the CHRO is responsible for company-wide planning, management, and implementation of such matters. The CHRO formulates mid-term personnel strategies based on the medium-term management strategy, and reports them to the Board of Directors as part of the mid-range business plan after discussion and deliberation at medium- term strategy deliberations, etc. CHRO works closely with respective operations divisions and other divisions to optimize the allocation and assignment of the staff from a company-wide perspective, in light of their respective staffing needs and views, and to promote our human resource strategy. The main items set forth in the mid-term personnel strategies which are relevant to “allocate human resources to priority areas,” “strengthen human resource development” and “organizational activation” are discussed and reported at the Corporate Management Council and the HR Development Strategy Council as required. Among these items, matters of importance to management, such as succession planning and training of senior management, matters 46 related to diversity, and harassment, are regularly brought up for discussion or reported to the Board of Directors at least once a year, thereby ensuring appropriate supervision by the Board of Directors. Further, with respect to the promotion of diversity which we recognize as a particularly important issue for Epson, we have a mechanism in place that links the female management position ratio and the number of female Executive Officers with officer compensation to make the responsibilities and roles clearer. With regard to the selection and compensation of officers, the Director Nomination Committee and the Director Compensation Committee, each chaired by an Outside Director and composed of a majority of Outside Directors, formulate succession plans, review the nomination process for officers, confirm the roadmap, select candidates, formulate and implement development plans, evaluate, narrow down and replace candidates, and confirm the officer compensation system, individual base compensation and bonus payments. Executive organization ② Strategy Image of human resources we seek In order to realize its management strategy and execute its business, Epson needs people who can respond quickly to change with a broad perspective and a high level of expertise, and create customer value independently and autonomously from the customer’s perspective, based on the penetration of Corporate Purpose and the Epson Way, and a shared understanding of the business approach set forth in the long-term vision. In anticipation of further declining birthrates, an aging society, and a shrinking workforce in Japan, we have been working to formulate a human resource portfolio on a global basis. In the consolidated fiscal year under review, in a specific operations division, we defined the human resource requirements needed to formulate and execute business strategies and establish new business models based on skills and behavioral characteristics, in an attempt to visualize the current resource portfolio. We will go a step further by expanding these efforts across the Company, as well as manifesting the desired state in the course of preparing the next long-term vision and identifying the gap between the current and desired states both quantitatively and qualitatively. By doing so, we will implement appropriate measures such as recruitment, reskilling, and optimal placement to build an optimal personnel structure company-wide, fulfilling our medium- to long-term strategies. 47 Human resource strategies, opportunities, and risks Epson has human resource strategies that focus on developing the people we envision in line with the image of human resources we seek, and on creating an organizational climate in which our human resources can fully flourish. Based on the following assessment of risks and opportunities, we are working on three human resource strategies: allocate human resources to priority areas, strengthen human resource development, and organizational activation. Human resource strategies Opportunity (○) Risk (●) Allocate human resources to priority areas ○ Acceleration of business growth through intensive allocation and optimal allocation of human resources to priority areas (growth areas, new areas, etc.) ○ Increased employee motivation, engagement, and productivity by responding to their motivation and providing rewarding and growth opportunities ● Failure to secure the necessary quality and quantity of personnel, resulting in obstacles to business execution ● Lost growth opportunities and financial losses as a result of the above Strengthen human resource development ○ Increased employee motivation, engagement, and productivity as a result of employees feeling and experiencing growth in response to the provision of rewarding and growth opportunities ● Failure to secure the necessary quality and quantity of personnel, resulting in obstacles to business execution ● Lost growth opportunities and financial losses as a result of the above ● Decreased employee motivation and increased employee turnover due to failure to meet expectations for learning and growth ● Failure to develop human resources who can acquire the necessary abilities and skills and respond to change, resulting in obstacles to business execution and financial losses Organizational activation ○ Fostering of an environment conducive to innovation through the diverse ideas and creativity of a diverse workforce ○ Reduced recruiting costs and improved competitiveness by securing and retaining excellent human resources ○ Increased motivation, engagement, and productivity by creating a comfortable work environment for a diverse workforce ● Deterioration in operational efficiency due to a decline in employee morale and motivation, occurrence of compliance violations, and loss of trust due to a lack of ethical standards ● Harassment, loss of motivation and strength to work in teams due to adverse effects on physical and mental health, and other various human rights violation risks in the workplace ● Additional costs due to occupational accidents Human resource development policy Human resource strategy (1) Allocate human resources to priority areas As the foundation of its business operations, Epson formulates workforce plans based on forecasts of future changes in its workforce structure and the workforce needs to realize its business strategies. As a policy, we will hire more than 350 new graduates and mid-career workers combined each year in a planned and stable manner over the future medium term. In addition to intensively allocating hired personnel to the growth areas of printing (office, commercial and industrial) and production systems (robotics), and to the new areas of environmental business, environmental technology, and sensing, we will provide internal human resources with specialized training, conversion training, etc., to deploy them in the priority areas. We will also acquire management-level human resource and specialists including those for DX from outside the company and allocate them to the priority areas after clarifying human resource requirements. Human resources strategy (2) Strengthen human resources development Human resources development Once a year, Epson conducts an overview of the workforce situation in each organization, defines the roles and requirements of key positions such as management positions, and formulates succession plans based on these definitions. In addition, we list candidates for future executive management and middle management positions and global human resources, and formulate training plans. Our human resource development is based on on-the-job training (OJT). In addition, we have established an education system to provide education by job level and various types of specialized education as off-the-job training, and we are actively engaged in rotation to broaden the abilities, experience, and knowledge of each employee in 48 order to strengthen their ability to respond to changes and contribute to the effective and efficient operation of the value chain. We have in place screened, rank-based education programs for the development of leadership human resources. Going forward we will work to take advantage of our human resource portfolio and clarify requirements to work at new workplaces and in new job types, such as the necessary skills and behavioral characteristics. Based on this, we will develop a reskilling mechanism that provides our employees with the necessary specialized training and conversion training to enable them to play an active role early, in order to promote the allocation of human resources to priority areas. Training of global human resources In order to deliver valuable products to customers, it is essential that the entire global value chain operates effectively and efficiently. This requires global human resources who have extensive knowledge and experience in various functions that spread all over the world and are capable of coordinating among respective functions from the perspective of overall optimization and making accurate and prompt decisions in the field. In various regions of the world, we hold seminars every year to foster management leaders at overseas subsidiaries and promote personnel exchanges across regions in order to develop leaders who share common values and perform actively. As in Japan, we also work with local top management and human resource departments to define roles and requirements for overseas human resources, and formulate succession and training plans for key positions and key human resources. Based on these activities, we continue to hold internal discussions on optimal functional allocation, and are working to build an optimal formation from a global perspective. Internal environment improvement policy Human resource strategy (3) Organizational activation At Epson, we aim to enhance engagement of our employees and maximize the comprehensive power of the organization through initiatives aimed at strengthening each individual employee’s ability to respond to changes in internal and external environments, securing diversity, and creating a comfortable working environment and organizational culture for our employees, as well as those on health management and occupational safety and health. The Overall Employee Engagement Rating of the engagement survey that had been introduced in FY2022 using an external tool was BB in FY2023, an improvement by one rank from B in FY2022. We will continue these efforts to enhance our organization power. DE&I Epson will understand our diverse customers and create new value that surprises and inspires them in this era of rapid change. Therefore, we aim to have a diverse range of people gathering at Epson around the world, all employees respecting each other’s individuality as a matter of course, in a fair environment, without any prejudice, and all employees enjoying their work, taking responsibility as members of society, and growing and challenging themselves together with Epson, and thereby continue to innovate. Epson recognizes that gender equality in Japan is one of the most urgent challenges facing the Company and is working on measures to strengthen support for career progression to expand the candidates for future female managers, with the aim of achieving a state in which the percentage of women in middle management and executive management positions equals the percentage of women employees to all employees as soon as possible. In addition, we also work to achieve disabled persons’ active engagement in their professional life in an inclusive manner, in other words, a state in which people contribute to the creation of results by taking on challenges in steps corresponding to their individual roles to continue to grow, regardless of whether they have disabilities or not. Toward that goal, we will not only work aggressively on hiring persons with disabilities as the entire Group, but also promote the development of new businesses of our special subsidiary and nurture a culture that facilitates disabled persons’ active engagement by creating opportunities for contact with disabled persons and disseminating various pieces of information. As a basis for these activities, we send out messages from top management, conduct diversity management training for managers, and hold an internal DE&I fair, to encourage employees to change their mindsets. Further, in order to support active engagement regardless of gender, we are also working to create a fair and comfortable workplace, provide support through consultation points, and encourage men to take childcare leave. Furthermore, to support the career development of diverse human resources and promote their success, we are developing various career support programs and an education system that provides opportunities for voluntary relearning. Organizational culture Epson has conducted an annual organizational climate survey since 2005 to gain an understanding on the current state of organizational culture, with the aim of creating an environment where each employee has more motivation and initiative than before, and where diverse human resources can work autonomously and with vitality. Based on the results of the engagement survey described above, we have set as challenges of our organizational culture the 49 three tasks of 1) getting our Philosophy fully embraced and taken personally, 2) enhancing the change mindset and an outward-oriented perspective, and 3) obtaining growth and a sense of contribution through work. We believe it is particularly important to strengthen management capabilities in the workplace in order to improve these, and have started one-on-one training, reviewed an education and training system for pre- and post-management promotion personnel, and established a consultation point for managers, and we provide individual support in the workplace. Through these initiatives, we aim to develop “human resources who think and act on their own” and improve productivity through enhanced organization power by “building solid trusting relationships in the workplace.” Creation of comfortable working environment Epson aims to create an environment where employees have motivation and can work with vitality and in a physically and mentally healthy and safe manner while adapting to various changes in life stages and others. In particular, we are promoting flexible working styles that allow employees to work at any time and any place, such as a flexible working hours system and telework, and creating an environment that enables a work-life balance in life-stage events such as childcare, medical treatment, nursing care, and infertility treatment. We are also promoting measures to prevent harassment in the workplace and keep working hours at an appropriate level. At Epson, a Group whose main sites are concentrated in the Shinshu area, we believe that it is important to further promote flexibility in working hours and workplaces, and create an environment that enables our diverse human resources to realize their individual career development, in order to promote diversity in the future based on hiring and retention of diverse human resources including managerial human resources and specialists. Health management We believe that the health of all the workers of the Group is of paramount importance to us, and based on our Corporate Purpose, the Epson Way, the Epson Group Basic Occupational Health and Safety Policy, and the Epson Group Health Management Declaration, we aim to improve the health of our workers and help them feel fulfilled in their work and work with vitality. In April 2022, we established our mid-range health plan, Health Action 2025, which focuses on two key areas: “mental and physical health” to foster autonomy and harmonize work and health, and “workplace health” to ensure attentiveness to safety and foster an organizational culture of teamwork and vitality. In March 2024, the Company was recognized for its past activities under the Health & Productivity Stock Selection Program for the third consecutive year. Occupational safety and health In FY2000, Epson formulated a policy and program based on the Occupational Safety and Health Management System (OSHMS), which conforms to the guidelines of the International Labor Organization (ILO), and has been implementing initiatives in four main areas: safety, health, fire prevention and disaster management, and facilities. This has been further evolved into activities based on the international standard ISO45001, and we are working to further improve the health and safety environment in the workplace so that all the workers in the Group can work with a peace of mind, in a safe and healthy manner, and with vitality. ③ Risk management As the environment surrounding companies becomes increasingly complex and uncertain, it is essential to accurately address risks that could have a significant impact on corporate activities in order to execute management strategies and business objectives. Epson positions issues related to human capital and diversity as risks with significant management impact and manages them appropriately. Human capital- and diversity-related risk identification, assessment and management process 1. Study 2. Identify & assess 3. Manage - With the Human Capital & Well- Being Management Division playing a pivotal role, survey risks and opportunities arising from human capital and diversity at major sites in Japan and overseas. - Identify risks and opportunities from the policies and strategies in Epson 25 Renewed. - Identify gaps between the current situation and the ideal situation in the development of the human resource portfolio. - Effectively manage risks through the Corporate Management Council and the Board of Directors. ④ Metrics and targets Epson has established KPIs for each of the three pillars of its human resource strategy, “allocate human resources to priority areas,” “strengthen human resource development” and “organizational activation,” and clarifies targets for key measures and manages progress toward these targets. 50 Strategies Metrics Results Targets FY2021 FY2022 FY2023 Human resource strategy (1) Allocate human resources to priority areas Number of hires New graduates: 200 Mid-career: 48 New graduates: 250 Mid-career: 241 New graduates: 344 Mid-career: 204 Continue to hire over 350 people each fiscal year20 Human resource strategy (2) Strengthen human resource development Rotation rate 9.0% 10.0% 10.1% 15% or more each fiscal year Human resource strategy (3) DE&I Female management position ratio 3.7% 4.1% 4.7% FY2025: 8% Female supervisory position ratio 6.9% 7.1% 7.7% FY2025: 10% Number of female Executive Officers (Status of initiatives is indicated in parentheses) (Number of female participants in in- house screened training: 12) (Number of female employees dispatched to external management strategy training: 2) (Number of employees dispatched to Kyoto University Leadership Training and Mackinsey Program: 2 and 1, respectively) At least one by FY2025 Disabled person employment ratio21 2.69% 2.70% 2.65% FY2030: 3.0% Wage difference between male and female workers22 All workers: 74.9% Regular: 75.7% Non-regular: 74.6% All workers: 76.5% Regular: 76.7% Non-regular: 77.8% All workers: 76.5% Regular: 76.8% Non-regular: 79.3% Reduce differences through initiatives such as increasing the number of females in management positions (because the primary reason for the differences is the low percentage of upper level positions and grades occupied by women although there are no differences in our wage system between wages for males and females of the same grade.) (Reference) Management positions: 97.8% (Reference) Management positions: 97.1% (Reference) Management positions: 97.9% Employee engagement Overall Employee Engagement Rating – Rating B (Score: 51.8) Rating BB (Score: 52.9) By FY2025: (1) Rating A (58 or higher) for all workplaces (2) Rating D for zero workplaces 51 20 Total number of new graduates who joined the Company on April 1 of each fiscal year and the number of mid-career hires in each fiscal year 21 As of June 1 of each fiscal year 22 The wage difference between male and female workers is the ratio of women’s wages to men’s wages. 23 All Group companies including overseas companies. Other metrics are for Seiko Epson Corporation on a non-consolidated basis Creation of comfortable working environment Percentage of male employees taking childcare leave 50.8% 97.2% 85.2% 100% each fiscal year Harassment prevention e-learning participation rate 92.4% 96.8% 97.6% 100% participation rate each fiscal year Thorough reporting of serious harassment cases to the head office 0 cases of failure to report 0 cases of failure to report 0 cases of failure to report Continue to strengthen cooperation with organizations and affiliate contacts Annual total actual working hours 1,854 hours 1,845 hours 1,866 hours FY2024: 1,845 hours Health management Number of high risk workplaces with “general health risk” in the mental health check 2.7% (Counted in workplaces of 3 or more people) 1.0% (Counted in workplaces of 10 or more people) 1.7% (Counted in workplaces of 10 or more people) FY2025: Zero Occupational safety and health Number of serious occupational accidents or injuries23 1 case 0 cases 0 cases Zero in each fiscal year 52 (4) Intellectual property Epson believes that it is important to “Convert intellectual property (IP) in the broad sense (as well as IP rights, this includes assets like brands and data) into assets that drive sustainable growth of Epson’s value.” Under this belief, to achieve sustainability and enrich communities, which is the aim of our corporate vision, the Intellectual Property Division works closely with management, operations divisions, and development and strategy departments, converts IP into value by proactively utilizing all IP, and enhances Epson’s value and supports the realization of its sustainable growth by tirelessly engaging in such activities. For example, one source of Epson’s competitive advantage is our ultrafine precision machining and processing technology that has been nurtured since our founding. Not only are our original Micro Piezo printheads being refined using this ultrafine precision machining and processing technology, they have also advanced under the protection of our strong IP. In addition, we were able to expand our product lineup by equipping Epson’s printers with the printheads and mass-produce the printheads through proactive, large-scale capital investment, thereby contributing to further growth of the printing businesses. Moreover, the development of the printhead sales business has increased the user base for our printheads in various commercial and industrial sectors and has led to expansion of the digital printing market. The growth in these businesses is also proceeding on the basis of our strong IP. In addition, by pursuing investment in startups and co-creation with third parties through open innovation, we have also developed new markets with high potential, and the support received from the perspective of IP is accelerating such efforts. In this way, our strong IP serves as a foundation for realizing a virtuous cycle in business, enabling even greater investment in research and development and dramatic evolution of our printheads and other products as well as our technologies so that we can continuously boost their competitive advantage. In other words, it is the IP we create that supports this growth strategy scenario. Of course, our efforts do not stop at the field of printing. One of our other efforts is an approach to dry fiber technology that contributes to resource circulation and the development of environmental technologies and is positioned as a key initiative in Environmental Vision 2050. (For details, please refer to “② Strategy.”) ■Growth strategy scenario based on intellectual property (Example: Printing business / ultrafine precision machining and processing technology) 53 ① Governance At Epson, in order to develop IP strategy in lockstep with development strategy and business strategy, which is essential for safeguarding Epson’s core technology, the Intellectual Property Division General Administrative Manager liaises one-on-one with Chief Operating Officers and the Technology Development Division General Administrative Manager. If necessary, the President attends for a three-way meeting. In addition, IP strategy is regularly reported and discussed at meetings of the Board of Directors, and the strategy is amended based on feedback from the Board of Directors. At recent meetings of the Board of Directors, productive discussions on the initiatives to promote innovation and KPIs for our IP activities were held and the direction of future activities for achieving Epson 25 Renewed was confirmed. ■Intellectual property strategy management organization ② Strategy Epson creates a virtuous cycle of new business with IP serving as the foundation and converts IP into corporate value, with the aim of achieving sustainable growth. In order to do this, we engage in support activities based on IP and specific examples including the following. Case: Our unique dry fiber technology Epson has set out the goal of “Carbon negative and underground resource free” in 2050 under Environmental Vision 2050. Our dry fiber technology is considered as a promising technology in the development of environmental technologies for achieving this ambitious goal. Dry fiber technology is Epson’s unique technology that converts fiber materials into something valuable, producing fibers suitable for a specific purpose and then binding and forming them, all without the use of water24, to realize upcycling (enhanced functionality) of materials. Our PaperLab in-office dry papermaking system applies dry fiber technology to produce recycled paper from used paper without a large volume of water. Compared with the paper recycling method through which used paper is transported to a facility to be dissolved using a large volume of water, PaperLab contributes to a reduction in CO2 emissions associated with the transportation of used paper as it enables in-office paper recycling, in addition to a significant reduction in water consumption used in the manufacturing of paper. 24 An appropriate level of humidity is required ◆Possibilities of dry fiber technology Dry fiber technology can be used in a variety of applications in addition to PaperLab. For example, used paper is used to produce ink absorbent for printers. Materials manufactured from used paper with dry fiber technology are also used as sound absorber to be used in the inner walls of equipment, by taking advantage of their sound absorbing property. In addition, because these materials can have the effect of absorbing shocks by adjusting their hardness and thickness, we are promoting their use as shock absorbing material. Furthermore, for materials other than paper, we developed new packaging material made from cotton scraps produced in the process of garment manufacturing, which we have been using as packaging material for watch products. Meanwhile, we are promoting open innovation for application to fields in which we have limited knowledge. With a view to helping establish a circular economy, in order to promote greater scope in the use of bioplastics and recycled plastics, for example, Epson is working on joint research on a molding technology using fiber-composite plastic materials that combine cellulose fibers generated with dry fiber technology and plastic materials with the aim of solving issues such as the strength and durability of bioplastics and recycled plastics. 54 In addition, in order to respond to the globally growing need for recycled fibers, we are promoting joint research that applies dry fiber technology to establish a technology to defibrate fibers that are difficult to recycle with the aim of providing a new recycling solution for cloth. ◆IP activities that support dry fiber technology ■Development of a patent portfolio In developing a patent portfolio, the Intellectual Property Division and the Development Department confirm in a one-on-one meeting a quantitative and qualitative assessment of our competitive advantage through IP landscape, after which an IP strategy coordinated with the development activities is determined. Dry fiber technology is a technology with a competitive edge from the perspective of IP as well. In order to boost the competitive advantage of businesses based on dry fiber technology, Epson has been making patent applications in the field constantly since the early days of its development based on IP strategy and has developed a powerful patent portfolio which overwhelms other companies in terms of quantity. Moreover, for families of high-quality patents with a Competitive Impact in the top 5% in the field, Epson ranks top in terms of the ownership percentage by patent holder. This indicates that we have developed a powerful patent portfolio for dry fiber technology in terms of both quantity and quality based on our IP strategy. Assessment of the number of patent applications each year in the field of dry fiber technology (prepared by Epson using LexisNexis PatentSight) Percentage of rights ownership of patents with a Competitive Impact in the top 5% in the field of dry fiber technology 55 Epson’s excellent technologies with a competitive edge have been awarded many awards at National Commendation for Invention hosted by the Japan Institute of Invention and Innovation. In the era of Reiwa (2019–) as well, we have been awarded special awards including the Prime Minister’s Award, the Minister of Education, Culture, Sports, Science and Technology’s Award, and the Japan Patent Attorneys Association President’s Award. We endeavor to be highly recognized in honors and awards by external organizations such as the National Commendation for Invention, which sends a clear message externally about the competitive edge of our technologies, thereby enhancing Epson’s value. With respect to dry fiber technology, Japanese Patent No. 6127882 from our powerful patent portfolio received the Asahi Shinbun Award in the 2019 National Invention Award. This patent relates to double-stage sieving, one of our core dry fiber technologies. This award made it clear, through evaluation by an external organization, that dry fiber technology is making a considerable contribution to the promotion of science and technology and the development of industries and economy. ■Supporting innovation through IP landscape Epson supports innovation from the perspective of IP through IP landscape in conjunction with investment in startups and co-creation with third parties through open innovation. For example, in making a decision on investment in a startup company, we evaluate the value of IP held by the startup company. Also, in open innovation, we obtain a comprehensive overview of the development status and IP acquisition status in the relevant field through IP landscape to evaluate the potential of the technology. In addition, in order to link development themes with business growth strategies, we support innovation including proposals from the perspective of IP. We do this based on analysis using IP landscape related to expanding the scope of application of and enhancing the foundation technologies of relevant development themes. In working to generate bioplastics through dry fiber technology, we proposed, based on an analysis using IP landscape, multiple development plans which have potential and compatibility with our technologies with limited barriers in terms of IP held by other companies to the Development Department, to work as development theme on our own. This way we have been using IP landscape to support innovation through dry fiber technology. ■Contractual support in a co-creation scheme with third parties Epson is promoting various open innovations centered on dry fiber technology concurrently. What becomes the key in doing so is the management of confidential information which is an important information asset of our co-creation partners. The contamination risk of confidential information is heightened, in particular, when we have co-creation with an identical theme under way concurrently. In order to mitigate the risk, we not only develop a template for a non-disclosure agreement (NDA) for co-creation but also establish our thinking as a guideline and communicate it thoroughly within the company. We consider agreements for the purpose of developing good relationships with co- creation partners as important IP and seek to raise the legal awareness of our employees, working in cooperation with the Legal Department. 56 ■Branding of technologies Technologies are intangible assets whose value is difficult to appreciate unless you are a technological expert. Therefore, we acquired a trademark right that sums up the technological features of dry fiber technology to get its technical name recognized by our customers to promote branding of the technology. 57 3. Risks related to Epson’s business operations At present, we have identified the following significant 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. For these risks, although matters that may possibly become risk factors are described, they do not cover all risks, and risks that were not assumed as of the filing date of the Annual Securities Report and risks that are of low significance may also have an effect on our financial position, operating results and cash flows in the future. Furthermore, while as our policy, we strive to recognize, prevent, and control potential risks and to address risks that materialize, there is no assurance we will succeed in these efforts, and if we are unable to effectively counteract the risks, our financial position, operating results and cash flows could be adversely affected. All forward-looking statements hereunder were made at Epson’s discretion as of the date we submitted our Annual Securities Report. (1) Risk management system 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. The risk management organization is defined in the Epson Group Risk Management Basic Regulations. Epson identifies serious risks that could materially impact the company, such as risks relating to business operations and those relating to business ethics including bribery and cartels, and determines priorities based on risk assessment in reference to the internal control framework “COSO1” and the international standard for risk management “ISO 31000.” Risks that could have serious adverse effects on Epson Group management are considered “serious Group- wide risks.” Risks that could have serious adverse effects on business operations are considered “serious business risks.” And risks that could have serious adverse effects on subsidiaries’ management are considered “serious Group company risks.” Epson drafts and executes plans to control those serious risks identified and periodically monitors their progress. The company also strives to ensure control plan effectiveness by evaluating “serious Group-wide risks” every quarter, evaluating “serious business risks” and “serious Group company risks” every six months, and revising the plans as needed. The president of Seiko Epson reports important risk management affairs to the Board of Directors quarterly. 1 Committee of Sponsoring Organizations of the Treadway Commission: An organizational committee intended to help businesses to enhance ethics, implement internal control and ensure governance and others 58 (2) Risks related to Epson’s business operations ① Our operating results, etc. could be adversely affected by fluctuations in printer sales. The ¥918.6 billion in revenue in the printing solutions segment in the year ended March 31, 2024 accounted for about 70% of Epson’s ¥1,313.9 billion in consolidated revenue. Inkjet printers (including printer consumables) for the office and home and for commercial 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, etc. 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 declines in 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, etc. 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 technology2 that we use in our inkjet printers competes with the thermal inkjet technologies3 of other companies; - The 3LCD technology4 that we use in our projectors competes with other companies’ DLP technologies5, and Epson’s projectors also compete against flat panel displays (FPDs)6 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. 2 Micro Piezo technology is an inkjet technology created by Epson that manipulates piezoelectric elements to fire small droplets of ink from nozzles. 3 Thermal inkjet technology (also known as bubble-jet technology) is a printer technology in which the ink is heated to create bubbles and the pressure from the bubbles is used to fire the ink. 4 3LCD technology uses high-temperature polysilicon TFT liquid-crystal panels as light valves. The light from the light source is divided into the three primary colors (red, 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. 5 DLP technology uses a digital micro-mirror device (DMD) as a display device. A DMD is a semiconductor on which a large number of micro mirrors are arranged, each mirror directing light onto its own individual pixel. An image is formed by the light from the light source being reflected from the mirrors onto the screen. DLP and DMD are registered trademarks of Texas Instruments Incorporated. 6 FPD 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 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, etc. in the business environment could affect Epson. Epson seeks to drive office & home printing innovation, commercial & industrial printing innovation, manufacturing innovation, visual innovation, and lifestyle innovation. We are looking to create value truly sought by customers and achieve our vision for each business by making each innovation happen. Epson is executing plans and strategies 59 based on a long-range corporate vision Epson 25 Renewed and each business strategy that we believe will enable us to establish a competitive advantage in technology, which we believe will be crucial for increasing our competitiveness. We are evolving product technologies, including digital technologies and our original core technologies, such as Micro Piezo inkjet technology, microdisplays, sensing, and robotics, all of which arose from Epson’s rich legacy of efficient, compact, and precision technologies, as well as the core technologies that underpin these. In this way, 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 progress of digitalization, and could affect sales of Epson products. Moreover, there is no guarantee that Epson’s current long-range corporate vision, business strategies, and actions specified therein will succeed or be realized. Under these business circumstances, Epson will also continue to 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 competition with other companies intensifies, 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, etc. could be adversely affected. ④ Our revenue and earnings could be adversely impacted by sales of third-party inkjet printer consumables. Ink cartridges etc., 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 we experience revenue and profit declines in businesses such as our ink cartridge business as a result of shrinking unit shipments in response to an expansion of sales of third-party alternative products and drop of the market share of genuine Epson products, or if we must lower the prices of Epson brand products to stay competitive, our operating results, etc. could be adversely affected. ⑤ Expanding businesses overseas entails risks for Epson. We continue to expand our businesses overseas, and overseas revenue accounted for 80% or more of our consolidated revenue for the year ended March 31, 2024. 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 2024, our overseas employees accounted for 70% or more 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 such as electrical power and communications; currency exchange restrictions; insufficient skilled labor; changes in regional labor environments; changes in tax systems overseas and uncertainty with regard to tax administration by tax authorities; protectionist trade regulations; geopolitical risks; and laws, ordinances, regulations or the like that could affect the import and export of Epson products. ⑥ Procuring parts from certain suppliers entail 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, 60 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 quality problems of supplier’s parts, our operating results, etc. 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, etc. 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 have strengthened 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, etc. 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 environmental risks. Epson is expected to engage in activities in a manner that complies, both in Japan and overseas, with various environmental regulations concerning industrial waste and emissions into the atmosphere that arise from manufacturing processes. In addition, with heightened concern about the response to global climate change accompanying the Paris Agreement, which was adopted at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, companies increasingly need to set more ambitious goals for emissions reductions and strive to accomplish these goals. Given this situation, Epson is proactively engaged in environmental conservation efforts on multiple fronts in line with “Environmental Vision 2050,” through which we aim to become carbon negative and underground resource7 free by 2050. For example, we have programs to develop and manufacture products that have a small environmental footprint and programs to develop environmental technologies. We also have programs to reduce energy use, promote 61 the recovery, recycling and reusing of end-of-life products, ensure compliance with international substance regulations (primarily the RoHS Directive and REACH regulations in the EU), and improve environmental management systems. For our goals for GHG emissions reduction, we obtained approval from the Science Based Targets initiative (SBTi), and we are working on activities to reduce GHG emissions over the medium to long term, including activities to drive the use of renewable energy. As a result of these efforts, Epson’s GHG emissions have steadily declined. For detailed figures, please refer to “II. Overview of Business, 2. Concept and initiatives of sustainability, (2) Climate change (TCFD) ④ Metrics and targets.” In addition to maintaining the transition to renewable energy at our sites in Japan, which was completed in November 2021, the completion of the transition at our overseas sites in December 2023 will bring our Scope 2 emissions due to electricity to zero going forward. We have not had any serious environmental issues to date. In the future, however, there is a risk 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, etc. could be adversely affected. On the other hand, Epson is advancing initiatives that take addressing the environment as an opportunity. In particular, we have confirmed that there is an opportunity to expand business through products and services that can contribute to customer environmental impact mitigation, and will continue management that takes maximum advantage of opportunities. Specifically, we expect revenue growth through printing, commercial & industrial printing and printhead sales using inkjet technology that realizes the reduction of environmental impacts, higher productivity and the reduction of printing costs as well as the promotion of production systems through the expansion of new production devices that realize the reduction of environmental impacts. In addition, we expect to develop environmental businesses through the application of dry fiber technology, establishment of raw material recycling, etc. as effective solutions for global warming countermeasures and the shift to a circular economy. 7 Non-renewable resources such as oil and metals 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 foster a corporate culture that enables diverse personnel to demonstrate their abilities, create comfortable working environments, and hire and retain talented personnel by, for example, introducing compensation and benefit packages that are commensurate with roles, nurturing talent, implementing diversity initiatives, promoting work- style reform and health management, and 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, our business plans, etc. could be adversely affected. 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 position and operating results, etc. ⑫ There are risks inherent in pension systems. We have a defined-benefit pension plan and a lump-sum retirement payment plan 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, etc. could be adversely affected. ⑬ Concerning regulatory investigations and investigations conducted by relevant authorities, etc. Epson develops its business globally, and it could become the subject of various regulatory investigations or investigations conducted by relevant authorities, etc. in any of its businesses in any country or region. For example, 62 in addition to Epson currently being subject in Japan and overseas to proceedings relating to antitrust laws and regulations, such as those prohibiting private monopolies and those protecting fair trade, Epson will in the future be required even more to respond to various laws and regulations and compliance relating to activities pertaining to its efforts to strengthen its sales activities directed at new customers, which will include public organizations, etc. Under these circumstances, in Epson, we consider compliance to be one of the most important management policies, and for a long time, we have been conducting appropriate, preventive and controlled activities, including worker protection activities as a member of the RBA (Responsible Business Alliance) and further promotion of environmental conservation efforts. Going forward, overseas agencies related to competition law have been conducting investigations or information gathering that have been targeting specific industries, etc., and as part of such investigation, Epson also is being investigated in relation to the market situation and marketing methods in general. Furthermore, sometimes inconsistencies or potential inconsistencies arise in relation to not only anti-bribery regulations, advertising and labeling regulations, personal information protection and privacy regulations but also security trade control, and stricter laws and regulations may get introduced or a strengthening of the operation of laws and regulations may be carried out by the relevant authorities. Should violations occur in regard to these related laws and regulations, or should investigations or proceedings be carried out by the relevant authorities, such events could interfere with Epson’s sales activities. They could also potentially damage Epson’s credibility, result in a large civil fine, or result in constraints being placed on Epson’s sales activities. Any of these, as well as the added costs to comply with the relevant regulations could adversely affect Epson’s operating results and its future business expansion, etc. As of the date we submitted our Annual Securities Report, investigations into laws and regulations, etc. targeting Epson are provided below. Regarding the inkjet printer products sold in France, authorities have initiated investigations following an allegation made by a consumer organization in the country in 2017, pursuant to consumer protection law. The consumer organization alleges that Epson shortens the life of its products, which was never Epson’s intention. Giving the highest priority to quality and environment, Epson will continue to offer designs that meet customer needs. Progress, result and resolution timing of the investigations, and their impact on Epson’s operating results and its future business development, etc. are not predictable at this time. 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 products related to printing solutions, visual communications, and manufacturing-related & wearables, 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 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. 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. 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 development, etc. could be affected, depending on the outcomes of suits and legal proceedings. ⑮ Epson is vulnerable to certain risks in internal control related to 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 related to financial reporting or material weaknesses to be disclosed 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. 63 There is also no assurance that the business strategy of tie-ups will succeed or contribute to our operating results, etc. exactly as expected. ⑰ Epson could be severely affected in the event of a natural disaster or an infectious disease, etc. We have research and development, procurement, manufacturing, logistics, sales and service sites around the globe, and our operating results and future business development, etc. could be adversely affected by any number of unpredictable events, including but not limited to natural disasters, pandemics involving new infectious diseases, supply chain disruptions caused by natural disasters on suppliers, and acts of terrorism or war. The central region of Nagano Prefecture, home to some of our key plants and offices, is an area that is at comparatively high risk of earthquakes due to the presence of an active fault zone along the Itoigawa-Shizuoka geotectonic line. Accordingly, in addition to earthquake-proofing its equipment and facilities, Epson conducts disaster drills, has prepared earthquake disaster management and response plans, and has 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. COVID-19, which has been a pandemic since 2020, reached a milestone on May 8, 2023, when its status under the Act on the Prevention of Infectious Diseases and Medical Care for Patients with Infectious Diseases was changed from Novel Influenza Infection, etc. (equivalent to Class II Infectious Disease) to Class V Infectious Disease. However, there is still a possibility of an outbreak of a mutant strain with high infectivity and risk of serious illness, or a new infectious disease that replaces COVID-19. To prepare for such a situation, Epson has a BCP (business continuity plan) for emerging infectious diseases based on its response to COVID-19, and has established action plans for normal times, the early stages of an epidemic, and the epidemic phase to minimize risk in order to prevent the spread of infection, continue business, and recover promptly. ⑱ Epson faces risks concerning the information security The scope of what Epson’s network of information systems are used for and frequency of use continue to grow, and this network is becoming increasingly important. Also, in our global business activities, we handle the personal information of customers and confidential data of business partners. Security threats are increasing year on year and our operating results and future business development, etc. could be adversely affected by occurrences such as computer virus infections, leaks of customer data, failures of key internal systems, cyber-attacks, and reputational damage through social media. We are responding to this by carrying out information security training for all employees, as well as establishing a grand design that specifies policies concerning cyber security measures, and we are implementing various measures under this. We also plan to engage in initiatives such as establishing a global security incident response structure, planning and implementing cyber security response measures, and strengthening product security. 64 4. Management analysis of financial position, operating results and cash flows (1) Operating results overview ① Operating results The global economy in the year under review slowed more sharply, with ongoing high inflation and the tightening of monetary policy by countries around the world. The slow pace of economic recovery in China is having a particularly significant impact on the global economy, but a deceleration of the European economy is also becoming apparent. Meanwhile, although U.S. consumption has thus far remained firm, consumption going forward is uncertain. Looking at the situation by product market, the device market in particular is in a prolonged inventory adjustment phase and demand has fallen sharply. The future is clouded by uncertainty, with the potential for ongoing high global inflation and a protracted economic slowdown, so Epson will continue to closely monitor the situation moving forward. The average exchange rates of the yen against the U.S. dollar and of the yen against the euro during the year were ¥144.44 and ¥156.66, respectively. This represents a 7% depreciation of the yen against the dollar and an 11% depreciation of the yen against the euro compared to the prior period. The yen also weakened against the currencies of some emerging countries, in places such as Latin America. In this business environment, operating results in the fiscal year under review are as follows. (Billions of yen) Year ended March 31, 2023 Year ended March 31, 2024 Change Percentage of change Main reason(s) for change Revenue 1,330.3 1,313.9 (16.3) (1.2%) [Revenue] Printing Solutions Segment 16.2 Visual Communications Segment 0.5 Manufacturing-related and wearables (35.5) [Business profit] Printing Solutions Segment 6.7 Visual Communications Segment (3.2) Manufacturing-related and wearables (29.8) Cost of sales (863.6) (857.3) 6.3 – Gross profit 466.6 456.6 (9.9) (2.1%) Selling, general and administrative expenses (371.5) (391.9) (20.4) – Business profit * 95.1 64.7 (30.3) (31.9%) Other operating income and Other operating expense 1.9 (7.1) (9.1) – Recording of expenses related to a pension buyout at a Group company in the United Kingdom, and reductions in foreign exchange gains, etc. Profit from operating activities 97.0 57.5 (39.5) (40.7%) Finance income and Finance costs 6.6 12.5 5.9 – Increases in foreign exchange gains, etc. Profit before tax 103.7 70.0 (33.6) (32.4%) Income taxes (28.7) (17.4) 11.2 – Decreases in profit before tax, etc. Profit for the period 75.0 52.6 (22.4) (29.9%) Profit for the period attributable to owners of the parent company 75.0 52.6 (22.4) (29.9%) * Business profit is calculated after deducting cost of sales and selling, general and administrative expenses from revenue. 65 A breakdown of operating results in each reporting segment is provided below. Printing Solutions Segment Revenue in the office and home printing business negligibly decreased. Sales of office shared printers sharply increased owing to the launch of new linehead inkjet printers while foreign exchange also positively impacted revenue. However, inkjet printer unit sales decreased primarily due to a sharp decline in unit sales of ink cartridge printers and a decline in unit sales of high-capacity ink tank printers. Sales of inkjet printer consumables increased overall. This was mostly due to a combination of positive foreign exchange effects and a sharp increase in sales of ink bottles for high-capacity ink tank printers and ink for office shared printers that more than offset a slight decrease in ink cartridge sales. Revenue in the commercial and industrial printing business increased. Commercial and industrial inkjet printer unit sales declined in Europe and North America, where investment demand fell along with rising interest rates, but revenue slightly increased because of positive foreign exchange effects. Sales of consumables for commercial and industrial inkjet printers increased on continuing print demand. Sales of small printers decreased because market demand declined in Europe and North America as higher interest rates, inflation, and other factors caused the market to deteriorate. Revenue in the printhead sales business sharply increased primarily owing to increased demand from customers in China that are exporting to emerging countries. Segment profit in the printing solutions segment increased despite lower unit sales of inkjet printers and small printers and higher selling, general and administrative expenses associated with stepped up business activity. This increase is primarily due to sales growth in the printhead sales business and positive foreign exchange effects. As a result of the foregoing factors, revenue in the printing solutions segment was ¥918.6 billion, up 1.8% compared to the prior period. Segment profit was ¥96.1 billion, up 7.6% compared to the prior period. Visual Communications Segment Revenue in the visual communications segment was flat compared to the prior year, when revenue was high because it included sales from an order backlog from the previous year. This year, revenue was negatively impacted by lower home projector sales, which decreased along with consumer spending, and decreased demand in the North American education sector. However, this impact was canceled out by firm demand in the education sector in emerging countries and positive foreign exchange effects. Segment profit in the visual communications segment decreased mainly because of the negative effect on profit of production constraints. As a result of the foregoing factors, revenue in the visual communications segment was ¥217.4 billion, up 0.3% compared to the prior period. Segment profit was ¥31.5 billion, down 9.4% compared to the prior period. Manufacturing-Related & Wearables Segment Revenue in the manufacturing solutions business sharply decreased due to a substantial decrease in sales in China. Revenue in the wearable products business decreased compared to the prior year, when domestic sales of new products with high unit prices increased. Revenue in the microdevices business sharply decreased. Crystal device sales sharply decreased mainly in China because of a decline in demand due to market inventory adjustments. Semiconductor sales decreased due to a decline in demand associated with market inventory adjustments. Segment profit in the manufacturing-related and wearables segment sharply decreased primarily due to lower revenue in the microdevices business. As a result of the foregoing factors, revenue in the manufacturing-related and wearables segment was ¥179.9 billion, down 16.5% compared to the prior period. Segment loss was ¥1.5 billion (compared to segment profit of ¥28.3 billion in the prior period). In addition to the above, Epson recognized an impairment loss of ¥0.6 billion in the manufacturing solutions business because we expect improvements in profitability to take time due to the changes in the market including the economic slowdown and the rise of local competitors in China, and our intention to continue to invest in human resources to drive future growth. Adjustments Adjustments to the total profit of reporting segments amounted to negative ¥61.4 billion. (Adjustments in the previous fiscal year were negative ¥57.3 billion.) The main components of the adjustment were basic technology research and development expenses that do not correspond to the reporting segments and earnings and expenses associated with things such as new businesses and corporate functions. 66 ② Cash flow performance Net cash from operating activities during the year totaled ¥165.5 billion. The total for the previous year was ¥61.3 billion. Net cash from operating activities increased primarily because of positive factors such as the declaration of ¥68.6 billion in depreciation and amortization and a ¥71.0 billion decrease in inventories in addition to recording ¥52.6 billion in profit for the period. Net cash used in investing activities totaled ¥58.9 billion (compared to ¥61.6 billion in the previous year), mainly because Epson used ¥56.5 billion in the acquisition of property, plant, equipment and purchase of intangible assets. Net cash used in financing activities totaled ¥65.3 billion (compared to ¥79.3 billion in the previous year), chiefly due to ¥30.0 billion in redemption of bonds issued, ¥10.0 billion in payment of lease liabilities, and ¥25.8 billion in dividends paid. As a result, cash and cash equivalents at the end of the fiscal year, combined with the effects of exchange rate volatility, totaled ¥328.4 billion, up ¥61.1 billion from the end of the previous fiscal year. ③ Manufacturing, orders received and sales a. Actual manufacturing Actual manufacturing information is omitted as Epson’s actual manufacturing approximates actual sales. b. Orders received Epson’s policy is to manufacture products based on sales forecasts. Accordingly, this section does not apply. c. Actual sales The following table shows actual sales information by segment in the fiscal year under review. Business segment Year ended March 31, 2024 (From April 1, 2023, to March 31, 2024) (Millions of yen) Change compared to previous fiscal year (%) Printing solutions 918,630 101.8 Visual communications 217,462 100.3 Manufacturing-related and wearables 170,803 83.2 Total for the reportable segments 1,306,895 98.7 Other 7,102 124.6 Total 1,313,998 98.8 (Notes) 1. Intersegment transactions are offset and therefore eliminated. 2. No customer accounts for more than 10% of the actual total sales. 67 (2) Management analysis and discussion on operating results, etc. Recognition and details of analysis/discussions on Epson’s operating results, etc. from the management’s perspective are as follows: All forward-looking statements hereunder were made at Epson’s discretion based on the forecasts and certain assumptions at the end of the fiscal year. These statements may differ from actual results and are not guarantees of the achievement. ① Operating results, etc. Financial position Total assets at the end of the fiscal year were ¥1,413.0 billion, an increase of ¥71.5 billion from the previous fiscal year end. While inventories decreased by ¥31.2 billion, this increase was mainly due to a ¥61.1 billion increase in cash and cash equivalents, a ¥10.9 billion increase in trade and other receivables, a ¥16.4 billion increase in property, plant and equipment, and a ¥5.2 billion increase in other financial assets. Total liabilities were ¥601.9 billion, a decrease of ¥12.1 billion compared to the end of the last fiscal year. Although there was a ¥6.2 billion increase in other current liabilities, total liabilities decreased mainly because of a ¥28.4 billion decrease in bonds issued, borrowings and lease liabilities. The equity attributable to owners of the parent company totaled ¥810.9 billion, an ¥83.6 billion increase compared to the previous fiscal year end. The main reasons for the increase were that, while there were ¥25.8 billion in dividend payments, Epson recorded ¥52.6 billion in profit for the period attributable to owners of the parent company and recorded ¥56.6 billion in other comprehensive income, the primary component of which was exchange differences on translation of foreign operations. Working capital, defined as current assets less current liabilities, was ¥561.0 billion, an increase of ¥40.2 billion compared to the end of the previous fiscal year. Operating results The operating results are provided in “(1) Operating results overview ① Operating results.” Cash flow performance The cash flow performance is provided in “(1) Operating results overview ② Cash flow performance.” ② Capital resources and liquidity Epson plans to allocate ¥73.0 billion to capital expenditures for the fiscal year ending March 31, 2025, and the required funds will be covered by internal funds. The amount of planned capital expenditures for each segment is as described in “III. Information About Facilities 3. Plans for new additions or disposals.” The above amount of planned capital expenditures includes capital expenditures through leases. In order to stably secure funds necessary for business activities such as capital expenditures, Epson raises funds through utilization of internal funds as well as borrowings from financial institutions and issuance of bonds. The balance of interest-bearing debt at the end of the fiscal year under review was ¥204.7 billion, down ¥28.4 billion compared to the previous fiscal year end, mainly due to redemption of bonds issued. The balance of cash and cash equivalents at the end of the fiscal year under review totaled ¥328.4 billion, up ¥61.1 billion compared to the end of the last fiscal year, giving Epson sufficient liquidity. In addition, the Company entered into a commitment line contract for an environmentally conscious financing product with a main partner bank in May 2020, as part of its efforts to strengthen the financial foundation in preparation for emergencies, and renewed the contract in May 2023. There is no outstanding balance of executed borrowings based on the said commitment line contract as of March 31, 2024. Epson has earned a credit rating from Rating and Investment Information, Inc. The rating was A (single A) as at the end of the fiscal year under review. ③ Management policy, corporate strategy, objective indices to assess the status of achievement of management goals, etc. As stated in “II. Overview of Business 1. Management policy, business environment and issues to be addressed, etc.,” Epson boldly undertakes challenges and strives to make innovations beyond its own conventions and vision in order to solve social issues, based on the Company’s unique strengths of efficient, compact, and precision technologies since the time of its founding. We are making efforts to have all employees share values and act autonomously while demonstrating their comprehensive strengths. By doing so, we will continuously create and provide game-changing 68 customer value in a timely fashion, play a central role as an indispensable company in building a better society, and achieve sustainable growth and improvement of our corporate value over the medium to long term. In March 2021, we revised our Corporate Vision and established “Epson 25 Renewed,” with the goal of achieving sustainability and enriching communities, which we have set as our aspirational goal to pursue into the future. In response to environmental issues that Epson views as very important, we have revised Environmental Vision 2050 with the aims of becoming carbon negative and underground resource* free by 2050. * Non-renewable resources such as oil and metals Additionally, the status of progress on financial targets set with the aim of realizing our Corporate Vision is provided in “II. Overview of Business 1. Management policy, business environment and issues to be addressed, etc.” ④ Significant accounting estimates and assumptions used for those estimates The consolidated financial statements of Epson are prepared in conformity with IFRS in accordance with the provision of Article 93 of “Ordinance on Terminology, Forms and Preparation Methods of Consolidated Financial Statements.” Estimates that are deemed necessary have been made based on reasonable criteria. Material accounting policies applied in the consolidated financial statements of Epson, accounting estimates, and assumptions used for those estimates are provided in “V. Financial Information, Consolidated Financial Statements etc., Notes to Consolidated Financial Statements, 3. Material Accounting Policies and 4. Significant Accounting Estimates and Judgments.” 69 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 HP Inc. U.S.A. License to use patents relating to information-related equipment March 28, 2018 until the expiry of the patents Seiko Epson Corporation International Business Machines Corporation U.S.A. License to use patents relating to information-related equipment April 1, 2006 until the expiry of the patents Seiko Epson Corporation Microsoft Corporation U.S.A. License to use patents relating to information-related equipment and software used by such equipment September 29, 2006 until the expiry of the patents Seiko Epson Corporation Eastman Kodak Company U.S.A. License to use patents relating to information-related equipment October 1, 2006 until the expiry of the patents Seiko Epson Corporation Xerox Corporation U.S.A. License to use patents relating to electrophotography and inkjet printers March 31, 2008 until the expiry of the patents Seiko Epson Corporation Canon Incorporated Japan License to use patents relating to information-related equipment August 22, 2008 until the expiry of the patents Seiko Epson Corporation BROTHER INDUSTRIES, LTD. Japan License to use patents relating to information-related equipment June 28, 2018 until the expiry of the patents 70 6. Research and development activities (1) Research and development approach and systems Since its founding, Epson has possessed excellent technologies, as represented by its efficient, compact and precision technologies, and provided value by leveraging these technologies for the benefit of society. Under its long-term vision, Epson 25 Renewed, Epson focuses on social issues as a starting point and has shifted to technology development that looks at which technologies are needed for solving problems. In creating the best development scenarios in our technology development, we objectively evaluate our capabilities, reflecting elements such as customer value and business feasibility, and analyze any gaps between our findings and our aspirational goals. Through the course of this situation assessment, we identify “issues that must be resolved for our plans to come to fruition” as obstacles, and while thinking about how to address these issues, prepare multiple scenarios for achieving our goals. In our approach using multiple scenarios, we determine which technology development we should make our highest priority as its success would produce the greatest results, and designate it as our Plan A. We also preliminarily consider Plans B, C, which could produce lower Q, C, or D achievement levels but which would face fewer impediments and allow us to accomplish our primarily purpose, and assume them as expedient paths for productization and commercialization at the same time as Plan A. We are deliberating specific measures for resolving the obstacles, including collaboration and co-creation with outside partners. We consider co-creation to be an important factor in technology development, and are pursuing “front-loading of development,” whereby knowledgeable people participate in trial-and-error processes from the initial stage of development, thus improving verification accuracy. By front-loading development to speed up the problem-solving cycle and increase the quality of development, we speed up productization and commercialization. Epson places research and development as a part of initiatives to strengthen the business infrastructure, and promotes the evolution of foundational technologies, core technologies and product technologies to realize innovation. Going forward, in addition to our manufacturing capabilities, we will strengthen materials, AI and digital technologies in particular, to lay a technological foundation for strengthening existing businesses and creating new businesses. Epson’s research and development divisions coordinate with each other as they perform their own clearly delineated roles. The R&D units of the operations divisions are primarily responsible for core 71 technology development and product development, such as improving the competitiveness of products in their own business segments, while the corporate R&D division develops platform technologies used by multiple segments, new technologies which require long-term development efforts, and core technologies for new areas. In this way the different divisions coordinate with each other while performing clearly delineated roles. Epson seeks to solve the issues faced by society through its technology development, boldly taking on the challenges of coming up with new ideas and approaches. (2) R&D spending Total R&D spending during the fiscal year was ¥44.2 billion, equivalent to 3.4% of revenue. The printing solutions segment accounted for ¥16.6 billion, the visual communications segment for ¥6.5 billion, and the manufacturing- related and wearables segment for ¥6.8 billion. The “other” segment and corporate segment accounted for the remaining ¥14.2 billion. R&D spending by the “other” segment and corporate segment includes research and development essential to lay a technological foundation for strengthening existing businesses and creating new businesses. R&D spending by segment Segment name R&D spending (Billions of yen) Printing solutions 16.6 Visual communications 6.5 Manufacturing-related & Wearables 6.8 Other and overall 14.2 Total 44.2 (3) Objectives and results of research and development by each segment ① Printing solutions segment Office & home printing innovation In this area, we seek to lead the evolution toward distributed printing that reduce environmental impacts and increase work productivity through inkjet technology, paper recycling technology, and open solutions. To this end, we are expanding our lineup of products that use Heat-Free Technology, a proprietary Epson inkjet technology, providing solutions, and working to drive a technological shift from laser printers to inkjet printers by emphasizing their environmental qualities. As a concrete example of solutions offered, we developed StudyOne, a learning support service for tutoring schools that also supports learning at home, through open innovation with StudyLab Inc. which operates and sells ICT content for tutoring schools, and launched it officially in April 2023. StudyOne combines StudyLab’s LMS1 and Epson’s remote printing and scanning technology to provide a service that allows you to design learning at home in a way that integrates digital and paper. Connecting a child’s room with a tutoring school and recording communication up to the submission of paper-based homework assignments through LMS enables a teacher to grasp the entire learning process of a student, thereby providing an environment in which learning guidance tailored to individual students can be given. 72 On the product front, we launched A4-document scanners the design and functions of which were updated completely. In responding to a need to digitize efficiently even in a limited space, DS-C480W and DS-C420W adopt 2-way paper feeding for U-turn and straight layouts to realize use in a space-saving manner and strong compatibility with a variety of paper sizes. They have a compact body and are capable of high-speed scanning of 30 sheets per minute2, while being 5 GHz-compatible Wi-FiⓇ to support daily operation for digitalization at small desks and reception desks as well as personal use for telework and non-business purposes. 1 Learning Management System 2 Reading speeds are measured values based on Epson’s own standard and differ depending on the use environment and method. See below for details regarding how they are measured: https://www.epson.jp/products/scanner/sokudo_jyouken.htm (in Japanese) Commercial & industrial printing innovation In this area, we seek to offer inkjet technology and solutions that lead the digitalization of printing and contribute to lower environmental impacts and higher productivity. To achieve this, we are bringing out the full potential of inkjet technology for printing on diverse media and materials, promoting the digitalization of commercial and industrial printing, and helping improve printing operation productivity through Epson Cloud Solution PORT, our cloud service that supports distributed printing. We are contributing to this commercial and industrial printing innovation through our Monna Lisa series of digital textile printers that offer new value to production sites through digital print using pigments, and we released the ML-13000 in this series. This product ejects functional ink only to where it is necessary in the printing process, making it unnecessary to do front-end processing in a separate step. This enables a finish that maintains the original texture of textile, without damage to portions to which printing is not applied. In addition, the pigment inks to be used do not require the processes of “steaming” and “washing” which are necessary in dye printing, thereby realizing a considerable reduction in water usage and contributing to reduced environmental load through a sustainable printing process. We also launched a garment printer of hybrid type SC-F1050 that handles both direct printing on textile products and printing on films (Direct to Film), and SC-V1050, a UV inkjet printer that enables printing on a variety of materials such as acrylic plates, plastics and golf balls. In addition, we launched Epson’s first automated color measurement table SD10ACRT that supports color matching for printers at the same time. Used together with Epson’s color measurement device SD-10, it allows anyone to work easily on steps from automated color measurement for a color chart up to profile creation. Tutoring school Easy to provide guidance for learning at home Child’s room Child’s room becomes a classroom Printer LMS Select the assignment worksheets and send them to the student’s residence Complete the printouts of the receiv ed worksheets, scan them, and send them back StudyOne scheme Connect 73 ② Visual communications segment Visual innovation In this area, we seek to connect people, things, information and services with inspiring video experiences and quality visual communications to support learning, working and lifestyles. To do so, we are developing high brightness projectors that use laser light sources for high-resolution, large projection sizes, and home projectors with smart designs that allow them to be placed in even more locations, so they can be used in more environments, for a wider range of purposes and applications. Based on this approach, we launched the new EB-810E, EB-770F and EBB-760W ultra short-focus wall- mountable projectors. The adoption of laser light sources enables clear and sharp images to be projected, and also a wall-mounted projector throws light almost directly from the top, thus making these products less susceptible to shadows even when a person stands near the screen and the projected light will not get into their eyes and cause a dazzling glare. Further, they do not require lamp replacement, saving costs and labor after their introduction. In the home projector products, we launched EH-LS650B and EH-LS650W that can produce high-quality images equivalent to 4K3 images. Their adoption of ultra-short-focus lenses enables a large screen of up to 120 inches to be projected, simply by locating a unit near the wall. Also, equipped with Android TVTM function4, these products alone will allow you to enjoy free/paid video distribution services on a large screen when connected to Wi-FiⓇ. 3 4K signals to be input to display high-quality images equivalent to 4K images through 4K enhancement technology 4 Netflix is available for viewing by attaching an optional Android TVTM terminal, ELPAP12, or a commercially available media streaming terminal 74 ③ Manufacturing-related and wearables segment Manufacturing innovation In this area, we seek to innovate manufacturing by co-creating flexible high-throughput production systems that reduce environmental impacts. To strengthen our production foundation with an eye toward future business growth, we moved our domestic robot plant to the Fujimi Plant and expanded it, and automated factory operations using robots. We will use this robot plant as a technology verification site and evolve the usage value provided by Epson’s robot products. Based on this approach, we completely updated the lineup of the industrial-use SCARA robots GX Series, our main products. The new products GX4/GX8/GX10/GX20 have robot arms equipped with ultra-small gyro sensors, controlling vibrations of arms while in operation, and also come with an accurate braking capability to stop precisely at a specified point even during high-speed motion. They are compatible with force sensors as well, to handle not only transportation tasks that require high speed but also difficult tasks demanding precision, such as screwing and inspection using pressure, for which manual labor has been used. Further, they comply with ISO 10218-1, the safety standard for robots, to obtain NRTL certification5 from a third party certification organization. This not only gives further assurance in using robots but also helps end users to obtain a safety certification as robot equipment. 5 NRTL stands for Nationally Recognized Testing Laboratory, a third party certification organization, approved by the U.S. Occupational Safety and Health Administration (OSHA). The series has been certified for compliance with the safety standard by one of its certification bodies “TUV SUD” Lifestyle innovation In this area, we seek to utilize craftsmanship and co-create solutions that utilize sensing technologies to enrich diverse lifestyles. In the watch business, we are providing products with designs and high levels of quality that appeal to customers’ sensibilities, at prices that communicate their value. In the sensing business, we are co- creating new solutions that leverage our sensing technologies and analysis algorithms. Also in the sensing business, Epson is working on personalized health support as a value creation strategy for “Improve the quality of life,” one of our materialities. In the year under review, through open innovation with BANDAI CO., LTD. we started offering a license for M-Tracer technology’s motion algorithm SDK, “M-Tracer for Motion SDK,” that captures human motions and movements of an object by sensing for a dedicated application for Bandai’s ultra-body-sensation smart shoes for kids “DIGICALIZED.” Loading this SDK into the application will analyze and judge the movements of feet obtained through a motion sensor to provide information on changes in movement necessary for a game in real time. System configuration Conceptual diagram of the algorithm SDK function Motion sensor Application 6-axis gyroscopic sensor Sensor data App control section Measured data Results of analysis and judgment Motion algorithm SDK 75 Microdevices In this area, we work to develop products that contribute to the realization of smarter societies, such as rapidly- growing high-speed, high-capacity communications infrastructure, IoT society, and mobility society, with our timing devices, semiconductors, and sensors by leveraging the strengths produced by combining the efficient, compact, and precision technologies of quartz crystals and semiconductors. In the field of crystal oscillators, we at Epson developed our unique differential output6 “Wide Amplitude LVDS (WA-LVDS).” As digitalization progresses with increasingly higher performance required of communication devices, the demand for differential output fit for LSI to be used is expected to go up further. This product enables you to select flexibly the optimal output for the oscillation level demanded by LSI. We are aiming for the commercial launch of crystal oscillators equipped with this product during FY2025. In the semiconductor field, we developed S1V3F351/S1V3F352, LSI exclusive for audio replay equipped with a buzzer audio function, flash memory for audio data, and built-in oscillation circuit. In recent years there has been wider adoption of home electronic appliances with voice functions as well as wider use of voice-based alarms and guidance by healthcare devices and at office buildings and plants. Against this backdrop, the product enables audio/melody to be played through a buzzer by using a proprietary voice algorithm developed by Epson. Simply connecting the product to customers’ existing products through a serial interface will allow them to incorporate the audio replay function without difficulty. 6 A method of outputting frequency signals which are polarized in the opposite direction to each other. It has features such as being capable of transmitting in the high frequency range and resistant to noises ④ Other and overall In this area, we work to develop technologies in the field of production technology, which extends across all of our business segments, develop technologies for reinforcing our DX platforms, conduct fundamental research that will form the technical foundation of our business reinforcement efforts, and carry out research and development related to new areas. Our company-wide efforts include the development of environmental technologies for achieving Environmental Vision 2050. One of those development activities consists of applying our unique dry fiber technology to materials other than paper. In August 2023 we established Seiko Epson Corporation × Tohoku Univ. Co-creation Research Center for Sustainable Materials to strengthen our development structure and accelerate research toward the establishment of a technology on composite bioplastics and recycled plastics that make use of fibers defibrated from used paper, clothes and timber. In order to respond to the globally increasing need for recycled fibers, we aim for the social implementation of fiber recycling to which dry fiber technology is applied. In January 2024 we entered into an agreement on joint development with HKRITA7 which is based in Hong Kong and develops revolutionary solutions for the fiber, clothing and fashion industries. By combining Epson’s technologies with HKRITA’s technologies and market intelligence, we will work to realize a new fiber recycling solution. This solution will make a significant contribution to accelerating the use of recycled fibers by making it possible to separate fibers from previously challenging textiles such as functional clothing, and from sheets, dress shirts and other tightly woven items, as well as from factory mill ends, unsold items of clothing, and unwanted apparel. Epson aims to establish the technology and implement it in the real world as soon as possible. 7 The Hong Kong Research Institute of Textiles and Apparel Limited 76 III. Information About Facilities 1. Overview of capital expenditures Capital expenditures for the fiscal year under review were concentrated in key strategic areas, primarily for commercializing new products, increasing production capacity, carrying out environmental investment, and automating, 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 and software) amounted to ¥70.0 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 increasing production capacity, carrying out environmental investment, and automating, rationalizing, upgrading and maintaining equipment and facilities amounted to ¥44.1 billion in the fiscal year under review. Visual communications segment Investment used for commercializing new products such as 3LCD projectors, and for increasing production capacity, rationalizing, upgrading and maintaining equipment and facilities amounted to ¥6.0 billion in the fiscal year under review. Manufacturing-related and wearables segment Investment used for commercializing new products such as industrial robots, wristwatches, crystal devices and semiconductors, and for increasing production capacity, carrying out environmental investment, and automating, rationalizing, upgrading and maintaining equipment and facilities amounted to ¥12.3 billion in the fiscal year under review. Other and overall Investment used for strengthening R&D structure, carrying out environmental investment, creating a global management database, and integrating systems, etc. amounted to ¥7.5 billion in the fiscal year under review. Capital expenditures by segment Segment name Capital expenditures (Billions of yen) Printing solutions 44.1 Visual communications 6.0 Manufacturing-related & Wearables 12.3 Other and overall 7.5 Total 70.0 77 2. Major equipment and facilities Epson’s major equipment and facilities are as follows. (1) Seiko Epson Corporation As of March 31, 2024 Name of plant (location) Business segment Type of facilities Book value (Millions of yen) Number of employees (Persons) Buildings and structures Machinery, equipment and vehicles Land (Area: m2) Other Total Head Office (Suwa-shi, Nagano) Overall administration and other Other facilities 1,184 239 1,200 (42,353) [2,136] 97 2,722 465 Tokyo Office (Shinjuku-ku, Tokyo) Overall administration and other Other facilities 1,935 – – (–) 72 2,008 232 Matsumoto Minami Plant (Matsumoto-shi, Nagano) Other Other facilities 825 7 3,764 (179,759) [1,751] 114 4,712 602 Hirooka Office (Shiojiri-shi, Nagano) Printing solutions Other Printer development and design and component manufacturing facilities Research and development facilities 44,866 27,105 6,875 (225,204) [25,285] 3,259 82,107 6,585 Toyoshina Plant (Azumino-shi, Nagano) Visual communications Manufacturing- related and wearables 3LCD projector, smart glasses and industrial robot development and design facilities 3,524 612 867 (76,547) [39,795] 956 5,961 1,553 Suwa Minami Plant (Fujimi-machi, Suwa-gun, Nagano) Printing solutions Visual communications Other Printer component and liquid crystal panel manufacturing facilities Research and development facilities 6,419 4,829 1,443 (113,082) [28,909] 470 13,164 891 Chitose Plant (Chitose-shi, Hokkaido) Visual communications Liquid crystal panel manufacturing facilities 2,266 3,190 1,363 (159,169) 71 6,892 198 Shiojiri Plant (Shiojiri-shi, Nagano) Manufacturing- related and wearables Watch development, design and manufacturing facilities 1,143 1,263 1,075 (43,060) [8,399] 233 3,715 495 Ina Plant (Minowa-machi, Kamiina-gun, Nagano) Manufacturing- related and wearables Crystal device development and design facilities 1,347 2,867 129 (39,943) [1,502] 286 4,631 524 Fujimi Plant (Fujimi-machi, Suwa-gun, Nagano) Manufacturing- related and wearables Other Industrial robot development, design and manufacturing facilities and semiconductor development and design facilities Research and development facilities 6,318 1,976 1,911 (247,143) 1,103 11,310 891 Sakata Plant (Sakata-shi, Yamagata) Manufacturing- related and wearables Semiconductor manufacturing facilities Other 8,385 3,745 2,177 (538,830) 297 14,606 166 Hino Office (Hino-shi, Tokyo) Manufacturing- related and wearables Other facilities 1,782 0 3,221 (15,681) 33 5,037 110 78 (2) Domestic subsidiaries As of March 31, 2024 Company name (location) Business segment Type of facilities Book value (Millions of yen) Number of employees (Persons) Buildings and structures Machinery, equipment and vehicles Land (Area: m2) Other Total Tohoku Epson Corporation (Sakata-shi, Yamagata) Printing solutions Manufacturing- related and wearables Printer component and semiconductor manufacturing facilities 2 16 – (–) 374 393 2,114 Akita Epson Corporation (Yuzawa-shi, Akita) Printing solutions Manufacturing- related and wearables Printer component and watch movements manufacturing facilities 7,596 131 724 (89,011) 502 8,955 1,145 Epson Atmix Corporation (Hachinohe-shi, Aomori) Manufacturing- related and wearables Manufacturing facilities for metal powders, etc. 4,207 2,908 1,304 (59,675) [34,488] 225 8,647 364 (3) Overseas subsidiaries As of March 31, 2024 Company name (location) Business segment Type of facilities Book value (Millions of yen) Number of employees (Persons) Buildings and structures Machinery, equipment and vehicles Land (Area: m2) Other Total Epson Engineering (Shenzhen) Ltd. (Shenzhen, China) Printing solutions Visual communications Manufacturing- related and wearables Printer, 3LCD projector and industrial robot manufacturing facilities 4,638 4,579 429 (–) [64,104] 3,528 13,175 6,798 Singapore Epson Industrial Pte. Ltd. (Singapore) Manufacturing- related and wearables Watch component and semiconductor manufacturing facilities and surface finishing facilities 4,225 1,438 1,244 (–) [41,567] 382 7,290 611 PT. Epson Batam (Batam, Indonesia) Printing solutions Printer consumables manufacturing facilities 1,244 3,455 19 (–) [13,233] 397 5,117 2,917 PT. Indonesia Epson Industry (Bekasi, Indonesia) Printing solutions Printer manufacturing facilities 8,974 6,540 2,214 (–) [254,871] 8,521 26,250 10,743 Epson Precision (Thailand) Ltd. (Chachoengsao, Thailand) Manufacturing- related and wearables Watch and crystal device manufacturing facilities 7,791 5,187 734 (97,435) 492 14,205 1,757 Epson Precision (Philippines), Inc. (Lipa, Philippines) Printing solutions Visual communications Printer and 3LCD projector manufacturing facilities 30,121 8,564 2,112 (117,489) [130,000] 4,103 44,901 18,328 Epson Precision Malaysia Sdn. Bhd. (Kuala Lumpur, Malaysia) Manufacturing- related and wearables Crystal device manufacturing facilities 363 2,888 374 (32,437) 33 3,659 1,639 (Notes) 1. The above amounts include right-of-use assets. 2. “Other” under the book value column includes tools, furniture and fixtures and other property, plant and 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 Epson Precision (Philippines), Inc., are included in consolidated business results. 6. The above book value amounts are after adjustments for consolidated accounts. 79 3. Plans for new additions or disposals Epson plans to allocate ¥73.0 billion to capital expenditures for the fiscal year ending March 31, 2025. Business segment Planned amount of capital expenditures (Billions of yen) Main type and purpose of equipment and facilities Printing solutions 45.0 Commercializing new products, increasing production capacity, carrying out environmental investment, automating, upgrading and maintaining equipment and facilities, etc. Visual communications 8.0 Commercializing new products, automating, upgrading and maintaining equipment and facilities, etc. Manufacturing- related & Wearables 15.0 Commercializing new products, carrying out environmental investment, automating, upgrading and maintaining equipment and facilities, etc. Other and overall 5.0 Strengthening R&D, carrying out environmental investment, automating, upgrading and maintaining equipment and facilities, etc. Total 73.0 (Notes) 1. The above amounts include capital expenditures through leases. 2. The required funds will be covered by internal funds. 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. 80 IV. Information About Reporting Company 1. Company’s shares, etc. (1) Total number of shares, etc. (i) Total number of shares Class Total number of shares authorized to be issued (Shares) Common stock 1,214,916,736 Total 1,214,916,736 (ii) Outstanding shares Class Number of outstanding shares (Shares) (As of March 31, 2024) Number of outstanding shares (As of the filing date: June 26, 2024) Name of stock listing or the name of authorized financial instruments firms association Description Common stock 385,022,278 385,022,278 Tokyo Stock Exchange Prime Market The Company’s standard class of shares with no rights limitations. Its share trading unit is 100 shares. Total 385,022,278 385,022,278 – – (2) Subscription rights to shares (i) Details of stock option program None (ii) Details of rights plan None (iii) Other subscription rights to shares None (3) Exercises, etc. of moving strike convertible bonds, etc. None (4) Changes in number of outstanding shares, share capital, etc. Date Change in total number of outstanding shares (Shares) Balance of total number of outstanding shares (Shares) Change in share capital (Millions of yen) Balance of share capital (Millions of yen) Change in legal capital surplus (Millions of yen) Balance of legal capital surplus (Millions of yen) March 8, 2023 (Note) (14,612,500) 385,022,278 – 53,204 – 84,321 (Note) This is the decrease of total number of outstanding shares by 14,612,500 shares due to the cancellation of treasury shares as of March 8, 2023. 81 (5) Distribution of ownership among shareholders As of March 31, 2024 Category Share ownership (100 shares per unit) Shares less than one unit (Shares) Government and regional public bodies Japanese financial institutions Japanese securities companies Other Japanese corporations Foreign institutions and others Japanese individuals and others Total Institutions Individuals Number of shareholders (Persons) – 59 33 318 736 33 31,985 33,164 – Number of shares owned (Units) – 1,394,332 160,406 369,205 935,019 188 989,908 3,849,058 116,478 Percentage of shares owned (%) – 36.21 4.17 9.59 24.29 0.00 25.74 100.00 – (Notes) 1. 53,289,742 shares of treasury shares are included as 532,897 units under “Japanese individuals and others” and 42 shares under “Shares less than one unit.” Treasury shares do not include the Company’s shares (109,170 shares) owned by the officer compensation BIP trust. 2. Six units in the name of Japan Securities Depository Center, Inc. are included under “Other Japanese corporations.” 82 (6) Major shareholders As of March 31, 2024 Name Address Number of shares held (Shares) Shareholding ratio (%) The Master Trust Bank of Japan, Ltd. (Trust account) 8-1, Akasaka 1-chome, Minato- ku, Tokyo 72,625,700 21.89 Custody Bank of Japan, Ltd. (Trust account) 8-12, Harumi 1-chome, Chuo-ku, Tokyo 27,427,200 8.26 Seiko Group Corporation 5-11, Ginza 4-chome, Chuo-ku, Tokyo 12,000,000 3.61 Sanko Kigyo Kabushiki Kaisha 6-1, Ginza 5-chome, Chuo-ku, Tokyo 10,500,000 3.16 Mizuho Trust & Banking Co., Ltd., Retirement benefit trust, Mizuho Bank, Ltd. account, Beneficiary of the re- trust, Custody Bank of Japan, Ltd. 8-12, Harumi 1-chome, Chuo- ku, Tokyo 8,153,800 2.45 Epson Group Employees’ Shareholding Association 3-5, Owa 3-chome, Suwa-shi, Nagano 7,422,224 2.23 STATE STREET BANK WEST CLIENT – TREATY 505234 (Standing proxy: Mizuho Bank, Ltd.) 1776 HERITAGE DRIVE, NORTH QUINCY, MA 02171, U.S.A. (15-1, Konan 2-chome, Minato- ku, Tokyo) 6,152,177 1.85 The Dai-ichi Life Insurance Company, Limited (Standing proxy: Custody Bank of Japan, Ltd.) 13-1, Yurakucho 1-chome, Chiyoda-ku, Tokyo (8-12, Harumi 1-chome, Chuo- ku, Tokyo) 6,115,200 1.84 HSBC HONG KONG - TREASURY SERVICES A/C ASIAN EQUITIES DERIVATIVES (Standing proxy: The Hongkong and Shanghai Banking Corporation Limited) 1 QUEEN’s ROAD CENTRAL, HONG KONG (11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo) 4,604,864 1.38 JPMorgan Securities Japan Co., Ltd. 7-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo 4,581,315 1.38 Total – 159,582,480 48.10 (Notes) 1. Although the Company holds 53,289,742 shares of treasury shares, 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 outstanding is 13.84%.) Treasury shares do not include the Company’s shares (109,170 shares) owned by the officer compensation BIP trust. 83 2. The shares held by Mizuho Trust & Banking Co., Ltd., Retirement benefit trust, Mizuho Bank, Ltd. account, Beneficiary of the re-trust, Custody Bank of Japan, Ltd., were contributed by Mizuho Bank, Ltd. to the trust assets of the Retirement benefit trust. 3. BlackRock Japan Co., Ltd. and its joint holders submitted a Large Volume Holding Report to the Director of the Kanto Local Finance Bureau as of July 5, 2023, claiming that they hold the Company’s shares as follows as of June 30, 2023. However, we have not been able to confirm the number of shares they held at the record date for voting. Therefore, they are not included in the above major shareholders. Name Address Number of shares held (Shares) Shareholding ratio (%) BlackRock Japan Co., Ltd. 1-8-3 Marunouchi, Chiyoda-ku, Tokyo 7,429,000 1.93 BlackRock (Netherlands) BV Amstelplein 1, 1096 HA, Amsterdam, Netherlands 773,309 0.20 BlackRock Fund Managers Limited 12 Throgmorton Avenue, London, United Kingdom 917,677 0.24 BlackRock Asset Management Canada Limited 161 Bay Street, Suite 2500, Toronto, Ontario, Canada 589,300 0.15 BlackRock Asset Management Ireland Limited 1st Floor, 2 Ballsbridge Park, Ballsbridge Dublin, Ireland 3,262,658 0.85 BlackRock Fund Advisors 400 Howard Street, San Francisco, CA, United States 5,491,400 1.43 BlackRock Institutional Trust Company, N.A. 400 Howard Street, San Francisco, CA, United States 4,409,150 1.15 BlackRock Investment Management (UK) Limited 12 Throgmorton Avenue, London, United Kingdom 457,676 0.12 Total – 23,330,170 6.06 84 4. Mitsubishi UFJ Financial Group, Inc. and its joint holders submitted a Report of Change to the Director of the Kanto Local Finance Bureau as of October 16, 2023, claiming that they hold the Company’s shares as follows as of October 9, 2023. However, we have not been able to confirm the number of shares they held at the record date for voting. Therefore, they are not included in the above major shareholders. Name Address Number of shares held (Shares) Shareholding ratio (%) Mitsubishi UFJ Trust and Banking Corporation 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 7,938,000 2.06 Mitsubishi UFJ Asset Management Co., Ltd. 9-1, Higashi-Shinbashi 1- chome, Minato-ku, Tokyo 8,055,600 2.09 Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. 9-2, Otemachi 1-chome, Chiyoda-ku, Tokyo 1,380,914 0.36 Total – 17,374,514 4.51 5. Sumitomo Mitsui Trust Bank, Limited and its joint holders submitted a Report of Change to the Director of the Kanto Local Finance Bureau as of December 6, 2023, claiming that they hold the Company’s shares as follows as of November 30, 2023. However, we have not been able to confirm the number of shares they held at the record date for voting. Therefore, they are not included in the above major shareholders. Name Address Number of shares held (Shares) Shareholding ratio (%) Sumitomo Mitsui Trust Asset Management Co., Ltd. 1-1, Shibakoen 1-chome, Minato-ku, Tokyo 8,484,500 2.20 Nikko Asset Management Co., Ltd. 7-1, Akasaka 9-chome, Minato-ku, Tokyo 13,416,000 3.48 Total – 21,900,500 5.69 85 6. Nomura Securities Co., Ltd. and its joint holders submitted a Report of Change to the Director of the Kanto Local Finance Bureau as of January 11, 2024, claiming that they hold the Company’s shares as follows as of December 29, 2023. However, we have not been able to confirm the number of shares they held at the record date for voting. Therefore, they are not included in the above major shareholders. Name Address Number of shares held (Shares) Shareholding ratio (%) Nomura Securities Co., Ltd. 13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 44,089 0.01 NOMURA INTERNATIONAL PLC 1 Angel Lane, London EC4R 3AB, United Kingdom 1,707,943 0.44 Nomura Asset Management Co., Ltd. 2-1, Toyosu 2-chome, Koto-ku, Tokyo 27,591,500 7.17 Total – 29,343,532 7.62 (7) Voting rights (i) Outstanding shares (As of March 31, 2024) Classification Number of shares (Shares) Number of voting rights (Units) Description Shares without voting rights – – – Shares with restricted voting rights (Treasury shares, etc.) – – – Shares with restricted voting rights (Other) – – – Shares with complete voting rights (Treasury shares, etc.) Common stock 53,289,700 – – Shares with complete voting rights (Other) Common stock 331,616,100 3,316,161 – Shares less than one unit Common stock 116,478 – – Total number of outstanding shares 385,022,278 – – Total number of voting rights – 3,316,161 – (Note) The shares with complete voting rights (Other) section includes 109,170 of the Company’s shares held by the officer compensation BIP trust (1,091 units of voting rights) and 600 shares in the name of Japan Securities Depository Center, Inc. (six units of voting rights). 86 (ii) Treasury shares, etc. (As of March 31, 2024) Name of shareholder Address of shareholder Number of shares held in own name (Shares) Number of shares held in others’ names (Shares) Total number of shares held Shareholding ratio (%) Seiko Epson Corporation 4-1-6 Shinjuku, Tokyo 53,289,700 – 53,289,700 13.84 Total – 53,289,700 – 53,289,700 13.84 (Note) In addition to the above, 109,170 of the Company’s shares held by the officer compensation BIP trust have been treated as treasury shares in consolidated and non-consolidated financial statements. 87 (8) Officer and employee stock ownership plans From the fiscal year ended March 31, 2017, the Company has introduced a transparent & fair performance-linked stock compensation plan (hereinafter referred to as the “Plan”) for the Company’s directors and executive officers who have been engaged by the Company (hereinafter collectively referred to as the “Eligible Officers,” and excluding outside directors and persons such as Audit & Supervisory Committee members who are not directly engaged in the operations of the Company, and persons residing outside Japan). The Plan 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 Company resolved at the meeting of its Board of Directors held on May 16, 2019 to continue the Plan with three years from the fiscal year ended March 31, 2020 to the fiscal year ended March 31, 2022 as the period covered by the Plan. The Company introduced a restricted stock compensation plan in place of the Plan at the 80th Ordinary General Meeting of Shareholders held on June 28, 2022. Accordingly, no additional contribution shall be made under the Plan, and the Plan is scheduled to be terminated in August 2024 as soon as we complete issuing ordinary shares of the Company corresponding to the points awarded and deliver cash equivalent to the amounts obtained through converting such shares into cash. 1. Summary of the Plan The Plan has employed a framework referred to as the officer compensation BIP (Board Incentive Plan) trust (hereinafter referred to as the “BIP trust”) and is designed to deliver a variable number of shares to Eligible Officers based on the levels of achievements of mid- to long-term operating performance targets for the Company’s business profit, ROS, ROE, etc., and other factors. The BIP trust is, like the U.S. Performance Share and Restricted Stock systems, a stock compensation plan for officers under which the Company’s shares and cash equivalent to the amounts obtained through the conversion of such shares into cash are delivered and paid based on position, the levels of achievement of operating performance targets and other factors. 88 1) The Company resolved the continuation of the Plan at the meeting of its Board of Directors held on May 16, 2019 2) The Company additionally contributed funds within the scope of approval by resolution at the 2016 General Meeting of Shareholders and has extended the period of a trust with beneficiaries who are the Eligible Officers who satisfy the beneficiary requirements (hereinafter referred to as the “Trust”). 3) According to the trust administrator’s instructions, the Trust uses funds remaining in the trust assets at the time of the change in the trust agreement and funds contributed as in 2) above as the source of funds to acquire the Company’s shares in the stock market. 4) The allocation of surplus funds for the Company’s shares within the Trust is handled in the same manner as for other shares of the Company, and is appropriated for necessary expenses for the Plan. 5) Throughout the trust period, voting rights are not to be exercised on the Company’s 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. Such points fluctuate depending on the levels of achievement of the mid- to long-term operating performance targets of the Company. Furthermore, the Company’s 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 the Company’s 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, the Company may continue to use the Trust by amending the trust agreement and making additional contribution. Otherwise, the Company 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 the Company 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 the Company and any of its officers. (3) Payment of costs Beneficiaries The Eligible Officers Trust administrator (3) The Company’s shares (6) Delivery of the Company’s shares and cash benefits Trustor The Company (2) Additional contribution (4) Dividends (7) Gratis transfer and retirement of residual shares (8) Delivery of residual assets (5) Instruction not to exercise voting rights (6) Awarding of points based on share delivery regulations Trustee Mitsubishi UFJ Trust and Banking Corp. (Joint trustee: The Master Trust Bank of Japan, Ltd.) BIP trust Stock market (1) Resolution of the Board of Directors 89 2. Overview of the trust agreement 1) Type of Trust Monetary trust other than a designated individually operated monetary trust (third party benefit trust) 2) Purpose of the Trust Provide incentives to the Eligible Officers 3) Trustor The Company 4) Trustee Mitsubishi UFJ Trust and Banking Corporation (Joint trustee: The Master Trust Bank of Japan, Ltd.) 5) Beneficiaries The Eligible Officers who meet the beneficiary requirements * Persons who have conducted a certain illegal activity do not meet the beneficiary requirements. 6) Trust administrator A third-party specialist without relationship with the Company 7) Date of trust agreement August 2, 2016 8) Trust period August 2, 2016 through August 31, 2019 (extended through August 31, 2022 due to the change in the trust agreement) 9) Plan launch date October 1, 2016 10) Exercise of voting rights Voting rights not to be exercised 11) Class of shares to be acquired Common stock of the Company 12) Maximum amount of trust money 500 million yen (including trust fees and expenses) 13) Method of acquiring shares Acquisition in the stock market 14) Vested right holder The Company 15) Residual assets Residual assets that the Company may receive as the vested right holder 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 Mitsubishi UFJ Trust and Banking Corporation and The Master Trust Bank of Japan, Ltd. handle the trust-related business as trustees of the BIP Trust. 2) Stock-related business DSB Co., Ltd. handles the business related to the delivery of the Company’s shares to the beneficiaries in accordance with a business consignment agreement. 4. Total number or total amount of shares to be acquired by the Eligible Officers 190,305 shares 5. Scope of beneficiaries and persons entitled to other rights under the Plan The Eligible Officers who meet the beneficiary requirements * Persons who have conducted a certain illegal activity do not meet the beneficiary requirements. 90 2. Acquisition and disposal of treasury shares (Class of shares, etc.) Acquisition of common stock subject to Article 155 Paragraph 3 and Article 155 Paragraph 7 of the Companies Act (1) Acquisition by resolution of shareholders meeting Not applicable. (2) Acquisition by resolution of board of directors meeting Classification Number of shares (Shares) Total amount (Yen) Details of the resolution at board of directors meeting (held on April 26, 2024) (Repurchase period July 18, 2024 to March 31, 2025) 17,000,000 30,000,000,000 Treasury shares acquired before the current fiscal year – – Treasury shares acquired during the current fiscal year – – Total number and amount of remaining resolution shares 17,000,000 30,000,000,000 Unexercised ratio as of the end of the current fiscal year (%) 100.00 100.00 Treasury shares acquired during the current period – – Unexercised ratio as of the date of submission (%) 100.00 100.00 (3) Acquisition not based on resolution of shareholders meeting or board of directors meeting Classification Number of shares (Shares) Total amount (Thousands of yen) Treasury shares acquired during the current fiscal year 784 1,756 Treasury shares acquired during the current period 250 664 (Notes) 1. Treasury shares acquired during the current period does not include shares of less than one unit purchased between June 1, 2024, and the filing date of the Annual Securities Report. 2. Treasury shares acquired as represented here does not include common stock acquired by the officer compensation BIP trust. 91 (4) Disposal of acquired treasury shares and number of treasury shares held Classification During the current fiscal year During the current period Number of shares (Shares) Total disposal amount (Yen) Number of shares (Shares) Total disposal amount (Yen) Acquired treasury shares which were offered to subscribers 75,422 167,022,019 – – Acquired treasury shares which were cancelled – – – – Acquired treasury shares which were transferred due to merger, share exchange, share issuance and company split – – – – Others (–) – – – – Total number of treasury shares held 53,289,742 – 53,289,992 – (Notes) 1. The total number of treasury shares held for the current fiscal year does not include shares of less than one unit purchased between June 1, 2024, and the filing date of the Annual Securities Report. 2. The total number of treasury shares as represented here does not include common stock held by the officer compensation BIP trust (109,170 shares). 92 3. 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 purchasing treasury 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. With respect to the interim dividend, 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. Based on its dividend policy and the perspective of stable dividend, the Company has paid an annual dividend of ¥74 per share. The Company’s distribution of retained earnings for the fiscal year under review is as follows. Distribution of retained earnings for the fiscal year under review Date approved Cash dividends (Millions of yen) Cash dividend per share (Yen) October 27, 2023, by resolution of the board of directors 12,274 37 June 25, 2024, by resolution of the general shareholders’ meeting 12,274 37 (Notes) 1. The total amount of dividends to be paid based on the resolution of the board of directors on October 27, 2023 includes ¥4 million of cash dividends for the Company’s shares held through the BIP trust. 2. The total amount of dividends to be paid based on the resolution of the general shareholders’ meeting on June 25, 2024 includes ¥4 million of cash dividends for the Company’s shares held through the BIP trust. ■Changes in shareholder returns (Note) The consolidated dividend payout ratio is calculated based on the remaining amount after an amount equivalent to the statutory effective tax rate is deducted from business profit. 93 4. Corporate governance (1) Overview of corporate governance ① Basic corporate governance principles The general principles of corporate governance at the Company 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 realize our Purpose, which expresses our aim or reason for being in society based on the Epson Way, which defines the Company’s values and behaviors based on the Management Philosophy, EXCEED YOUR VISION, promote sustainable growth, and increase corporate value over the medium and long term, the Company strives to continuously enhance and strengthen corporate governance so as to realize transparent, fair, fast, and decisive decision-making. Under a company with an Audit & Supervisory Committee, to further increase the effectiveness of corporate governance, the Company further improves the supervisory function of the Board of Directors, further enhances deliberation and speeds up management decision-making. ② Overview of and reasons for adopting the current system of corporate governance The Company is structured as a company with an Audit & Supervisory Committee. It has a Board of Directors, an Audit & Supervisory Committee, and a financial auditor. It has also voluntarily established advisory committees for matters such as the Director nomination and compensation. This governance system was adopted to further increase the effectiveness of corporate governance by strengthening supervision over management and by enabling the Board of Directors to devote more time to discussions while speeding up decision-making by management. 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 the Company will accomplish its social mission, sustain growth, and maximize corporate value over the medium and long term. 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 11 Directors, including six Outside Directors described in “(2) Officers.” Meetings of the Board of Directors are, as a rule, held once per month and as needed. President and Representative Director acts as the chairman of the Board meetings. Corporate Governance Policy states that at least one-third of the board members should be Outside Directors. 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 management decisions and increase business agility as a company with an Audit & Supervisory Committee, the Company has expanded the scope of affairs delegated to executive management from the Board of Directors, including capital investments below a certain threshold. The Company held a total of 13 meetings of the Board of Directors in FY2023 and three meetings in FY2024 from April 2024 to the Ordinary General Meeting of Shareholders in June 2024. The Board of Directors first discussed topics and points to be focused on during the fiscal year, and deliberated on the progress and strategy of each innovation area to achieve Epson 25 Renewed throughout the year. It also had deliberations on initiatives aimed at realizing management that is conscious of capital cost and share prices, the result of dialogue with our shareholders, and succession plans of the management, among other things. Epson has a mechanism in place that allows free discussions by the members of the Board of Directors from the initial stage of reviewing important business topics, in addition to discussions at the Board of Directors’ meetings, 94 to enhance the strategy function of the Board of Directors. During the fiscal year they exchanged views on and discussed the next long-term strategies and how to improve the effectiveness of the Board of Directors. The status of attendance by each Director at such meetings was as follows. Status of attendance at meetings by each Director Name Title Attendance at meetings (attendance rate) FY2023 FY2024 (Note 1) Minoru Usui Chairman and Director 13/13 (100%) 3/3 (100%) Yasunori Ogawa President and Representative Director 13/13 (100%) 3/3 (100%) Tatsuaki Seki Director 13/13 (100%) 3/3 (100%) Koichi Kubota (Note 2) Director 3/3 (100%) — Hideaki Omiya (Note 2) Outside Director 3/3 (100%) — Mari Matsunaga Outside Director 13/13 (100%) 3/3 (100%) Tadashi Shimamoto (Note 3) Outside Director 9/10 (90%) 3/3 (100%) Masaki Yamauchi (Note 3) Outside Director 10/10 (100%) 3/3 (100%) Masayuki Kawana Director Full-Time Audit & Supervisory Committee Member 13/13 (100%) 3/3 (100%) Yoshio Shirai Outside Director Audit & Supervisory Committee Member 13/13 (100%) 3/3 (100%) Susumu Murakoshi Outside Director Audit & Supervisory Committee Member 13/13 (100%) 3/3 (100%) Michiko Ohtsuka Outside Director Audit & Supervisory Committee Member 13/13 (100%) 3/3 (100%) (Notes) 1. Attendance at meetings (attendance rate) in FY2024 is for the period from April 2024 to the Ordinary General Meeting of Shareholders held in June 2024. 2. Aggregated for the period up to their retirement at the Ordinary General Meeting of Shareholders held on June 27, 2023. 3. Aggregated for the period from their appointment at the Ordinary General Meeting of Shareholders held on June 27, 2023. 95 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 the Company. The Audit & Supervisory Committee verifies the effectiveness of the internal control system and conducts audits primarily in cooperation with internal audit departments and the financial auditor. The Audit & Supervisory Committee has established basic guidelines for selecting outside financial auditors and evaluates their independence, audit quality, etc. based on certain standards. Resolutions concerning financial auditors selected by the Committee per the guidelines are submitted for approval at a general meeting of shareholders. The Audit & Supervisory Committee also discusses the selection, dismissal, resignation, and compensation of Directors who are not Audit & Supervisory Committee members and decides on the opinions to be presented at a general meeting of shareholders. 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 in principle and as needed. Corporate Management Council The Corporate Management 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 Management Council are where Directors, General Administrative Managers and Chief Operating 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, and they are basically held every week. 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. Financial auditors and the head of the internal audit control departments attend meetings of the Committee as observers. 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. Director Nomination Committee and Director Compensation Committee The Company has established the Director Nomination Committee and the Director Compensation Committee as voluntary deliberation bodies, and they are chaired by an Outside Director, and the majority of committee members are Outside Directors. These Committees 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. The Human Resources Department serves as the secretariat for these deliberation committees. The overview of each of these Committees is as follows. Composition Both the Director Nomination Committee and the Director Compensation Committee are composed of all Outside Directors, President and Representative Director, and the Outside Directors shall select the committee chairs from among themselves. Directors who are full-time members of the Audit & Supervisory Committee can attend meetings of either Committee as observers. Activities of the Director Nomination Committee The Committee met 12 times in FY2023 and three times in FY2024 from April 2024 to the Ordinary General Meeting of Shareholders held in June 2024. The Committee deliberated on matters including succession planning for the President and Representative Director, policies for selecting Officers (Directors, Executive Officers and Special Audit & Supervisory Officers) and proposing candidates, selection of Outside Director candidates, and review of skill matrix. 96 Activities of the Director Compensation Committee The Committee met eight times in FY2023 and four times in FY2024 from April 2024 to the Ordinary General Meeting of Shareholders held in June 2024. The Committee deliberated on matters including the amount of base compensation for each Director, bonus payment coefficient and amount for each Director, coefficient allocated, number of shares to be allocated and amount of monetary compensation claims under the restricted stock compensation plan, renewal of directors and officers liability insurance, and conclusion of a company indemnity agreement and a liability limitation contract, etc. Status of attendance at meetings by each Committee Member Name Title Director Nomination Committee Director Compensation Committee Attendance at meetings (attendance rate) Attendance at meetings (attendance rate) FY2023 FY2024 (Note 1) FY2023 FY2024 (Note 1) Hideaki Omiya (Note 2) Outside Director/Chair 4/4 (100%) — 3/3 (100%) — Mari Matsunaga Outside Director 12/12 (100%) 3/3 (100%) 8/8 (100%) 3/4 (75%) Tadashi Shimamoto (Note 3) Outside Director 8/8 (100%) 3/3 (100%) 5/5 (100%) 4/4 (100%) Masaki Yamauchi (Note 3) Outside Director 8/8 (100%) 3/3 (100%) 5/5 (100%) 4/4 (100%) Yoshio Shirai Outside Director/Chair (Note 4) 12/12 (100%) 3/3 (100%) 8/8 (100%) 4/4 (100%) Susumu Murakoshi Outside Director 12/12 (100%) 3/3 (100%) 8/8 (100%) 4/4 (100%) Michiko Ohtsuka Outside Director 12/12 (100%) 3/3 (100%) 8/8 (100%) 4/4 (100%) Yasunori Ogawa President and Representative Director 12/12 (100%) 3/3 (100%) 8/8 (100%) 4/4 (100%) (Notes) 1. Attendance at meetings (attendance rate) in FY2024 is for the period from April 2024 to the Ordinary General Meeting of Shareholders held in June 2024. 2. Aggregated for the period up to his retirement at the Ordinary General Meeting of Shareholders held on June 27, 2023. In addition, he retired as the chair of Director Nomination Committee and Director Compensation Committee on the same date. 3. Aggregated for the period from their appointment at the Ordinary General Meeting of Shareholders held on June 27, 2023. 4. He assumed the office of the chair of Director Nomination Committee and Director Compensation Committee on June 27, 2023. 97 Approach to selecting Directors The Company believes that a diverse Board of Directors is useful for facilitating substantive board discussions that cover all angles. Therefore, our basic policy is to maintain a board that is well-balanced and composed of persons who combine a broad spectrum of knowledge, experience, and skill in their respective areas of expertise, without regard to gender, race, ethnicity, country of origin, nationality, cultural background, age, etc. The current Board of Directors has been established based on this policy, clarifying a management system toward achieving the Management Philosophy and Corporate Vision in order to realize sustained growth and increase medium- to long-term corporate value. The skills of the Company’s Directors and areas in which they are particularly expected to show expertise are as follows. Title Name Areas of expertise and skills particularly expected by the Company Corporate management Development Design Business development Sales Marketing IT Digital Finance Accounting Investment Compliance Governance HR development HR management Environment Sustainability Global (Internationality) President and Representative Director Yasunori Ogawa ● ● ● Representative Director Executive Officer Eiichi Abe ● ● ● Director Executive Officer Junkichi Yoshida ● ● ● Director Executive Officer Yasunori Yoshino ● ● ● Outside Director Tadashi Shimamoto ● ● ● Outside Director Masaki Yamauchi ● ● ● Outside Director Kahori Miyake ● ● ● Director Full-Time Audit & Supervisory Committee Member Masayuki Kawana ● ● ● Outside Director Audit & Supervisory Committee Member Susumu Murakoshi ● ● ● Outside Director Audit & Supervisory Committee Member Michiko Ohtsuka ● ● ● Outside Director Audit & Supervisory Committee Member Akira Marumoto ● ● ● *Up to three areas of expertise particularly expected are stated. 98 The Company’s system of corporate governance is schematically represented below. 99 ③ Internal control system The Company’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) as follows, and the Company has implemented the approved internal control system. The Company has established “Epson Way,” which is based on its Management Philosophy and is shared across the corporate group consisting of the Company and its subsidiaries (“the Epson Group”). The Company shall establish the following basic policy regarding the internal control system (a system for ensuring that business is conducted suitably by the Epson Group) and provide an improved internal control system (autonomous- decentralized internal control) which envisions a state where each organization identifies and solves issues on its own, to ensure that the Epson Group’s operations are conducted appropriately based on the Epson Way. (*) The Epson Way is a set of shared values and behavior within the Epson Group. It is a collective term for the Management Philosophy and EXCEED YOUR VISION, which state the fundamental, universal principles of the Epson Group; and the Principles of Corporate Behavior, which set forth values and actions that reflect our Management Philosophy, etc. 1. Compliance (1) The Company will establish compliance regulations for the Epson Group and spell out basic matters such as 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. Financial auditors and the head of the internal audit control departments 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. Compliance programs common to the Epson Group 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 Management 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. 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 Epson Group 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 Board of Directors, the Audit & Supervisory Committee, the Compliance Committee, and the Corporate Management Council in a way that whistleblowers cannot be identified. (7) The Company strives to enhance compliance awareness by providing Epson Group employees with web- based training and other educational opportunities. (8) The president of Seiko Epson periodically reports important compliance-related matters to the Board of Directors and takes measures as needed to respond to issues. (9) 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. 2. System for ensuring proper financial reporting (1) The creation of proper financial reports is recognized as a critical issue. The Company shall build, on the 100 orders of the president, a system that enables internal control over financial reporting to be properly arranged, implemented, and evaluated. The financial reports will not be limited in scope to evaluations and reporting required by the Financial Instruments and Exchange Act but will also include reporting over the scope deemed necessary by management. (2) A basic regulation and other regulations and standards pertaining to internal control over financial reporting shall be created, and their observance shall be obligatory across the entire Epson Group. (3) Continuously evaluate whether the internal controls that have been put in place for financial reporting are effectively and properly functioning, and take corrective action where needed. 3. 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. 1) Current business performance and performance outlook 2) Risk management responses 3) Status of key business operations 4. Risk management (1) The Company has established a regulation that stipulates the risk management system of the Company, 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 belongs to the president of Seiko Epson. Group-wide risk management common to the Epson Group 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 Management Council strives to ensure effective management of serious risks that could have an egregious effect on society by agilely 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. 5. Ensuring the appropriateness of operations in the corporate group (1) The Group-wide management structure helps to ensure that operations in the entire Group 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. Corporate functions common to the Epson Group 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 regulations governing the management of affiliated companies that require subsidiaries to report or acquire pre-approval for certain business affairs from the parent company, the Company, and by requiring issues that meet certain criteria to be submitted to the Company’s Board of Directors for resolution. The Company has established a company to supervise local subsidiaries in order to ensure the suitability and efficiency of operations Group-wide. (3) Per the 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. 101 Internal audit departments audit internal controls and the state of their implementation in all Epson Group companies. The findings of the internal audit departments are 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. 6. Safeguarding and management of work-related information (1) Information on the performance of duties shall be safeguarded and managed in accordance with regulations governing, among other things, document control, management approval, and contracts. All Directors shall be able to access this information if necessary. (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. 7. 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 Management 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. Furthermore, prior consent from the Audit & Supervisory Committee must be obtained for the appointment, dismissal, and personnel evaluation of the head of the internal audit control departments. (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. 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. A system shall be put in place to protect reporters from reprisal for having made a report, and the identity of the reporter shall be protected even if the representative director or Board of Directors, for example, is asked to make corrections and so forth based on the report. (8) The Audit & Supervisory Committee shall strive to enhance the effectiveness of audits by holding regular discussions with financial auditors. (9) The Audit & Supervisory Committee and the representative director regularly meet to enable the Committee to directly assess business operations. 102 (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. Established: April 1, 2006 Revised: April 1, 2024 ④ Number of directors The Company’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. ⑤ Election and dismissal 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 dismissal of directors do not vary from the provisions of the Companies Act. ⑥ Matters requiring resolutions of general meetings of shareholders that can be implemented by resolutions of the Board of Directors Treasury share acquisition The Company’s Articles of Incorporation allow the Company to acquire treasury shares 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. 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. 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 so that the Directors (excluding Executive Directors) to fully apply themselves to their expected roles. ⑦ Overview of limited liability agreements The Company has executed agreements with non-executive directors Tadashi Shimamoto, Masaki Yamauchi, Kahori Miyake, Masayuki Kawana, Susumu Murakoshi, Michiko Ohtsuka, and Akira Marumoto that limit their liability for damages under Article 423, Paragraph 1 of the Companies Act. The maximum amount of liability for damages under these agreements is the minimum liability 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. ⑧ Outline of directors and officers liability insurance contract The Company has entered into a directors and officers liability insurance contract, whose outline is as follows. 1) Scope of the insured a. Directors, Executive Officers, Professional Officers and Special Audit & Supervisory Officers of the Company b. Directors and Audit & Supervisory Board Members of the Company’s domestic subsidiaries c. Employees in management positions of the Company and its domestic subsidiaries d. Individuals occupying officer positions of companies other than the Company or its domestic subsidiaries based on a request or an instruction from the Company e. The Company and its domestic subsidiaries 103 2) Actual ratio of premiums paid by the insured The premiums are paid by the Company, and the insured does not effectively bear a ratio of the premiums. 3) Outline of events insured against Damages (legal compensation for damages, litigation expenses, etc.) arising from claims for damages due to the execution of duties by the insured will be covered. 4) Measures to ensure the appropriateness of the execution of duties by officers, etc. is maintained An exemption clause is included in the contract, which stipulates to the effect that damages arising from personal offers of illegal profit, criminal acts, etc. will not be covered. ⑨ Overview of company indemnification agreements The Company has entered into an indemnity agreement, whose outline is as follows. 1) Names of company officers Yasunori Ogawa, Eiichi Abe, Junkichi Yoshida, Yasunori Yoshino, Tadashi Shimamoto, Masaki Yamauchi, Kahori Miyake, Masayuki Kawana, Susumu Murakoshi, Michiko Ohtsuka, and Akira Marumoto 2) Outline of the indemnity agreement The Company will indemnify for the expenses provided for in item (i) and the losses provided for in item (ii) of Article 430-2, Paragraph 1 of the Companies Act to the extent provided by laws and regulations. However, in order to ensure that the indemnity agreement does not impair the appropriateness of the execution of duties, the Board of Directors determines whether indemnity is required and the extent of such indemnity. ⑩ Special resolution requirements of the general meeting of shareholders The Company’s Articles of Incorporation set forth the requirements for a special resolution of the general meeting of shareholders 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 meeting of shareholders by relaxing the quorum requirements for special resolutions at the general meeting of shareholders. ⑪ Basic policy regarding company control The Company’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 Corporate Purpose is at the heart of all Epson’s corporate activities. We established the Corporate Purpose, “Our philosophy of efficient, compact and precise innovation enriches lives and helps create a better world,” in September 2022 to define the kind of value that Epson provides to society and to demonstrate both inside and outside the Company its unique reason for being and aspirations. Epson will provide new value to society by realizing the Corporate Purpose through its vision, based on its management philosophy, which is the universal concept of the Epson Way that defines the Group’s values and behavior. Through these efforts, we will strive to achieve sustainable growth and enhance corporate value over the medium to long term in the future. The Company 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 the Company and thus gain power over the Company’s financial and business decisions (hereinafter referred to as “large-scale acquisitions”) should ultimately be put before the shareholders. However, shareholders’ decisions on whether to allow large-scale acquisitions need to be made appropriately. In order to ensure this, the Company believes that information and opinions necessary for shareholders should be provided by both persons seeking to do large-scale acquisitions of the Company’s shares and the Board of Directors of the Company, and time necessary to examine the information and opinions needs to be secured. The Company believes that persons who control its financial and business policy decisions need to fully understand the Company’s businesses and sources of corporate value, and to understand the importance of the Company’s directors, managers, and employees working as a team to create value, pursuing the Company’s tradition of creativity and challenge, and earning and keeping the trust of its customers. 104 2) Summary of measures in support of the basic policy a. Specific actions in support of the basic policy The Company has established “Epson 25 Renewed,” with the goal of achieving sustainability and enriching communities, which the Company has set as its aspirational goal to pursue into the future. With this Corporate Vision, Epson develops its business by always focusing on social issues as a starting point, considering what we can do to solve them, and how we can use our technologies to solve problems and contribute to society. b. Efforts to deter parties who are deemed inappropriate based on the basic policy in gaining control over the Company’s financial and business policy decision making The Company will request those who intend to conduct a large-scale acquisition of the Company’s shares to provide sufficient information necessary to properly judge whether or not to accept such acquisition, for the benefit of maintaining and increasing its corporate value and common interests of shareholders. The Company will also disclose its Board’s opinions on such a large-scale acquisition in order to secure time and information necessary for shareholders to judge whether or not to accept such acquisition, while taking appropriate measures pursuant to the Financial Instruments and Exchange Act, the Companies Act and other applicable laws and regulations. 3) Decisions made by the board of directors of the Company regarding specific actions and the justification for those decisions The above efforts are for contributing to maintenance and increase of the Company’s corporate value and the common interests of its shareholders, do not undermine the common interests of its shareholders, and reflect the above basic policy. Moreover, the Company considers that these efforts are not for keeping its Directors in their posts. 105 (2) Officers ① List of Officers There are nine male officers and two female officers (18.2% of the officers are women). Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) President and Representative Director Yasunori Ogawa April 11, 1962 Apr. 1988 Joined the Company Note 1 69,471 Apr. 2008 General Manager, VI Business Management Department of the Company Oct. 2008 General Manager, VI Planning & Design Department of the Company Apr. 2017 Chief Operating Officer, Visual Products Operations Division of the Company Jun. 2017 Executive Officer of the Company Jun. 2018 Director and Executive Officer of the Company Oct. 2018 General Administrative Manager, Technology Development Division of the Company Jun. 2019 Director and Managing Executive Officer of the Company, Chief Operating Officer, Wearable Products & Industrial Solutions Operations Segment of the Company Apr. 2020 President and Representative Director of the Company (current position) Representative Director and Executive Officer General Administrative Manager, Human Capital & Well-Being Management Division Eiichi Abe October 26, 1962 Apr. 1985 Joined Suwa Seikosha Co., Ltd. (now Seiko Epson Corporation) Note 1 15,852 Dec. 2003 Director, PT. Indonesia Epson Industry Jun. 2004 Vice President, PT. Indonesia Epson Industry Apr. 2009 General Manager, Human Resources Department of the company Jun. 2014 President of PT. Indonesia Epson Industry Jun. 2017 Executive Officer of the Company Apr. 2022 Chief Human Resources Officer, General Administrative Manager, Human Resources Division of the Company, General Administrative Manager, Health Management Office of the Company Apr. 2023 General Administrative Manager, Human Capital & Well-Being Management Division of the Company (current position) Jun. 2024 Representative Director and Executive Officer of the Company (current position) 106 Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) Director and Executive Officer General Administrative Manager, Printing Solutions Division Junkichi Yoshida September 27,1964 Apr. 1988 Joined the Company Note 1 10,852 Apr. 2012 General Manager, Printer Strategic Planning Department of the Company Apr. 2019 Deputy General Administrative Manager, DX Division of the Company, General Manager, P Strategic Planning Department of the Company Jun. 2020 Executive Officer of the Company, Deputy General Administrative Manager, DX Division of the Company, General Manager, P Strategic Planning Department of the Company Oct. 2020 Deputy General Administrative Manager, DX Division of the Company, Deputy Chief Operating Officer, Printing Solutions Operations Division of the Company Apr. 2021 General Administrative Manager, Printing Solutions Division of the Company (current position) Jun. 2024 Director and Executive Officer of the Company (current position) Director and Executive Officer General Administrative Manager, Corporate Strategy Division Chief Operating Officer, Manufacturing Solutions Operations Division Yasunori Yoshino January 4, 1979 Apr. 2001 Joined the Company Note 1 10,952 Apr. 2016 General Manager, VP Production Control & Procurement Department of the Company Apr. 2020 Chief Operating Officer, Visual Products Operations Division of the Company Apr. 2021 Executive Officer of the Company, Chief Operating Officer, Visual Products Operations Division of the Company Oct. 2023 General Administrative Manager, Corporate Strategy Division of the Company; Chief Operating Officer, Visual Products Operations Division of the Company Apr. 2024 General Administrative Manager, Corporate Strategy Division of the Company, Chief Operating Officer, Manufacturing Solutions Operations Division of the Company (current position) Jun. 2024 Director and Executive Officer of the Company (current position) 107 Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) Outside Director Tadashi Shimamoto February 8, 1954 Apr. 2002 Senior Managing Director of Nomura Research Institute, Ltd. Note 1 6,000 Jun. 2008 Senior Executive Managing Director, Member of the Board and Representative Director of Nomura Research Institute, Ltd. Apr. 2010 President & CEO, Representative Director, Member of the Board of Nomura Research Institute, Ltd. Apr. 2015 Chairman and President & CEO, Representative Director, Member of the Board of Nomura Research Institute, Ltd. Apr. 2016 Chairman, Member of the Board of Nomura Research Institute, Ltd. Jun. 2019 Member of the Board of Nomura Research Institute, Ltd. Jun. 2021 Special Advisor of Nomura Research Institute, Ltd. Director of Reading Skill Test, Inc. (current position) Mar. 2022 Outside Director of Mitsubishi Pencil Co., Ltd. (current position) Jul. 2022 Member of the Public Interest Body, PricewaterhouseCoopers Aarata LLC (now PricewaterhouseCoopers Japan LLC) (current position) Jun. 2023 Outside Director of the Company (current position) Outside Director Masaki Yamauchi January 11,1961 Apr. 2005 Executive Officer of Yamato Transport Co., Ltd. (now Yamato Holdings Co., Ltd.) Note 1 1,000 Apr. 2008 Representative Director, President and Executive Officer of Yamato Logistics Co., Ltd. (now Yamato Transport Co., Ltd.) Apr. 2011 Representative Director, President and Executive Officer of Yamato Transport Co., Ltd. Jun. 2011 Director and Executive Officer of Yamato Holdings Co., Ltd. Apr. 2015 Representative Director, Executive Officer and President of Yamato Holdings Co., Ltd. Apr. 2019 Chairperson of the Board of Directors of Yamato Holdings Co., Ltd. Jun. 2020 Independent Director of Persol Holdings Co., Ltd. (current position) Jun. 2022 Special Advisor of Yamato Holdings Co., Ltd. Outside Director of Resona Holdings, Inc. (current position) Jun. 2023 Counselor of Yamato Holdings Co., Ltd. (current position) Outside Director of the Company (current position) 108 Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) Outside Director Kahori Miyake July 19, 1968 Jul. 1991 Joined JUSCO Co., Ltd. (now AEON Co., Ltd.) Note 1 — Apr. 2008 President and Representative Director of Claire’s Nippon Co., Ltd. Jun. 2013 Director of Research Institute for Quality Living Co., Ltd. Mar. 2014 Executive Officer of AEON RETAIL Co., Ltd. General Manager of Customer Service Department of AEON RETAIL Co., Ltd. Mar. 2017 Executive Officer; CSR & Communication Chief Officer of AEON Co., Ltd. Apr. 2019 Co-Chair of Japan Climate Leaders’ Partnership (current position) Mar. 2021 Chief Officer of CSR of AEON Co., Ltd. Apr. 2022 Director, ESG Planning and Promotion Department of Sumitomo Mitsui Trust Bank, Limited Apr. 2023 Fellow Officer of Sumitomo Mitsui Trust Bank, Limited, Director, ESG Planning and Promotion Department of Sumitomo Mitsui Trust Bank, Limited (current position) Jun. 2023 Outside Director (Audit and Supervisory Committee Member) of Members Co., Ltd. (current position) Jun. 2024 Outside Director of the Company (current position) Director, Full-Time Audit & Supervisory Committee Member Masayuki Kawana July 27, 1964 Apr. 1988 Joined Seiko Epson Cooperative Union Note 2 22,700 Mar. 1999 Joined the Company Oct. 2008 General Manager, Human Resources Department of the Company Jun. 2014 Director of the Company, General Administrative Manager, Human Resources Division of the Company Jun. 2015 President of Orient Watch Co., Ltd. Jun. 2016 Director and Executive Officer of the Company Oct. 2016 General Administrative Manager, CSR Management Office of the Company Jun. 2018 Chairman of Epson Sales Japan Corporation Apr. 2020 General Administrative Manager, Health Management Office of the Company Jun. 2021 Director and Full-Time Audit & Supervisory Committee Member of the Company (current position) 109 Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) Outside Director, Audit & Supervisory Committee Member Susumu Murakoshi September 1, 1950 Apr. 1976 Registered as an attorney-at-law Note 2 2,300 Apr. 1984 Attorney-at-law of Susumu Murakoshi Law Office Mar. 1988 Attorney-at-law of Shin-Chiyoda Sogo Law Office (to present) May 2001 Chairman, Human Rights Protection Committee of Japan Federation of Bar Associations Apr. 2008 Vice President of Japan Federation of Bar Associations President of Dai-Ichi Tokyo Bar Association Apr. 2014 President of Japan Federation of Bar Associations May 2017 President of Japan Attorneys Political Association Apr. 2019 Member (Chief investigator) of Compliance Team of the Ministry of Education, Culture, Sports, Science and Technology (current position) Jun. 2020 Outside Director and Audit & Supervisory Committee Member of the Company (current position) Nov. 2021 President of Japan CSR Diffusion Association (now Japan CSR Promotion Association) (current position) Outside Director, Audit & Supervisory Committee Member Michiko Ohtsuka November 26, 1958 Apr. 1981 Joined SUMITOMO CORPORATION Note 2 2,300 Oct. 1986 Joined Asahi Shinwa Audit & Accounting Office (now KPMG AZSA LLC) Aug. 1990 Registered as Certified Public Accountant May 2013 Certified Public Accountant of Ohtsuka Certified Public Accountant Office (to present) Apr. 2014 Auditor (part-time) of Pharmaceuticals and Medical Devices Agency Apr. 2015 Auditor (part-time) of Japan National Tourism Organization Jun. 2015 Outside Audit & Supervisory Board Member of FUJI KOSAN COMPANY, LTD. Jun. 2016 Outside Director and Audit & Supervisory Committee Member of FUJI KOSAN COMPANY, LTD. Jun. 2020 Outside Director and Audit & Supervisory Committee Member of the Company (current position) 110 Position and current function Name Date of birth Summary of career Term of office Number of shares held (Shares) Outside Director, Audit & Supervisory Committee Member Akira Marumoto August 18, 1957 Jun. 1999 Director of Mazda Motor Corporation, Assistant to Officer in charge of Quality Assurance of Mazda Motor Corporation, General Manager, Product Quality Division of Mazda Motor Corporation Note 2 — Jun. 2002 Executive Officer; In charge of European R&D and Production Operations of Mazda Motor Corporation Apr. 2006 Managing Executive Officer; In charge of Product Planning and Program Management of Mazda Motor Corporation Apr. 2010 Senior Managing Executive Officer; In charge of Corporate Planning, Product Strategy and Product Profit Control of Mazda Motor Corporation, Assistant to Officer in charge of Cost Innovation of Mazda Motor Corporation Jun. 2010 Director and Senior Managing Executive Officer; In charge of Corporate Planning, Product Strategy and Product Profit Control of Mazda Motor Corporation, Assistant to Officer in charge of Cost Innovation of Mazda Motor Corporation Jun. 2013 Representative Director, Executive Vice President of Mazda Motor Corporation, Assistant to President of Mazda Motor Corporation, Oversight of Operations in the Americas and Corporate Planning Domain of Mazda Motor Corporation Jun. 2018 Representative Director, President and CEO of Mazda Motor Corporation Jun. 2023 Senior Advisor of Mazda Motor Corporation (current position) Jun. 2024 Outside Director and Audit & Supervisory Committee Member of the Company (current position) Total 141,427 111 (Notes) 1. Tadashi Shimamoto, Masaki Yamauchi, Kahori Miyake, Susumu Murakoshi, Michiko Ohtsuka, and Akira Marumoto are Outside Directors. 2. Audit & Supervisory Committee of the Company is as follows. Chairperson: Masayuki Kawana Member: Susumu Murakoshi Member: Michiko Ohtsuka Member: Akira Marumoto Masayuki Kawana is Full-Time Audit & Supervisory Committee Member. 3. The terms of office of the Outside Directors stipulated in Note 1 shall expire at the conclusion of the Ordinary General Meeting of Shareholders of the fiscal year ending within one year from their election of office at the Ordinary General Meeting of Shareholders held on June 25, 2024. 4. The terms of office of the Audit & Supervisory Committee Members stipulated in Note 2 shall expire at the conclusion of the Ordinary General Meeting of Shareholders of the fiscal year ending within two years from their election of office at the Ordinary General Meeting of Shareholders held on June 25, 2024. 5. The Company has introduced an executive officer system to ensure business management based on swift decision making. The Company’s Executive Officers (excluding Directors serving concurrently as Executive Officers) as of the filing date of the Annual Securities Report are as follows. Managing Executive Officer Junichi Watanabe Executive Officer Masaharu Mizukami Executive Officer Akihiro Fukaishi Executive Officer Toshihiko Kobayashi Executive Officer Keith Kratzberg Executive Officer Siew Jin Kiat Executive Officer Isamu Otsuka Executive Officer Tsutomu Norimatsu Executive Officer Kazuhiro Ichikawa Executive Officer Susumu Maruyama Executive Officer Andrea Zoeckler Executive Officer Emile Pattiwael Executive Officer Satoru Hosono Executive Officer Takanori Inaho Executive Officer Akifumi Takei Executive Officer Haruo Kuribayashi Executive Officer Samba Moorthy Executive Officer Tsuyoshi Yamanaka Executive Officer Yoichi Yamada Executive Officer Masahiro Uchida Executive Officer Tomoo Takaso Executive Officer Shunya Fukuda Executive Officer Toshiaki Miyasaka Professional Officer Keijiro Naito Executive Officer Masashi Hayashi Professional Officer Yoshifumi Yoshida 6. The Company has elected Special Audit & Supervisory Officer, a post to support the Audit & Supervisory Committee. The Special Audit & Supervisory Officer as of the filing date of the Annual Securities Report is as follows. Special Audit & Supervisory Officer Yoshihiro Mizoguchi ② Outside Officers 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, Independent Outside Directors should comprise at least one-third of the members of the Board of Directors. a. 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 b. Advisory function for improving business efficiency c. Monitoring of conflicts of interest - Monitoring of conflicts of interest between the Company and its Directors and Executive Officers - Monitoring of conflicts of interest between the Company and related parties Principle of independence The Company’s Board of Directors has established a “Criteria for Independence of Outside Directors” and, in compliance with this standard, elects director candidates who are unlikely to have conflicts of interest with general 112 shareholders. All current Outside Directors satisfy the independence requirements of the criteria. The content of the amended standard is described below. Criteria for Independence of Outside Directors The Company has established the criteria below to objectively determine whether potential Outside Directors are independent. 1. A person is not independent if: (1) The person considers the Company to be a major business partner1, or has served as an executive2 within the past five years in an entity for which the Company is a major business partner; (2) The person is a major business partner3 of the Company or has served as an executive within the past five years in an entity that is a major business partner of the Company; (3) The person is a business consultant, certified public accountant, or lawyer who has received a large sum of money or other forms of compensation4 (other than compensation as an officer) from the Company or has, within the past three years, performed duties equivalent to those of an executive as an employee of a corporation or group, such as a union, that has received a large sum of money or other forms of compensation from the Company; (4) The person is a major shareholder5 of the Company or has, within the past five years, been an executive or Audit & Supervisory Board Member of an entity that is a major shareholder of the Company; (5) The person is an executive or Audit & Supervisory Board Member of an entity in which the Company is currently a major shareholder; (6) The person is a major lender6 to the Company or has been an executive of a major lender to the Company within the past five years; (7) The person has been employed by an auditing firm that has conducted a legal accounting audit of the Company within the past five years; (8) The person has been employed by a leading managing underwriter of the Company within the past five years; (9) The person has received a large donation7 from the Company or, within the past three years, has performed duties equivalent to those of an executive as an employee of a corporation or a group, such as a union, that has received a large donation from the Company; (10) The person came from an entity with a relationship of reciprocal employment of Outside Director8; or (11) The spouse or other immediate family member of a person to whom any of items (1) through (9) apply. 2. Even if any of the foregoing criteria apply to a potential Outside Director, the Company can elect that person as an Outside Director if that person satisfies the requirements for Outside Directors set forth in the Companies Act, and the Company deems the person suitable as an Outside Director of the Company in light of his or her personality, knowledge, experience, or other qualifications upon explaining and announcing the reasons thereof. Notes 1 A person (usually a supplier) considers the Company to be a major business partner if 2% or more of its consolidated net sales (consolidated revenue) has come from the Company in any fiscal year within the past three years. 2 “Executive” means an executive officer, executive director, operating officer, or an employee occupying a senior management position of department manager or higher. 3 A person (usually a buyer) is a major business partner if 2% or more of the Company’s consolidated revenue has come from that partner in any fiscal year within the past three years. 4 “A large sum of money or other forms of compensation” means an average annual amount for the past three years that is: i) no less than 10 million yen for an individual; or ii) no less than 2% of the annual revenues in any fiscal year for a group. 5 “Major shareholder” means a shareholder who directly or indirectly holds 10% or more of the voting rights. 6 “A major lender” means a financial institution or other major creditor that is indispensable for the Company’s financing and on which the Company depends to the extent that it is irreplaceable in any fiscal year within the past three years. 7 “Large donation” means a donation whose annual average amount for the past three years exceeds either; i) 10 million yen or ii) 30% of the annual expense of the group, whichever is higher. 113 8 “Reciprocal employment of Outside Director” means accepting an Outside Director from an entity that currently employs someone from the Company as an Outside Director. 114 Number of outside directors, selection criteria, and human, capital, business or other interests between outside directors and the Company The Company had six outside directors (of whom three are Audit & Supervisory Committee members) as of the submission date of the Annual Securities Report. a. Tadashi Shimamoto Mr. Shimamoto has served as President and Chairman of Nomura Research Institute, Ltd. and has a wealth of experience and insight as a corporate manager and in fundamental technology, distribution, service, and industry-related systems. The Company believes that he, as an Outside Director of the Company, will monitor corporate management appropriately, aiming at achieving sustainable growth and improving the Company’s corporate value over the medium- to long-term through his active opinions and proposals from the perspective of overall management and DX/IT systems, based on his familiarity with corporate management in the information service industry, which is a different business field. Mr. Shimamoto was involved in business affairs at Nomura Research Institute, Ltd. Although the Company has had a business relationship with Nomura Research Institute, Ltd. for the past three years, the annual transaction amount is minimal, accounting for less than 0.1% of the consolidated net sales of the Company and Nomura Research Institute, Ltd., and Nomura Research Institute, Ltd. does not account for a major business partner as defined in the Criteria for Independence of Outside Directors. He owns a small number of the Company’s shares, but there are no human, capital, business or other interests between him and the Company. The Company has registered him as an Independent Director with the Tokyo Stock Exchange. b. Masaki Yamauchi Mr. Yamauchi has served as President and Chairperson of the Board of Directors of Yamato Holdings Co., Ltd. and has a wealth of insight and experience in corporate management. The Company believes that, based on his experience in practicing satisfaction-creating management that makes full use of digital technology, his efforts to instill Yamato’s DNA (values) in employees and his track record of fostering organizational culture, he will monitor corporate management appropriately, aiming at achieving sustainable growth and improving the Company’s corporate value over the medium- to long-term through his active opinions and proposals from the perspectives of organizational management, DX/IT, and sustainability that relate to the fundamentals of corporate management. Mr. Yamauchi was involved in business affairs at Yamato Holdings Co., Ltd. Although the Company has had a business relationship with Yamato Transport Co., Ltd., a consolidated subsidiary of Yamato Holdings Co., Ltd., for the past three years, the annual transaction amount is minimal, accounting for less than 0.1% of the consolidated net sales of the Company and Yamato Holdings Co., Ltd., and Yamato Holdings Co., Ltd. does not account for a major business partner as defined in the Criteria for Independence of Outside Directors. He owns a small number of the Company’s shares, but there are no human, capital, business or other interests between him and the Company. The Company has registered him as an Independent Director with the Tokyo Stock Exchange. c. Kahori Miyake Ms. Miyake promoted ESG strategies as Executive Officer of AEON Co., Ltd. and is currently a Fellow Officer of Sumitomo Mitsui Trust Bank, Limited and Co-Chair of the Japan Climate Leaders’ Partnership, a cross-industry group of companies working to achieve a sustainable, decarbonized society. The Company believes that, based on her wealth of experience and considerable insight into ESG and decarbonization measures, she will monitor corporate management appropriately, aiming at our goal of achieving sustainability and enriching communities and improving the Company’s corporate value over the medium- to long-term through her active opinions and proposals from the perspective of environmental management with expertise in environmental and social contribution. Although the Company has requested her to give lectures and has had transactions with her to receive advice on the promotion of environmental strategies, etc. for the past three years, the transaction amount is minimal, accounting for less than 500,000 yen, and she is not a major business partner or a consultant who receives large amounts of money or other benefits from the Company other than compensation as defined in the Criteria for Independence of Outside Directors. She owns none of the Company’s shares, and there are no human, capital, business or other interests between 115 her and the Company. The Company has registered her as an Independent Director with the Tokyo Stock Exchange. d. Susumu Murakoshi (Outside Director who is an Audit & Supervisory Committee member) Mr. Murakoshi has a high level of expertise as an attorney. Having served as the President of Japan Federation of Bar Associations and the President of Japan Attorneys Political Association, he has a wealth of experience in the legal community. The Company believes that he will continuously contribute to monitoring management appropriately to achieve sustained growth and increase medium- to long-term corporate value, as well to ensure soundness of the management. He has never been involved in corporate management except as an outside officer. However, given the reasons above, the Company believes that he can appropriately perform his duties as an Outside Director who is an Audit & Supervisory Committee member. The Company has not entered into a consulting agreement, and has not conducted any consignment of business activities under any individual agreement, with Mr. Murakoshi who is an attorney-at-law, and the law office to which he belongs. He owns a small number of the Company’s shares, but there are no human, capital, business or other interests between him and the Company. The Company has registered him as an Independent Director with the Tokyo Stock Exchange. e. Michiko Ohtsuka (Outside Director who is an Audit & Supervisory Committee member) Ms. Ohtsuka has a high level of expertise as a certified public accountant. She has a considerable insight and experience as an independent officer of a listed company. The Company believes that she will continuously contribute to monitoring management appropriately to achieve sustained growth and increase medium- to long-term corporate value, as well to ensure soundness of the management. She has never been involved in corporate management except as an outside officer. However, given the reasons above, the Company believes that she can appropriately perform her duties as an Outside Director who is an Audit & Supervisory Committee member. The Company has not entered into a consulting agreement, and has not conducted any consignment of business activities under any individual agreement, with Ms. Ohtsuka who is a certified public accountant, and there is no transactional relationship. She owns a small number of the Company’s shares, but there are no human, capital, business or other interests between her and the Company. The Company has registered her as an Independent Director with the Tokyo Stock Exchange. f. Akira Marumoto (Outside Director who is an Audit & Supervisory Committee member) Mr. Marumoto has served as Executive Vice President and President of Mazda Motor Corporation and has a wealth of experience and considerable insight in corporate management. He was in charge of a wide range of administrative areas, including corporate planning, production and sales operations in the U.S., general affairs, public relations, and human resources. After assuming the position of president, he responded to various management issues and, as one example, strengthened earning power by improving profitability through dealership reforms and putting a new plant into operation. The Company believes that he will be able to 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. Mr. Marumoto has been involved in business affairs at Mazda Motor Corporation for the past five years. The Company has had no business relationship with Mazda Motor Corporation for the past three years. He owns none of the Company’s shares, and there are no human, capital, business or other interests between him and the Company. The Company has registered him as an Independent Director with the Tokyo Stock Exchange. ③ Interconnections between supervision or audits by Outside Directors and internal audits, Audit & Supervisory Committee audits, and accounting audits; as well as relationship of these supervision/audits to the internal control department Interconnections among Audit & Supervisory Committee audits, internal audits, and accounting audits, and the relationship of these audits to the internal control department In order to make Audit & Supervisory Committee audits systematic and efficient, the Company ensures close collaboration between internal audit departments and the Audit & Supervisory Committee. In relation to the 116 structure of the Audit & Supervisory Committee Office and the coordination system with internal audit departments, if circumstances hindering the effectiveness of the audit by the Audit & Supervisory Committee are found, the Audit & Supervisory Committee requests the representative directors or the Board of Directors to rectify them. Furthermore, prior consent from the Audit & Supervisory Committee should be obtained for the appointment, dismissal, and personnel evaluation of the head of the internal audit control departments. As part of a structure that can continuously pursue the maintenance and improvement of efforts to strengthen coordination between the Audit & Supervisory Committee and internal audit departments, etc., we have put in place a structure in which the head of the internal audit control departments can attend, as an observer, meetings of a Compliance Committee, which is made up of Outside Directors and a Director who is a member of the Audit & Supervisory Committee. The Company’s internal audit departments regularly report their audit plans, audit results and improvement plans for audited companies based on the audit findings 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, including reporting to the Board of Directors, regarding the performance of their duties. Through these measures, Epson has secured the effectiveness of systematic audit performed by the Audit & Supervisory Committee. 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 instructions issued by the Audit & Supervisory Committee are given priority. The division in charge of whistleblowing regularly keeps the Audit & Supervisory Committee updated on compliance violation matters. The division provides the Committee with detailed reports especially on matters of material importance immediately after it is notified of such matters, and the Committee examines whether it should deal with the matter based on the detailed report. Also, controls are in place to protect whistleblowers from reprisal for having made a report. Allegations shall be reported to the Board of Directors, the Audit & Supervisory Committee, the Compliance Committee composed primarily of Outside Directors, and the Corporate Management Council in a way that whistleblowers cannot be identified; and the identity of the reporter shall be protected even if the president or a Board of Directors, for example, is asked to correct the matter based on the report. The Audit & Supervisory Committee and financial auditors work together to enhance the effectiveness of audit by sharing the results of their risk assessment at the beginning of each fiscal year and then confirm the audit plan of financial auditors, and also periodically discuss issues during the period. Financial 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. Cooperation between Outside Directors and internal control functions Outside Directors who are Audit & Supervisory Committee members and those who are not work cooperatively by attending meetings of the Compliance Committee, regular meetings with Chairman of the Board of Directors and representative directors, and meetings solely of Outside Directors; and also work to enhance collaboration between the supervision or audits by Outside Directors and the internal control functions through on-site audits and on-site visits at subsidiaries both home and abroad. (3) Internal audits ① Audit & Supervisory Committee audits Structure of the Audit & Supervisory Committee The Company’s Audit & Supervisory Committee is composed of four Directors, three of whom are Outside Directors. The three Audit & Supervisory Committee members who are Outside Directors have experienced serving as an attorney-at-law, certified public accountant and corporate manager, and each of them has a high level of expertise, a wealth of experience and considerable insight and has executed balanced audit and supervisory activities as the Audit & Supervisory Committee. Masayuki Kawana was selected to serve as a Full-Time Audit & Supervisory Committee member to help ensure that the Audit & Supervisory Committee works effectively, as it was concluded that it would be necessary for someone to prepare an environment to facilitate audits, attend important internal meetings to smoothly collect internal information, work closely with groups such as the internal audit department, and monitor the daily internal control system. Audit & Supervisory Committee member Michiko Ohtsuka is a certified public accountant and has an appreciable 117 degree of knowledge and insight into finance and accounting. In addition, the Company 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. Activities of the Audit & Supervisory Committee All Audit & Supervisory Committee members properly check and monitor the demonstrating of functions by the Board of Directors, decision-making on important matters, such as business strategies and corporate governance, and execution of business affairs by attending important meetings such as meetings of the Board of Directors, the Director Nomination Committee and the Director Compensation Committee, and regularly discussing with Chairman of the Board of Directors and representative directors, among others. Moreover, Audit & Supervisory Committee members audit and supervise the state of legal compliance and results of execution of operations through regular hearing and conformation letters for execution of duties for each Director and Executive Officer. In addition, Audit & Supervisory Committee members confirm the status of improvement and operation of the internal control system and other matters (including internal control over compliance system, risk management system, and financial reporting) through regular hearing from internal audit departments, supervisory departments for internal control, Head Office supervisory departments, audit & supervisory board members of the Group’s subsidiaries, and others. In addition, the Audit & Supervisory Committee or individual Audit & Supervisory Committee members conduct on-site inspection of or remote interviews with business offices and subsidiaries in Japan and overseas, and if it is considered necessary, they ask internal audit departments and the financial auditor for inspection and provide specific directions on the execution of the duties. Through these measures, the Company has secured the effectiveness of systematic audit performed by the Audit & Supervisory Committee. As for appropriateness of audits of the financial auditor, the Audit & Supervisory Committee confirms the audit plan of the financial auditor after risk assessment is shared between each other at the beginning of the fiscal year, and checks the implementation of audits by regularly holding discussion during the fiscal year, while increasing effectiveness of audits of the both. With regard to the effectiveness assessment of the Audit & Supervisory Committee, which has been implemented each year since FY2017 after the transition to a company with an Audit & Supervisory Committee, reporting to and sharing with the Board of Directors have been regularized from FY2019. In FY2023, the assessment result that effectiveness of the Audit & Supervisory Committee was ensured was shared at the Board of Directors meeting, and the recommendations for the Board of Directors on improvement in the Company’s internal control and governance system, which were extracted in the effectiveness assessment of the Audit & Supervisory Committee, were made. Holding and attendance of the Audit & Supervisory Committee meeting In FY2023, the Audit & Supervisory Committee conducted discussions and examinations throughout the fiscal year. It focused on confirming responses for sustainable business succession, watching over the Board of Directors’ monitoring function, and confirming steady progress in key measures under Epson 25 Renewed and others, from the perspective of important audit and supervision. The Audit & Supervisory Committee meeting was held 18 times in FY2023 and five times in FY2024 from April 2024 to the Ordinary General Meeting of Shareholders in June 2024. The status of attendance by each Audit & Supervisory Committee member is as shown in the following table. 118 Name Title Attendance at meetings of the Audit & Supervisory Committee (Attendance rate) FY2023 FY2024 (Note) Masayuki Kawana Director, Full-Time Audit & Supervisory Committee Member 18/18 (100%) 5/5 (100%) Yoshio Shirai Outside Director, Audit & Supervisory Committee Member 18/18 (100%) 5/5 (100%) Susumu Murakoshi Outside Director, Audit & Supervisory Committee Member 18/18 (100%) 5/5 (100%) Michiko Ohtsuka Outside Director, Audit & Supervisory Committee Member 18/18 (100%) 5/5 (100%) (Note) Attendance at meetings (attendance rate) in FY2024 is for the period from April 2024 to the Ordinary General Meeting of Shareholders held in June 2024. ② Internal audits The Company’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. ③ Interconnections among Audit & Supervisory Committee audits, internal audits, and accounting audits, and the relationship of these audits to the internal control department In order to make Audit & Supervisory Committee audits systematic and efficient, the Company ensures close collaboration between internal audit departments and the Audit & Supervisory Committee. In relation to the structure of the Audit & Supervisory Committee Office and the coordination system with internal audit departments, if circumstances hindering the effectiveness of the audit by the Audit & Supervisory Committee are found, the Audit & Supervisory Committee requests the representative directors or the Board of Directors to rectify them. Furthermore, prior consent from the Audit & Supervisory Committee should be obtained for the appointment, dismissal, and personnel evaluation of the head of the internal audit control departments. As part of a structure that can continuously pursue the maintenance and improvement of efforts to strengthen coordination between the Audit & Supervisory Committee and internal audit departments, etc., we have put in place a structure in which the head of the internal audit control departments can attend, as an observer, meetings of a Compliance Committee, which is made up of Outside Directors and a Director who is a member of the Audit & Supervisory Committee. The Company’s internal audit departments regularly report their audit plans, audit results and improvement plans for audited companies based on the audit findings 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, including reporting to the Board of Directors, regarding the performance of their duties. Through these measures, the Company has secured the effectiveness of systematic audit performed by the Audit & Supervisory Committee. 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 instructions issued by the Audit & Supervisory Committee are given priority. The division in charge of whistleblowing regularly keeps the Audit & Supervisory Committee updated on 119 compliance violation matters. The division provides the Committee with detailed reports especially on matters of material importance immediately after it is notified of such matters, and the Committee examines whether it should deal with the matter based on the detailed report. Also, controls are in place to protect whistleblowers from reprisal for having made a report. Allegations shall be reported to the Board of Directors, the Audit & Supervisory Committee, the Compliance Committee composed primarily of Outside Directors, and the Corporate Management Council in a way that whistleblowers cannot be identified; and the identity of the reporter shall be protected even if the president or a Board of Directors, for example, is asked to correct the matter based on the report. The Audit & Supervisory Committee and financial auditors enhance the effectiveness of audits by sharing the results of their risk assessment at the beginning of each fiscal year and then confirming the audit plan of financial auditors, and also periodically discuss issues during the period. Financial 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. 120 ④ Accounting audits a. Name of accounting firm Ernst & Young ShinNihon LLC b. Continuous audit period 40 years (Note) The Company entered into an auditing agreement with Misuzu Audit Corporation (then named Chuo Audit Corporation) from 1984 to 2007 (including the period from July 1, 2006 to August 31, 2006 when a temporary accounting firm was selected to substitute for Misuzu Audit Corporation (then named ChuoAoyama Audit Corporation)). Accompanying Misuzu Audit Corporation’s dissolution, the Company entered into an auditing agreement with Ernst & Young ShinNihon LLC (then named Ernst & Young ShinNihon) from 2007. However, the certified public accountants who had been executing the auditing operations for the Company also transferred to Ernst & Young ShinNihon LLC (then named Ernst & Young ShinNihon), and they have been performing audit work for the Company continuously since their aforesaid relocation. Accordingly, as it can be considered that the same accounting firm has been continuously executing the Company’s audit work, the audit period of the accounting firm before the relocation of said certified public accountants has been included in the continuous audit period. c. Certified public accountants performing audits Name of CPA No. of successive years performing audits Designated and Engagement Partner, Certified Public Accountant Makoto Usui 5 Designated and Engagement Partner, Certified Public Accountant Takuya Tanaka 1 Designated and Engagement Partner, Certified Public Accountant Ryuichi Minami 4 d. Composition of auditing team The auditing team comprises 39 staff including 8 certified public accountants, 6 accountant examination passers, and 25 other accounting staff. e. Policy and reasons for selection of audit firm The Audit & Supervisory Committee has established the “Policies on Dismissal / Non-reappointment of Financial Auditors” and “Standards in Relation to Selection / Non-reappointment and Procedures for the Reappointment of Financial Auditors” prescribing details of the procedures whereby Epson can maintain and further strengthen its optimal financial audit system. As a result of evaluations in accordance with these standards, the Committee concluded that the accounting auditor has established systems for the proper performance of its duties, including an audit quality management system, a governance system that supports the management of audit quality, and a global audit system, and that the accounting auditor is conducting appropriate audits as a professional expert while maintaining an independent position. The Committee has determined that it is appropriate to reappoint EY Ernst & Young ShinNihon LLC, the current financial auditor, as financial auditor for the next fiscal year. In the event that any of the items set forth in the clauses of Article 340, Paragraph 1 of the Companies Act is met, and the Audit & Supervisory Committee deems it appropriate to dismiss the financial auditor, the Audit & Supervisory Committee shall dismiss the financial auditor subject to the unanimous consent of Audit & Supervisory Committee members. In addition, if the Audit & Supervisory Committee deems that (i) the quality of audit, quality control, independence and other aspects of the financial auditor are likely to hinder the execution of proper audits, (ii) an audit system more appropriate to the Company would be achieved by replacing the audit firm, or (iii) otherwise it would be necessary, the Audit & Supervisory Committee shall, based on its resolution, determine the details of the proposal to dismiss or not reappoint the financial auditor for submission to the General Meeting of Shareholders. 121 f. Evaluation of financial auditor by the Audit & Supervisory Committee The Audit & Supervisory Committee evaluates the Financial Auditor’s ability to perform audits based on seven evaluation items: (1) quality management by the audit firm, (2) the audit team, (3) audit fees, (4) communication with the Audit & Supervisory Committee, (5) relationship with management, (6) group audits, and (7) fraud risks, based on the Practical Guidelines for Auditors Concerning the Evaluation of Accounting Auditors and the Establishment of Selection Standards, established by the Japan Audit & Supervisory Board Members Association, and through interviews with the executors. ⑤ Details of audit remuneration a. 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 165 – 171 – Consolidated subsidiaries 43 – 42 – Total 208 – 213 – b. Remuneration for audits by certified public accountants belonging to the Ernst & Young network (excluding a.) (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 – 7 – 32 Consolidated subsidiaries 677 145 771 377 Total 677 152 771 410 Details of the non-audit services performed for the Company and its consolidated subsidiaries consist mainly of various consultancy services, mostly tax related. c. Description of other fees for important audit certificate services Other than the items applicable to a. and b. above, there were no significant items applicable to fees for audit certificate services of the Company and its consolidated subsidiaries in the previous fiscal year or fiscal year under review. d. Governing policy for audit remuneration and reason for the Audit & Supervisory Committee consenting to the fees, etc. of the Financial Auditor Taking into consideration the “Practical Guidelines for Cooperation with Financial Auditor” announced by the Japan Audit & Supervisory Board Members Association, Audit & Supervisory Committee has given consent to the compensation, etc., to be paid to the financial auditor as stipulated in Article 399, Paragraph 1 of the Companies Act, as a result of confirming the policies and the content of the auditing plan that form the basis of compensation to the financial auditor, auditing time and auditing compensation, as well as the auditing plan and its results for the previous fiscal year, and examining the validity of quotation for the auditing. 122 (4) Officer compensation, etc. The Company revised its officer compensation system based on the resolution of the Board of Directors on April 28 and May 19, 2022 and the resolution at the Ordinary General Meeting of Shareholders on June 28, 2022. The new system will be adopted effective from FY2022 (June 28, 2022 for restricted stock compensation). No additional contribution will be made to the former performance-linked stock compensation plan (BIP trust) in the future, and the plan is expected to terminate in August 2024 upon completion of the delivery and payment of the Company’s common shares pertaining to the points already granted and the cash equivalent to an amount obtained through the conversion of the Company’s common shares into cash. ① Amount of officer compensation, etc. and policies for determining the method of calculating the amount With the aim of ensuring transparency and objectivity, compensation of officers is determined through resolutions at the General Meeting of Shareholders and the Board of Directors’ meeting for Directors who are not Audit & Supervisory Committee members, or through resolutions at the General Meeting of Shareholders and discussions by Audit & Supervisory Committee members for Directors who are Audit & Supervisory Committee members, after going through fair, transparent and rigorous reporting by the Director Compensation Committee which is chaired by an Outside Director, and the majority of whose members are Outside Directors. With regard to compensation of the Directors who are not Audit & Supervisory Committee members, the Audit & Supervisory Committee shares and discusses what have been examined by the Director Compensation Committee to confirm whether there are special items to be stated at the General Meeting of Shareholders. Matters related to the compensation, including the individual amounts, of the Directors who are not Audit & Supervisory Committee members are left to the discretion of the Director Compensation Committee. The overview of the Director Compensation Committee is as follows. Composition The Committee consists of all Outside Directors and President and Representative Director. Outside Directors shall select the committee chair from among themselves. Directors who are full-time members of the Audit & Supervisory Committee can attend meetings of the Committee as observers. Activities of the Director Compensation Committee The Committee met 12 times during the period from April 2023 to the Ordinary General Meeting of Shareholders held in June 2024. The Committee deliberated on matters including the amount of base compensation for each Director, bonus payment coefficient and amount for each Director, coefficient allocated, number of shares to be allocated and amount of monetary compensation claims under the restricted stock compensation plan, renewal of directors and officers liability insurance, conclusion of a company indemnity agreement and a liability limitation contract, etc. Policies 1) Decision-making policies, etc. on compensation for individual Directors who are not Audit & Supervisory Committee members The Company has established its decision-making policies on compensation for individual Directors who are not Audit & Supervisory Committee members. i) Basic stance The Company’s officer compensation shall consist of base compensation, which is comprised of fixed compensation, bonuses, which is performance-linked compensation, and stock compensation, which is non- monetary compensation. Given their roles to monitor the management as a whole as well as their independence from the business affairs, the Company pays only base compensation to non-executive officers and therefore does not pay bonuses and stock compensation. Compensation for executive officers (a) Compensation shall provide an incentive to improve business performance and reflect the commitment thereof in order to promote the Epson Group’s sustainable growth and corporate value in the medium and long term. 123 (b) Compensation shall be sufficient to attract and retain 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. (d) Compensation shall clearly reflect the linkage between officer compensation and the value of the Company’s shares and strengthen awareness of the need to share profits with shareholders. (e) A mechanism to suppress fraud shall be embedded. (f) The process for determining compensation shall be highly transparent, objective and fair. Compensation for non-executive officers (a) The composition of compensation shall guarantee independence so that these officers can suitably exert their general management supervisory function, etc. (b) Compensation shall be sufficient to attract and retain qualified persons both from within the Company and from outside. ii) Decision-making policies on base compensation for individual Directors who are not Audit & Supervisory Committee members Base compensation Base compensation is a monetary compensation that is determined in accordance with the position and the magnitude of roles including the contents of operations commissioned and delegated (“Role Grade”). It is paid monthly during the terms of office. Depending on the operating performance of the company and other reasons, the Board of Directors may take measures to increase or decrease the amount. iii) Decision-making policies on performance-linked compensation for Directors who are not Audit & Supervisory Committee members Bonuses Bonus is an annually paid variable performance-linked compensation for officers with executive duties that is determined by the achievement level of the annual operating performance targets and personal goals. [Details of performance indicators and reasons for selection thereof] In consideration of the nature of bonuses as a short-term incentive, the amount of annual company-wide ROE among others is set as a performance indicator, taking into account factors such as the achievement level of personal goals. [Calculation method] The amount of bonuses payable is calculated by multiplying the annual total compensation calculated based on position and Role Grade by the ratio of bonus (25% to 30%) by position and Role Grade to derive the base bonus amount, and taking the base bonus amount and multiplying it by a coefficient (0% to 200%) corresponding to the achievement level against the company-wide ROE target and other performance indicators and a coefficient (±40%) corresponding to the achievement level of personal goals. [Results of performance indicators] The company-wide ROE used as a performance indicator is 6.6% (actual result for FY2023). Company- wide ROE is calculated excluding treasury shares acquired in or after FY2022. iv) Decision-making policies on non-monetary compensation for Directors who are not Audit & Supervisory Committee members Restricted stock compensation The restricted stock compensation is a stock compensation aimed at further promoting sharing of value with shareholders and providing officers with a greater incentive than before to increase the stock price, sustain growth, and increase medium- to long-term corporate value. It is paid to Directors with executive duties once a year. Pursuant to the resolution of the Board of Directors of the Company, the Company will pay monetary compensation claims up to the aforesaid annual amount of 200 million yen as compensation, etc., for restricted stock. In turn, Eligible Directors will pay all monetary compensation claims provided by the 124 Company as in-kind contributions and will receive an allotment of restricted stock. The aforesaid monetary compensation claims will be paid on condition that Eligible Directors have agreed to the aforesaid in-kind contributions and have concluded a restricted stock allotment agreement. The total number of restricted stock shares to be allotted to Eligible Directors will not exceed 200,000 shares annually. The restricted stock allotment agreement will include the following: a) Nature of restrictions on transfer Eligible Directors shall not transfer, pledge, grant security interests, gift during their lifetime, or bequeath, to any third party, or otherwise dispose of restricted stock (hereafter “the Allotted Stock”) during the period from the date of allotment to the date on which they resign or retire from their position as either a director, executive officer, or employee of the Company. b) Gratis acquisition of restricted stock If an Eligible Director resigns or retires from his or her position as a director, executive officer, or employee of the Company during the Restricted Period, the Company will rightfully acquire the Allotted Stock without compensation, unless there are extenuating circumstances that the Company’s Board of Directors deem reasonable. c) Lifting of the Transfer Restrictions The Company will lift Transfer Restrictions for all the Allotted Stock upon the end of the final day of the Transfer Restriction Period, provided that the Eligible Director holds the position of director, executive officer or employee of the Company continuously from the date the Transfer Restriction Period starts to the date of the first General Meeting of Shareholders thereafter. d) Malus and clawback provisions The Company will establish provisions to acquire without contribution some or all of the Allotted Stock allotted to Eligible Directors or common shares of the Company for which Transfer Restrictions have been lifted, or to be paid an amount equivalent to the value of the Allotted Stock or common shares of the Company for which Transfer Restrictions have been lifted, in cases in which the Board of Directors recognizes that Eligible Directors have violated laws, regulations, or internal rules, etc. in any material respect during the Transfer Restriction Period or after the lifting of the Transfer Restrictions, and when certain circumstances determined by the Board of Directors have occurred, including serious accounting irregularities or large losses, etc. e) Treatment in organizational restructuring, etc. If, during the Transfer Restriction Period, matters concerning organizational restructuring, etc., are approved at a General Meeting of Shareholders, the Company will, by resolution of the Board of Directors, lift the Transfer Restrictions prior to the effective date of the organizational restructuring, etc., for the number of Allotted Stock that is reasonably determined based on the period from the date the Transfer Restriction Period starts to the date the organizational restructuring, etc., is approved. In such cases, the Company will rightfully acquire the Allotted Stock to which Transfer Restrictions still apply immediately after the Transfer Restrictions are lifted pursuant to the aforesaid provisions. * The Company plans to also allocate restricted stock like the restricted stock described above to Executive Officers who are not Directors of the Company. [Details of performance indicators and reasons for selection thereof] To share the benefits and risks of changes in the stock price with general shareholders and to enhance the incentive to increase the stock price, sustain growth, and increase medium- to long-term corporate value, the achievement levels against the indicators including the company-wide ROIC and sustainability goals are set as indicators. [Calculation method] The number of shares to be allotted during the target period is calculated by multiplying the amount of annual total compensation calculated based on the position and Role Grade of each Director by the ratio of stock compensation (20% to 25%) commensurate with position and Role Grade by the coefficient (80% to 120% for each) corresponding to the achievement levels against the indicators including the company-wide ROIC and sustainability goals to derive the base compensation amount, and dividing the base compensation amount by the value of restricted stock per share determined by the Board of Directors. 125 The amount of monetary compensation claim paid to each Director as compensation, etc. concerning restricted stock is calculated by multiplying the number of shares to be allotted by the closing price of the common stock of the Company on the Tokyo Stock Exchange on the business day immediately preceding the date of the Board of Directors’ resolution regarding the issuance or disposal. [Results of performance indicators] The company-wide ROIC used as a performance indicator is 7.0% (actual result for FY2022). Company- wide ROIC is calculated excluding treasury shares acquired in or after FY2022. In addition, the achievement rate for sustainability goals, etc. is 90%. v) Decision-making policies on the ratio of compensation for individual Directors who are not Audit & Supervisory Committee members With regard to the policies on decisions on the ratio of compensation by category for Directors who are not Audit & Supervisory Committee members (excluding the Chairman and Directors without the right of representation and Outside Directors), the total annual compensation is used as the basis to calculate bonuses, which are calculated by multiplying the base bonus amount, which ranges between 25% and 30% of bonuses, by a coefficient corresponding to the achievement levels of performance indicators. In addition, stock compensation is calculated by multiplying the total annual compensation by the ratio of stock compensation ranging from 20% to 25% and subsequently multiplying the amount derived by a coefficient corresponding to the achievement level against the company-wide ROIC target, sustainability goals, etc. It is designed so that the ratio of “bonuses” and “stock compensation” increases, commensurate to the position and Role Grade. For FY2023, the composition ratio of the total amount of compensation for Directors who are not Audit & Supervisory Committee members (excluding Chairman and Director without the right of representation and Outside Directors) was as follows: approximately 53.7% as base compensation, approximately 20.1% as bonuses, and approximately 26.2% as stock compensation. vi) Matters regarding delegation of decisions on compensation for individual Directors who are not Audit & Supervisory Committee members Decisions on the amounts of compensation for the fiscal year ended March 2023 are left to the discretion of the Director Compensation Committee. To ensure that the said authority is exercised appropriately, Outside Directors account for the majority of members of the Director Compensation Committee and the chairperson of the Committee is selected among the Outside Directors by the members. vii) Other important matters regarding decisions on the details of compensation for individual Directors who are not Audit & Supervisory Committee members The Company establishes provisions (malus and clawback clauses) to acquire without contribution some or all of the allotted shares to eligible Directors or ordinary shares of the Company for which transfer restrictions have been lifted, or to be paid an amount equivalent to the value of the allotted shares or ordinary shares of the Company for which transfer restrictions have been lifted. This applies in cases where the Company’s Board of Directors recognizes that eligible Directors have violated laws, regulations, or internal rules, etc. in any material aspect and when certain circumstances determined by the Board of Directors have occurred, including serious accounting irregularities or large losses. The Board of Directors has confirmed the following points and determined that the compensation for Directors who are not Audit & Supervisory Committee members for the fiscal year under review complies with the said policies. - A fair, transparent, and rigorous reporting by the Director Compensation Committee, which is chaired by an Outside Director, and the majority of whose members are Outside Directors has been conducted. - The Audit & Supervisory Committee shared and discussed the details that were discussed by the Director Compensation Committee and reported that there were no items to be stated at the General Meeting of Shareholders. 126 2) Decision-making policies, etc. on compensation for individual Directors who are Audit & Supervisory Committee members The Company has established its decision-making policies on compensation for individual Directors who are Audit & Supervisory Committee members. Decision-making policies are determined by the Audit & Supervisory Committee. The Company’s compensation for individual Directors who are Audit & Supervisory Committee members shall be decided by taking into consideration factors such as whether he or she is Full-Time or not, how the audit work has been divided, and the details and levels of compensation for Directors who are not Audit & Supervisory Committee members. Given their roles to monitor the management as a whole based on independence from the business affairs, the Company pays only fixed compensation to Directors who are Audit & Supervisory Committee members. In addition, basic stance for such fixed compensation is as stated in “Compensation for non-executive officers,” and it is determined by the Board of Directors upon deliberation of its contents at the Director Compensation Committee, which is chaired by an Outside Director, and the majority of whose members are Outside Directors. 3) Resolutions by the General Meeting of Shareholders on compensation for Directors Base compensation Upon the resolution at the Ordinary General Meeting of Shareholders of June 28, 2016, the maximum base compensation was set at 62 million yen per month for Directors who are not Audit & Supervisory Committee members (including 10 million yen per month for Outside Directors). At the conclusion of the said Ordinary General Meeting of Shareholders, the number of Directors who are not Audit & Supervisory Committee members was eight (including two Outside Directors). In addition, upon the resolution at the said Ordinary General Meeting of Shareholders, the maximum base compensation was set at 20 million yen per month for Directors who are Audit & Supervisory Committee members. At the conclusion of the said Ordinary General Meeting of Shareholders, the number of Directors who are Audit & Supervisory Committee members was four. Restricted stock compensation Upon the resolution at the Ordinary General Meeting of Shareholders on June 28, 2022 with respect to restricted stock compensation for Directors who are not Audit & Supervisory Committee members (excluding persons in positions independent from business execution, such as Outside Directors, as well as those residing overseas), the total number of monetary compensation claims paid as compensation, etc. concerning restricted stock under a framework separate from the aforementioned amounts of compensation of Directors (base compensation) and performance-linked stock compensation (officer compensation BIP trust), is set to be no more than an annual amount of 200 million yen. At the conclusion of the said Ordinary General Meeting of Shareholders, the number of Directors who are not Audit & Supervisory Committee members was three. 127 ② Total amount of compensation, total compensation by type, and number of officers to be paid by each category Category Total compensation (millions of yen) Total compensation by type (millions of yen) Number of individuals Base compensation Performance- linked compensation Restricted stock compensation (non-monetary) Fixed (monetary) Bonus (monetary) Directors who are not Audit & Supervisory Committee members (amount accounted for by Outside Directors) 262 (39) 189 (39) 31 (–) 41 (–) 8 (4) Directors who are Audit & Supervisory Committee members (amount accounted for by Outside Directors) 82 (49) 82 (49) – (–) – (–) 4 (3) Total 345 272 31 41 12 (Notes) 1. The Company has introduced an officer stock ownership plan to link compensation more closely to shareholders’ value. A portion of the base compensation is discretionally allotted for the acquisition of the Company’s shares. Epson has established the criteria for shareholding by its officers based on internal regulations defined by the Board of Directors to demonstrate its commitment to and responsibilities for business operations to all shareholders. 2. The amount above includes bonuses to be paid to Directors in the amount of 31 million yen (amount paid to two Directors excluding Chairman and Director without the right of representation, Outside Directors, and Directors who are Audit & Supervisory Committee members), as resolved at the Ordinary General Meeting of Shareholders held on June 25, 2024. 3. Based on a resolution at the Ordinary General Meeting of Shareholders held on June 23, 2006 to abolish bonuses for retiring executives, the Company plans to provide payment of 24 million yen to one eligible Director who retired at the conclusion of the Ordinary General Meeting of Shareholders held on June 25, 2024. 4. Stock options are not granted. 128 (5) Securities held by the Company ① Criteria for and approach to classification of investment securities The Company has classified its investment equity securities held only for earning capital or income gains into stocks held purely for investment purposes and those held for other purposes as stocks held for cross-shareholding purposes. The Company currently holds no securities classified as stocks held purely for investment purposes. ② Stocks held for reasons other than pure investment a. Method of examining the rationale of shareholding policy and shareholding, and deliberations on whether or not the Company should hold specific shares at the Board of Directors’ or other meetings The Company may acquire and hold shares in companies, including the suppliers of key components and parts, major buyers of its products, major providers of funds and major providers of financial services, when it judges that such acquisition/holding of shares will help maintain and strengthen steady business relationships with these companies and ultimately enhance its corporate value over the medium- to long-term. Such acquisition/holding of shares, however, is preceded by a screening process to confirm the creditworthiness and safety of investing in these companies (equity securities held based on this policy is referred to as “stocks held for cross-shareholding purposes”). Every year, the Board of Directors evaluates on an individual basis, both quantitatively and comprehensively, the risks of the stocks it invests in for cross-shareholding purposes, as well as the profits obtainable by maintaining and strengthening trading relationships with the companies in comparison through comparing them against the internal hurdle rate specified based on the cost of capital, and it examines the rationality of holding such stocks for cross-shareholding purposes from a medium- to long-term perspective. When it deems that holding of the stocks for cross-shareholding purposes as unreasonable, the Company reduces the shareholding. b. Balance sheet total of stocks held for reasons other than pure investment Number of issues Balance sheet total (millions of yen) Unlisted stocks 7 1,644 Stocks other than unlisted stocks 10 10,718 Issues for which the number of shares held by Epson increased during the current fiscal year Number of issues Total acquisition price to increase shares (millions of yen) Reasons for the increase of the number of shares Unlisted stocks 2 514 Initial capital contribution to develop and strengthen new businesses, etc. Stocks other than unlisted stocks – – – Issues for which the number of shared held by Epson decreased during the current fiscal year Number of issues Total sale proceeds from decreasing shares (millions of yen) Unlisted stocks 1 – Stocks other than unlisted stocks 1 962 129 c. Number of special investment securities / equity securities deemed to be held for each issue and information including amounts recorded on the balance sheet Special investment securities Company FY2023 FY2022 Reasons for holding shares, outline of business tie-ups, quantitative effect of holding shares, and reasons for the increase of the number of shares Shares held by the Company Stocks (shares) Stocks (shares) Balance sheet total (millions of yen) Balance sheet total (millions of yen) Mizuho Financial Group, Inc. 1,500,888 1,500,888 To maintain and strengthen the business relationship with a source of steady funding and a provider of financial services. The effect of holding the shares was examined at the Board of Directors’ meeting (held in April 2024) based on the method in (2) a. above but its quantitative results are not disclosed here as the results fall under insider information on business operation (the same applies hereunder). Yes 4,571 2,818 NGK Insulators, Ltd. 1,257,000 1,257,000 To maintain and strengthen the business relationship with a supplier of key parts used in the Company’s products. The Company has a transactional relationship primarily with the Manufacturing-related and wearables business segment. Yes 2,564 2,202 Seiko Group Corporation 328,816 328,816 To maintain and strengthen the business relationship with a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Manufacturing-related and wearables business segment. Yes 1,371 951 Otsuka Corporation 120,000 120,000 To maintain and strengthen the business relationship with a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Printing Solutions business segment. None 767 562 Marubun Corporation 332,640 332,640 To maintain and strengthen the business relationship with a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Manufacturing-related and wearables business segment. Yes 514 454 The Hachijuni Bank, Ltd. 489,500 489,500 To maintain and strengthen the business relationship with a source of steady funding and a provider of financial services. Yes 509 281 130 Company FY2023 FY2022 Reasons for holding shares, outline of business tie-ups, quantitative effect of holding shares, and reasons for the increase of the number of shares Shares held by the Company Stocks (shares) Stocks (shares) Balance sheet total (millions of yen) Balance sheet total (millions of yen) King Jim Co., Ltd. 221,980 221,980 To maintain and strengthen the business relationship with a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Printing Solutions business segment. None 199 201 Joshin Denki Co., Ltd. 65,000 65,000 To maintain and strengthen the business relationship with a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Printing Solutions business segment. None 151 127 Pixelworks, Inc. 100,000 100,000 To maintain and strengthen the business relationship with a supplier of key parts used in the Company’s products. The Company has a transactional relationship primarily with the Visual Communications business segment. None 39 19 Nippon BS Broadcasting Corporation 33,200 33,200 To maintain and strengthen the business relationship with a company whose parent company is a major buyer of the Company’s products. The Company has a transactional relationship primarily with the Printing Solutions business segment. None 30 30 (Note) Otsuka Corporation executed a 2-for-1 stock split of common shares with the effective date of April 1, 2024. ③ Stocks held purely for investment purposes None 131 V. Financial Information 1. Methods for preparing consolidated financial statements (1) The Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (hereinafter “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 (Ministry of Finance Order No. 28 of 1976). (2) Figures less than one million yen are rounded down in the Company’s consolidated financial statements. 2. Note on independent audit In accordance with the provision of Article 193-2 Paragraph 1 of the Financial Instruments and Exchange Law, the Company received audit of its consolidated financial statements of the consolidated fiscal year (from April 1, 2023 to March 31, 2024) from Ernst & Young ShinNihon LLC. 3. Remarkable efforts to ensure fair presentation of consolidated financial statements and arrangements of internal system to prepare consolidated financial statements fairly in accordance with IFRS To ensure the appropriateness of its consolidated financial statements, the Company takes special measures and has arranged a structure that enables the appropriate preparation of consolidated financial statements based on IFRS. Details are as follows. (1) In order to arrange a structure that enables details regarding accounting standards, etc., to be properly understood and changes to accounting standards, etc., to be handled with accuracy, the Company has joined the Financial Accounting Standards Foundation and receives information regarding accounting standards. It also participates in seminars, etc. organized by the Financial Accounting Standards Foundation, audit corporation and others. (2) When applying IFRS, the Company obtains press releases and statements of standards issued by the International Accounting Standards Board as needed to properly understand the latest standards. Also, to ensure the appropriate preparation of consolidated financial statements based on IFRS, the Company has created Group standards in compliance with IFRS and applies consistent accounting treatments across the entire Group based on these. 132 Consolidated financial statements, etc. (1) Consolidated financial statements Consolidated Statement of Financial Position Years ended March 31,2023 and 2024 Thousands of U.S. dollars Notes March 31, 2023 March 31, 2024 March 31, 2024 Assets Current assets Cash and cash equivalents 7, 34 267,380 328,481 2,170,555 Trade and other receivables 8, 34 201,801 212,781 1,406,026 Inventories 9 389,473 358,189 2,366,861 Income tax receivables 7,655 10,116 66,845 Other financial assets 10, 34 2,164 1,995 13,182 Other current assets 11 24,030 21,923 144,864 Total current assets 892,505 933,487 6,168,348 Non-current assets Property, plant and equipment 12, 15, 20 360,866 377,333 2,493,362 Intangible assets 13 25,425 27,066 178,848 Investment property 14 1,097 1,103 7,288 Investments accounted for using equity method 2,102 2,244 14,828 Net defined benefit assets 22 1,447 4,543 30,019 Other financial assets 10, 34 23,976 29,369 194,066 Other non-current assets 11 2,220 1,827 12,072 Deferred tax assets 16 31,932 36,117 238,655 Total non-current assets 449,069 479,606 3,169,167 Total assets 1,341,575 1,413,094 9,337,522 Millions of yen 133 Thousands of U.S. dollars Notes March 31, 2023 March 31, 2024 March 31, 2024 Liabilities and equity Liabilities Current liabilities Trade and other payables 17, 34 159,658 159,827 1,056,113 Income tax payables 5,798 8,279 54,706 Bonds issued, borrowings and lease liabilities 18, 20, 34 38,613 29,688 196,174 Other financial liabilities 34 3,337 2,731 18,046 Provisions 19 11,327 12,703 83,939 Other current liabilities 21, 25 152,900 159,163 1,051,726 Total current liabilities 371,635 372,395 2,460,732 Non-current liabilities Bonds issued, borrowings and lease liabilities 18, 20, 34 194,668 175,095 1,157,002 Other financial liabilities 34 3,717 5,256 34,730 Net defined benefit liabilities 22 13,164 13,836 91,426 Provisions 19 8,252 8,856 58,519 Other non-current liabilities 21, 25 15,615 17,365 114,745 Deferred tax liabilities 16 7,044 9,154 60,488 Total non-current liabilities 242,461 229,564 1,516,926 Total liabilities 614,097 601,960 3,977,665 Equity Share capital 23 53,204 53,204 351,564 Capital surplus 23 83,979 84,042 555,337 Treasury shares 23 (55,586) (55,455) (366,438) Other components of equity 23 119,455 172,175 1,137,707 Retained earnings 23 526,299 557,025 3,680,741 Equity attributable to owners of the parent company 727,352 810,992 5,358,918 Non-controlling interests 125 141 931 Total equity 727,477 811,134 5,359,857 Total liabilities and equity 1,341,575 1,413,094 9,337,522 Millions of yen 134 Consolidated Statement of Comprehensive Income Years ended March 31, 2023 and 2024 Thousands of U.S. dollars Notes 2023 2024 Revenue 6, 25 1,330,331 1,313,998 8,682,710 Cost of sales 9, 12, 13, 27 (863,680) (857,331) (5,665,120) Gross profit 466,651 456,666 3,017,583 Selling, general and administrative expenses 12, 13, 26, 27 (371,544) (391,945) (2,589,916) Other operating income 28 7,022 2,497 16,499 Other operating expense 12, 15, 29 (5,083) (9,685) (63,997) Profit from operating activities 97,044 57,533 380,169 Finance income 30 8,639 15,252 100,783 Finance costs 30 (2,034) (2,714) (17,933) Share of profit of investments accounted for using equity method 105 23 151 Profit before tax 103,755 70,094 463,171 Income taxes 16 (28,703) (17,473) (115,459) Profit for the period 75,051 52,620 347,705 Profit for the period attributable to: Owners of the parent company 75,043 52,616 347,678 Non-controlling interests 8 4 26 Profit for the period 75,051 52,620 347,705 Millions of yen Year ended March 31, Year ended March 31, 2024 135 Thousands of U.S. dollars Notes 2023 2024 Other comprehensive income Items that will not be reclassified subsequently to profit or loss, net of tax Remeasurement of net defined benefit liabilities (assets) 31 7,762 3,392 22,413 Net gain (loss) on revaluation of financial assets measured at FVTOCI (Note) 31 1,857 3,029 20,015 Subtotal 9,619 6,421 42,429 Items that may be reclassified subsequently to profit or loss, net of tax Exchange differences on translation of foreign operations 31 27,827 49,580 327,617 Net changes in fair value of cash flow hedges 31 410 637 4,209 Share of other comprehensive income of investments accounted for using equity method 31 3 64 422 Subtotal 28,241 50,283 332,262 Total other comprehensive income, net of tax 37,861 56,704 374,691 Total comprehensive income for the period 112,913 109,325 722,403 Total comprehensive income for the period attributable to: Owners of the parent company 112,899 109,308 722,291 Non-controlling interests 13 16 105 Total comprehensive income for the period 112,913 109,325 722,403 (Note) FVTOCI: Fair Value Through Other Comprehensive Income U.S. dollars Notes 2023 2024 Earnings per share for the period: Basic earnings per share for the period 32 220.75 158.68 1.05 Diluted earnings per share for the period 32 220.70 158.66 1.05 Millions of yen Year ended March 31, Year ended March 31, 2024 Yen Year ended March 31, Year ended March 31, 2024 136 Consolidated Statement of Changes in Equity Years ended March 31, 2023 and 2024 Notes 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 As of April 1, 2022 53,204 84,010 (40,808) - 3,560 87,146 (1,638) 89,068 480,154 665,628 112 665,740 Profit for the period - - - - - - - - 75,043 75,043 8 75,051 Other comprehensive income - - - 7,762 1,857 27,826 410 37,856 - 37,856 4 37,861 Total comprehensive income for the period - - - 7,762 1,857 27,826 410 37,856 75,043 112,899 13 112,913 Acquisition of treasury shares 23 - - (30,042) - - - - - - (30,042) - (30,042) Cancellation of treasury shares 23 - (102) 15,156 - - - - - (15,054) - - - Dividends 24 - - - - - - - - (21,313) (21,313) (0) (21,313) Share-based payment transactions 33 - 71 108 - - - - - - 180 - 180 Transfer from other components of equity to retained earnings - - - (7,762) 293 - - (7,468) 7,468 - - - Total transactions with the owners - (30) (14,777) (7,762) 293 - - (7,468) (28,898) (51,175) (0) (51,175) As of March 31, 2023 53,204 83,979 (55,586) - 5,711 114,972 (1,227) 119,455 526,299 727,352 125 727,477 (Note) FVTOCI: Fair Value Through Other Comprehensive Income Millions of yen Equity attributable to owners of the parent company Non-controlling interests Total equity Share capital Capital surplus Treasury shares Other components of equity Retained earnings Total equity attributable to owners of the parent company 137 Notes 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 As of April 1, 2023 53,204 83,979 (55,586) - 5,711 114,972 (1,227) 119,455 526,299 727,352 125 727,477 Profit for the period - - - - - - - - 52,616 52,616 4 52,620 Other comprehensive income - - - 3,392 3,029 49,633 637 56,692 - 56,692 12 56,704 Total comprehensive income for the period - - - 3,392 3,029 49,633 637 56,692 52,616 109,308 16 109,325 Acquisition of treasury shares 23 - - (1) - - - - - - (1) - (1) Cancellation of treasury shares - - - - - - - - - - - - Dividends 24 - - - - - - - - (25,862) (25,862) (0) (25,862) Share-based payment transactions 33 - 62 132 - - - - - - 195 - 195 Transfer from other components of equity to retained earnings - - - (3,392) (580) - - (3,972) 3,972 - - - Total transactions with the owners - 62 131 (3,392) (580) - - (3,972) (21,889) (25,668) (0) (25,668) As of March 31, 2024 53,204 84,042 (55,455) - 8,159 164,605 (589) 172,175 557,025 810,992 141 811,134 (Note) FVTOCI: Fair Value Through Other Comprehensive Income Notes 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 As of April 1, 2023 351,564 554,921 (367,304) - 37,737 759,718 (8,107) 789,341 3,477,708 4,806,237 825 4,807,063 Profit for the period - - - - - - - - 347,678 347,678 26 347,705 Other comprehensive income - - - 22,413 20,015 327,967 4,209 374,612 - 374,612 79 374,691 Total comprehensive income for the period - - - 22,413 20,015 327,967 4,209 374,612 347,678 722,291 105 722,403 Acquisition of treasury shares 23 - - (6) - - - - - - (6) - (6) Cancellation of treasury shares - - - - - - - - - - - - Dividends 24 - - - - - - - - (170,892) (170,892) (0) (170,892) Share-based payment transactions 33 - 409 872 - - - - - - 1,288 - 1,288 Transfer from other components of equity to retained earnings - - - (22,413) (3,832) - - (26,246) 26,246 - - - Total transactions with the owners - 409 865 (22,413) (3,832) - - (26,246) (144,639) (169,610) (0) (169,610) As of March 31, 2024 351,564 555,337 (366,438) - 53,913 1,087,686 (3,892) 1,137,707 3,680,741 5,358,918 931 5,359,857 (Note) FVTOCI: Fair Value Through Other Comprehensive Income Thousands of U.S. dollars Equity attributable to owners of the parent company Non-controlling interests Total equity Share capital Capital surplus Treasury shares Other components of equity Retained earnings Total equity attributable to owners of the parent company Millions of yen Equity attributable to owners of the parent company Non-controlling interests Total equity Share capital Capital surplus Treasury shares Other components of equity Retained earnings Total equity attributable to owners of the parent company 138 Consolidated Statement of Cash Flows Years ended March 31, 2023 and 2024 Thousands of U.S. dollars Year ended March 31, Notes 2023 2024 2024 Cash flows from operating activities Profit for the period 75,051 52,620 347,705 Depreciation and amortisation 68,696 68,682 453,840 Impairment loss (reversal of impairment loss) 1,966 1,339 8,847 Finance (income) costs (6,604) (12,537) (82,842) Share of (profit) loss of investments accounted for using equity method (105) (23) (151) Loss (gain) on sale and disposal of property, plant and equipment, intangible assets and investment property (716) 532 3,515 Income taxes 28,703 17,473 115,459 Decrease (increase) in trade receivables (22,131) 4,370 28,876 Decrease (increase) in inventories (60,253) 71,097 469,798 Increase (decrease) in trade payables (1,645) (7,921) (52,340) Increase (decrease) in net defined benefit liabilities (799) 663 4,381 Other 11,100 (10,957) (72,402) Subtotal 93,260 185,340 1,224,700 Interest and dividends income received 3,339 4,931 32,583 Interest expenses paid (1,208) (1,821) (12,032) Income taxes paid (34,080) (22,879) (151,181) Net cash from (used in) operating activities 61,311 165,570 1,094,062 Cash flows from investing activities Purchase of investment securities (827) (1,371) (9,059) Proceeds from sale of investment securities 154 1,004 6,634 Purchase of property, plant and equipment (50,551) (49,570) (327,551) Proceeds from sale of property, plant and equipment 1,058 404 2,669 Purchase of intangible assets (8,545) (7,023) (46,406) Proceeds from sale of intangible assets 21 15 99 Proceeds from sale of investment property 1,985 - - Other (4,897) (2,440) (16,123) Net cash from (used in) investing activities (61,602) (58,981) (389,737) Cash flows from financing activities Net increase (decrease) in current borrowings 18 9 502 3,317 Repayment of non-current borrowings 18 (18,000) - - Redemption of bonds issued 18 - (30,000) (198,235) Payment of lease liabilities 18 (10,003) (10,033) (66,296) Dividends paid 24 (21,313) (25,862) (170,892) Dividends paid to non-controlling interests (0) (0) (0) Purchase of treasury shares 23 (30,042) (1) (6) Net cash from (used in) financing activities (79,349) (65,395) (432,120) Effect of exchange rate changes on cash and cash equivalents 11,781 19,907 131,542 Net increase (decrease) in cash and cash equivalents (67,859) 61,100 403,740 Cash and cash equivalents at beginning of period 7 335,239 267,380 1,766,808 Cash and cash equivalents at end of period 7 267,380 328,481 2,170,555 Millions of yen Year ended March 31, 139 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 (https://corporate.epson/en). The details of businesses and principal business activities of the Company and its affiliates (“Epson”) are stated in “6. Segment Information.” 2. Basis of Preparation (1) Compliance with IFRS Epson’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“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. Material 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 (“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 ¥151.335 to U.S. $1 at the end of the reporting period. (4) Reporting Period of Subsidiaries The fiscal year end date of certain overseas subsidiaries is December 31, and the subsidiaries prepare, for consolidation purposes, additional financial information as of the date of the consolidated financial statements. (5) Changes in Accounting Policies Epson adopted the following standard for the reporting period. IFRS Description of new and revised standards IAS 12 Income Taxes Clarification of deferred tax accounting for leases and decommissioning obligations Adoption of IAS 12 Income Taxes Epson adopted IAS 12 Income Taxes (revised May 2021) for the reporting period. The impact on the consolidated result of operations from the adoption of this standard was insignificant. 3. Material 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. 140 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. (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 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 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. Goodwill is recognised in the consolidated statement of financial position, as the excess of the transferred consideration over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the difference is a negative monetary value, the resulting gain is immediately recognised as profit. 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. A foreign currency transaction is translated into the functional currency at a spot exchange rate at the date of the 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 (A) Financial Assets (i) Initial Recognition and Measurement Epson measures financial assets at their fair value plus transaction costs that are directly attributable to the acquisition of the financial assets at initial recognition. However, in the measurement after initial recognition (subsequent measurement), the transaction costs of financial assets classified as subsequently measured at fair value through profit or loss are recognised in profit or loss. Financial assets are initially recognised on the trade date when Epson becomes party to the contractual provisions of the financial instrument. (ii) Classification and Subsequent Measurement At initial recognition, Epson classifies financial assets as subsequently measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss. (a) Financial assets are classified as financial assets measured at amortised cost if both of the following conditions 141 are met: 1) the financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and 2) the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. (b) Financial assets are classified as financial assets measured at fair value through other comprehensive income if both of the following conditions are met: 1) the financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and 2) the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. (c) Financial assets except for those provided above are classified as financial assets measured at fair value through profit or loss. However, Epson may designate financial assets as measured at fair value through other comprehensive income, for particular investments in equity instruments that are not held for trading and so forth, and recognises subsequent changes in fair value in other comprehensive income. The cumulative gain or loss previously recognised in other comprehensive income is reclassified to retained earnings when the financial assets are derecognised or the decline in their fair values 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 substantially all the risks and rewards of ownership of them are transferred. (iv) Impairment For impairment of financial assets, loss allowance for expected credit losses are recognised. At each reporting date, Epson assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the loss allowance for that financial instrument is measured at an amount equal to 12-month expected credit losses. Meanwhile, if the credit risk on a financial instrument has increased significantly since initial recognition, the loss allowance for that financial asset is measured at an amount equal to the lifetime expected credit losses. However, the loss allowance for trade receivables, contract assets and lease receivables are measured at an amount equal to the lifetime expected credit losses. Expected credit losses of a financial instrument are measured in a way that reflects: (a) an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; (b) the time value of money; and (c) reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. When impairment is recognised, the carrying amount of the financial asset is reduced through an allowance account for credit losses and the amount of expected credit losses is recognised as impairment loss in profit or loss. If the amount of the impairment loss decreases due to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed in profit or loss through an allowance account for credit losses. (B) Financial Liabilities (i) Initial Recognition and Measurement Financial liabilities are measured at fair value at initial recognition. However, financial liabilities measured subsequently at amortised cost are measured at their fair value less transaction costs that are directly attributable to the issuance of the financial liabilities. Financial liabilities are initially recognised on the trade date when Epson becomes party to the contractual provisions of the financial instrument. (ii) Classification and Subsequent Measurement Financial liabilities are classified into financial liabilities measured subsequently at fair value through profit or loss and financial liabilities measured at amortised cost at initial recognition. After initial recognition, financial liabilities are measured based on the classification as follows: 142 (a) Financial Liabilities Measured at Fair Value through Profit or Loss The financial liabilities measured at fair value through profit or loss are measured at fair value and include financial liabilities designated as measured at fair value through profit or loss at initial recognition. (b) Financial Liabilities Measured at Amortised Cost The 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. (C) 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. (D) Derivatives Accounting Epson utilises 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. A gain or loss on a derivative is recognised in profit or loss. However, the portion of the gain or loss on the hedging instruments that is determined to be an effective hedge of cash flow hedges and hedges of net investments in foreign operations are recognised in other comprehensive income. (E) 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 A gain or loss on a derivative is recognised in profit or loss. The hedging gain or loss on the hedged items attributable to the hedged risks adjusts the carrying amount of the hedged item and is recognised in profit or loss. (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, while the ineffective portion is recognised immediately in profit or loss. 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 a Foreign Operation Hedges of a net investment in a 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, while the ineffective portion is recognised in profit or loss. 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 to profit or loss. 143 (F) Fair Value of Financial Instruments Fair value of financial instruments that are traded in an active market as of the end of the 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 realisable value, and the cost of inventories is assigned by using the weighted-average cost formula. Net realisable 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 asset that is not subject to depreciation such as land, asset is depreciated using the straight-line method over its estimated useful life. The estimated useful life of major asset is as follows: • Buildings and structures: 10 to 35 years • Machinery and vehicles: 4 to 17 years The estimated useful life, 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 business. 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 and not reversed in a subsequent period. (B) Intangible Assets 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 10 years The estimated useful life and amortisation method of an asset 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 is not amortised and tested for impairment annually and whenever there is an indication that the intangible asset may be impaired. (9) Leases At inception of a contract, Epson assesses whether the contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, and recognises lease liabilities and right-of-use assets at the commencement date. 144 Lease liabilities are measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. Right-of-use assets are measured at the amount of the initial measurement of lease liabilities adjusted for any initial direct costs, the prepaid lease payments, restoration costs and other costs. Right-of- use assets are usually depreciated using the straight-line method over the lease term. Interest expenses on lease liabilities are presented in the consolidated statement of comprehensive income separately from the depreciation expenses for right-of-use assets. Epson presents right-of-use assets as “Property, plant and equipment” in the consolidated statement of financial position. Epson does not recognise lease liabilities and right-of-use assets to either short-term leases that have a lease term of 12 months or less, or low-value leases. Epson recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. (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. Except for asset that is not subject to depreciation such as land, investment property is depreciated using the straight- line method over its estimated useful life. The estimated useful life of major investment properties that is subject to depreciation is 35 years. The estimated useful life, 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. (11) Impairment of Non-financial Assets Epson assesses whether there is any indication that property, plant and equipment, goodwill, intangible assets, investment property and right-of-use assets (“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 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 the fiscal year on high quality corporate bonds for the period corresponding to the discount period. 145 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) 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) Share-based Payment The Company has employed a framework referred to as a restricted stock compensation plan and BIP (Board Incentive Plan) trust as equity-settled share-based payment plan for the Company’s directors and executive officers who have been engaged by the Company (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 Company measures the service received at the fair value of its shares granted at the grant date and recognises the consideration as expenses over the vesting period while the corresponding amount is recognised as an increase in equity. The shares of the Company held by BIP trust are accounted as treasury shares. (15) Provisions Epson recognises a 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 will be 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. (16) Revenue Epson recognises revenue by applying the following five steps approach. Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when Epson satisfies a performance obligation Epson is mainly engaged in the manufacture and sale of products of Printing Solutions, Visual Communications, and Manufacturing-related & Wearables. Revenue is recognised when control of a promised good has been transferred to the customer and Epson satisfied its performance obligation. For sales of the products, this generally occurs when a good is physically delivered to a customer. Revenue is measured at the amount of consideration promised in a contract with a customer taking into consideration the effects of price discount, sales rebate, etc. When two or more performance obligations are included in a contract with a customer, Epson allocates the transaction price to each identified performance obligation based on the stand-alone selling price of each product. When the stand-alone selling prices are not directly observable, Epson estimates the selling price, assuming that the products are sold individually and allocates the transaction price based thereon. (17) 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. (18) 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 capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period when they are incurred. (19) 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 146 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 the fiscal year. Deferred tax expense is calculated based on a temporary difference that is the difference between the carrying 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 utilised. 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 and affects neither accounting profit nor taxable profit or loss at the time of the transaction and does not give rise to equal amounts of taxable and deductible temporary differences 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 utilised. Deferred tax assets and liabilities are measured at the tax rates and tax laws 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 the fiscal year. Assets and liabilities are recognised as estimated amounts if uncertain tax position of income taxes arising from interpretation of tax laws and regulations is probable. Epson applies the exception to recognition and disclosure with respect to deferred tax assets and liabilities for income taxes arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules (“global minimum tax”) published by the OECD. (20) 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. (21) 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. For the purpose of the calculation, the shares of the Company held by BIP trust are excluded because the shares are accounted as treasury shares. For the purpose of calculating diluted earnings per share, the rights for the treasury shares held by the trust to be received by eligible officers are adjusted. (22) Dividends Year-end dividend distributions to the shareholders of the Company are recognised as liabilities in the period in which the distribution is approved at 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 for measurements of income, expenses, assets and liabilities, and disclosure of contingencies as of the end of the fiscal year. 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 end of the fiscal year. 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: 147 (1) Impairment of Non-financial Assets Epson performs an impairment test for property, plant and equipment, goodwill, intangible assets, investment property and right-of-use assets (“asset”) when there is any indication that the recoverable amount has fallen below the carrying amount of the assets or when it is required annually. The impairment test is performed by comparing the carrying amount and the recoverable amount of assets or cash- generating units. If the recoverable amount falls below the carrying amount, impairment losses are recognised. Recoverable amount is the higher of fair value less costs of disposal and value in use of assets or cash-generating units with certain assumptions of useful life, future cash flow of an asset, discount rate and long-term growth rate. Value in use is the present value of the future cash flows expected to be derived from assets or cash-generating units and in measuring the value in use, Epson bases cash flow projections on the most recent business plan and others approved by management which includes assumptions such as projected growth in revenue. If an estimate is required for the periods beyond the period covered by the business plan, etc., Epson takes future uncertainties into consideration. The future cash flows include net cash flows from the disposal of the assets or cash-generating units. 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. The content and amounts related to impairment of non-financial assets are stated in “12. Property, Plant and Equipment,” “13. Intangible Assets,” “14. Investment Property,” “15. Impairment of Non-financial Assets” and “20. Lease.” (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 “22. Post-employment Benefits.” (3) Provisions Epson recognises various provisions, including provisions for product warranties and asset retirement obligations. 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 end of the fiscal year. 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 “19. 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. 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 factors such as the business plan which includes assumptions such as projected growth in revenue. 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 “16. Income Taxes.” 148 (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 “38. Contingencies.” 5. New Standards and Interpretations Not Yet Applied The new or amended standards and interpretations that were issued as of the date of approval of the consolidated financial statements but were not yet applied by Epson are principally as follows. Epson currently evaluates the impacts that application of the standard below will have on the consolidated financial statements. 6. Segment Information (1) Outline of Reportable Segments The reportable segments of Epson are determined based on the operating segments that are components of Epson for which discrete financial information is available and whose operating results are regularly reviewed by the Board of Directors in deciding how to allocate resources and in assessing performance. The reportable segments of Epson are composed of three segments: “Printing Solutions,” “Visual Communications” and “Manufacturing-related & Wearables.” They are determined by types of products, nature of products, and markets. Epson conducts development, manufacturing and sales within its reportable segments as follows: Reportable segments Main products Printing Solutions Office/ Home inkjet printers, serial impact dot matrix printers, page printers, color image scanners, dry process office papermaking systems, commercial and industrial inkjet printers, inkjet printheads, printers for use in POS systems, label printers, printer consumables, and others Visual Communications 3LCD projectors, smart glasses, and others Manufacturing-related & Wearables Industrial robots, compact injection molders, wristwatches, watch movements, quartz crystal devices, semiconductors, metal powders, surface finishing, PC, and others IFRS Date of mandatory application (from the fiscal year beginning on or after) Reporting periods of application by Epson (The reporting period ending) Description of new and revised standards IFRS 18 Presentation and Disclosure in Financial Statements January 1, 2027 March 31, 2028 New standard replacing IAS 1, the current accounting standard for presentation and disclosure in financial statements 149 (2) Revenues and Performances of Reportable Segments Revenues and performances of reportable segments were as follows. Transfer prices between the segments were based on prevailing market prices. FY2022: Year ended March 31, 2023 Millions of yen Reportable segments Adjustments (Note 2) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Revenue External revenues 902,345 216,868 205,415 1,324,630 5,701 1,330,331 Intersegment revenues 22 0 10,075 10,098 (10,098) - Total revenue 902,368 216,869 215,490 1,334,728 (4,396) 1,330,331 Segment profit (loss) (Business profit) (Note 1) 89,314 34,878 28,302 152,496 (57,389) 95,106 Other operating income (expense) 1,938 Profit from operating activities 97,044 Finance income (costs) 6,604 Share of profit of investments accounted for using equity method 105 Profit before tax 103,755 Other items Reportable segments Adjustments (Note 3) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Depreciation and amortisation (41,398) (10,211) (9,919) (61,528) (7,087) (68,616) Impairment losses of assets other than financial assets (47) (25) (Note 4) (1,853) (1,926) (39) (1,966) Segment assets 606,278 155,772 173,475 935,525 406,049 1,341,575 Capital expenditures 47,440 7,319 14,901 69,661 8,708 78,370 (Note 1) Segment profit (loss) (Business profit) is calculated by subtracting Cost of sales and Selling, general and administrative expenses from Revenue. (Note 2) “Adjustments” of (¥57,389) million in Segment profit (loss) (Business profit) comprised ¥493 million in eliminated intersegment transactions and (¥57,883) million in Corporate and Other. Corporate and Other mainly included expenses relating to research and development for basic technology, as well as revenues and expenses relating to new businesses and general corporate functions which are not attributed to reportable segments. (Note 3) “Adjustments” of ¥406,049 million in Segment assets included elimination of intersegment transactions of (¥6,849) million and other amounts mainly consisted of corporate assets which are not attributed to reportable segments. (Note 4) Epson recognised an impairment loss of (¥1,850) million in the manufacturing solutions business because it no longer expects to recover some of the investments considering the changes in the market environment and other factors. 150 FY2023: Year ended March 31, 2024 Millions of yen Reportable segments Adjustments (Note 2) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Revenue External revenues 918,630 217,462 170,803 1,306,895 7,102 1,313,998 Intersegment revenues 26 0 9,111 9,138 (9,138) - Total revenue 918,656 217,462 179,914 1,316,034 (2,035) 1,313,998 Segment profit (loss) (Business profit) (Note 1) 96,109 31,592 (1,579) 126,122 (61,400) 64,721 Other operating income (expense) (7,188) Profit from operating activities 57,533 Finance income (costs) 12,537 Share of profit of investments accounted for using equity method 23 Profit before tax 70,094 Other items Reportable segments Adjustments (Note 3) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Depreciation and amortisation (41,855) (9,456) (10,378) (61,690) (6,991) (68,681) Impairment losses of assets other than financial assets (159) (63) (Note 4) (1,067) (1,290) (49) (1,339) Segment assets 628,868 147,622 172,479 948,970 464,124 1,413,094 Capital expenditures 44,109 6,023 12,355 62,488 7,545 70,033 (Note 1) Segment profit (loss) (Business profit) is calculated by subtracting Cost of sales and Selling, general and administrative expenses from Revenue. (Note 2) “Adjustments” of (¥61,400) million in Segment profit (loss) (Business profit) comprised ¥497 million in eliminated intersegment transactions and (¥61,898) million in Corporate and Other. Corporate and Other mainly included expenses relating to research and development for basic technology, as well as revenues and expenses relating to new businesses and general corporate functions which are not attributed to reportable segments. (Note 3) “Adjustments” of ¥464,124 million in Segment assets included elimination of intersegment transactions of (¥6,523) million and other amounts mainly consisted of corporate assets which are not attributed to reportable segments. (Note 4) Epson recognised an impairment loss of (¥606) million in the manufacturing solutions business because it is expected to take time to improve its profitability, due to changes in the market environment, such as economic stagnation and the rise of local manufacturers in China, as well as continued investments in human capital for its business growth. 151 FY2023: Year ended March 31, 2024 Thousands of U.S. dollars Reportable segments Adjustments (Note 2) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Revenue External revenues 6,070,175 1,436,957 1,128,641 8,635,774 46,928 8,682,710 Intersegment revenues 171 0 60,204 60,382 (60,382) - Total revenue 6,070,347 1,436,957 1,188,845 8,696,164 (13,446) 8,682,710 Segment profit (loss) (Business profit) (Note 1) 635,074 208,755 (10,433) 833,396 (405,722) 427,667 Other operating income (expense) (47,497) Profit from operating activities 380,169 Finance income (costs) 82,842 Share of profit of investments accounted for using equity method 151 Profit before tax 463,171 Other items Reportable segments Adjustments (Note 3) Consolidated Printing Solutions Visual Communications Manufacturing- related & Wearables Subtotal Depreciation and amortisation (276,571) (62,483) (68,576) (407,638) (46,195) (453,834) Impairment losses of assets other than financial assets (1,050) (416) (Note 4) (7,050) (8,524) (323) (8,847) Segment assets 4,155,469 975,465 1,139,716 6,270,657 3,066,864 9,337,522 Capital expenditures 291,465 39,799 81,640 412,911 49,856 462,768 (Note 1) Segment profit (loss) (Business profit) is calculated by subtracting Cost of sales and Selling, general and administrative expenses from Revenue. (Note 2) “Adjustments” of ($405,722) thousand in Segment profit (loss) (Business profit) comprised $3,284 thousand in eliminated intersegment transactions and ($409,013) thousand in Corporate and Other. Corporate and Other mainly included expenses relating to research and development for basic technology, as well as revenues and expenses relating to new businesses and general corporate functions which are not attributed to reportable segments. (Note 3) “Adjustments” of $3,066,864 thousand in Segment assets included elimination of intersegment transactions of ($43,103) thousand and other amounts mainly consisted of corporate assets which are not attributed to reportable segments. (Note 4) Epson recognised an impairment loss of ($4,004) thousand in the manufacturing solutions business because it is expected to take time to improve its profitability, due to changes in the market environment, such as economic stagnation and the rise of local manufacturers in China, as well as continued investments in human capital for its business growth. 152 (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 Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Japan 210,741 214,342 1,416,341 The Philippines 44,528 47,844 316,146 Indonesia 33,737 33,637 222,268 China 26,261 30,619 202,325 Other 74,339 80,887 534,489 Total 389,609 407,331 2,691,584 (Note) Non-current assets, excluding Investments accounted for using equity method, Other financial assets, Deferred tax assets and retirement benefits assets, are segmented by the location of the assets. External Revenue Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Japan 232,005 223,396 1,476,168 The United States 309,741 287,541 1,900,029 China 186,314 167,545 1,107,113 Other 602,269 635,514 4,199,385 Total 1,330,331 1,313,998 8,682,710 (Note) Revenues are segmented by country based on the location of the customers. (4) Information about Major Customers Epson had no transactions with a single external customer amounting to 10% or more of total external revenues. 153 7. Cash and Cash Equivalents The breakdown of “Cash and cash equivalents” was as follows: 8. Trade and Other Receivables The breakdown of “Trade and other receivables” was as follows: 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. 9. Inventories The breakdown of “Inventories” was as follows: The amount of inventories included in cost of sales recognised as an expense totaled (¥830,772) million and (¥822,184) million (($5,432,874) thousand) for the years ended March 31, 2023 and 2024, respectively. Losses recognised as cost of sales as a result of valuations for the years ended March 31, 2023 and 2024 were (¥38,998) million and (¥47,488) million (($313,793) thousand), respectively. In addition, Epson has no inventories pledged as collateral. Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Cash and deposits 226,879 257,355 1,700,564 Short-term investments 40,500 71,125 469,983 Total 267,380 328,481 2,170,555 Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Notes and trade receivables 181,624 192,250 1,270,360 Other receivables 21,237 21,540 142,333 Allowance account for credit losses (1,061) (1,009) (6,667) Total 201,801 212,781 1,406,026 Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Merchandise and finished goods 232,355 199,920 1,321,042 Work in process 81,944 82,367 544,269 Raw materials 58,958 58,287 385,152 Supplies 16,213 17,614 116,390 Total 389,473 358,189 2,366,861 154 10. Other Financial Assets (1) The Breakdown of “Other financial assets” The breakdown of “Other financial assets” was as follows: 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 are classified as financial assets measured at fair value through other comprehensive income, and bonds receivable are classified as financial assets measured at fair value through profit or loss, and time deposits are classified as financial assets measured at amortised cost. (2) Equity Instruments Measured at Fair Value Through Other Comprehensive Income The names of major equity instruments measured at fair value through other comprehensive income, their fair values and dividends received were as follows: 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. When the decline in the fair value of equity instruments measured at fair value through other comprehensive income is significant, accumulated loss recognised as other comprehensive income is transferred to retained earnings. The amount of accumulated loss transferred to retained earnings (net of tax) was ¥95 million ($627 thousand) for the year ended March 31, 2024. No amount of accumulated loss was transferred to retained earnings for the year ended March 31, 2023. Fair value Dividends received Fair value Dividends received Fair value Dividends received Mizuho Financial Group, Inc. 2,818 123 4,571 138 30,204 911 NGK Insulators, Ltd. 2,202 82 2,564 72 16,942 475 Millions of yen Thousands of U.S. dollars March 31, 2023 March 31, 2024 March 31, 2024 Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Derivative assets 475 649 4,288 Equity securities 16,180 20,153 133,168 Bonds receivable - 151 997 Time deposits 879 467 3,085 Other 8,648 9,982 65,959 Allowance account for credit losses (43) (38) (251) Total 26,141 31,365 207,255 Current assets 2,164 1,995 13,182 Non-current assets 23,976 29,369 194,066 Total 26,141 31,365 207,255 155 11. Other Assets The breakdown of “Other assets” was as follows: Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Prepaid expense 18,256 14,496 95,787 Advances to suppliers 1,622 2,891 19,103 Other 6,371 6,362 42,039 Total 26,250 23,750 156,936 Current assets 24,030 21,923 144,864 Non-current assets 2,220 1,827 12,072 Total 26,250 23,750 156,936 156 12. 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: Cost Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of April 1, 2022 610,389 536,940 227,770 13,647 68 1,388,816 Individual acquisition 16,853 9,802 5,320 39,117 1 71,095 Transfer from (to) investment property (5,425) - - - - (5,425) Sale or disposal (9,372) (10,649) (11,459) (39) (32) (31,553) Exchange differences on translation of foreign operations 11,277 10,475 13,206 988 2 35,951 Transfer from construction in progress 8,571 19,192 13,631 (41,396) - - Other (35) (70) 64 (138) - (179) As of March 31, 2023 632,258 565,691 248,535 12,179 39 1,458,704 Individual acquisition 12,621 6,849 5,168 38,777 22 63,439 Transfer from (to) investment property (28) - - - - (28) Sale or disposal (18,214) (12,122) (9,855) (243) (19) (40,455) Exchange differences on translation of foreign operations 21,535 19,569 23,910 925 4 65,944 Transfer from construction in progress 12,114 15,518 11,264 (38,897) - - Other (63) (251) 32 (81) (13) (375) As of March 31, 2024 660,224 595,255 279,054 12,659 34 1,547,229 Cost Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of March 31, 2023 4,177,870 3,738,005 1,642,283 80,477 257 9,638,907 Individual acquisition 83,397 45,257 34,149 256,232 145 419,195 Transfer from (to) investment property (185) - - - - (185) Sale or disposal (120,355) (80,100) (65,120) (1,605) (125) (267,320) Exchange differences on translation of foreign operations 142,300 129,309 157,993 6,112 26 435,748 Transfer from construction in progress 80,047 102,540 74,430 (257,025) - - Other (416) (1,658) 211 (535) (85) (2,477) As of March 31, 2024 4,362,665 3,933,359 1,843,948 83,648 224 10,223,867 Millions of yen Thousands of U.S. dollars 157 (Note) Depreciation expense for Property, plant and equipment was included in Cost of sales, Selling, general and administrative expenses and Other operating expense in the consolidated statement of comprehensive income. Accumulated Depreciation and Accumulated Impairment Losses Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of April 1, 2022 (392,460) (453,131) (199,754) (229) (68) (1,045,643) Depreciation expense (Note) (20,767) (22,350) (17,884) - (1) (61,003) Impairment losses (244) (813) (594) (143) - (1,795) Transfer to (from) investment property 4,456 - - - - 4,456 Sale or disposal 8,330 10,427 11,258 - 32 30,048 Exchange differences on translation of foreign operations (4,654) (7,671) (11,770) (10) (2) (24,109) Transfer from construction in progress - (69) (27) 96 - - Other (61) 217 41 10 - 208 As of March 31, 2023 (405,400) (473,390) (218,731) (275) (39) (1,097,838) Depreciation expense (Note) (22,534) (23,608) (16,436) - (3) (62,583) Impairment losses (551) (423) (346) (9) - (1,331) Transfer to (from) investment property 20 - - - - 20 Sale or disposal 15,889 11,777 9,720 97 14 37,500 Exchange differences on translation of foreign operations (9,981) (14,748) (21,337) (2) (3) (46,074) Transfer from construction in progress - (148) (6) 154 - - Other (6) 369 48 0 - 411 As of March 31, 2024 (422,565) (500,172) (247,089) (36) (32) (1,169,895) Accumulated Depreciation and Accumulated Impairment Losses Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of March 31, 2023 (2,678,825) (3,128,093) (1,445,343) (1,817) (257) (7,254,356) Depreciation expense (Note) (148,901) (155,998) (108,606) - (19) (413,539) Impairment losses (3,640) (2,795) (2,286) (59) - (8,795) Transfer to (from) investment property 132 - - - - 132 Sale or disposal 104,992 77,820 64,228 640 92 247,794 Exchange differences on translation of foreign operations (65,953) (97,452) (140,991) (13) (19) (304,450) Transfer from construction in progress - (977) (39) 1,017 - - Other (39) 2,438 317 0 - 2,715 As of March 31, 2024 (2,792,248) (3,305,064) (1,632,728) (237) (211) (7,730,498) Millions of yen Thousands of U.S. dollars 158 Carrying Amount Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of April 1, 2022 217,929 83,809 28,016 13,417 0 343,172 As of March 31, 2023 226,857 92,301 29,803 11,903 0 360,866 As of March 31, 2024 237,659 95,083 31,965 12,623 2 377,333 Carrying Amount Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Construction in progress Other Total As of March 31, 2023 1,499,038 609,911 196,933 78,653 0 2,384,550 As of March 31, 2024 1,570,416 628,294 211,220 83,410 13 2,493,362 Millions of yen Thousands of U.S. dollars 159 13. 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 Product development assets Goodwill Other Total As of April 1, 2022 55,145 9,490 17,439 5,163 5,896 93,135 Individual acquisition 7,350 336 770 - 145 8,602 Sale or disposal (2,627) (65) (912) - (127) (3,732) Exchange differences on translation of foreign operations 1,240 - 17 224 179 1,660 Other (18) 8 - - (741) (750) As of March 31, 2023 61,091 9,770 17,314 5,387 5,352 98,916 Individual acquisition 6,531 3 291 - 13 6,840 Sale or disposal (3,213) (76) (992) - (118) (4,401) Exchange differences on translation of foreign operations 2,564 - 23 442 312 3,342 Other 3 8 - - (0) 11 As of March 31, 2024 66,977 9,706 16,636 5,830 5,559 104,710 Cost Software Patent rights Product development assets Goodwill Other Total As of March 31, 2023 403,680 64,558 114,408 35,596 35,365 653,622 Individual acquisition 43,155 19 1,922 - 85 45,197 Sale or disposal (21,231) (502) (6,554) - (779) (29,081) Exchange differences on translation of foreign operations 16,942 - 151 2,920 2,061 22,083 Other 19 52 - - (0) 72 As of March 31, 2024 442,574 64,135 109,928 38,523 36,733 691,908 Millions of yen Thousands of U.S. dollars 160 (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. Accumulated Amortisation and Accumulated Impairment Losses Software Patent rights Product development assets Goodwill Other Total As of April 1, 2022 (42,497) (7,881) (14,266) - (4,270) (68,916) Amortisation expense (Note) (4,534) (485) (2,314) - (357) (7,692) Impairment losses (167) - - - (2) (170) Sale or disposal 2,611 65 889 - 126 3,693 Exchange differences on translation of foreign operations (947) - (17) - (158) (1,123) Other (14) (8) - - 741 717 As of March 31, 2023 (45,549) (8,310) (15,708) - (3,922) (73,491) Amortisation expense (Note) (4,287) (418) (1,122) - (269) (6,097) Impairment losses (8) - - - - (8) Sale or disposal 3,117 76 992 - 116 4,303 Exchange differences on translation of foreign operations (2,025) - (23) - (277) (2,326) Other (14) (8) - - - (23) As of March 31, 2024 (48,767) (8,662) (15,861) - (4,353) (77,643) Accumulated Amortisation and Accumulated Impairment Losses Software Patent rights Product development assets Goodwill Other Total As of March 31, 2023 (300,981) (54,911) (103,796) - (25,916) (485,617) Amortisation expense (Note) (28,327) (2,762) (7,414) - (1,777) (40,288) Impairment losses (52) - - - - (52) Sale or disposal 20,596 502 6,554 - 766 28,433 Exchange differences on translation of foreign operations (13,380) - (151) - (1,830) (15,369) Other (92) (52) - - - (151) As of March 31, 2024 (322,245) (57,237) (104,807) - (28,764) (513,053) Millions of yen Thousands of U.S. dollars 161 14. Investment Property (1) Schedule of Investment Property The schedule of the carrying amount of “Investment property” was as follows: Carrying Amount Software Patent rights Product development assets Goodwill Other Total As of April 1, 2022 12,648 1,608 3,172 5,163 1,625 24,218 As of March 31, 2023 15,541 1,459 1,606 5,387 1,430 25,425 As of March 31, 2024 18,210 1,043 774 5,830 1,206 27,066 Carrying Amount Software Patent rights Product development assets Goodwill Other Total As of March 31, 2023 102,692 9,640 10,612 35,596 9,449 168,004 As of March 31, 2024 120,329 6,891 5,114 38,523 7,969 178,848 Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Balance at the beginning of the year 1,108 1,097 7,248 Transfer from (to) property, plant and equipment 969 7 46 Depreciation expense (0) (1) (6) Sale or disposal (979) - - Exchange differences on translation of foreign operations 0 0 0 Balance at the end of the year 1,097 1,103 7,288 Breakdown of “Balance at the beginning of the year” Cost 3,148 3,096 20,457 Accumulated depreciation and accumulated impairment losses (2,040) (1,999) (13,209) Total 1,108 1,097 7,248 Breakdown of “Balance at the end of the year” Cost 3,096 3,125 20,649 Accumulated depreciation and accumulated impairment losses (1,999) (2,021) (13,354) Total 1,097 1,103 7,288 162 (2) Fair Value The carrying amount and the fair value of “Investment property” were as follows: Millions of yen Thousands of U.S. dollars March 31, 2023 March 31, 2024 March 31, 2024 Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Investment property 1,097 2,482 1,103 2,557 7,288 16,896 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. 15. Impairment of Non-financial Assets 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 to be disposed of (i.e., assets planned to be disposed or sold etc.) and idle assets are separately assessed for impairment on the individual asset level. Total amount of impairment losses recognised for the year ended March 31, 2023 was ¥1,966 million, mainly comprised “Machinery and equipment” of ¥813 million, “Tools, furniture and fixtures” of ¥594 million and “Land, buildings and structures” of ¥244 million. Impairment losses recognised in the year ended March 31, 2023, was mainly for business assets that belong to the manufacturing solutions business which is a part of the Manufacturing-related & Wearables Segment. The carrying amount was reduced to its recoverable amount because Epson no longer expects to recover some of the investments considering the changes in the market environment and other factors. An impairment loss of ¥1,850 million was recognised. The recoverable amount of ¥4,838 million was measured at fair value less costs of disposal. The fair value less costs of disposal was based on the real estate appraisals, etc. and was classified as Level 3 in the fair value hierarchy. Total amount of impairment losses recognised for the year ended March 31, 2024 was ¥1,339 million ($8,847 thousand), mainly comprised “Land, buildings and structures” of ¥551 million ($3,640 thousand), “Machinery and equipment” of ¥423 million ($2,795 thousand) and “Tools, furniture and fixtures” of ¥346 million ($2,286 thousand). Impairment loss recognised in the year ended March 31, 2024, was mainly for business assets that belong to the manufacturing solutions business which is a part of the Manufacturing-related & Wearables Segment. The carrying amount was reduced to its recoverable amount because it is expected to take time to improve its profitability, due to changes in the market environment, such as economic stagnation and the rise of local manufacturers in China, as well as continued investments in human capital for its business growth. An impairment loss of ¥606 million ($4,004 thousand) was recognised. The recoverable amount of ¥5,044 million ($33,330 thousand) was measured at fair value less costs of disposal. The fair value less costs of disposal was based on the real estate appraisals, etc. and was classified as Level 3 in the fair value hierarchy. Impairment losses were recognised as “Other operating expense” in the consolidated statement of comprehensive income. 163 16. 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: (Note) The difference between the net amount of deferred tax assets recognised in the years ended March 31, 2023 and 2024, 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 utilise 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 utilise deductible temporary differences and 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 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, 2023 and 2024, were ¥13,531 million and ¥15,643 million ($103,366 thousand), respectively. The amounts of deductible temporary differences, for which deferred tax assets have not been recognised, as of March 31, 2023 and 2024, were ¥81,795 million and ¥75,181 million ($496,785 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: Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Inter-company profits and write downs on inventories 20,666 22,826 150,830 Lease liabilities - 8,080 53,391 Fixed assets (Impairment losses and excess of depreciation) 8,269 7,385 48,799 Post-employment benefits 6,493 7,306 48,277 Accrued bonus 7,859 6,716 44,378 Carryforward of unused tax losses 2,097 3,230 21,343 Other 23,548 27,144 179,363 Total deferred tax assets 68,935 82,691 546,410 Undistributed profit (22,789) (24,198) (159,896) Post-employment benefits (11,122) (13,114) (86,655) Right-of-use Assets - (7,750) (51,210) Fixed assets (Short-fall of depreciation) (6,207) (6,079) (40,169) Other (3,927) (4,584) (30,290) Total deferred tax liabilities (44,046) (55,727) (368,236) Net deferred tax assets (Note) 24,888 26,963 178,167 164 Epson has no taxable temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised as of March 31, 2023 and 2024. (2) Tax Expense “Tax expense” recognised as an expense was as follows: Deferred tax expense increased by ¥261 million and increased by ¥79 million ($522 thousand) due to the effect of changes in applicable tax rates for the year ended March 31, 2023 and 2024, respectively. Current tax expense and deferred tax expense include 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. Due to these effects, the current tax expense and the deferred tax expense increased by ¥1,032 million and increased by ¥17 million ($112 thousand) for the years ended March 31, 2023 and 2024, 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 30.5% for the years ended March 31, 2023 and 2024 respectively. Foreign subsidiaries are subject to income tax at their locations. % Year ended March 31, 2023 Year ended March 31, 2024 Effective statutory tax rate 30.5 30.5 Different tax rates applied to foreign subsidiaries (2.9) (2.9) Expenses not deductible for tax purposes 0.6 1.2 Reassessment of recoverability of deferred tax assets 1.0 0.0 Tax credits (3.8) (2.2) Changes in applicable tax rates 0.3 0.1 Other 2.1 (1.7) Actual tax rate 27.7 24.9 Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 1st year - - - 2nd year - - - 3rd year - - - 4th year - - - 5th year and thereafter or indefinite periods 13,531 15,643 103,366 Total 13,531 15,643 103,366 Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Current tax expense (25,834) (22,644) (149,628) Deferred tax expense (2,869) 5,170 34,162 Total (28,703) (17,473) (115,459) 165 (4) Potential Impacts of Global Minimum Tax In Japan, where the Company is located, a tax reform act (“Act for Partial Revision of the Income Tax Act, etc. (Act No. 3 of 2023)”) that includes the relevant regulations for the global minimum tax was enacted on March 28, 2023. As a result, from the fiscal year beginning on or after April 1, 2024, the Company, as a parent company may be subject to additional taxation to the extent that the tax burden in certain overseas subsidiaries, etc reaches up to the minimum tax rate (15%). Epson evaluated the potential impacts based on the tax and financial information of each constituent entity to be subject to the global minimum tax and considers that the impact on the consolidated financial statements is insignificant. 17. Trade and Other Payables The breakdown of “Trade and other payables” was as follows: Trade and other payables are classified as financial liabilities measured at amortised cost. Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Notes and trade payables 88,636 89,461 591,145 Other payables 71,022 70,366 464,968 Total 159,658 159,827 1,056,113 166 18. Bonds issued, Borrowings and Lease liabilities (1) Breakdown of Bonds issued, Borrowings and Lease liabilities The breakdown of “Bonds issued, borrowings and lease liabilities” was as follows: (Note 1) Average interest rates are the weighted average interest rates for the balances at the end of the reporting period. (Note 2) The summary of issuing conditions of the bonds issued was as follows: *The figures in parentheses represent the current portion of bonds issued. Bonds issued, borrowings and lease liabilities are classified as financial liabilities measured at amortised cost. There are no financial covenants on bonds issued and borrowings that have a significant impact on Epson’s financing activities. Thousands of U.S. dollars March 31, 2023 2024 2024 Current borrowings - 589 3,892 4.94 - Current portion of non-current borrowings - 8,998 59,457 0.42 - Current portion of bonds issued (Note 2) 29,989 9,996 66,052 (Note 2) (Note 2) Non-current borrowings 48,467 39,481 260,884 0.35 2027 Bonds issued (Note 2) 119,699 109,784 725,436 (Note 2) (Note 2) Lease liabilities 35,124 35,932 237,433 2.12 2024 to 2068 Total 233,281 204,783 1,353,176 Current liabilities 38,613 29,688 196,174 Non-current liabilities 194,668 175,095 1,157,002 Total 233,281 204,783 1,353,176 Millions of yen % Due March 31, Average interest rate (Note 1) Thousands of U.S. dollars March 31, 2023 2024 2024 The Company The 14th Series unsecured straight bonds issued (with inter- bond pari passu clause) Sep 21, 2016 0.27 Non Sep 21, 2023 20,000 (20,000) - - The Company The 15th Series unsecured straight bonds issued (with inter- bond pari passu clause) Sep 21, 2016 0.34 Non Sep 18, 2026 10,000 10,000 66,078 The Company The 16th Series unsecured straight bonds issued (with inter- bond pari passu clause) Sep 6, 2017 0.26 Non Sep 6, 2024 10,000 10,000 (10,000) 66,078 (66,078) The Company The 17th Series unsecured straight bonds issued (with inter- bond pari passu clause) Sep 6, 2017 0.36 Non Sep 6, 2027 10,000 10,000 66,078 The Company The 18th Series unsecured straight bonds issued (with inter- bond pari passu clause) Jul 19, 2019 0.20 Non Jul 17, 2026 10,000 10,000 66,078 The Company The 19th Series unsecured straight bonds issued (with inter- bond pari passu clause) Jul 19, 2019 0.30 Non Jul 19, 2029 20,000 20,000 132,157 The Company The 20th Series unsecured straight bonds issued (with inter- bond pari passu clause) (Green bonds) Jul 16, 2020 0.02 Non Jul 14, 2023 10,000 (10,000) - - The Company The 21st Series unsecured straight bonds issued (with inter- bond pari passu clause) (Green bonds) Jul 16, 2020 0.23 Non Jul 16, 2025 40,000 40,000 264,314 The Company The 22nd Series unsecured straight bonds issued (with inter- bond pari passu clause) (Green bonds) Jul 16, 2020 0.45 Non Jul 16, 2030 20,000 20,000 132,157 150,000 120,000 792,942 (30,000) (10,000) (66,078) Millions of yen interest rate March 31, Maturity date Company Name of bonds issued Issue date % Collateral 167 (2) Reconciliation of Liabilities arising from Financing Activities The schedule of “Liabilities arising from Financing Activities” was as follows: Millions of yen Current borrowings Non-current borrowings Bonds issued Lease liabilities Total As of April 1, 2022 - 66,452 149,580 27,117 243,151 Changes from cash flows 9 (18,000) - (10,003) (27,993) Non-cash changes New leases - - - 17,050 17,050 Foreign exchange movement (9) - - 1,280 1,270 Other (0) 15 108 (320) (196) As of March 31, 2023 - 48,467 149,689 35,124 233,281 Changes from cash flows 502 - (30,000) (10,033) (39,531) Non-cash changes New leases - - - 9,637 9,637 Foreign exchange movement 87 - - 3,353 3,440 Other - 12 91 (2,150) (2,045) As of March 31, 2024 589 48,480 119,781 35,932 204,783 Thousands of U.S. dollars Current borrowings Non-current borrowings Bonds issued Lease liabilities Total As of March 31, 2023 - 320,262 989,123 232,094 1,541,487 Changes from cash flows 3,317 - (198,235) (66,296) (261,215) Non-cash changes New leases - - - 63,679 63,679 Foreign exchange movement 574 - - 22,156 22,731 Other - 79 601 (14,206) (13,513) As of March 31, 2024 3,892 320,348 791,495 237,433 1,353,176 “Non-current borrowings” and “Bonds issued” in the tables above include their current portion. 168 19. Provisions The breakdown and the schedule of “Provisions” were as follows: FY2022: Year ended March 31, 2023 Provision for product warranties Asset retirement obligations Provision for loss on litigation Other provisions Total As of April 1, 2022 12,489 4,073 564 1,908 19,035 Arising during the year 3,811 50 207 419 4,488 Utilised (1,932) (377) (116) (468) (2,895) Unused amounts reversed (1,304) - (120) (304) (1,729) Exchange differences on translation of foreign operations 573 44 30 31 680 As of March 31, 2023 13,636 3,790 565 1,586 19,579 Current liabilities 10,452 34 462 378 11,327 Non-current liabilities 3,183 3,755 103 1,208 8,252 Total 13,636 3,790 565 1,586 19,579 FY2023: Year ended March 31, 2024 Provision for product warranties Asset retirement obligations Provision for loss on litigation Other provisions Total As of April 1, 2023 13,636 3,790 565 1,586 19,579 Arising during the year 4,448 160 247 1,563 6,419 Utilised (3,769) (113) (162) (604) (4,649) Unused amounts reversed (1,101) - (77) (110) (1,289) Exchange differences on translation of foreign operations 1,354 104 71 (30) 1,500 As of March 31, 2024 14,567 3,942 645 2,404 21,560 Current liabilities 10,708 133 543 1,318 12,703 Non-current liabilities 3,858 3,809 101 1,086 8,856 Total 14,567 3,942 645 2,404 21,560 FY2023: Year ended March 31, 2024 Provision for product warranties Asset retirement obligations Provision for loss on litigation Other provisions Total As of April 1, 2023 90,104 25,043 3,733 10,480 129,375 Arising during the year 29,391 1,057 1,632 10,328 42,415 Utilised (24,905) (746) (1,070) (3,991) (30,719) Unused amounts reversed (7,275) - (508) (726) (8,517) Exchange differences on translation of foreign operations 8,947 687 469 (198) 9,911 As of March 31, 2024 96,256 26,048 4,262 15,885 142,465 Current liabilities 70,756 878 3,588 8,709 83,939 Non-current liabilities 25,493 25,169 667 7,176 58,519 Total 96,256 26,048 4,262 15,885 142,465 Millions of yen Millions of yen Thousands of U.S. dollars 169 (1) Provision for product warranties For warranty expenditures, Epson recognises the provisions for estimated amounts based on the rate of historical service contract expenses to sales as well as estimated amounts for those products where future warranty expenses can be reliably estimated. Most of these expenditures are expected to be paid in the next fiscal year. (2) Asset retirement obligations Epson recognises provisions for asset retirement obligation which derive from the acquisition, construction, development or normal use of property, plant and equipment. Epson is required to bear the amount of asset retirement obligation that it is probable that Epson will pay in light of historical experience. These expenditures are expected to be paid mainly after five years or more. However, they may be affected by future business plans. (3) Provision for loss on litigation Epson recognises provisions for loss on litigation in process or possible litigation based on the reasonably estimated compensation for damages and litigation expenses at an amount deemed necessary at the end of the period. Most of these expenditures are expected to be paid in the next fiscal year. 170 20. Lease (1) Leasing Activities Epson enters into contracts mainly for real estate of business office and warehouse and other as a lessee. Extension and termination options are mainly included in leases of real estate, and these options are used by the lessee as necessary to utilise real estate. (2) Right-of-use Assets The schedule of the carrying amount of “Right-of-use asset” was as follows: Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Total As of April 1, 2022 29,195 1,688 382 31,265 Individual acquisition 14,747 1,625 634 17,006 Depreciation (8,205) (1,016) (320) (9,543) Exchange differences on translation of foreign operations 1,671 97 3 1,772 Other (250) (48) (3) (301) As of March 31, 2023 37,158 2,346 695 40,200 Individual acquisition 7,785 1,616 222 9,624 Depreciation (9,218) (1,218) (371) (10,808) Exchange differences on translation of foreign operations 3,744 232 15 3,992 Other (2,009) (79) (13) (2,102) As of March 31, 2024 37,461 2,896 549 40,907 Land, buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Total As of March 31, 2023 245,534 15,502 4,592 265,635 Individual acquisition 51,442 10,678 1,466 63,594 Depreciation (60,911) (8,048) (2,451) (71,417) Exchange differences on translation of foreign operations 24,739 1,533 99 26,378 Other (13,275) (522) (85) (13,889) As of March 31, 2024 247,536 19,136 3,627 270,307 Millions of yen Thousands of U.S. dollars 171 (3) Breakdown of Profit or Loss Related to Lease Transactions The breakdown of profit or loss related to lease transactions was as follows: Millions of yen Thousands of U.S. dollars Year ended Year ended March 31, March 31, 2023 2024 2024 Interest expenses paid for lease liabilities (417) (821) (5,425) Short-term leases (5,675) (6,114) (40,400) Low-value leases (62) (59) (389) Variable leases (472) (595) (3,931) (4) Maturity analysis of lease liabilities The maturity analysis of lease liabilities is stated in “34. Financial Instruments (4) Liquidity Risk.” 21. Other Liabilities The breakdown of “Other liabilities” was as follows: Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Accrued expense 27,378 27,094 179,033 Accrued bonus 35,176 29,775 196,748 Accrued employee’s unused paid vacations 29,418 31,381 207,361 Contract liabilities 28,415 30,742 203,138 Refund liabilities 32,266 37,811 249,849 Other 15,860 19,723 130,326 Total 168,515 176,529 1,166,478 Current liabilities 152,900 159,163 1,051,726 Non-current liabilities 15,615 17,365 114,745 Total 168,515 176,529 1,166,478 172 22. 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. The decision to implement pension buy-out for the primary pension plan for the subsidiaries located in the U.K. was made. In the year ended March 31, 2024, in preparation for the pension buy-out, a portion of plan assets held by the pension plan had been contributed to the insurance company and Epson concluded an insurance agreement with the insurance company that ensures the receipt of an amount of money equivalent to pension benefits for pensioners in the future (pension buy-in). The pension buy-out is scheduled to be implemented in 2025. With the implementation of pension buy-in, the pension plan was released from the risk of management of plan assets and the risk of increase in defined benefit obligations due to a rise in longevity of pensioners and other factors. However, if the insurance company does not pay employee benefits stipulated in the insurance policy to employees, Epson continues to have legal or constructive obligations to make an additional payment. (1) Schedule of Defined Benefit Obligations The schedule of the defined benefit obligations was as follows: Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Balance at the beginning of the year 319,899 295,666 1,953,718 Service cost 8,907 9,066 59,906 Interest cost 3,813 5,227 34,539 Remeasurement Actuarial gains and losses arising from changes in demographic assumptions 116 141 931 Actuarial gains and losses arising from changes in financial assumptions (25,058) (11,849) (78,296) Exchange differences on translation of foreign operations 1,213 3,706 24,488 Benefits paid (13,225) (13,464) (88,968) Balance at the end of the year 295,666 288,494 1,906,327 173 (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 ¥5,657 million ($37,380 thousand) for the year ending March 31, 2025. (Note) Return on plan assets for the year ended March 31, 2024 included the difference of (¥4,270) million (($28,215) thousand) from the remeasurement of plan assets at fair value due to the pension buy-in. (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 The effect of the asset ceiling was as follows: Millions of yen Thousands of U.S. dollars Year ended Year ended March 31, March 31, 2023 2024 2024 Balance at the beginning of the year - - - Remeasurement Effect of changes in the asset ceiling - 18,863 124,644 Balance at the end of the year - 18,863 124,644 Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Balance at the beginning of the year 297,966 283,950 1,876,300 Interest income 3,108 4,457 29,451 Remeasurement Return on plan assets (Note) (13,901) 8,364 55,268 Exchange differences on translation of foreign operations 846 2,908 19,215 Contributions by the employer 7,576 10,469 69,177 Contributions by plan participants 1,089 1,079 7,129 Benefits paid (12,735) (13,164) (86,985) Balance at the end of the year 283,950 298,065 1,969,570 174 (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 (assets) recognised in the consolidated statement of financial position were as follows: Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Funded defined benefit obligations 287,359 279,112 1,844,332 Plan assets (283,950) (298,065) (1,969,570) Subtotal 3,409 (18,952) (125,232) Unfunded defined benefit obligations 8,307 9,382 61,994 Effect of the asset ceiling - 18,863 124,644 Net defined benefit liabilities (assets) recognised in the consolidated statement of financial position 11,716 9,293 61,406 Net defined benefit liabilities 13,164 13,836 91,426 Net defined benefit assets (1,447) (4,543) (30,019) Net defined benefit liabilities (assets) recognised in the consolidated statement of financial position 11,716 9,293 61,406 175 (6) Breakdown of Plan Assets The breakdown of plan assets by major category was as follows. In plan assets, there are no transferable financial instruments, real estate held by Epson or other assets used by Epson. (Note 1) Alternative investments are the investments through hedge funds, multi-asset funds, securitisation funds and other funds. (Note 2) A certain interest rate and principal for the general accounts of life insurance companies are guaranteed by life insurance companies. (Note 3) The amount of ¥16,808 million ($111,064 thousand) shown in “Other” for the year ended March 31, 2024 is related to insurance contracts for pension buy-in. 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 medium and long-term in order to ensure the redemption of the defined benefit obligations. Epson sets the 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. Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Investments quoted in active markets Equity securities 13,868 15,237 100,683 Bonds receivable 5,709 188 1,242 Alternative investments (Note 1) 312 428 2,828 Cash and deposits 3,772 1,874 12,383 Other 3,389 3,835 25,341 Total 27,053 21,563 142,485 Investments unquoted in active markets Pooled funds (Equity securities) 35,866 45,103 298,034 Pooled funds (Bonds receivable) 44,206 47,252 312,234 General accounts of life insurance companies (Note 2) 135,840 135,648 896,342 Alternative investments (Note 1) 40,536 31,689 209,396 Other (Note 3) 446 16,808 111,064 Total 256,896 276,501 1,827,078 176 (7) Matters Related to Actuarial Assumptions The major item of actuarial assumptions was as follows: % March 31, 2023 March 31, 2024 Discount rate 1.7 2.2 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, 2024 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. The weighted-average duration of the defined benefit obligations at March 31, 2024 was 13.5 years. (8) Defined Contribution Plans Expenses for the defined contribution plans were ¥23,529 million and ¥24,477 million ($161,740 thousand) for the years ended March 31, 2023 and 2024, respectively. Millions of yen Thousands of U.S. dollars March 31, March 31, 2024 2024 Discount rate (1% increase) (35,097) (231,915) Discount rate (1% decrease) 40,615 268,378 177 23. Equity and Other Equity Items (1) Share Capital and Capital Surplus The schedule of the number of authorised shares, issued shares, the amount of “Share capital” and “Capital surplus” was as follows: (Note 1) The shares issued by the Company are ordinary shares with no par value that have no restriction on any content of rights. (Note 2) The decrease in the number of shares issued during the year ended March 31, 2023 was due to the cancellation of treasury shares. (2) Treasury Shares The schedule of the number of treasury shares and the corresponding amount was as follows: (Note 1) Net decrease in the number of treasury shares during the year ended March 31, 2023 resulted from: the repurchase of treasury shares by resolution of the Board of Directors1 14,612,500 shares the cancellation of treasury shares by resolution of the Board of Directors2 (14,612,500) shares the disposal of treasury shares as restricted stock compensation (81,477) shares the delivery to beneficiaries of BIP trust (28,352) shares the purchase of odd shares 458 shares (Note 2) Net decrease in the number of treasury shares during the year ended March 31, 2024 resulted from: the disposal of treasury shares as restricted stock compensation (75,422) shares the delivery to beneficiaries of BIP trust (33,085) shares the purchase of odd shares 784 shares (Note 3) The number of treasury shares as of March 31, 2023 included 142,255 shares held by BIP trust. (Note 4) The number of treasury shares as of March 31, 2024 included 109,170 shares held by BIP trust. Number of authorised shares (Note 1) Number of ordinary shares issued (Note 1) Share capital Capital surplus Share capital Capital surplus As of April 1, 2022 1,214,916,736 399,634,778 53,204 84,010 Increase (decrease) (Note 2) - (14,612,500) - (30) As of March 31, 2023 1,214,916,736 385,022,278 53,204 83,979 351,564 554,921 Increase (decrease) - - - 62 - 409 As of March 31, 2024 1,214,916,736 385,022,278 53,204 84,042 351,564 555,337 Thousands of U.S. dollars Millions of yen a share a share Thousands of U.S. dollars Number of treasury shares Amount Amount As of April 1, 2022 53,616,006 40,808 Increase (decrease) (Note 1) (109,371) 14,777 As of March 31, 2023 (Note 3) 53,506,635 55,586 367,304 Increase (decrease) (Note 2) (107,723) (131) (865) As of March 31, 2024 (Note 4) 53,398,912 55,455 366,438 a share Millions of yen 178 1 Repurchase of treasury shares At a meeting of its Board of Directors held on May 19, 2022, the Company resolved on a share repurchase and its specific repurchase procedures pursuant to Article 156 of the Companies Act of Japan as applied pursuant to Article 165, Paragraph 3 of the same act, and implemented the share repurchase. Details of the share repurchase undertaken are as follows. Details of the resolution at Board of Directors held on May 19, 2022 was as follows: Class of shares to be repurchased Ordinary shares Total number of repurchasable shares 33 million (maximum) (9.53% of the total number of issued shares (excluding treasury share)) Total repurchase amount 30,000 million yen (maximum) Repurchase period May 20, 2022 to May 19, 2023 Repurchase method Purchase on the Tokyo Stock Exchange (By securities company using discretionary method) Total number of shares repurchased based on resolution of aforementioned Board of Directors’ meeting was as follows: Class of shares to be repurchased Ordinary shares Total number of repurchasable shares 14,612,500 shares Total repurchase amount 29,999,962,900 yen Repurchase period May 20, 2022 to January 16, 2023 Repurchase method Purchase on the Tokyo Stock Exchange (By securities company using discretionary method) 2 Cancellation of treasury shares At a meeting of its Board of Directors held on February 21, 2023, the Company resolved on a cancellation of treasury shares pursuant to Article 178 of the Companies Act of Japan, and implemented the cancellation of treasury shares. Class of shares to be cancelled Ordinary shares Total number of retirement shares 14,612,500 shares Date of cancellation March 8, 2023 (3) Capital Surplus The Companies Act of Japan provides that no less than 50% of the paid-in amount or proceeds of issuance of shares shall be incorporated in share capital, and that the remaining shall be incorporated in legal capital surplus. Legal capital surplus may be incorporated in share capital upon approval of the shareholders’ meeting. (4) Retained Earnings The Companies Act of Japan provides that earnings in an amount equal to 10% of dividends from retained earnings shall be appropriated as a legal capital surplus or legal retained earnings until an aggregated amount of legal capital surplus and legal retained earnings equals 25% of share capital. Legal retained earnings may be used to eliminate or reduce a deficit and be reversed upon approval of the shareholders’ meeting. 179 (5) Other Components of Equity (A) Remeasurement of net defined benefit liabilities (assets) This comprises actuarial gains and losses in the present value of the defined benefit obligation and the return on plan assets excluding amounts included in net interest on the net defined benefit liabilities (assets). The amount is recognised as other comprehensive income and is transferred immediately from other components of equity to retained earnings. (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 Epson consolidates financial statements of foreign operations 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. 24. Dividends Dividends paid were as follows: (Note 1) The amount of dividends includes dividends of ¥5 million corresponding to the Company’s shares held by BIP trust. (Note 2) The amount of dividends includes dividends of ¥4 million corresponding to the Company’s shares held by BIP trust. (Note 1) The amount of dividends includes dividends of ¥5 million corresponding to the Company’s shares held by BIP trust. (Note 2) The amount of dividends includes dividends of ¥4 million corresponding to the Company’s shares held by BIP trust. FY2022: Year ended March 31, 2023 Millions of yen Yen (Resolution) Total dividends Dividends per share Class of shares Basis date Effective date Board of Directors Meeting (October 28, 2022) Ordinary shares (Note2) 10,591 31 Annual Shareholders Meeting (June 28, 2022) Ordinary shares (Note1) 10,731 31 September 30, 2022 November 30, 2022 March 31, 2022 June 29, 2022 FY2023: Year ended March 31, 2024 Millions of yen Yen (Resolution) Total dividends Dividends per share March 31, 2023 June 28, 2023 Class of shares Basis date Effective date Board of Directors Meeting (October 27, 2023) Ordinary shares (Note2) 12,274 37 Annual Shareholders Meeting (June 27, 2023) Ordinary shares (Note1) 13,597 41 September 30, 2023 November 30, 2023 180 (Note 1) The amount of dividends includes dividends of $33 thousand corresponding to the Company’s shares held by BIP trust. (Note 2) The amount of dividends includes dividends of $26 thousand corresponding to the Company’s shares held by BIP trust. Dividends, whose effective dates fall on in the next year, were as follows: (Note) The amount of dividends includes dividends of ¥5 million corresponding to the Company’s shares held by BIP trust. (Note) The amount of dividends includes dividends of ¥4 million corresponding to the Company’s shares held by BIP trust. (Note) The amount of dividends includes dividends of $26 thousand corresponding to the Company’s shares held by BIP trust. FY2023: Year ended March 31, 2024 Thousands of U.S. dollars U.S. dollars (Resolution) Total dividends Dividends per share Board of Directors Meeting (October 27, 2023) Ordinary shares (Note2) 81,104 0.24 Annual Shareholders Meeting (June 27, 2023) Ordinary shares (Note1) 89,847 0.27 Class of shares Basis date Effective date March 31, 2023 June 28, 2023 September 30, 2023 November 30, 2023 FY2022: Year ended March 31, 2023 Millions of yen Yen (Resolution) Total dividends Dividends per share Class of shares Basis date Effective date Annual Shareholders Meeting (June 27, 2023) March 31, 2023 June 28, 2023 Ordinary shares (Note) 13,597 41 FY2023: Year ended March 31, 2024 Millions of yen Yen (Resolution) Total dividends Dividends per share Annual Shareholders Meeting (June 25, 2024) Ordinary shares (Note) 12,274 37 Class of shares Basis date Effective date March 31, 2024 June 26, 2024 FY2023: Year ended March 31, 2024 Thousands of U.S. dollars U.S. dollars (Resolution) Total dividends Dividends per share 0.24 March 31, 2024 Class of shares Basis date Effective date June 26, 2024 Annual Shareholders Meeting (June 25, 2024) Ordinary shares (Note) 81,104 181 25. Revenue (1) Disaggregation of Revenue The revenue of the reportable segments stated in “6. Segment Information” are disaggregated by each business. The relationship between the disaggregated revenue and the reportable segments was as follows: Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Printing Solutions Segment 902,368 918,656 6,070,347 Office and Home Printing business 653,477 650,833 4,300,611 Commercial and Industrial Printing business 248,919 267,936 1,770,482 Inter-segment revenue (28) (113) (746) Visual Communications Segment 216,869 217,462 1,436,957 Manufacturing-related & Wearables Segment 215,490 179,914 1,188,845 Manufacturing solutions business 30,542 24,770 163,676 Wearable products business 35,881 34,753 229,642 Microdevices business and other 130,792 104,333 689,417 PC business 21,917 19,639 129,771 Inter-segment revenue (3,642) (3,582) (23,669) Others (Note 1) (4,396) (2,035) (13,446) Total 1,330,331 1,313,998 8,682,710 Revenue recognised from contracts with customers 1,326,901 1,310,348 8,658,591 Revenue recognised from other sources (Note 2) 3,430 3,649 24,112 Total 1,330,331 1,313,998 8,682,710 (Note 1) “Others” includes revenues which are not attributed to reportable segments and inter-segment eliminations. (Note 2) “Revenue recognised from other sources” includes lease income under IFRS 16. Epson is mainly engaged in the manufacture and sale of products of Printing Solutions, Visual Communications, and Manufacturing-related & Wearables. Revenue is recognised when control of a promised good has been transferred to the customer and Epson satisfied its performance obligation. For sales of the products, this generally occurs when a good is physically delivered to a customer. Certain products require work such as set up or installation. In such cases, Epson determines that the performance obligation has been satisfied and recognises revenue at the time of the customer’s acceptance after the work is completed. Epson provides the option of maintenance services such as extended warranties at the time of sales of the products. For the maintenance service contracts, since performance obligations are satisfied over time, the amount of consideration promised in the contract with a customer is recognised as revenue evenly over the contract period. Contract liability is recognised until performance obligations are satisfied, in cases where Epson receives the consideration for the sale of the product as an advanced payment before the good deliveries, or Epson receives the consideration for the maintenance service contracts as a single advanced payment at contract inception, etc. In certain cases, Epson sells products to customers such as distributors with rebates, etc. on condition that they achieve certain targets, etc. In such cases, Epson determines the transaction price by deducting the estimated rebates, etc. from the consideration promised in the contract with the customer. The estimated rebates, etc. are calculated using a reasonable method based on factors such as historical trends and recent information, and revenue is recognised only to the extent that it is highly probable that a significant revenue reversal will not occur. Consideration for transactions is received mainly within one year after the performance obligation is satisfied, in accordance with the terms and conditions of a contract with a customer and includes no significant financing components. 182 (2) Contract Balance The breakdown of the balance of receivables and contract liabilities from contracts with customers was as follows: Millions of yen Thousands of U.S. dollars April 1, March 31, March 31, March 31, 2022 2023 2024 2024 Receivables from contracts with customers 168,221 201,801 212,781 1,406,026 Contract liabilities 23,743 28,415 30,742 203,138 Current liabilities 12,289 14,814 15,364 101,523 Non-current liabilities 11,454 13,601 15,377 101,609 Contract liabilities are included in “Other current liabilities” and “Other non-current liabilities” in the consolidated statement of financial position. Amount of revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods was not material. (3) Transaction Price Allocated to the Remaining Performance Obligations Epson uses the practical expedient of omitting the disclosure of information on the remaining performance obligations because it has no significant transactions with expected contractual terms exceeding one year. Additionally, there are no significant amounts that are not included in the transaction price in the consideration from a contract with a customer. 26. Selling, General and Administrative Expenses The breakdown of “Selling, general and administrative expenses” was as follows: Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Employee benefit expense (138,892) (147,294) (973,297) Research and development expense (44,357) (44,286) (292,635) Promotion expense (32,738) (33,707) (222,731) Advertising expense (26,512) (27,261) (180,136) Transportation expense (24,647) (22,984) (151,874) Service contract expense (16,366) (17,883) (118,168) Depreciation and amortisation (15,888) (17,189) (113,582) Other (72,139) (81,338) (537,469) Total (371,544) (391,945) (2,589,916) 183 27. Employee Benefit Expenses The employee benefit expenses included in Cost of sales and Selling, general and administrative expenses in the consolidated statement of comprehensive income were as follows: 28. Other Operating Income Other operating income in the consolidated statement of comprehensive income for the year ended March 31, 2023 included foreign exchange gain of ¥2,484 million, gain on sale of property, plant and equipment, intangible assets and investment property of ¥1,518 million and government grant income of ¥754 million. In addition, gain on sale of scrap and other items were included but there were no individually material items. Other operating income in the consolidated statement of comprehensive income for the year ended March 31, 2024 included government grant income of ¥424 million ($2,801 thousand) and foreign exchange gain of ¥42 million ($277 thousand). In addition, gain on sale of scrap and other items were included but there were no individually material items. 29. Other Operating Expense Other operating expense in the consolidated statement of comprehensive income for the year ended March 31, 2023 included impairment loss of ¥1,966 million and loss on disposal of property, plant and equipment and intangible assets of ¥780 million. Other operating expense in the consolidated statement of comprehensive income for the year ended March 31, 2024 included expenses related to a pension buy-out for the primary pension plan for the subsidiaries located in the U.K. of ¥4,829 million ($31,909 thousand) and impairment loss of ¥1,339 million ($8,847 thousand). Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Salaries and wages (258,094) (258,419) (1,707,595) Legal welfare expense (25,534) (26,951) (178,088) Welfare expense (13,320) (13,316) (87,990) Expenses of post-employment benefits Expense for defined contribution plans (23,529) (24,477) (161,740) Expense for defined benefit plans (8,453) (8,955) (59,173) Total (328,931) (332,120) (2,194,601) 184 30. Finance Income and Finance Costs The breakdowns of “Finance income” and “Finance costs” were as follows: (Note 1) The increase or decrease in the fair value of currency derivatives is included in the foreign exchange gain (loss). (Note 2) The employee benefit expense is the net amount of interest cost and interest income related to employee benefits. Finance Income Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Foreign exchange gain (Note 1) 5,330 10,287 67,975 Interest income 2,947 4,559 30,125 Dividend income 361 405 2,676 Total 8,639 15,252 100,783 Finance Costs Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Interest expense (1,256) (1,540) (10,176) Employee benefit expense (Note 2) (705) (769) (5,081) Other (72) (403) (2,662) Total (2,034) (2,714) (17,933) 185 31. 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: “Reclassification adjustments” shows the amounts of hedging instruments that are reclassified to profit or loss when the transactions of the hedged items affect profit or loss. It is mainly treated as “Revenue” in the consolidated statement of comprehensive income. FY2022: Year ended March 31, 2023 Amount arising Reclassification adjustments Before tax effects Tax effects Net of tax effects Remeasurement of net defined benefit liabilities (assets) 11,041 - 11,041 (3,278) 7,762 Net gain (loss) on revaluation of financial assets measured at FVTOCI (Note) 2,399 - 2,399 (542) 1,857 Exchange differences on translation of foreign operations 27,827 - 27,827 - 27,827 Net changes in fair value of cash flow hedges 898 (310) 587 (176) 410 Share of other comprehensive income of investments accounted for using equity method 3 - 3 - 3 Total 42,170 (310) 41,859 (3,998) 37,861 (Note) FVTOCI: Fair Value Through Other Comprehensive Income FY2023: Year ended March 31, 2024 Amount arising Reclassification adjustments Before tax effects Tax effects Net of tax effects Remeasurement of net defined benefit liabilities (assets) 5,313 - 5,313 (1,921) 3,392 Net gain (loss) on revaluation of financial assets measured at FVTOCI (Note) 3,658 - 3,658 (629) 3,029 Exchange differences on translation of foreign operations 49,580 - 49,580 - 49,580 Net changes in fair value of cash flow hedges (6,146) 7,066 920 (282) 637 Share of other comprehensive income of investments accounted for using equity method 64 - 64 - 64 Total 52,470 7,066 59,537 (2,832) 56,704 FY2023: Year ended March 31, 2024 Amount arising Reclassification adjustments Before tax effects Tax effects Net of tax effects Remeasurement of net defined benefit liabilities (assets) 35,107 - 35,107 (12,693) 22,413 Net gain (loss) on revaluation of financial assets measured at FVTOCI (Note) 24,171 - 24,171 (4,156) 20,015 Exchange differences on translation of foreign operations 327,617 - 327,617 - 327,617 Net changes in fair value of cash flow hedges (40,611) 46,691 6,079 (1,863) 4,209 Share of other comprehensive income of investments accounted for using equity method 422 - 422 - 422 Total 346,714 46,691 393,411 (18,713) 374,691 (Note) FVTOCI: Fair Value Through Other Comprehensive Income Millions of yen Millions of yen Thousands of U.S. dollars (Note) FVTOCI: Fair Value Through Other Comprehensive Income 186 32. Earnings per Share (1) Basis of Calculating Basic Earnings per Share (2) Basis of Calculating Diluted Earnings per Share (Note) For the purpose of calculation of basic earnings per share and diluted earnings per share, the shares of the Company held by BIP trust are accounted as treasury shares and the number of those shares are deducted from weighted-average number of ordinary shares outstanding during the period. Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Profit for the period attributable to owners of the parent company 75,043 52,616 347,678 Profit for the period not attributable to owners of the parent company - - - Profit used for calculation of basic earnings per share 75,043 52,616 347,678 Weighted-average number of ordinary shares outstanding (Thousands of Shares) 339,952 331,589 331,589 Basic earnings per share (Yen) 220.75 (Yen) 158.68 ($) 1.05 Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Profit used for calculation of basic earnings per share 75,043 52,616 347,678 Adjustments - - - Profit used for calculation of diluted earnings per share 75,043 52,616 347,678 Weighted-average number of ordinary shares outstanding (Thousands of Shares) 339,952 331,589 331,589 Effect of dilutive potential ordinary shares BIP trust for eligible officers (Thousands of Shares) 77 44 44 Weighted-average number of ordinary shares diluted (Thousands of Shares) 340,029 331,634 331,634 Diluted earnings per share (Yen) 220.70 (Yen) 158.66 ($) 1.05 187 33. Share-based Payment (1) Restricted Stock Compensation Plan (A) Summary of Restricted Stock Compensation Plan The Company has employed a framework referred to as a restricted stock compensation plan as equity-settled share- based payment plan for the Company’s directors and executive officers who have been engaged by the Company (collectively referred to hereafter as “Eligible Officer(s) for RS,” 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) with the aim of further promoting sharing of value with shareholders and providing officers with a greater incentive than before to increase the stock price, sustain growth, and increase medium- to long-term corporate value. The plan pre-delivers restricted stock to Eligible Officers for RS under condition on the execution of their duties for a certain period. Once a year, Eligible Officers for RS shall receive monetary remuneration claim in respect of restricted stock under the resolution of the board of directors of the Company and then will receive a delivery of restricted stock by in-kind contribution of the relevant monetary remuneration claims to the Company. Eligible Officers for RS shall not transfer, pledge, grant security interests, gift during their lifetime, or bequeath, to any third party, or otherwise dispose of restricted stock during the period from the date of allotment to the date on which they resign or retire from their position as either a director, executive officer, or employee of the Company. If an Eligible Officer for RS resigns or retires from his or her position as a director, executive officer, or employee of the Company during the period of executing his or her duties, or if any prescribed events occur, the Company will acquire the allotted stock without compensation, unless there are extenuating circumstances that the Company’s Board of Directors deem reasonable. (B) Number of Shares Granted during the Year and Fair Value (Note) The Fair value at the grant date is calculated based on the closing price of the Company’s ordinary share at the Tokyo Stock Exchange as of the previous business day of the resolution of the share allotment by the Board of Directors. (2) Performance-Linked Stock Compensation Plan Summary of Performance-Linked Stock Compensation Plan The Company has employed a framework referred to as BIP (Board Incentive Plan) trust as performance-linked equity-settled share-based payment plan for the Company’s directors and executive officers who have been engaged by the Company (collectively referred to hereafter as “Eligible Officers for BIP,” 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 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 medium and long-term. The Eligible Officers for BIP are awarded a specific number of points each year based on their position and other factors (1 point = 1 share). Such points fluctuate depending on the levels of achievement of the medium and long- term operating performance targets of Epson. The vesting condition is basically for the Eligible Officers for BIP to render services for three years to a vesting date after a grant date of points. With the introduction of the restricted stock compensation plan in the fiscal year ended March 31, 2023, no additional contribution shall be made under BIP and BIP is scheduled to be terminated as soon as the ordinary shares of the Company corresponding to the points awarded and deliver cash equivalent to the amounts obtained through converting such shares into cash. Year ended March 31, Year ended March 31, 2023 2024 2024 Grant date July 20, 2022 July 19, 2023 July 19, 2023 Number of granted shares 81,477 75,422 75,422 Fair value at the grant date (Note) ¥2,012 ¥2,214.5 $15 188 (3) Stock Compensation Expenses 34. 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: Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Interest-bearing debt 233,281 204,783 1,353,176 Cash and cash equivalents (267,380) (328,481) (2,170,555) Net interest-bearing debt (34,098) (123,697) (817,372) Capital (equity attributable to owners of the parent company) 727,352 810,992 5,358,918 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 monitors credit ratings for financial soundness and flexibility, and ROE (return on equity) and ROIC (return on invested capital) 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 regularly reported by the finance 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 does not transact derivatives for speculation purposes or trading purposes. (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 equity securities and bonds receivable of customers and suppliers, mainly for the purpose of investing surplus funds and strengthening relationships with them; those securities and bonds 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 finance department of Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Restricted stock compensation 151 169 1,116 Performance-linked stock compensation 28 26 171 Total 180 195 1,288 189 the Company regularly monitors the status of the occurrence and collection of bad debts, and reports them to the Executive Committee of the Company. 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 finance department of the Company regularly monitors the performances of these transactions and reports the results to the Executive Committee of the Company. The carrying amount of the financial asset presented in consolidated statement of financial position is the maximum exposure related to the credit risk. Epson does not have an important exposure for a specific counterparty and there is no over-concentrated credit risk with specific controls. There are no collateral or other credit enhancements related to credit risk exposures. For impairment of financial assets, Epson recognises a loss allowance for expected credit losses. Epson assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. Epson determines whether the credit risk of financial instruments has increased significantly based on fluctuations in the risk of default, taking into consideration internal credit ratings, the financial condition of counterparties, and the existence of contractual breaches such as overdues. The loss allowance for items such as trade receivables, which account for the majority of Epson’s financial assets, is calculated by comprehensively measuring the lifetime expected credit losses based on historical experience rates. However, when a counterparty is in serious financial difficulty, or when objective evidence such as bankruptcy or extreme delinquency exists, Epson deems the financial assets to be credit-impaired and measures the expected credit loss individually. Epson directly reduces the gross carrying amount of a financial asset when Epson has no reasonable expectations of recovering a financial asset in its entirety or portion thereof. The loss allowance for these financial assets is included in trade and other receivables or other financial assets in the consolidated statement of financial position. The schedule for the allowance account for credit losses of “Trade and other receivables” and “Other financial assets” was as follows. There was no significant change in the total carrying amount in the previous or current consolidated fiscal year that would affect changes in the loss allowance. Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Balance as of April 1 1,209 1,104 7,295 Addition 430 487 3,218 Decrease (utilised) (213) (358) (2,365) Decrease (reversal) (497) (323) (2,134) Other 174 137 905 Balance as of March 31 1,104 1,047 6,918 190 (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 finance 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: FY2022: As of March 31, 2023 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 Trade and other payables 159,658 159,658 159,658 - - - - - Borrowings 48,467 48,500 - 9,000 30,000 500 9,000 - Bonds issued 149,689 150,000 30,000 10,000 40,000 20,000 10,000 40,000 Lease liabilities 35,124 37,256 8,981 7,530 5,739 3,997 3,122 7,884 Other 4,089 4,010 371 494 7 297 1,018 1,820 Total 397,029 399,425 199,012 27,025 75,746 24,794 23,141 49,704 Derivative financial liabilities Foreign exchange forward contract 2,715 2,715 2,715 - - - - - Currency option 249 249 249 - - - - - Total 2,965 2,965 2,965 - - - - - FY2023: As of March 31, 2024 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 Trade and other payables 159,827 159,827 159,827 - - - - - Borrowings 49,070 49,089 9,589 30,000 500 9,000 - - Bonds issued 119,781 120,000 10,000 40,000 20,000 10,000 - 40,000 Lease liabilities 35,932 38,702 10,711 8,295 5,900 3,922 2,755 7,116 Other 5,406 5,237 150 742 18 1,664 428 2,233 Total 370,017 372,857 190,278 79,037 26,419 24,587 3,183 49,349 Derivative financial liabilities Foreign exchange forward contract 2,581 2,581 2,581 - - - - - Currency option - - - - - - - - Total 2,581 2,581 2,581 - - - - - FY2023: As of March 31, 2024 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 Trade and other payables 1,056,113 1,056,113 1,056,113 - - - - - Borrowings 324,247 324,373 63,362 198,235 3,303 59,470 - - Bonds issued 791,495 792,942 66,078 264,314 132,157 66,078 - 264,314 Lease liabilities 237,433 255,737 70,776 54,812 38,986 25,916 18,204 47,021 Other 35,722 34,605 991 4,903 118 10,995 2,828 14,755 Total 2,445,019 2,463,785 1,257,329 522,265 174,572 162,467 21,032 326,091 Derivative financial liabilities Foreign exchange forward contract 17,054 17,054 17,054 - - - - - Currency option - - - - - - - - Total 17,054 17,054 17,054 - - - - - Non-derivative financial liabilities Millions of yen Non-derivative financial liabilities Millions of yen Non-derivative financial liabilities Thousands of U.S. dollars 191 (5) Foreign Exchange Risk Epson operates businesses globally and, therefore, is mainly 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 and other means 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 risks (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 finance department of the Company regularly reports the performances to the Executive Committee of the Company. The breakdown of currency derivatives was as follows: 192 Derivative transactions to which hedge accounting is not applied (Note) Currency option is the zero-cost option contract, and call option and put option are shown as a lump sum because they are included in integrated contract. FY2022: As of March 31, 2023 Assets Liabilities Foreign exchange forward contract Selling Euro (Yen buying) 11,244 - - 345 140.67 JPY / EUR Australian Dollar (Yen buying) 3,382 - 83 - 91.25 JPY / AUD Yuan Renminbi (U.S. Dollar buying) 17,014 - - 211 0.14 USD / CNY Non-Deliverable Forward Selling Indian Rupee (U.S. Dollar buying) 3,999 - - 31 0.01 USD / INR New Taiwan Dollar (U.S. Dollar buying) 2,876 - 4 - 0.03 USD / TWD Won (U.S. Dollar buying) 402 - - 23 0.00 USD / KRW Currency option (Note) Selling and Buying Euro (Yen buying) 4,305 - - 217 136.81 JPY / EUR Total 43,225 - 87 829 FY2023: As of March 31, 2024 Assets Liabilities Assets Liabilities Foreign exchange forward contract Selling Euro (Yen buying) 18,708 - - 1,056 153.83 JPY / EUR 123,619 - 6,977 Australian Dollar (Yen buying) 2,729 - - 206 91.06 JPY / AUD 18,032 - 1,361 Yuan Renminbi (U.S. Dollar buying) 8,858 - 88 - 0.14 USD / CNY 58,532 581 - Non-Deliverable Forward Selling Indian Rupee (U.S. Dollar buying) 5,446 - - 27 0.01 USD / INR 35,986 - 178 New Taiwan Dollar (U.S. Dollar buying) 2,339 - 59 - 0.03 USD / TWD 15,455 389 - Won (U.S. Dollar buying) 1,156 - 39 - 0.00 USD / KRW 7,638 257 - Currency option (Note) Selling and Buying Euro (Yen buying) - - - - - - - - Total 39,238 - 187 1,291 259,279 1,235 8,530 Average rate Millions of yen Thousands of U.S. dollars Contract amount Over one year Carrying amount Average rate Contract amount Carrying amount Contract amount Over one year Millions of yen Carrying amount 193 Derivative transactions to which hedge accounting is applied (Note 1) Cash flow hedge is applied, and derivative transactions are measured at fair value and recognised in “Other financial assets” or “Other financial liabilities” in the consolidated statement of financial position. (Note 2) Currency option is the zero-cost option contract, and call option and put option are shown as a lump sum because they are included in integrated contract. FY2022: As of March 31, 2023 Assets Liabilities Foreign exchange forward contract Selling Euro (Yen buying) 52,184 - - 1,325 140.01 JPY / EUR Australian Dollar (Yen buying) 4,538 - 22 - 88.30 JPY / AUD Yuan Renminbi (U.S. Dollar buying) 29,020 - - 293 0.15 USD / CNY Non-Deliverable Forward Selling Indian Rupee (U.S. Dollar buying) 10,383 - - 99 0.01 USD / INR New Taiwan Dollar (U.S. Dollar buying) 2,968 - - 8 0.03 USD / TWD Won (U.S. Dollar buying) 4,616 - - 10 0.00 USD / KRW Currency option (Note 2) Selling and Buying Euro (Yen buying) 829 - - 32 138.54 JPY / EUR Total 104,542 - 22 1,770 FY2023: As of March 31, 2024 Assets Liabilities Assets Liabilities Foreign exchange forward contract Selling Euro (Yen buying) 46,335 - - 1,115 156.88 JPY / EUR 306,175 - 7,367 Australian Dollar (Yen buying) 4,199 - - 95 94.41 JPY / AUD 27,746 - 627 Yuan Renminbi (U.S. Dollar buying) 30,752 - 212 - 0.14 USD / CNY 203,204 1,400 - Non-Deliverable Forward Selling Indian Rupee (U.S. Dollar buying) 10,980 - - 18 0.01 USD / INR 72,554 - 118 New Taiwan Dollar (U.S. Dollar buying) 3,650 - 94 - 0.03 USD / TWD 24,118 621 - Won (U.S. Dollar buying) 4,649 - 94 - 0.00 USD / KRW 30,719 621 - Currency option (Note 2) Selling and Buying Euro (Yen buying) - - - - - - - - Total 100,569 - 401 1,230 664,545 2,649 8,127 Millions of yen Contract amount Over one year Carrying amount (Note 1) Average rate Millions of yen Thousands of U.S. dollars Contract amount Over one year Carrying amount (Note 1) Average rate Contract amount Carrying amount (Note 1) 194 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, 2024 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. (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, 2024 increases by 100 bp, 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. (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. 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, 2024 was ¥1,007 million ($6,654 thousand) due to the changes in the fair value. Millions of yen Thousands of U.S. dollars March 31, March 31, 2024 2024 Profit before tax 14,734 97,360 Millions of yen Thousands of U.S. dollars March 31, March 31, 2024 2024 Profit before tax 710 4,691 195 (8) Fair Value of Financial Instruments (A) Fair value measurement The fair values of financial instruments are measured 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) Current borrowings are measured at their carrying amounts, because they are settled on a short-term basis and 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 by using the interest rates that would be applied if similar new borrowings were conducted. (Bonds issued) The fair values are calculated based on prices obtained from financial institutions. (B) Fair value hierarchy The fair value hierarchy of financial instruments is categorised 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 unobservable inputs for the assets and liabilities The transfers between levels in the fair value hierarchy are deemed to have occurred at the end of the reporting period. 196 (i) Financial instruments measured at amortised cost The carrying amounts and the fair value hierarchy of financial instruments measured at amortised cost were as follows. The fair values of financial instruments that are not listed on the tables below approximate the carrying amounts. “Borrowings” and “Bonds issued” in the tables above include their current portion. FY2022: As of March 31, 2023 Level 1 Level 2 Level 3 Total Financial liabilities measured at amortised cost Borrowings 48,467 - 48,362 - 48,362 Bonds issued 149,689 - 148,960 - 148,960 Total 198,157 - 197,322 - 197,322 FY2023: As of March 31, 2024 Level 1 Level 2 Level 3 Total Financial liabilities measured at amortised cost Borrowings 49,070 - 48,963 - 48,963 Bonds issued 119,781 - 118,571 - 118,571 Total 168,851 - 167,534 - 167,534 FY2023: As of March 31, 2024 Level 1 Level 2 Level 3 Total Financial liabilities measured at amortised cost Borrowings 324,247 - 323,540 - 323,540 Bonds issued 791,495 - 783,500 - 783,500 Total 1,115,743 - 1,107,040 - 1,107,040 Millions of yen Carrying amount Fair value Thousands of U.S. dollars Carrying amount Fair value Carrying amount Fair value Millions of yen 197 (ii) Financial instruments measured at fair value The fair value hierarchy of financial instruments measured at fair value was as follows: There were no transfers of financial instruments between Level 1 and Level 2 of the fair value hierarchy during each reporting period. FY2022: As of March 31, 2023 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivative financial assets - 475 - 475 Equity securities 10,828 - 5,351 16,180 Bonds receivable - - - - Total 10,828 475 5,351 16,656 Financial liabilities measured at fair value Derivative financial liabilities - 2,965 - 2,965 Total - 2,965 - 2,965 FY2023: As of March 31, 2024 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivative financial assets - 649 - 649 Equity securities 12,623 - 7,529 20,153 Bonds receivable - - 151 151 Total 12,623 649 7,681 20,953 Financial liabilities measured at fair value Derivative financial liabilities - 2,581 - 2,581 Total - 2,581 - 2,581 FY2023: As of March 31, 2024 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivative financial assets - 4,288 - 4,288 Equity securities 83,410 - 49,750 133,168 Bonds receivable - - 997 997 Total 83,410 4,288 50,754 138,454 Financial liabilities measured at fair value Derivative financial liabilities - 17,054 - 17,054 Total - 17,054 - 17,054 Fair value Millions of yen Fair value Millions of yen Thousands of U.S. dollars Fair value 198 The movement of financial instruments categorised within Level 3 of the fair value hierarchy was as follows: (Note) Included in “Other operating income” and “Other operating expense” in the consolidated statement of comprehensive income. 35. Principal Subsidiaries The content of principal subsidiaries is stated in “I. Overview of Company, 4. Subsidiaries and other affiliated entities.” 36. 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 for directors and other members of key management personnel was as follows: (Note) The Company has introduced an officers’ shareholding association system to link compensation more closely to shareholders’ value. The acquisition of the Company’s shares accounts for a portion of the short-term remuneration. Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Balance as of April 1 3,795 5,351 35,358 Gains and losses Profit or loss (Note) - 16 105 Other comprehensive income 878 941 6,217 Purchase 827 1,371 9,059 Sales (150) - - Balance as of March 31 5,351 7,681 50,754 Millions of yen Thousands of U.S. dollars Year ended March 31, Year ended March 31, 2023 2024 2024 Short-term remuneration 397 303 2,002 Stock compensation 47 51 337 Total 445 355 2,345 199 37. Commitments Commitments for the acquisition of assets after the fiscal year end were as follows: 38. Contingencies Material litigation In general, litigation has uncertainties and it is difficult to make a reliable estimate of financial effect of the possibility of an outflow of resources embodying economic benefits. Epson does not recognise provisions when either an outflow of resources embodying economic benefits is not probable or an estimate of financial effect is not practicable. Epson had the following material action. 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. Millions of yen Thousands of U.S. dollars March 31, March 31, 2023 2024 2024 Acquisition of property, plant and equipment 12,614 14,156 93,540 Acquisition of intangible assets 1,393 1,338 8,841 Total 14,007 15,495 102,388 200 39. Subsequent Events Share repurchase The Company resolved at the meeting of its Board of Directors held on April 26, 2024 on a share repurchase (“this share repurchase”) pursuant to Article 156 of the Companies Act of Japan as applied pursuant to Article 165, Paragraph 3 of the same act. (1) Purpose of this share repurchase To achieve greater capital efficiency and to further enhance shareholder returns (2) Details of this share repurchase a. Class of shares to be repurchased Ordinary shares b. Total number of shares to be repurchased 17,000,000 shares (maximum) (5.12% of outstanding shares, excluding treasury shares) c. Total repurchase amount 30 billion yen (maximum) d. Repurchase period July 18, 2024, to March 31, 2025 e. Repurchase method Purchase on the Tokyo Stock Exchange (by securities company using discretionary method) The Company plans to cancel all the treasury shares to be acquired as part of this repurchase. Establishment of a Subsidiary The Company resolved at the meeting of its Board of Directors held on May 16, 2024 to establish an in-house insurance company in Hawaii, USA, (the “New Company”). The New Company is classified as a specified subsidiary because its capital amount is more than 10% that of the Company. (1) Reasons for the establishment of the New Company To further strengthen risk control and respond to rising cost of non-life insurance (2) Outline of the New Company a. Name Epson Global Reinsurance, Inc. b. Place Hawaii, USA c. The job title and name of the representative Junichi Watanabe, president d. Business Profile Epson Group reinsurance e. Capital stock 8,100 million yen (scheduled) f. Date of establishment September 2, 2024 (scheduled) g. Major shareholders and shareholding ration The Company 100% h. Relationship between the listed company and the relevant company Capital relationship: 100% owned by the Company Personal relationship: Two Executive Officers and one employee of the Company serve as directors of the New Company Business relationship: The New Company will underwrite insurance policies relating to Epson Group The establishment of the New Company has no significant impact on the consolidated financial statements. 40. Approval of Consolidated Financial Statements The consolidated financial statements were approved by Yasunori Ogawa (President and Representative Director) and Masaharu Mizukami (Executive Officer and General Administrative Manager, Business Management Division) on June 25, 2024. 201 (2) Other 1. Quarterly information for the fiscal year under review (Cumulative) Q1 Q2 Q3 Full year Revenue (millions of yen) 314,840 638,533 992,101 1,313,998 Profit before tax (millions of yen) 28,273 38,363 59,644 70,094 Profit for the period attributable to owners of the parent company (millions of yen) 20,188 27,479 42,468 52,616 Basic earnings per share (yen) 60.90 82.88 128.08 158.68 (Accounting period) Q1 Q2 Q3 Q4 Basic earnings per share (yen) 60.90 21.99 45.20 30.60 2. Material litigation, etc. Material litigation concerning Epson is as stated in “(1) Consolidated financial statements, Notes to Consolidated Financial Statements, 38. Contingencies.” 202 VI. Outline of Share-Related Administration of Reporting Company Fiscal year From April 1 to March 31 Ordinary General Meeting of Shareholders June Record date March 31 Record date for dividends of surplus September 30 March 31 Number of shares constituting one unit 100 shares Purchase of shares of less than one unit Brokerage (Special account) Mizuho Trust & Banking Co., Ltd. 3-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo Transfer agent Mitsubishi UFJ Trust and Banking Corporation 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo Intermediary offices – Purchase fees Amount to be determined separately as an equivalent amount to the fees incurred in brokering the purchase or sale of shares. 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) Public notice website address https://kmasterplus.pronexus.co.jp/main/corp/6/7/6724/index.html (Japanese) Benefits for shareholders Not applicable. (Note) As stipulated in the Company’s Articles of Incorporation, holders of shares of less than one unit have no rights other than the right to make demands in accordance with the provisions of Article 189 Paragraph 2 and Article 166 Paragraph 1 of the Companies Act and the right to receive an allotment of shares for subscription and an allotment of share options for subscription in accordance with the number of shares held. 203 VII. Reference Information of Reporting Company 1. Information about parent of reporting company The Company does not have a parent company. 2. Other reference information The following documents have been filed in the period between the first day of the current business year and the filing date of the Annual Securities Report. (1) Securities Registration Statement (disposal of treasury shares as restricted stock compensation) and attached documents Filed to Director-General of Kanto Local Finance Bureau on June 27, 2023 (2) Annual securities report and attached documents, and Written confirmation Filed to Director-General of Kanto Local Finance Bureau on June 28, 2023 Business year: 81st term (from April 1, 2022 to March 31, 2023) (3) Internal control report Filed to Director-General of Kanto Local Finance Bureau on June 28, 2023 Business year: 81st term (from April 1, 2022 to March 31, 2023) (4) Amendment to Securities Registration Statement and attached documents Filed to Director-General of Kanto Local Finance Bureau on June 28, 2023 (Amendment to the Securities Registration Statement as (1) above) (5) Current reports Filed to Director-General of Kanto Local Finance Bureau on June 30, 2023 An extraordinary report based on the provision of Article 19 Paragraph 2 Item 9-2 (matters requiring a resolution of a shareholders’ meeting) of the Cabinet Office Order on Disclosure of Corporate Affairs. (6) Amendment to Securities Registration Statement and attached documents Filed to Director-General of Kanto Local Finance Bureau on June 30, 2023 (Amendment to the Securities Registration Statement as (1) above) (7) Quarterly securities report, and Written confirmation Filed to Director-General of Kanto Local Finance Bureau on August 1, 2023 First quarter of the 82nd term (from April 1, 2023 to June 30, 2023) (8) Quarterly securities report, and Written confirmation Filed to Director-General of Kanto Local Finance Bureau on October 31, 2023 Second quarter of the 82nd term (from July 1, 2023 to September 30, 2023) (9) Quarterly securities report, and Written confirmation Filed to Director-General of Kanto Local Finance Bureau on February 6, 2024 Third quarter of the 82nd term (from October 1, 2023 to December 31, 2023) 204 (10) Current reports Filed to Director-General of Kanto Local Finance Bureau on February 22, 2024 An extraordinary report based on the provision of Article 19 Paragraph 2 Item 9 (change to the representative director) of the Cabinet Office Order on Disclosure of Corporate Affairs. (11) Share Buyback Report Filed to Director-General of Kanto Local Finance Bureau on May 16, 2024 For the month of April 2024 (from April 1, 2024 to April 30, 2024) (12) Current reports Filed to Director-General of Kanto Local Finance Bureau on May 16, 2024 An extraordinary report based on the provision of Article 19 Paragraph 2 Item 3 (changes in specified subsidiaries) of the Cabinet Office Order on Disclosure of Corporate Affairs. (13) Share Buyback Report Filed to Director-General of Kanto Local Finance Bureau on June 5, 2024 For the month of May 2024 (from May 1, 2024 to May 31, 2024) (14) Securities Registration Statement (disposal of treasury shares as restricted stock compensation) and attached documents Filed to Director-General of Kanto Local Finance Bureau on June 25, 2024 205 Part 2. Information About Reporting Company’s Guarantor, Etc. Not applicable. 206 Report of Independent Auditors Independent Auditor’s Report The Board of Directors Seiko Epson Corporation The Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of Seiko Epson Corporation and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at March 31, 2024, and the consolidated statements of comprehensive income, changes in equity, and cash flows for the year then ended, and notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2024, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. Recoverability of Deferred Tax Assets Description of Key Audit Matter Auditor’s Response Seiko Epson Corporation (the Company) recorded deferred tax assets of 36,117 million yen (2% of total assets) in the consolidated statement of financial position as of the current fiscal year end and as described in Note 16 Income Taxes to the consolidated financial statements, deferred tax assets before offsetting against deferred tax liabilities was 82,691 million yen. We mainly performed the following procedures to assess the recoverability of deferred tax assets. ・We understood and assessed processes of developing the business plan for a basis of the estimate of future taxable income. We also assessed the precision level of the business plan for the future taxable income by evaluating the consistency of the 207 The Company takes account of all significant temporary differences, the expected future taxable income and the period in which carryforward of unused tax losses might expire, and recognizes deferred tax assets for all deductible temporary differences and the carryforward of unused tax losses to the extent that it is probable that future taxable income will be available against which they can be utilized. The recoverability of deferred tax assets is primarily based on the estimate of future taxable income by management. The estimate is based on the business plan classified by business areas such as “growth areas”, “mature areas” and “new areas” in accordance with the Company’s long-range corporate vision “Epson 25 Renewed”, and the Company primarily uses the following significant assumptions in the business plan. ・A projected revenue growth in growth areas (office printing, commercial & industrial printing, printhead sales, and production systems) ・A feasibility of the planned structural changes and maintaining and increasing revenue in mature areas (home printing, projection, watches, and microdevices) In addition to the above, the planned measures in cost controls and reductions in each business areas are reflected on the business plan. These assumptions involve uncertainty, as they largely depend on external environment such as market competitions in the same industry, uncertainty in the global economy, natural disasters and fundamental changes in society. They are also affected by the subjectivity inherent in management forecast. Therefore, we determined it to be a key audit matter. assumptions used in the business plan with those used in other accounting estimates and performing a trend analysis with comparing the estimate of the taxable income with actual results for the previous fiscal years. ・We compared the market trends embedded in the business plan and the Company’s market share with publicly available market related data such as market forecast reports published by external organizations to assess whether the projected growth in revenue in growth areas and maintaining and increasing revenue in mature areas, which are the significant assumptions included in the business plan, are reasonable. ・We inquired the specifics of the planned measures and inspected related documents to assess whether the feasibility of the planned structural changes in mature areas and the planned measures in cost controls and reductions in each business areas is reasonable. ・With an involvement of the tax specialists of our network firm, we evaluated the accuracy of the amount of the temporary differences and the carryforward of unused tax losses by recalculating. We also reviewed scheduling of the reversals of the existing temporary differences and the utilizations of the carryforward of unused tax losses by recalculating and agreeing to related documents. Other Information The other information comprises the information included in the Annual Securities Report that contains audited consolidated financial statements but does not include the consolidated financial statements and our auditor’s report thereon. Management is responsible for preparation and disclosure of the other information. The Audit and Supervisory Committee is responsible for overseeing the Group’s reporting process of the other information. 208 Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Audit and Supervisory Committee for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern and disclosing, as required by IFRSs, matters related to going concern. The Audit and Supervisory Committee is responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ・ Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. ・ Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group’s internal control. ・ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 209 ・ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ・ Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with IFRSs. ・ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit and Supervisory Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit and Supervisory Committee with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied to reduce threats to an acceptable level. From the matters communicated with the Audit and Supervisory Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Convenience Translation The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2024 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 to the consolidated financial statements. Fee-related Information The fees for the audits of the financial statements of Seiko Epson Corporation and its subsidiaries and other services provided by us and other EY member firms for the year ended March 31, 2024 are presented in paragraph 5 titled “Details of audit remuneration” in section “4. Corporate governance (3) Internal audits” included in Item IV “Information About Reporting Company” in Part1 of the Annual Securities Report for the year ended March 31, 2024 of the Group. 210 Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan. Ernst & Young ShinNihon LLC Tokyo, Japan June 25, 2024 /s/ Makoto Usui Designated Engagement Partner Certified Public Accountant /s/ Takuya Tanaka Designated Engagement Partner Certified Public Accountant /s/ Ryuichi Minami Designated Engagement Partner Certified Public Accountant 3-3-5 Owa, Suwa, Nagano 392-8502, Japan TEL: +81-266-52-3131 corporate.epson/en/