Metgasco Limited
Annual Report 2014

Plain-text annual report

Please address inquiries for further information to: Mitsubishi Electric Corporation, Corporate Finance Div. Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo 100-8310, Japan Phone: 81-3-3218-2391 X-X01-4-C9401-A　HQ1407〈IP〉 A Global, Leading Green Company That Enriches Society with Technology. Contents 02 To Our Shareholders 08 Review of Operations 13 Research and Development / 03 Financial Highlights 08 Energy and Electric Systems Intellectual Property 04 Corporate Strategy 09 Industrial Automation 16 Corporate Social Responsibility 06 At a Glance Systems 19 Corporate Governance Fiscal 2014 Overview 10 Information and 20 Directors and Executive Officers Communication Systems 21 Organization 11 Electronic Devices 12 Home Appliances 22 Major Subsidiaries and Affiliates 23 Financial Section 73 Corporate Data / Shareholder Information As the Mitsubishi Electric Group comes closer to celebrating in fiscal 2021 the 100th anniversary of our founding, we will contribute to the enrichment of society as a global, leading green company. By "enriching society," we mean creating a “people-friendly” society where everyone can live their lives in safety, peace of mind, health, and comfort—and at the same time an “earth-friendly” society that reduces impact to the environment by advancing the efficient use and reuse of resources and energy. We of the Mitsubishi Electric Group have come to provide cutting-edge technologies and diverse businesses globally, and on a broad scale of applications ranging from homes, offices, and factories to social infrastructure and outer space. “To pave the way to a better and brighter tomorrow”—this will be our mindset for future efforts as we increase collaboration within the Group and continually challenge ourselves to innovate. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 01 To Our Shareholders Looking back on the economic situation during the fiscal year in growth strategies that include: promoting environment-related ended March 31, 2014 (hereinafter fiscal 2014), the Japanese business strategies; expanding business activities in China, India, domestic economy recovered due to factors such as an improve- and other emerging economies; bolstering the social infrastruc- ment in business confidence following the further weakening of ture systems business; and developing the solutions business by the yen. Outside Japan as well, economies in general continued combining a wide array of technologies with expertise gained in to gradually expand. the security business and other fields. Under these circumstances, the Mitsubishi Electric Group placed Furthermore, regarding our aspiration to realize a higher level of greater emphasis than ever before on promoting growth strategies growth, we aim to enhance corporate value by promoting robust rooted in its competitive advantages as well as on efforts to boost growth strategies based on renewed and meticulous efforts to its competitiveness and strengthen its management structure. bolster operations in the area of Soundness—one of the three key As a result, the Mitsubishi Electric Group recorded consolidated viewpoints of Balanced Corporate Management—with particular net sales of ¥4,054.3 billion in the fiscal year ended March 31, consideration also being given to corporate ethics and compliance. 2014, an increase of 14% compared with the previous fiscal year. The promotion of such growth strategies is underpinned by a Operating income increased 55% year on year to ¥235.1 billion, management foundation realigned to be even stronger. for a Group operating income ratio of 5.8%. Meanwhile, net As we stride forward resolutely to achieve our goals, we ask for income increased 121% to ¥153.4 billion. Accordingly, we your continued support. reached our management targets of establishing a return on equity (ROE) above 10% and keeping interest-bearing debt to total assets below 15%. Moving forward, we have revised our growth targets and will carry out a variety of measures in order to achieve consolidated net sales of ¥5 trillion or more and an operating income ratio of 8% or more by fiscal 2021. The Mitsubishi Electric Group is taking steps to strengthen its initiatives in growing market fields. To that end, we are engaging 02 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 July 2014 President & CEO Masaki Sakuyama Financial Highlights Performance for the Year Ended March 31, 2014 Years ended March 31 Net sales Operating income Net income attributable to Mitsubishi Electric Corp. Total assets Interest-bearing debt Mitsubishi Electric Corp. shareholders’ equity Capital expenditures R&D expenditures Per-Share Amounts Net income attributable to Mitsubishi Electric Corp. Basic Diluted Cash dividends declared Statistical Information Operating income ratio Return on equity (ROE) Interest-bearing debt to total assets 2014 ¥4,054,359 235,172 153,473 3,612,966 373,478 1,524,322 151,840 178,945 Yen (millions) 2013 2012 ¥3,567,184 152,095 69,517 3,410,410 540,572 1,300,070 150,425 172,222 ¥3,639,468 225,444 112,063 3,391,651 542,291 1,132,465 159,346 169,686 U.S. dollars (thousands) 2014 $39,362,709 2,283,223 1,490,029 35,077,340 3,626,000 14,799,243 1,474,175 1,737,330 Yen U.S.dollars ¥71.49 ¥32.38 ¥52.20 — 17 5.8% 10.9 10.3 — 11 4.3% 5.7 15.9 — 12 % 6.2% 10.3 16.0 $0.694 — 0.165 — — — See accompanying Notes to Consolidated Financial Statements on page 39. 1 The Company prepares consolidated financial statements with procedures, accounting terms, forms, and preparation that are in conformity with accounting principles generally accepted in the United States of America based on the rules and regulations applicable in Japan. 2 Operating income is presented as net sales less cost of sales, selling, general, administrative and R&D expenses, and loss on impairment of long-lived assets. 3 Diluted net income per share attributable to Mitsubishi Electric Corp. is not included in the above figure as no dilutive securities existed. 4 U.S. dollar amounts are translated from yen at the rate of ¥103=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2014. Net Sales Breakdown by Business Segment Others 14.6% Net sales ¥676,034 million Energy and Electric Systems 25.4% Net sales ¥1,180,093 million Home Appliances 20.3% Net sales ¥944,351 million Electronic Devices 4.2% Net sales ¥194,658 million Industrial Automation Systems 23.7% ¥1,098,796 million Net sales Information and Communication Systems 11.8% ¥548,282 million Net sales MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 03 Corporate Strategy Management Policy Management Policy Maintain Balanced Corporate Management for Sustainable Growth Growth • Accelerate the growth of strong businesses • Further global expansion • Create new strong businesses • Reinforce the solutions business Greater Corporate Value Profitability Efficiency • Enhance capital efficiency • Create a stronger business foundation Soundness • Constantly review and refresh business portfolio • Maintain sound financial standing • Promote thorough Ethics and Compliance and CSR initiatives Toward a Higher Level of Growth The Mitsubishi Electric Group has established three management ensure the health of its businesses by constantly reviewing and refreshing its business portfolio, the Group will work toward the targets to be continuously and stably achieved: an operating realization of true, sound growth. income ratio of 5% or more, an ROE of 10% or more, and a ratio of interest-bearing debt to total assets of 15% or less. In fiscal 2014, the Group achieved an operating income ratio, ROE, and Management Targets In fiscal 2014, the Mitsubishi Electric Group recuperated consoli- ratio of interest-bearing debt to total assets of 5.8%, 10.9%, and dated net sales above ¥4.0 trillion as well as an operating income 10.3% respectively, meaning that it was able to simultaneously ratio of 5% or more. Taking these positive results into consider- achieve these three management targets for the first time in ation, it has revised its growth targets for fiscal 2021 to consoli- three years. Building on these results, the Group has positioned dated net sales of ¥5.0 trillion or more and an operating income fiscal 2015 as a year in which it will work toward an even higher ratio of 8% or more. Looking ahead, the Group will also continue level of growth. In addition to a continued focus on balanced with efforts to achieve the following management targets contin- management initiatives, the Group will endeavor to expand sales uously and stably: to secure an ROE of 10% or more, and to while concurrently increasing profitability. Making efforts to secure an interest-bearing debt to total assets ratio of 15% or less. Growth Targets to be Achieved by Fiscal 2021 Management Targets to be Continuously and Stably Achieved Net sales Operating income ratio ROE ¥5.0 trillion or more 8 % or more 10 % or more Ratio of interest-bearing debt to total assets 15 % or less 04 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 The Mitsubishi Electric Group, based on its Corporate Mission and Seven Guiding Principles, has positioned corporate social responsibility (CSR) initiatives as the pillar of its corporate management. It seeks to become a corporation that is trusted by society, customers, shareholders, and employ-ees and that earns their satisfaction through its business activities. Concerning corporate social respon-sibility, in particular corporate ethics and compliance, the entire Mitsubishi Electric Group will continue to strengthen its internal control systems and thoroughly implement education and training. Since fiscal 2002, the Mitsubishi Electric Group has continued to pursue sustainable growth by undertak-ing balanced management initiatives that stem from the three perspectives of growth, profitability and efficiency, and soundness. Looking ahead, the Group will carry out these initiatives while accelerating the global expansion of its environment-and-energy-relat-ed and social-infrastructure-related systems businesses, as a global, leading green company that is committed to the creation of a prosperous society. Along with its efforts to secure business growth, the Group will work diligently to increase corporate value.Bolstering Growth Strategies The Mitsubishi Electric Group’s strength lies in its solid technology Further Global Business Expansion The Mitsubishi Electric Group works actively to achieve stable platform, which encompasses a wide range of technologies, such growth and greater profitability in the Japanese market. At the as control technologies as well as power electronics. In addition, same time, it is currently making preparations to strengthen the the Group possesses a solid business platform encompassing competitiveness of its operations and expand its business scale in material procurement, production, quality assurance, and sales Europe and the United States as well as China, which are the and services, in all of which a culture of improvement is firmly nucleus of its global business development endeavors. entrenched. The Mitsubishi Electric Group’s growth strategies are Furthermore, in order to realize an even higher level of growth, built on its efforts to create technological and operating synergies the Group is making efforts to promote the cultivation of new mar- by coordinating and combining operations between these plat- kets by establishing business structures in emerging nations such forms consistently. as Turkey, India, Vietnam, Thailand, Indonesia, Mexico, and Brazil. Aiming for a higher level of growth, the Group has positioned the eight businesses as drivers of global growth: power systems, transportation systems, building systems, factory automation (FA) systems, automotive equipment, space systems, power devices, and air conditioning (AC) systems. Strengthening the Group‘s Management Foundation The Mitsubishi Electric Group reported an interest-bearing debt to total assets ratio of 10.3% on a balance of outstanding debt and corporate bonds of ¥373.4 billion as of the end of fiscal Making Strong Businesses Stronger The Mitsubishi Electric Group is responding flexibly to changes in 2014. It was successful in securing a positive free cash flow for the first time in three years. As a result, the Group‘s equity ratio customer needs, market trends, and business conditions in order improved to 42.2%, substantially enhancing its financial position. to strengthen the competitive edge of individual businesses. At the Moving forward, the Mitsubishi Electric Group will continue to same time, it is bolstering its technology platform through a variety build a solid management structure while generating stable cash of measures, including research and development tie-ups with flows. It will actively channel these cash flows into growth fields, external institutions. Moreover, the Group is strengthening its busi- including research and development, capital investment, and ness platform—which encompasses material procurement, produc- M&A. Moreover, the Group will pursue the balanced distribution tion, quality assurance, and sales and services—even further as a of profits to shareholders through the payment of dividends and part of its efforts to increase profitability. Through these means, it work diligently to increase its corporate value. is advancing growth strategies across the Group as a whole. Continuous Creation of New Strong Businesses To realize sustainable growth, the Mitsubishi Electric Group is also Continuous Innovation The Mitsubishi Electric Group will steadfastly carry out its man- agement policies guided by a commitment to balanced manage- committed to actively creating new robust businesses that will ment, while putting into practice its overarching corporate support future expansion. To this end, it is strengthening its tech- statement, Changes for the Better. Each and every employee will nology and business platforms while promoting wide-ranging share the common goal of developing new frontiers through measures such as the coordination and consolidation of existing continuous innovation, and the Mitsubishi Electric Group—by businesses and technologies. continuing to undergo transformation itself—will mature into a corporation that is always producing something better. Reinforcing Solutions Business Centered on Strong Businesses Going beyond promoting the development of products and sys- tems on an individual business basis, the Mitsubishi Electric Group works diligently to ensure collaboration among business divisions. By combining individual products and systems, it is advancing operations in energy and security solutions businesses across a wide range of residential, building, factory, and transpor- tation fields. The Group‘s efforts to develop each of these businesses enable it to create and deliver new added value at the community level. By moving forward with its smart community solutions, the Group is contributing to the creation of an even more prosperous society. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 05 At a Glance Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 1,039 1,027 1,027 1,058 1,180 10 11 12 13 14 (Years ended March 31) Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 927 978 927 1,098 733 10 11 12 13 14 (Years ended March 31) Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 526 487 516 522 548 10 11 12 13 14 (Years ended March 31) Operating income Operating income Operating income Yen (billions) 120 100 80 60 40 20 0 -20 74 83 84 85 76 10 11 12 13 14 (Years ended March 31) Yen (billions) 120 100 80 60 40 20 0 -20 100 101 98 60 26 10 11 12 13 14 (Years ended March 31) Yen (billions) 120 100 80 60 40 20 0 -20 18 13 21 1 5 10 11 12 13 14 (Years ended March 31) MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Turbine generators, hydraulic turbine generators, nuclear power plant equipment, motors, transformers, power electronics equipment, circuit breakers, gas insulated switches, switch control devices, surveillance-system control and security systems, large display devices, electrical equipment for locomotives and rolling stock, elevators, escalators, building security systems, building management systems, particle therapy systems, and others Programmable logic controllers, inverters, servomotors, human-machine interface, motors, hoists, magnetic switches, no-fuse circuit breakers, short-circuit breakers, transformers for electricity distribution, time and power meters, uninterruptible power supply, industrial fans, computerized numerical controllers, electrical discharge machines, laser processing machines, industrial robots, clutches, automotive electrical equipment, car electronics and car mechatronics, car multimedia, and others Wireless and wired communications systems, surveillance cameras, satellite communications equipment, satellites, radar equipment, antennas, missile systems, fire control systems, broadcasting equipment, data transmission devices, network security systems, information systems equipment, systems integration, and others M Fiscal 2014 Overview April • Established new FA center to strengthen services for factory automation products in Mexico • Opened a new office building as the headquarters of Mitsubishi Electric US, Inc.’s Cooling & Heating Division • Commenced operations at a new transformer factory in Memphis, Tennessee • Commenced operations at a digital instrumentation and control (I&C) system for nuclear power plants in China Mitsubishi Electric Power Products, Inc. Memphis Factory New Cooling & Heating Facility in Georgia, USA June August • Established new FA center at Jakarta to provide enhanced services in Indonesia • Established new FA centers at Hanoi and Ho Chi Minh • Installed two 3,385-inch Diamond Vision displays, both 1,352m2, at Reliant Stadium in Houston, Texas Diamond Vision displays at Reliant Stadium 2013 May • Launched three types of silicon carbide (SiC) power modules for home appliances, industrial equipment, and railcar traction systems • Enhanced business relating to smart meters, the advanced electricity meters with communication functions, in collaboration with partner Echelon Corporation (NASDAQ: ELON) July September • Established a mock-house facility to test heating, ventilating, and air conditioning (HVAC) products in Scotland, U.K. • Announced the acquisition of F.A. TECH CO.,LTD. (F.A. TECH), a factory automation product distributor and long-time partner in Thailand • Entered Brazilian elevator and escalator market • Established Mitsubishi Electric Power & Electrical Infrastructure Systems (Beijing) Co., Ltd. (MEPIC) in Beijing, China • Announced that the Company had been awarded a contract to install 38 elevators and escalators to MAHANAKHON, a commercial complex under construction in Bangkok, Thailand MELCO ELEVADORES DO BRASIL S.A. 06 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Electronic Devices Home Appliances Others Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 138 175 200 164 194 10 11 12 13 14 (Years ended March 31) Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 924 824 849 821 944 10 11 12 13 14 (Years ended March 31) Net sales Yen (billions) 1,200 1,000 800 600 400 200 0 552 609 611 590 676 10 11 12 13 14 (Years ended March 31) Operating income (loss) Operating income Operating income Yen (billions) 120 100 80 60 40 20 0 -20 -7 10 5 3 -5 10 11 12 13 14 (Years ended March 31) Yen (billions) 120 100 80 60 40 20 0 -20 42 4 52 22 19 10 11 12 13 14 (Years ended March 31) Yen (billions) 120 100 80 60 40 20 0 -20 14 3 20 18 19 10 11 12 13 14 (Years ended March 31) MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Power modules, high-frequency devices, optical devices, LCD devices, and others LCD televisions, room air conditioners, package air conditioners, air-to-water heat pump boilers, refrigerators, electric fans, ventilators, photovoltaic systems, hot water supply systems, LED lamps, fluorescent lamps, indoor lighting, compressors, chillers, dehumidifiers, air purifiers, showcases, cleaners, jar rice cookers, microwave ovens, IH cooking heaters, and others Procurement, logistics, real estate, advertising, finance, and other services October November January February • Established a new FA center in the • Announced that the Company ” Umraniye district of Istanbul • Awarded contract to deliver proton therapy systems for cancer treatment to Tsuyama Chuo Hospital in Okayama and Hakuhokai Group Osaka Proton Therapy Clinic • Commenced production of indoor units for commercial air conditioners at Mitsubishi Electric US had been awarded a contract to install 85 elevators and escalators, including two eleva- tors capable of climb- ing 600 meters per minute, to the Wuhan Center, Hubei Province, China Wuhan Center (CG rendition) • Expanded assembly lines for automotive equipment at Mitsubishi Electric Automotive America, Inc. in the United States and commenced production of high-efficiency alternators Mitsubishi Electric Automotive America, Inc. • Successfully launched the TURKSAT-4A satel- lite under a turnkey contract awarded by Turksat Satellite Communication, Cable TV and Operation Inc. Co. (Turksat A.S.) • Agreed to acquire Turkish air conditioning Successfully Launched TURKSAT-4A Satellite distributor Klima Plus through local subsidiary Mitsubishi Electric Turkey A. . S, 2014 December March • Commenced sales of Mitsubishi home energy management systems (HEMs); entered the • Commenced operations at a design and technology facility located in the Power smart house business in earnest Device Works in Japan • Awarded contract to supply the Japan Aerospace Exploration Agency (JAXA) with the Greenhouse gases Observing SATellite-2 (GOSAT-2) satellite system • Announced an agreement that will see 80% of Klimat-Fer’s shares incorporated into Mitsubishi Electric’s railcar business in Europe • Launched a railcar traction inverter system for 1,500V DC catena- ries that incorporates the world's first all-silicon carbide (SiC) power modules made with SiC transistors and SiC diodes • Installed elevators and escalators to the Abeno Harukas Building in Japan • Produced one millionth medium-voltage circuit breaker at Power Distribution Systems Center (PDSC) in Marugame (Kagawa, Japan) GOSAT-2 (CG rendition) • Surpassed one billion yen in cumulative donations over the 22-year life of the Mitsubishi Electric SOCIO-ROOTS Fund Design and Technology Facility MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 07 Review of Operations Energy and Electric Systems Net Sales Breakdown by Business Segment 25.4% Net Sales ¥1,180.0billion up 12% year on year Operating Income ¥76.3billion down ¥8.8 billion year on year The social infrastructure systems business saw increases in both orders and sales com- pared to the previous fiscal year due primar- ily to increases in the public utility systems business in Japan and the power generation and rolling-stock businesses outside Japan, in addition to the weaker yen. The building systems business experi- enced increases in both orders and sales compared to the previous fiscal year, owing to growth in elevators and escalators for new installations and renewals in Japan as well as for new installations overseas mainly in China, in addition to the weaker yen. As a result, total sales for this segment increased by 12% from the previous fiscal year to 1,180.0 billion yen. Operating income decreased by 8.8 billion yen from the previous fiscal year to 76.3 billion yen due primarily to a shift in project portfolio and other factors. 08 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Next-generation SiC Inverter for Railcars Mitsubishi Electric has developed a traction inverter for railcars that incorporates silicon carbide (SiC), a new type of semicon- ductor. This new inverter, with its energy-efficient, compact, lightweight, low-maintenance and low-noise design, is expected to play a major role in next-generation railcar propulsion systems. Digital Signage System at Narita International Airport Mitsubishi Electric has successfully installed Japan’s largest digital signage system1 at Narita International Airport. This system comprises 100 display units made up of a total of 336 display panels, including a unit consisting of 27 46-inch LCD multi-display screens. As a part of efforts to ensure the presen- tation of information in an appropriate and timely manner, a wide range of content, including airport news and entertain- ment, is delivered according to the location of each display. 1. Based on Mitsubishi Electric research as of June 2012. Particle Therapy System Utilizing the characteristic features of protons, carbon, and other heavy ions, particle therapy is a cutting edge technology that allows for the pinpoint targeting of cancerous tumors while minimizing side effects on surrounding normal tissues. It is increasingly selected as an advanced solution in the treat- ment of cancer. Power Plants Mitsubishi Electric power plant installations are used both by power utility companies and by companies in various industries as in-house power generators. Owing to its accumulated expertise and leading technological capabilities, Mitsubishi Electric is able to provide optimal power plants in various power generation fields. AXIEZ Machine-room-less Elevators Along with enhanced energy-saving functions, including lighting that is entirely LED, AXIEZ machine-room-less elevators offer outstanding function and design. Furthermore, Mitsubishi Electric has added a new large-capacity model to the AXIEZ lineup, thereby extending the range of target buildings to include large-scale office buildings, commercial facilities, and hospitals. Facima BA-System, an Open Integrated Management System for Building Facilities The Facima BA-system provides a variety of functions which help save energy and make building management more efficient. In order to target buildings of a wider range of sizes and purposes, Mitsubishi Electric has launched a new wall-mounted model with an LCD touch panel as part of its Facima lineup. Industrial Automation Systems Net Sales Breakdown by Business Segment 23.7% Net Sales ¥1,098.7billion up 18% year on year Operating Income ¥98.0billion up ¥37.4 billion year on year The factory automation systems business saw increases in both orders and sales from the previous fiscal year mainly due to an increase in capital expenditures relating to smartphone and semiconductor as well as facility replacements by manufacturers in Japan, in addition to the weaker yen. The automotive equipment business saw increases in both orders and sales from the previous fiscal year due primarily to strength in the North American and Japanese car sales markets and increased sales in China by Japanese automotive manufacturers, as well as the weaker yen. As a result, total sales for this segment increased by 18% from the previous fiscal year to 1,098.7 billion yen. Operating income increased by 37.4 billion yen from the previous fiscal year to 98.0 billion yen due primarily to an increase in sales. Programmable Logic Controllers Mitsubishi Electric’s MELSEC series of programmable logic controllers supports a wide array of production and social infrastructure applications; solutions range from control and safety devices to information and instrumentation management. As a leading global brand, the MELSEC series contributes to the construction of cutting-edge control systems owing to its capabilities, performance, product variety and high reliability. AC Servos The MELSERVO-J4 series features the world’s highest level of performance and functionality. Its advanced design allows “one touch” auto-tuning and vibration suppression that enhances the speed, precision and overall performance of production equipment and manufacturing devices. The MELSERVO-J4 series has applications in numerous fields, including semiconductors, FPD (Flat Panel Display) production, packaging systems and industrial machinery. Low-voltage Circuit Breakers Low-voltage Circuit Breakers are used for wiring protection and short-circuit protection in low-voltage circuits. Since 1933, Mitsubishi Electric has been continuously designing and developing such breakers, the latest of which is the new WS-V “World” series. The lineup is ideal for both power distribution and OEM markets. Electrical Discharge Machines (EDMs) Beginning with the newly launched MV series, a strategic product globally, Mitsubishi Electric provides a lineup of EDMs that add value and improve the manufacturing productivity of molds and precision components. Such equipment is indis- pensable to the production of automobiles, home electronics and IT-related devices. Electric Power Steering (Motors and Controllers) Mitsubishi Electric was the first company in the world to mass produce motors and controllers for electric power steering to assist driver steering in line with driving conditions. Over the years, Mitsubishi Electric has helped to improve steering feel, response and stability while delivering compact units and high-output performance, and contributing to reduced automobile CO2 emissions. Memory Car Navigation System Mitsubishi Electric’s DIATONE SOUND.NAVI is a car navigation system that incorporates acoustic technology cultivated during the development of DIATONE to offer improved sound quality. The NR-MZ80 Series boasts the high-definition technology of the Company’s REAL LCD TV along with a variety of simple, user-friendly navigation functions. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 09 Information and Communication Systems Net Sales Breakdown by Business Segment 11.8% Net Sales ¥548.2billion up 5% year on year Operating Income ¥5.5billion up ¥3.9 billion year on year The telecommunications equipment busi- ness saw increases in both orders and sales from the previous fiscal year owing primarily to an increase in the communications infra- structures business. The information systems and services business saw an increase in sales compared to the previous fiscal year mainly due to growth in the system integration business. The electronic systems business saw a decrease in orders from the previous fiscal year due primarily to decreases in large-scale projects in the electronics and space systems businesses, while sales increased from the previous fiscal year due to progress in orders already received for projects in the space systems business. As a result, total sales for this segment increased by 5% from the previous fiscal year to 548.2 billion yen. Operating income increased by 3.9 billion yen from the previ- ous fiscal year to 5.5 billion yen due to an increase in sales and other factors. 10 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Information System Integrated Control Center Specialist engineers are available 24/7 to remotely operate and monitor client information systems and to analyze and determine any problem that might occur using automated tools, enabling a rapid response to any system malfunction. (Mitsubishi Electric Information Network Corporation) Mission-critical Server Employing virtualization technology in its complete fault-tolerant system as an overarching concept, this server not only ensures the succession of customers’ application assets, but also integrates internal mission-critical tasks and systems for situations where failure is not an option. (Mitsubishi Electric Information Technology Corporation) DS2000 Standard Satellite Platform The DS2000 is a standard satellite platform modeled after JAXA’s ETS-VIII platform, which was designed to meet the need for high-quality, low-cost satellites with shortened delivery times. The DS2000 has maintained a competitive edge internationally, and is employed in such satellites as Himawari-7, 8, 9, Superbird-C2, ST-2 and Türksat-4A/4B. Vehicle-mounted Stations for Satellite Communications Vehicle-mounted satellite communication equipment enables transmission of video and audio for broadcast news (satellite news gathering) and information for disaster management. Mitsubishi Electric products have achieved Japan’s highest market share in this field, and are employed by Japanese broadcasters, the public sector and infrastructure companies such as gas and electricity utilities. Broadband Optical Access Systems Mitsubishi Electric is progressively installing Gigabit Ethernet Passive Optical Network (GE-PON) systems, which play a central role in broadband services. The need for GE-PON systems is steadily expanding due to high-capacity broadband content, including the increased use of visual services. Digital CCTV (Closed-circuit Television) System This digital CCTV system meets the expanding range of needs for video surveillance systems, which is achieved through new digital technology incorporated into its high-resolution megapixel camera and its high level of scalability, which can accommodate even large-scale systems. Electronic Devices Net Sales Breakdown by Business Segment 4.2% Net Sales ¥194.6billion up 19% year on year Operating Income ¥10.0billion up ¥15.6 billion year on year, turning into profit The semiconductor business saw increases in both orders and sales from the previous fiscal year due to a growth in demand mainly for power modules used in consumer, industrial, automotive and railcar applica- tions, as well as the weaker yen. The LCD module business saw increases both in orders and sales due to growth in demand for automotive-use products. As a result, total sales for this segment increased by 19% from the previous fiscal year to 194.6 billion yen. Operating income improved by 15.6 billion yen from the previ- ous fiscal year, turning into a profit 10.0 bil- lion yen, mainly due to an increase in sales. Super mini DIPIPMTM Ver. 6 with Built-in Seventh-generation IGBT Equipped with a seventh-generation IGBT that serves to reduce the static and turn-off loss during periods of low current, the Ver. 6 Series transfer-molded super-mini dual in-line package intelligent power module (DIPIPMTM) delivers industry-leading low power consumption. This module contributes significantly to reducing the power consumption of white goods as well as the inverter drive systems of industrial motors. J1-series Power Modules for Automotive Inverters Mitsubishi Electric has developed a new power module series ”J1-Series” for use mainly in the inverters of electric and hybrid vehicles. The J1-Series power modules feature a compact, high-reliability package structure with an integrated direct cooling fin. Ku-band1 GaN2 HEMT3 MMIC4 with Integrated Linearizer Mitsubishi Electric has launched the MGFG5H1503, a Ku-band MMIC amplifier that features the world’s first5 GaN HEMT MMIC with an integrated linearizer to compensate for distortion. In combination with our GaN HEMT, the MGFG5H1503 contributes to the downsizing, high performance, and faster development of power transmitters while enabling Ku-band satellite earth station power transmitters to be configured for a wide range of output power. 1. Microwave band ranging from 12-18 GHz 2. Gallium Nitride 3. High Electron Mobility Transistor 4. Monolithic Microwave Integrated Circuit 5. Based on Mitsubishi Electric research as of January 20, 2014. GaN HEMT for use in satellite earth stations. Four-wavelength Integrated 100Gbps EML1-TOSA2 Mitsubishi Electric has developed a laser diode-transmitter optical subassembly that enables 100Gbps optical transmission over a single fiber using four-channel wavelength-division multiplexing. Not only is this unit compact, but it also enables optical transceiver modules to operate at lower power. 1. Electro-absorption Modulated Laser diode 2. Transmitter Optical Sub Assembly Touch panel Control board Liquid-crystal module Graphics board Industrial-use Color TFT LCD Module with Built-in Intelligent GUI A liquid-crystal module with a touch panel that realizes a high level of operability and a graphics board that easily incorporates high-quality graphic displays are provided as a single set. As a result, there is no need for intensive software development, production equipment development costs are drastically reduced, and high-quality graphics can be easily displayed. Display screen (meter display) Color TFT-LCD Modules with Touch Panels for Industrial Applications Mitsubishi Electric’s lineup of color thin-film transistor liquid crystal display (TFT-LCD) modules with touch panels provide superior visibility and durability and can be operated intuitively even by users wearing gloves. In addition to upgrading and expanding the lineup of products, which boast a variety of screen sizes, the company is making every effort to provide total support, including touch panels, in order to make the user interface with industrial equipment more sophisticated. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 11 Home Appliances Net Sales Breakdown by Business Segment Room Air Conditioners In addition to KIRIGAMINE room air conditioners, Mitsubishi Electric offers an extensive lineup of products with applications extending from stores, offices and buildings to factories and industrial facilities while featuring environmentally compatible, energy-saving technologies. These qualities allow Mitsubishi Electric to meet air conditioning needs globally. Photovoltaic system Smart All-electric Homes 20.3% Energy Generation In-house Power Generation Induction cooking heater Energy Savings Heat Pump Technology To ensure the comfort and convenience of all-electric-powered homes, Mitsubishi Electric is proposing “smart all-electric home” lifestyle ideas that improve energy creation via photovoltaic generation and effective energy usage through high-efficiency technologies such as heat pumps. Net Sales Built-in dishwasher Heat pump hot water supply system Comfortable Lifestyle Safe/Convenient Hot water floor heating system Mitsubishi Ecomist bath drying, heating, and ventilation system with mist function ¥944.3billion up 15% year on year Operating Income ¥52.8billion up ¥33.5 billion year on year The home appliances business saw a 15% increase in sales from the previous fiscal year to 944.3 billion yen due primarily to expansion in sales for air conditioners in Asian, European and North American mar- kets, as well as increases in air conditioners and photovoltaic systems in Japan, which experienced a last-minute surge prior to the consumption tax raise, in addition to the weaker yen. Operating income rose by 33.5 billion yen from the previous fiscal year to 52.8 billion yen due primarily to an increase in sales. 12 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Home Appliances The home appliances business strives to deliver technologies and products that bring convenience, comfort and enjoyment to everyday life. Focusing on keywords such as “delicious,” “delightful” and “soothing,” every effort is made to further enhance people’s quality of life through intelligent, connected, and economical—or, in short, ”smart”—technologies. LED Lighting Currently under rapid development, LEDs possess outstanding features that expand lighting possibilities, including longevity, low power consumption, absence of mercury and the enabling of more compact fixtures. LEDs also significantly contribute to power conservation efforts. Digital Signage Mitsubishi Electric offers a full lineup of visual display products, including multiple large-screen systems. The lineup is easy to use—digital content can be accessed simply by inserting an SD card into a display unit—while offering solutions for logistics, retail stores, and other industry sectors as well as a host of applications. Visual Equipment for Public and Business Applications Our high-quality image processing technologies deliver exceptionally sharp color reproduction. Mitsubishi Electric offers a range of products developed to suit a variety of application needs. These systems are being used in Japan and abroad for large-screen applications that display images, data and information. Research and Development / Intellectual Property Research and Development R&D Initiatives The Mitsubishi Electric Group, in conformity with its growth strat- its efforts to commercialize electric circuit substrates made with glass, thereby helping to create electronic devices with even egies, accelerated R&D efforts in the environment/energy and greater processing abilities and functionalities in the fields of social infrastructure fields, in which increased business opportuni- smartphones and other mobile terminals. ties are expected on a global scale. In addition, the Group 1. A high-energy laser beam created through electrical discharge in carbon dioxide gas focused on developing new technologies and new products that 2. 1 micron is equal to 1/1000 millimeter will fortify its position in the future, making its competitiveness in key operating fields even stronger. Representative achievements for the consolidated fiscal year under review are as follows. R&D Achievements in Fiscal 2014 Developing Micro Glass-Processing Technology That Employs a Pulsed CO2 Laser1 Mitsubishi Electric Corporation has developed a new glass substrate 3. As of February 13, 2014 (survey conducted by Mitsubishi Electric Corporation) Establishing House-Type HVACs Evaluation Facilities in Scotland The Group subsidiary Mitsubishi Electric Air Conditioning Systems Europe Ltd. has established house-type HVACs evaluation facilities in Scotland, U.K., to test its heating, ventilating and air condition- ing (HVAC) systems, with the aim of developing HVAC products processing technology for drilling holes with diameters as tiny as best tailored to cold climate zones in Europe. This move will 25 microns2, a size that makes them the smallest3 in the world. facilitate the Group’s penetration of the European market in step Employing a pulsed CO2 laser, this technology enables drilling at a pace of 200 holes per second, a speed that makes the technology with growing demand for heat pump-related HVAC systems, which boast energy-saving properties as well as environment practicable for use in mass-production machining processes. friendliness. Glass is brittle and difficult to process. On the other hand, its With the installation of a total of more than 1,400 sensors to physical hardness and minimal deformation at high temperatures monitor indoor conditions, the facility enables the precise testing are characteristics that have resulted in glass being considered of the effect of air conditioning systems on indoor environments. superior to resin—the current mainstay material for electric circuit Employing this facility, the Mitsubishi Electric Group will step up substrates—when creating extremely small circuits. Drawing on product development targeting the European market, creating this achievement, Mitsubishi Electric Corporation will accelerate HVAC solutions capable of contributing to “zero-emission housing.” 1 m m Control room-based comparative analysis of the comfort levels and specific attributes of each facility Substrate with image composed of small holes (centimeter scale) Enlarged image of the small holes in the substrate Glass circuit substrate Plastic circuit substrate (printed circuit board) IC chip Small holes Boiler-type water heating system installed in one test house Heat-pump systems installed in the other test house Detailed Analysis of Air-Conditioning and Refrigeration System Operations as well as Air-Conditioning and Ventilation Environments Cross section of an advanced electronic package Helping to Deliver Electronic Devices, Including Smartphones That Offer Increased Speed and Performance MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 13 Unveiling an Innovative EV Motor Drive System Prototype Mitsubishi Electric Corporation has developed a 60kW electric vehicle (EV) motor drive system prototype with a reduced cubic volume of 14.1 liters, thereby realizing the smallest EV motor drive in this category.1 In addition to incorporating a built-in silicon-carbide (SiC) inverter—one example of the Company’s R&D accomplishments aimed at reducing EV motor size—the system employs a unique structure to improve cooling, optimizing the allocation of power modules so that paths of motor coolant and inverter coolant run parallel on the outer periphery of the casing. With these features, the new EV motor drive system is designed to contribute to the downsizing, weight cutbacks and energy efficiency of EV motors. Accordingly, this system is expected to realize a longer driving range compared with current drive systems when using the same size batteries. 1. As of February 13, 2014 (survey conducted by Mitsubishi Electric Corporation) Intellectual Property SiC power semiconductor module Cooling duct Motor Full SiC inverter EV motor drive system Smallest of Its Kind in the Industry Basic Policy The Mitsubishi Electric Group recognizes that intellectual property Global IP Strategy The Mitsubishi Electric Group identifies critical IP-related themes (IP) rights represent a vital management resource essential to its in connection with mainstay businesses and important R&D proj- future. Therefore, every effort is made to integrate the Group’s ects. At the same time, the Group channels its energies toward business, R&D and IP activities. Moving forward, the Mitsubishi the globalization of its robust patent portfolio by promoting Electric Group will further strengthen its IP capabilities while patent filing activities. With regard to its overseas operations, the promoting its growth strategy. Structure of the Intellectual Property Division The Mitsubishi Electric Group’s IP-related operations are the direct Group is accelerating the globalization of its IP activities through actions such as working to increase the number of patent appli- cations it files prior to undertaking business development in emerging countries, including India and Brazil. responsibility of the president and are overseen by the Head Office Moreover, the Mitsubishi Electric Group is actively engaging in IP Division under an appointed IP executive officer. Day-to-day activities aimed at acquiring design rights in Japan and overseas issues are handled by IP departments at relevant facilities, R&D to further enhance its robust patent portfolio. These efforts are centers and affiliated companies. The Head Office IP Division intended to specifically protect proprietary assets in both technol- formulates strategies for the entire Group, promotes critical ogy and design areas. IP-related projects and coordinates interaction with the patent office. At the manufacturing facility, R&D center and affiliated company levels, IP departments pursue specific objectives in line with the Group’s overall IP strategies. Annual Trends in Overseas Patent Applications by the Mitsubishi Electric Group Integrating Business, R&D and IP Activities (No. of Applications) 9,000 Integration IP Network IP/Standardization Strategy IP Division at Headquarters President Business Strategy IP Departments at Business Groups, Facilities, Affiliates Development Strategy R&D Centers IP Departments 14 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 6,000 3,000 0 2011 2012 2013 2014 (FY) USA Europe China Other Further Strengthening Global IP Capabilities IP representative Europe Asia USA / Brazil Head Office IP Division V Protecting products through IP rights V Acquiring international standard-related patents V Counterfeit product countermeasures The Mitsubishi Electric Group has assigned IP representatives to each of its bases in the United States, Europe and China. Every effort is being made to strengthen IP capabilities at Group facili- Activities Aimed at Preventing Infringement on the Group’s IP Rights The Mitsubishi Electric Group works diligently to prevent any ties, R&D centers and affiliated companies in each country. infringement on its IP rights by other companies. In addition to Standardization Strategy As companies continue to globalize their business activities, the in-house activities, the Group places particular weight on collabo- rating with industry organizations while approaching government agencies both in Japan and overseas as a part of a wide range of international standardization of technologies that contribute to measures to prevent the counterfeiting of its products. global market growth is significantly impacting business strategies. For this reason, the importance of promoting IP strategies in consideration of international standards is increasing. In response Respecting the IP Rights of Others The Mitsubishi Electric Group recognizes that any infringement on to this situation, the Mitsubishi Electric Group is placing emphasis the IP rights of another company has the potential to significantly on activities to standardize its development technologies and impair the Group’s continued viability as a going concern. The acquire related IP rights. The Group is paying particular attention resulting potential impairments include being obliged to pay to the acquisition of international standard patents, while patent significant licensing fees or being forced to discontinue the man- pools, including those for MPEG and Blu-ray DiscTM*, are proving ufacture of a certain product. In order to prevent any infringement to be a wellspring for IP revenues. These revenues are contribut- on the IP rights of other companies, the Group provides education ing to improvement and growth in business earnings. and training to raise employee awareness and promote greater Furthermore, the Mitsubishi Electric Group is working to reinforce respect for the IP rights of others. At the same time, the Group its activities to acquire rights for international standard-related has put in place a set of rules to facilitate appropriate actions technologies. The Group is looking to utilize these patents to such as surveying other companies’ patent rights at every stage help increase the market share of its products. from development to production. The Mitsubishi Electric Group *Blu-ray DiscTM is a trademark of the Blu-ray Disc Association works diligently to ensure strict adherence to these rules. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 15 Corporate Social Responsibility The Mitsubishi Electric Group promotes its corporate social responsibility (CSR) activities based on the conviction that all business activities must take CSR into consideration. The Group’s Corporate Mission and Seven Guiding Principles form its basic CSR policies. It is vigilant in its enforcement of corporate ethics and compliance and constantly works to improve educational programs and strengthen its internal control system. At the same time, it pursues initiatives related to quality management, global environmental conservation, philanthropy and improved communication with all stakeholders. Corporate Mission The Mitsubishi Electric Group will continually improve its technol- ogies and services by applying creativity to all aspects of its busi- ness. By doing so, we enhance the quality of life in our society. To this end, all members of the Group will pursue the following Seven Guiding Principles. Seven Guiding Principles Trust, Quality, Technology, Citizenship, Ethics, Environment, Growth The Mitsubishi Electric Group’s Corporate Social Responsibility The operating environment continues to undergo dramatic changes, reflecting advances in globalization, revisions to legisla- tion and other factors. What must continue regardless of how the times may change is a respect for corporate ethics and com- pliance and a commitment to never compromise on environmen- tal issues and product quality. This commitment of the Mitsubishi Electric Group was first articulated in the Keys to Management (in Japanese, Keiei no Yotei), which was drawn up at the time of Mitsubishi Electric’s founding in 1921. The spirit of this document, which states the Group‘s contributions in areas such as the pros- perity of society, product quality and customer satisfaction, lives on today in its Corporate Mission and Seven Guiding Principles. With these tenets as its core principles, the Group promotes vari- ous initiatives in order to fulfill its corporate social responsibilities. In particular, the Group‘s commitment to corporate ethics and compliance has underpinned corporate management while form- ing the core of the Group‘s efforts to strengthen its internal control system and implement employee training programs. Looking ahead, the Group will continue to strictly adhere to a policy of compliance. It will also redouble its efforts to bolster activities and to establish relationships built of robust mutual trust with all stakeholders. As a member of society, the Mitsubishi Electric Group is responsi- ble for upholding corporate ethics and compliance as well as contrib- uting to society. The Group recognizes its responsibility to contribute to society through the technologies it has built up over the years. A sincere concern for the environment permeates every facet of the Mitsubishi Electric Group’s operations. Thus, it can be said that each facet of the Group‘s business activities is geared toward contributing to the environment. The technologies and products that comprise its portfolio support environmental protection, energy conservation and social infrastructure while being gentle to humankind and the earth, thereby enriching society. Looking ahead, the Group will help create a more prosperous and sustain- able society by harnessing the strengths of its wide-ranging tech- nological capabilities. Philanthropic Activities Philosophy and Policies on Philanthropic Activities The Mitsubishi Electric Group shares a common Philosophy and Policies based on its Corporate Mission and Seven Guiding Principles, and carries out a variety of activities accordingly. 16 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Philosophy As a corporate citizen committed to meeting societal needs and expectations, the Mitsubishi Electric Group will make full use of the resources it has at hand to contribute to creating an affluent society in partnership with its employees. Policies • We shall carry out community-based activities in response to societal needs in the fields of social welfare and global environ- mental conservation. • We shall contribute to developing the next generation through activities that support the promotion of science and technology, culture and arts, and sports. Promoting Activities Deeply Rooted in Local Communities and Activities that Develop the Next Generation Emphasizing the three categories of social welfare, global envi- ronmental conservation, and the promotion of science and tech- nology, the Group‘s philanthropic activities in Japan are underpinned primarily by the Mitsubishi Electric SOCIO-ROOTS Fund, a gift program in which the Company matches any dona- tion made by an employee to social welfare facilities; the “Satoyama” Woodland Preservation Project, which involves employee volunteers participating in environmental restoration activities in the areas surrounding the Group‘s offices and pro- duction facilities; and science workshops that foster the develop- ment of the engineers of tomorrow by encouraging children to experience for themselves the appeal of science. Focusing on philanthropic activities overseas, the Group imple- ments a broad range of initiatives, including undertaking nature conservation activities with the help of employee volunteers, funding social welfare organizations, and offering support for young musicians and sports teams. Activities through Mitsubishi Electric’s Overseas Satoyama Woodland Preservation Project participants (Japan) A Science Class that helps communicate the appeal of science to children (Japan) Supporting the El Primer Palau music festival (Spain) Foundations The Mitsubishi Electric America Foundation and Mitsubishi Electric Thai Foundation, both founded in 1991, also carry out various activities in the spirit of the Mitsubishi Electric Group‘s Philosophy and Policies. The Mitsubishi Electric America Foundation, with the cooperation of its branches in the United States, helps young people with disabilities to become employed and participate more fully in society. The Mitsubishi Electric Thai Foundation, in addition to providing scholarships to university students and sup- porting a school lunch program for grade school students, has in recent years been promoting employee-involved volunteer activi- ties that support education and environmental protection. An employee volunteer working with a student on Disability Mentoring Day (United States) Recipients of university scholarships and Foundation representatives (Thailand) Environmental Activities The 7th Environmental Plan The Mitsubishi Electric Group has set the goal of becoming a global, leading green company. Guided by its growth strategies and Environmental Vision 2021, the Group is working diligently to realize a sustainable society in which the people of the world can enjoy safe and comfortable lifestyles in harmonious coexis- tence with all living creatures. In 2007, the Group announced the details of Environmental Vision 2021, its long-term vision for environmental management. Under this vision, the Group launched its 7th Environmental Plan, which covers the period from fiscal 2013 to fiscal 2015. In carrying out this plan, the Group is pursuing the efficient use of energy across all of its busi- nesses, promoting the development and widespread use of inno- vative products and services that boast outstanding resource efficiency, and advancing efforts to reduce the environmental impact of all of its business activities from procurement through production to logistics. The Mitsubishi Electric Group is evaluating priorities from the perspectives of both society and the Group. At the same time, it is examining the progress and results of its environmental activi- ties as well as pending issues. Drawing on each of these evalua- tions and examinations, it is putting in place environmental plans on a three-year basis. • Reducing CO2 Emissions from Production Under its 7th Environmental Plan, which covers the period from fiscal 2013 to fiscal 2015, the Mitsubishi Electric Group is taking steps to reduce its CO2 emissions during production as a part of efforts to help create a low-carbon society. The Group has set and manages CO2 emission reduction targets in terms of sales unit ratio.* Doing so ensures that its efforts to reduce emissions can be properly evaluated regardless of increases or decreases in the volume of production. The Group has identified the fiscal 2015 target of reducing the sales unit ratio of CO2 emissions to 83% of the level recorded in fiscal 2011. In order to achieve this target, a variety of initiatives are being implemented. In an effort to reduce CO2 emissions from the production line, steps are being taken to visualize and remove the energy waste inherent in the production process. At the same time, the Group is focusing on increasing the efficiency and management of utilities, including air conditioners and lighting. Furthermore, in response to the appeal for a reduction of energy usage in Japan due to the after- math of the Great East Japan Earthquake, attention is being paid to managing and controlling the use of electric power during peak periods through the introduction of monitoring systems with the aim of realizing a reduction through the use of demand management. Complementing these initiatives, the Mitsubishi Electric Group has also actively promoted the introduction of photovoltaic power generation systems. The improvement rate of CO2 emissions in terms of sales unit ratio was 90% in fiscal 2014 against the fiscal year target of 86%. This was, however, a six percentage point improvement over the 96% result in fiscal 2013. While conditions make it difficult to achieve per unit targets due mainly to changes in the social envi- ronment that have occurred since the 7th Environmental Plan was formulated and the shortfall between projected and actual net sales, the Group will look to make improvements that exceed the previous fiscal year and continue to engage in reduction activities with the aim of achieving initial targets. *The amount of CO2 emitted per unit of sales. Reduce CO2 emissions from product usage by 30% (Base year: fiscal 2001) Reduce total emissions from production by 30% (Base year: fiscal 1991) Aim to reduce CO2 emissions from power generation Environmental Vision 2021 Global Leading Green Company Promote product “3Rs”; reduce, reuse and recycle Reduce resource inputs Aim for zero emissions from manufacturing Contribute to the Environment and Society (through our products, services and business activities) Reduce environmental impact (by further honing highly efficient manufacturing techniques to minimize our environmental impact) Creating a Low-Carbon Society Creating a Recycling-Based Society Respecting Biodiversity Ensuring harmony with nature and fostering environmental awareness MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 17 Group-wide Plan to Reduce CO2 Emissions from Production Total amount of emissions (10,000 tons) Base year 24 118 25 69 120 100 80 60 40 20 0 Actual amount of reduction under the 6th Environmental Plan: 106,000 tons Planned amount of reduction under the 7th Environmental Plan: 121,000 tons 100% 92% 96% 97 86 3.4 22 17 47 3.5 27 19 51 93 3.7 27 16 50 92 3.5 27 17 48 93 90% 83% 3.5 27 17 50 97 29 17 51 6th Environmental Plan 7th Environmental Plan CO2 emissions (sales unit ratio %) 100 98 62% 80 60 40 20 0 1991 2010 2011 2012 2013 2014 2015 2021 (FY) (cid:31) Mitsubishi Electric (base year: FY1991) (cid:31) Affiliates in Japan (base year: FY2001) (cid:31) Overseas affiliates (base year: FY2006) Group total (cid:31) Amount of reduction CO2 emissions compared to FY2011 (sales unit ratio %) Photovoltaic power generation capacity (MW) 20 (Actual operating basis, cumulative) 14.7 15 10 5 0 0.7 15.5 Before fiscal 2011 2014 2015 (Fiscal year) • Reducing CO2 Emissions from Product Usage In looking at greenhouse gas emissions outside the scope of the Mitsubishi Electric Group’s business activities, a principal source is the CO2 derived from electric power consumption during the period that products are used. According to in-house calculations, the amount of CO2 emitted during product use can be several dozen to several hundred times the amount emitted during production. Therefore, the development and widespread use of highly energy-efficient products has a direct impact on efforts to reduce CO2 emissions. Under the 7th Environmental Plan, the Mitsubishi Electric Group has identified the average rate of reduc- tion in CO2 emissions from product usage as an important index. The Mitsubishi Electric Group is aiming to achieve an average reduction rate of 27%, with fiscal 2001 as the baseline, through the manufacture of specified products with designs that prioritize lowered emissions during use. Based on extensive analysis, the Group has positioned reduced CO2 emissions as an important environmental aspect of product design. The number of specified products in fiscal 2014 was 110 (97 end products and 13 inter- mediate products). The average rate of CO2 emissions reduction among these products was 33%, which is in excess of the target for the final fiscal year of the plan. In particular, notable reductions were recorded in consumer- and railcar-use power devices as well as indoor lighting. In fiscal 2015, the Group will work to maintain and increase rates of reduction. Plan for Reducing CO2 from Product Usage through Improved Energy Efficiency 0 ) % ( n o i t c u d e r f o e t a r e g a r e v A 100 17% 7th Environmental Plan 26% 29% 33% 27% 30% 110 targeted products 2001 Base fiscal year 2008 2012 2013 2014 2015 2021 (Fiscal year) More information about the Mitsubishi Electric Group’s environmental and CSR initiatives is available on the following websites: http://www.MitsubishiElectric.com/company/csr/ http://www.MitsubishiElectric.co.jp/corporate/environment/ 18 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Corporate Governance Basic Corporate Governance Policy To realize sustained growth and increase corporate value, Executive officers are responsible for ensuring compliance and management efficiency in their assigned areas of operations. Mitsubishi Electric works to maintain the flexibility of its operations Internal auditors monitor executive officers’ performance of while promoting management transparency. These endeavors are duties. Internal auditors report on the results of such monitoring supported by an efficient corporate governance structure that to the executive officer in charge of auditing, and the executive clearly defines and reinforces the supervisory functions of manage- officer in charge of auditing and accounting auditors report on ment while ensuring that the Company is responsive to the expec- the results of such monitoring to the Audit Committee. tations of customers, shareholders, and all of its stakeholders. Mitsubishi Electric maintains a multi-dimensional risk manage- Corporate Management and Governance Structure Corporate Management Structure In June 2003, Mitsubishi Electric became a company with a ment system in which all executive officers participate. Under this system, executive officers are responsible for risk management in their assigned areas of operation. In addition, executive officers exchange information and participate in important management initiatives and decisions through regularly scheduled executive committee system. Key to this structure is the separation of officers’ meetings. supervisory and executive functions; the Board of Directors plays a supervisory decision-making role and executive officers handle the day-to-day running of the Company. The Corporate Auditing Division and Audit Committee Acting independently, Mitsubishi Electric’s Corporate Auditing The present Board is comprised of twelve directors (five of Division conducts internal audits of the Company from a fair and whom are outside directors), who objectively supervise and advise impartial standpoint. In addition, the division’s activities are the Company’s management. The Board of Directors has three supported by auditors with profound knowledge of their particu- internal bodies: the Audit, Nomination and Compensation com- lar fields, assigned from certain business units. mittees. Each body has five members, three of whom are outside The Audit Committee is made up of five directors, three of directors. The Audit Committee is supported by dedicated whom are outside directors. In accordance with the policies and independent staff. Internal Control System Further ensuring effective corporate governance, the roles of assignments agreed to by the committee, the performances of directors and executive officers as well as affiliated companies are audited. The Corporate Auditing Division, through the executive officer Chairman and President & CEO are clearly defined and exclusive. in charge of auditing, submits reports to the Audit Committee, The Chairman heads the board of directors and the President & which holds periodic meetings to exchange information and dis- CEO heads the Company’s executive officers. Neither the Chair- cuss auditing policies. In addition, the Audit Committee discusses man nor the President & CEO is a member of the Nomination or policies and methods of auditing with accounting auditors, who Compensation Committees. This allows for the clear division of furnish it with reports on the status and results of the audits of executive and supervisory functions, thereby enabling Mitsubishi the Company that they themselves conduct. Electric to ensure effective corporate governance. Report General Shareholders’ Meeting Report Appointment Appointment/Dismissal/Supervision Reporting to Decision Making and Execution Executive Officers President & CEO Executive Vice Presidents Senior Vice Presidents Executive Officers Business/Administration Divisions Supervision Board of Directors Chairman Nomination Committee Outside Directors (majority) s r o t c e r i D Audit Committee Outside Directors (majority) Compensation Committee Outside Directors (majority) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 19 Directors and Executive Officers Directors (As of June 27, 2014) Kenichiro Yamanishi ............................ Chairman Masaki Sakuyama ................................. Representative Executive Officer, President & CEO Hiroki Yoshimatsu ................................ Chairman of the Audit Committee Noritomo Hashimoto ........................... Member of the Nomination Committee, Senior Vice President Nobuyuki Okuma ................................. Chairman of the Nomination Committee, Chairman of the Compensation Committee, Akihiro Matsuyama .............................. Member of the Compensation Committee, Executive Officer Takashi Sasakawa ................................. Member of the Audit Committee Executive Officer Mikio Sasaki .......................................... Member of the Compensation Committee, Senior Corporate Advisor, Mitsubishi Corporation Shigemitsu Miki .................................... Member of the Nomination Committee, Member of the Audit Committee, Senior Advisor, The Bank of Tokyo-Mitsubishi UFJ, Ltd. Fujiatsu Makino .................................... Member of the Audit Committee, Member of the Compensation Committee, Certified Public Accountant, Registered Tax Accountant Mitoji Yabunaka ................................... Member of the Nomination Committee, Member of the Compensation Committee, Advisor, Nomura Research Institute, Ltd. Hiroshi Obayashi .................................. Member of the Nomination Committee, Member of the Audit Committee, Attorney-at-Law Representative Executive Officers (As of April 1, 2014) Masaki Sakuyama Hideyuki Okubo Yutaka Ohashi Executive Officers (As of April 1, 2014) President & CEO: Masaki Sakuyama Senior Vice Presidents: Hideyuki Okubo ................................... In charge of Export Control and Factory Automation Systems Yutaka Ohashi ...................................... In charge of Automotive Equipment Noritomo Hashimoto ........................... In charge of Corporate Strategic Planning and Operations of Associated Companies Yoshiaki Nakatani................................. In charge of Electronic Systems Yasuyuki Nakanishi .............................. In charge of Communication Systems Masayuki Ichige .................................... In charge of Auditing, Government & External Relations and Public Relations Executive Officers: Masaharu Moriyasu .............................. In charge of Total Productivity Management & Environmental Programs Isao Iguchi ............................................. In charge of Advertising and Domestic Marketing Toru Yoshinaga ..................................... In charge of Information Systems & Network Service Nobuyuki Okuma ................................. In charge of General Affairs and Human Resources Akihiro Matsuyama .............................. In charge of Accounting and Finance Takashi Sakamoto ................................ In charge of Purchasing Takahiro Kikuchi ................................... In charge of Public Utility Systems Kenji Kondo .......................................... In charge of IT and Research & Development Nobuyuki Abe ....................................... In charge of Building Systems Katsuya Takamiya ................................. In charge of Global Strategic Planning & Marketing Takaaki Kukita ...................................... In charge of Global Strategic Planning & Marketing Takeshi Sugiyama ................................. In charge of Living Environment & Digital Media Equipment Nobushi Morooka ................................ In charge of Legal Affairs & Compliance, Export Control and Intellectual Property Yasuyuki Ito .......................................... In charge of Energy & Industrial Systems Hideaki Nagatomo ............................... In charge of Living Environment & Digital Media Equipment Toru Sanada .......................................... In charge of Semiconductor & Device 20 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Organization (As of June 27, 2014) Board of Directors Chairman Nomination Committee Audit Committee Compensation Committee Audit Committee Office Executive Officers’ Meeting President & CEO Senior Vice Presidents Executive Officers (cid:31) Corporate Auditing Div. (cid:31) Corporate Marketing Group (cid:31) Corporate Strategic Planning Div. (cid:31) Corporate IT Strategy Div. (cid:31) Global Strategic Planning & Marketing Group (cid:31) Associated Companies Div. (cid:31) Government & External Relations Div. (cid:31) Corporate Administration Div. (cid:31) Corporate Human Resources Div. (cid:31) Corporate Accounting Div. (cid:31) Corporate Finance Div. (cid:31) Corporate Purchasing Div. (cid:31) Public Relations Div. (cid:31) Corporate Advertising Div. (cid:31) Corporate Legal & Compliance Div. (cid:31) Corporate Export Control Div. (cid:31) Corporate Licensing Div. (cid:31) Corporate Total Productivity Management & Environmental Programs Group (cid:31) Corporate Research and Development Group (cid:31) Information Systems & Network Service Group (cid:31) Public Utility Systems Group (cid:31) Energy & Industrial Systems Group (cid:31) Building Systems Group (cid:31) Electronic Systems Group (cid:31) Corporate Intellectual Property Div. (cid:31) Communication Systems Group (cid:31) Living Environment & Digital Media Equipment Group (cid:31) Factory Automation Systems Group (cid:31) Automotive Equipment Group (cid:31) Semiconductor & Device Group Business Planning Office Market Planning & Administration Dept. Compliance Dept. Marketing Research & Business Development Dept. Branch Offices (Hokkaido, Tohoku, Kanetsu, Kanagawa, Hokuriku, Chubu, Kansai, Chugoku, Shikoku, Kyushu) Global Planning & Administration Div. Compliance Dept. Regional Marketing Div. Regional Strategic Development Div. Regional Corporate Offices Americas (U.S.A.) Europe (U.K.) Asia (Singapore) China Taiwan Corporate Productivity Engineering Dept. Compliance Dept. Corporate Quality Assurance Planning Dept. Corporate Environmental Sustainability Group Corporate Logistics Dept. Information Technology Center Design Systems Engineering Center Manufacturing Engineering Center Planning & Administration Dept. Compliance Dept. Advanced Technology R&D Center Information Technology R&D Center Industrial Design Center Planning & Administration Dept. Compliance Dept. Information Systems & Network Service Div. Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. ITS Business Development Group Public-Use Systems Marketing Div. Transportation Systems Div. Overseas Marketing Div. Plant Engineering & Construction Div. Branch Offices Kobe Works, Itami Works, Nagasaki Works Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. Nuclear Power Plant Technical Supervisory Office Transmission & Distribution Systems Marketing Div. Power & Energy Systems Marketing Div. Nuclear Energy, Advanced Magnetic & Medical Systems Marketing Div. Capital Region Marketing Div. Power Plant Engineering & Construction Center Branch Offices Energy Systems Center, Transmission & Distribution Systems Center, Power Distribution Systems Center Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. Total Security Systems Dept. Domestic Marketing Div. Overseas Marketing Div. Building Systems Field Operation Div. Branch Offices Inazawa Works Electronic Systems Compliance Dept. Planning & Administration Dept. Defense Systems Div. Space Systems Div. IT Space Solutions Div. Branch Offices Communication Systems Center, Kamakura Works Planning & Administration Dept. Compliance Dept. Communication Systems Engineering Center Telecommunication Systems Sales & Marketing Div. Telecommunications Carrier Sales & Marketing Div. Branch Offices Communication Networks Center Planning & Administration Dept. Compliance Dept. Engineering Dept. Branding Strategy Dept. External Relations Dept. Customer Satisfaction Promotion Dept. Marketing & Operations Strategic Planning Dept. Eco-Facility Systems Marketing Dept. Air-Conditioning & Refrigeration Systems Div. Lighting, Ventilation, Housing Systems & PV Systems Div. Home Appliances & Digital Media Equipment Div. Living Environment Systems Laboratory Branch Offices Nakatsugawa Works, Air-Conditioning & Refrigeration Systems Works, Shizuoka Works, Kyoto Works, Gunma Works Planning & Administration Dept. Compliance Dept. Industrial Products Marketing Div. Industrial Automation Marketing Div. Overseas Marketing Div. Global Account Management Div. Branch Offices Nagoya Works, Fukuyama Works Planning & Administration Dept. Automotive Equipment Compliance Dept. Automotive Equipment Marketing Div. Automotive Equipment Overseas Marketing Div. Automotive Electronics Development Center Branch Offices Himeji Works, Sanda Works Planning & Administration Div. Compliance Dept. Semiconductor & Device Marketing Div. A Semiconductor & Device Marketing Div. B LCD Div. Branch Offices Power Device Works, High Frequency & Optical Device Works MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 21 Major Subsidiaries and Affiliates (As of March 31, 2014) Manufacturing Sales/Installation/Services Comprehensive Sales Companies Energy and Electric Systems Toyo Electric Corporation Tada Electric Co., Ltd. Mitsubishi Electric Building Techno-Service Co., Ltd. Mitsubishi Electric Plant Engineering Corporation Mitsubishi Electric Power Products, Inc. Ryoden Elevator Construction, Ltd. Mitsubishi Electric Shanghai Electric Elevator Co., Ltd. Mitsubishi Electric Control Software Corporation Mitsubishi Elevator Asia Co., Ltd. Ryoko Co., Ltd. Taiwan Mitsubishi Elevator Co., Ltd. RYO-SA BUILWARE Co., Ltd. Toshiba Mitsubishi-Electric Industrial Systems Corporation Mitsubishi Elevator Hong Kong Co., Ltd. Mitsubishi Elevator Korea Co., Ltd. Mitsubishi Hitachi Home Elevator Corporation Hitachi Mitsubishi Hydro Corporation Shanghai Mitsubishi Elevator Co., Ltd. ETA-Melco Elevator Co. L.L.C. Industrial Automation Systems DB Seiko Co., Ltd. Ryowa Corporation Mitsubishi Electric Automotive America, Inc. Ryoden Koki Engineering Co., Ltd. Mitsubishi Electric Thai Auto-Parts Co., Ltd. Meldas System Engineering Corporation Mitsubishi Electric Dalian Industrial Products Co., Ltd. Mitsubishi Electric Mechatronics Software Corporation Mitsubishi Electric Automotive (China) Co., Ltd. Mitsubishi Electric Automation (Hong Kong) Ltd. Mitsubishi Electric Automation, Inc. Mitsubishi Electric Automation Korea Co., Ltd. Mitsubishi Electric Automotive Czech s.r.o. Shizuki Electric Co., Inc. Nippon Injector Corporation Shihlin Electric & Engineering Corporation Setsuyo Astec Corporation Mitsubishi Electric TOKKI Systems Corporation Diamond Telecommunication Co., Ltd. Information and Communication Systems Mitsubishi Precision Co., Ltd. SPC Electronics Corporation Seiryo Electric Co., Ltd. Miyoshi Electronics Corporation Oi Electric Co., Ltd. Electronic Devices Melco Display Technology Inc. Melco Power Device Corporation Mitsubishi Electric Metecs Co., Ltd. Vincotech Holdings S.à r.l. Powerex, Inc. Mitsubishi Electric Information Systems Corporation Mitsubishi Electric Information Network Corporation Mitsubishi Electric Information Technology Corporation Mitsubishi Space Software Co., Ltd. Mitsubishi Electric Business Systems Co., Ltd. Mitsubishi Electric Micro-Computer Application Software Co., Ltd. Itec Hankyu Hanshin Co., Ltd. Melco Semiconductor Engineering Corporation Chiyoda Mitsubishi Electric Co., Ltd. and other regional comprehensive sales companies (10 companies) Mitsubishi Electric Europe B.V. Mitsubishi Electric US, Inc. Mitsubishi Electric Taiwan Co., Ltd. Mitsubishi Electric & Electronics (Shanghai) Co., Ltd. Mitsubishi Electric Asia Pte. Ltd. Mitsubishi Electric Australia Pty. Ltd. Mitsubishi Electric (H.K.) Ltd. Ryoden Trading Co., Ltd. Kanaden Corporation Mansei Corporation Home Appliances Others Mitsubishi Electric Lighting Corporation Mitsubishi Electric Home Appliance Co., Ltd. Mitsubishi Electric Consumer Products (Thailand) Co., Ltd. Shanghai Mitsubishi Electric & Shangling Air-Conditioner and Electric Appliance Co., Ltd. Mitsubishi Electric (Guangzhou) Compressor Co., Ltd. Siam Compressor Industry Co., Ltd. Mitsubishi Electric Air Conditioning Systems Europe Ltd. Kang Yong Electric Public Co., Ltd. Mitsubishi Electric Living Environment Systems Corporation Mitsubishi Electric Life Network Co., Ltd. Mitsubishi Electric Air Conditioning & Refrigeration Equipment Sales Co., Ltd. Mitsubishi Electric Air Conditioning & Refrigeration Systems Co., Ltd. Melco Facilities Corporation Mitsubishi Electric Kang Yong Watana Co., Ltd. Mitsubishi Electric Air-Conditioning & Visual Information Systems (Shanghai) Ltd. Mitsubishi Electric Trading Corporation Mitsubishi Electric Engineering Co., Ltd. Mitsubishi Electric Logistics Corporation Mitsubishi Electric System & Service Co., Ltd. The Kodensha Co., Ltd. Mitsubishi Electric Life Service Corporation iPLANET Inc. Melco Trading (Thailand) Co.,Ltd. Mitsubishi Electric Credit Corporation KITA KOUDENSHA Corporation Notes: 1. Comprehensive sales companies include several companies that are responsible for selling products from a number of businesses, and therefore these are placed into their own separate category rather than grouped by business segment. 2. Companies shaded in gray are consolidated subsidiaries, while others are equity-method affiliate companies. 22 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Financial Section Contents 24 Five-Year Summary 25 Financial Review 34 Consolidated Balance Sheets 36 Consolidated Statements of Income 36 Consolidated Statements of Comprehensive Income 37 Consolidated Statements of Equity 38 Consolidated Statements of Cash Flows 39 Notes to Consolidated Financial Statements 72 Independent Auditors’ Report MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 23 Five-Year Summary Mitsubishi Electric Corporation and Subsidiaries Years ended March 31 2014 2013 2012 2011 2010 Yen (millions) U.S. dollars (thousands) 2014 Summary of Operations Net sales Cost of sales Selling, general, administrative and R&D expenses Loss on impairment of long-lived assets Operating costs Operating income Income before income taxes Net income attributable ¥4,054,359 2,914,589 ¥3,567,184 2,604,360 ¥3,639,468 2,628,964 ¥3,645,331 2,622,959 ¥3,353,298 2,505,095 $39,362,709 28,296,981 900,807 806,412 781,278 784,606 736,959 8,745,699 3,791 4,317 3,782 4,005 16,942 36,806 3,819,187 3,415,089 3,414,024 3,411,570 3,258,996 37,079,486 235,172 248,990 152,095 65,141 225,444 224,080 233,761 210,237 94,302 64,259 2,283,223 2,417,379 to Mitsubishi Electric Corp. ¥ 153,473 ¥ 69,517 ¥ 112,063 ¥ 124,525 ¥ 28,278 $ 1,490,029 Financial Ratios Return on sales (%) Return on equity (%) Return on assets (%) Equity ratio (%) Per-Share Amounts Net income attributable to Mitsubishi Electric Corp. (yen/U.S. dollars) Basic Diluted Cash dividends declared (yen/U.S. dollars) Statistical Information Current assets Current liabilities Working capital Mitsubishi Electric Corp. shareholders’ equity Cash dividends paid Total assets Capital expenditures R&D expenditures Depreciation Employees 3.79 10.87 4.37 42.19 1.95 5.72 2.04 38.12 3.08 10.27 3.33 33.39 3.42 12.36 3.80 31.52 0.84 3.12 0.86 30.00 — — — — ¥71.49 — ¥32.38 — ¥52.20 — ¥58.00 — ¥13.18 13.18 $0.694 — ¥ 17 ¥ 11 ¥ 12 ¥ 12 ¥ 4 $0.165 ¥2,290,007 1,494,243 ¥2,129,395 ¥2,180,362 ¥2,052,887 ¥1,905,852 1,214,176 1,386,067 1,387,744 1,421,174 $22,233,077 14,507,214 795,764 743,328 792,618 631,713 691,676 7,725,863 1,524,322 25,762 3,612,966 151,840 178,945 ¥ 132,956 1,300,070 23,616 3,410,410 150,425 172,222 1,132,465 27,910 3,391,651 159,346 169,686 ¥ 127,942 ¥ 127,244 1,050,340 19,315 3,332,679 107,638 151,779 ¥ 105,280 964,584 — 3,215,094 109,069 133,781 ¥ 119,762 14,799,243 250,117 35,077,340 1,474,175 1,737,330 $ 1,290,835 (at the end of the year) 124,305 120,958 117,314 114,443 109,565 — Notes: 1. The Company prepares consolidated financial statements with procedures, accounting terms, forms, and preparation that are in conformity with accounting principles generally accepted in the United States of America based on the rules and regulations applicable in Japan. 2. Operating income is presented as net sales less cost of sales, selling, general, administrative and R&D expenses, and loss on impairment of long-lived assets. Total operating income for each segment conforms to above mentioned operating income. Business restructuring expenses are shown as non-operating expenses. 3. R&D expenditures include elements spent on quality improvements, which constitute manufacturing costs. 4. U.S. dollar amounts are translated from yen at the rate of ¥103=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2014. 5. The Company has 167 consolidated subsidiaries and 37 equity-method companies as of March 31, 2014. 6. For the years ended March 31, 2014, 2013, 2012 and 2011, data for diluted net income per share attributable to Mitsubishi Electric Corp. is not included in the above table as no dilutive securities existed. 24 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Financial Review OVERVIEW The business environment in the fiscal year ended March 31, 2014 (hereinafter, fiscal 2014) generally showed gradual expansion in economies outside Japan in addition to recovery in Japan, where corporate sentiments improved due to the weaker yen and other factors. Under these circumstances, the Mitsubishi Electric Group placed greater emphasis than ever before on promoting growth strategies rooted in its own advantages as well as on Group efforts undertaken to date to boost its competitiveness and on strengthening its business structure. As a result, in fiscal 2014, the Mitsubishi Electric Group recorded net sales of ¥4,054.3 billion and operating income of ¥235.1 billion. Income before income taxes came to ¥248.9 billion. Net income attributable to Mitsubishi Electric Corporation was ¥153.4 billion for the fiscal year. Net Sales The Mitsubishi Electric Group recorded increases in sales in all its business segments, namely, Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances and Others. In the fiscal year, consolidated net sales climbed by ¥487.1 billion year on year to ¥4,054.3 billion. Cost of Sales, Expenses and Operating Income The cost of sales increased by ¥310.2 billion compared with the previous fiscal year to ¥2,914.5 billion, representing 71.9% of total net sales, an improvement of 1.1 percentage points. Selling, general and administrative (SG&A) expenses together with research and development (R&D) expenses totaled ¥900.8 billion, up ¥94.3 billion year on year. As a result, the ratio of SG&A and R&D expenses to net sales improved by 0.4 of a percentage point year on year to 22.2%. Loss on impairment of long- lived assets decreased by ¥0.5 billion year on year to ¥3.7 billion. Accounting for the aforementioned factors, operating income amounted to ¥235.1 billion, an increase of ¥83.0 billion compared with the previous fiscal year. This increase was primarily attributable to higher income in the Industrial Automation Systems, Information and Communications Systems, Electronic Devices, Home Appliances, and Other business segments. Non-Operating Income and Expenses Financial income, the sum of interest and dividend income less interest expenses, amounted to ¥3.2 billion, an improvement of ¥2.0 billion year on year. Equity in earnings of affiliated companies totaled ¥23.1 billion, an improvement of ¥37.7 billion compared with the previous fiscal year. Other income declined by ¥0.8 billion to ¥24.5 billion year on year due primar- ily to the decrease in gains on the sale of assets. Other expenses fell by ¥61.7 billion year on year to ¥37.1 billion because of such factors as the absence of non-operating expenses, including the refund payment for overcharged expenses in the electronic systems business recorded in the previous fiscal year. Net sales / Operating income 4.05 233 225 235 3.643.63 3.56 3.35 152 94 10 11 12 13 14 10 11 12 13 14 Net sales (Yen in trillions) Operating income (Yen in billions) Net income attributable to Mitsubishi Electric Corp. / Basic net income per share attributable to Mitsubishi Electric Corp. 153 71.49 124 112 58.00 52.20 69 28 32.38 13.18 10 11 12 13 14 10 11 12 13 14 Net income attributable to Mitsubishi Electric Corp. (Yen in billions) Basic net income per share attributable to Mitsubishi Electric Corp. (Yen) Income before Income Taxes Income before income taxes increased by ¥183.8 billion compared with the previous fiscal year to ¥248.9 billion, for a ratio to net sales of 6.1%. As previously mentioned, this is largely attributable to the aforementioned upswing in operating income of ¥83.0 billion and a ¥100.7 billion improvement in non-operating income and expenses. Net Income Attributable to Mitsubishi Electric Corp. Net income attributable to Mitsubishi Electric Corp. grew by ¥83.9 billion year on year to ¥153.4 billion (a ratio to net sales of 3.8%) largely on the back of the increase in income before income taxes. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 25 Business Risks The Mitsubishi Electric Group engages in the development, manufacture and sale of products in the Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances and Other busi- ness fields in Japan as well as North America, Europe, Asia and other overseas regions. As a result, the Group’s financial standing and business performance may be affected by a variety of factors. Factors that may affect the financial standing and business performance of the Mitsubishi Electric Group include but are not limited to the following. As such, additional factors may arise at any given time. (1) Important trends The Mitsubishi Electric Group’s operations may be affected by trends in the global economy, social conditions, laws, tax codes and regulations. (2) Foreign currency exchange rates Fluctuations in foreign currency markets may affect Mitsubishi Electric’s sales of exported products and purchases of import- ed materials that are denominated in U.S. dollars or euros, as well as its Asian production bases’ sales of exported products and purchases of imported materials that are denominated in foreign currencies. (3) Stock markets A fall in stock market prices may cause Mitsubishi Electric to record devaluation losses on marketable securities or cause an increase in retirement benefit obligations in accordance with a decline in the fair value of pension assets. (4) Supply/demand balance for products and procurement conditions for materials and components A decline in prices and shipments due to changes in the supply/demand balance as well as an increase in costs due to a worsening of material and component procurement conditions may adversely affect the Mitsubishi Electric Group’s performance. (5) Fund raising An increase in interest rates, the yen interest rate in particular, would increase Mitsubishi Electric’s interest expenses. (6) Significant intellectual property matters Important patent filings, licensing, copyrights and patent-related disputes may adversely affect related businesses. (7) Environmental legislation or relevant issues Mitsubishi Electric may incur losses or expenses owing to changes in environmental legislation or the occurrence of envi- ronmental issues. Such changes in legislation or the occurrence of environmental issues may also affect the Group’s overall operations, including manufacturing activities. (8) Flaws or defects in products or services Mitsubishi Electric may incur losses or expenses relating to flaws or defects in products or services. A decrease in the general assessment of the quality of Group products and services may also impact overall operations. (9) Lawsuits and other legal proceedings Lawsuits and/or other legal proceedings against the Mitsubishi Electric Group may affect its overall operations. (10) Disruptive changes Disruptive changes in the technology, development and manufacturing of products using new technology and timing of market introduction may adversely affect the Mitsubishi Electric Group’s performance. (11) Business restructuring The Mitsubishi Electric Group may record losses due to restructuring measures. (12) Incidents related to information security The performance of the Mitsubishi Electric Group may be affected by computer virus infections, unauthorized access and other unpredictable incidents that lead to the loss or leakage of personal information held by the Group or confidential information regarding the Group’s business such as its technology, sales and other operations. (13) Natural disasters The Mitsubishi Electric Group’s operations, particularly manufacturing activities, may be affected by the occurrence of earth- quakes, typhoons, tsunami, fires and other large-scale disasters. (14) Other significant factors The Mitsubishi Electric Group‘s operations may be affected by the outbreak of social or political upheaval due to terrorism, war, pandemic by new strains of influenza and other diseases, or other factors. 26 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 RESULTS BY BUSINESS SEGMENT Net Sales by Business Segment Yen (millions) U.S. dollars (thousands) Years ended March 31 2014 2013 2012 2011 2010 2014 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations Consolidated total ¥1,180,093 1,098,796 ¥1,058,177 927,857 ¥1,027,115 978,380 ¥1,027,749 927,002 ¥1,039,669 733,132 $11,457,214 10,667,922 548,282 194,658 944,351 676,034 4,642,214 (587,855) ¥4,054,359 522,422 164,065 821,298 590,366 4,084,185 (517,001) ¥3,567,184 516,354 200,799 849,274 611,619 4,183,541 (544,073) ¥3,639,468 487,915 175,910 924,478 609,416 4,152,470 (507,139) ¥3,645,331 526,161 138,985 824,679 552,981 3,815,607 (462,309) ¥3,353,298 5,323,126 1,889,884 9,168,456 6,563,437 45,070,039 (5,707,330) $39,362,709 Operating Income (Loss) by Business Segment Yen (millions) U.S. dollars (thousands) Years ended March 31 2014 2013 2012 2011 2010 2014 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations Consolidated total ¥ 76,324 98,079 ¥ 85,140 60,592 ¥ 84,920 101,192 ¥ 83,055 100,089 ¥ 74,727 26,138 $ 741,010 952,223 5,529 10,050 52,878 19,801 262,661 (27,489) ¥235,172 1,591 (5,580) 19,300 18,790 179,833 (27,738) ¥152,095 21,312 3,585 22,358 20,348 253,715 (28,271) ¥225,444 13,743 5,901 42,008 14,475 259,271 (25,510) ¥233,761 18,672 (7,141) 4,809 3,204 120,409 (26,107) ¥ 94,302 53,679 97,573 513,379 192,243 2,550,107 (266,884) $2,283,223 Energy and Electric Systems The social infrastructure systems business saw increases in both orders and sales compared to the previous fiscal year due primarily to increases in the public utility systems business in Japan and the power generation and rolling-stock businesses outside Japan, in addition to the weaker yen. The building systems business experienced increases in both orders and sales compared to the previous fiscal year, owing to growth in elevators and escalators for new installations and renewals in Japan as well as for new installations overseas mainly in China, in addition to the weaker yen. As a result, total sales for this segment increased by 12% from the previous fis- Net sales and Operating income of Energy and Electric Systems 1,180 1,0391,0271,027 1,058 74 83 84 85 76 cal year to 1,180.0 billion yen. Operating income decreased by 8.8 billion yen from 10 11 12 13 14 10 11 12 13 14 the previous fiscal year to 76.3 billion yen due primarily to a shift in project portfo- lio and other factors. Industrial Automation Systems The factory automation systems business saw increases in both orders and sales from the previous fiscal year mainly due to an increase in capital expenditures relating to smartphone and semiconductor as well as facility replacements by manufacturers in Japan, in addition to the weaker yen. The automotive equipment business saw increases in both orders and sales from the previous fiscal year due primarily to strength in the North American and Net sales (Yen in billions) Operating income (Yen in billions) Net sales and Operating income of Industrial Automation Systems 1,098 978 927 927 733 100 101 98 60 Japanese car sales markets and increased sales in China by Japanese automotive 26 manufacturers, as well as the weaker yen. As a result, total sales for this segment increased by 18% from the previous fiscal year to 1,098.7 billion yen. Operating income increased by 37.4 billion yen from the previous fiscal year to 98.0 billion yen due primarily to an increase in sales. 10 11 12 13 14 10 11 12 13 14 Net sales (Yen in billions) Operating income (Yen in billions) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 27 Information and Communication Systems The telecommunications equipment business saw increases in both orders and sales from the previous fiscal year owing primarily to an increase in the commu- nications infrastructures business. The information systems and services business saw an increase in sales com- pared to the previous fiscal year mainly due to growth in the system integration business. The electronic systems business saw a decrease in orders from the previous fiscal year due primarily to decreases in large-scale projects in the electronics and space systems businesses, while sales increased from the previous fiscal year due to progress in orders already received for projects in the space systems business. As a result, total sales for this segment increased by 5% from the previous fiscal year to 548.2 billion yen. Operating income increased by 3.9 billion yen from the previous fiscal year to 5.5 billion yen due to an increase in sales and other factors. Electronic Devices The semiconductor business saw increases in both orders and sales from the pre- vious fiscal year due to a growth in demand mainly for power modules used in consumer, industrial, automotive and railcar applications, as well as the weaker yen. The LCD module business saw increases both in orders and sales due to growth in demand for automotive-use products. As a result, total sales for this segment increased by 19% from the previous fiscal year to 194.6 billion yen. Operating income improved by 15.6 billion yen from the previous fiscal year, turning into a profit 10.0 billion yen, mainly due to an increase in sales Home Appliances The home appliances business saw a 15% increase in sales from the previous fis- cal year to 944.3 billion yen due primarily to expansion in sales for air condition- ers in Asian, European and North American markets, as well as increases in air conditioners and photovoltaic systems in Japan, which experienced a last-minute surge prior to the consumption tax raise, in addition to the weaker yen. Operating income rose by 33.5 billion yen from the previous fiscal year to 52.8 billion yen due primarily to an increase in sales. Others Sales increased by 15% from the previous fiscal year to 676.0 billion yen. This Net sales and Operating income of Information and Communication Systems 526 487 516 522 548 21 18 13 5 1 10 11 12 13 14 10 11 12 13 14 Net sales (Yen in billions) Operating income (Yen in billions) Net sales and Operating income (loss) of Electronic Devices 200 194 175 164 138 10 5 3 -7 -7 -5 10 11 12 13 14 10 11 12 13 14 Net sales (Yen in billions) Operating income (loss) (Yen in billions) Net sales and Operating income of Home Appliances 924 944 824 849 821 52 42 22 19 4 10 11 12 13 14 10 11 12 13 14 Net sales Operating income (Yen in billions) was mainly due to contributions from affiliated companies involved in materials (Yen in billions) procurement. Operating income increased by 1.0 billion yen from the previous fiscal year to 19.8 billion yen due primarily to an increase in sales. Net sales and Operating income of Others 676 609 611 552 590 20 19 18 14 3 10 11 12 13 14 10 11 12 13 14 Net sales (Yen in billions) Operating income (Yen in billions) 28 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 RESULTS BY GEOGRAPHIC SEGMENT Net Sales by Geographic Segment Yen (millions) U.S. dollars (thousands) Years ended March 31 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total 2014 2013 2012 2011 2010 2014 ¥3,362,854 325,224 887,022 352,950 47,824 ¥3,064,014 248,105 624,724 289,933 40,255 ¥3,186,719 222,543 582,888 309,997 40,184 ¥3,176,605 229,958 583,827 293,952 38,200 ¥2,886,502 205,713 445,722 282,822 33,140 (921,515) ¥4,054,359 (699,847) ¥3,567,184 (702,863) ¥3,639,468 (677,211) ¥3,645,331 (500,601) ¥3,353,298 $32,649,068 3,157,515 8,611,864 3,426,699 464,311 (8,946,748) $39,362,709 Operating Income (Loss) by Geographic Segment Yen (millions) U.S. dollars (thousands) Years ended March 31 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total 2014 2013 2012 2011 2010 2014 ¥177,315 1,679 59,023 4,768 1,735 (9,348) ¥235,172 ¥116,923 (1,744) 36,172 4,527 2,209 (5,992) ¥152,095 ¥179,452 3,339 34,220 6,319 3,905 (1,791) ¥225,444 ¥177,354 1,363 43,734 7,830 4,329 (849) ¥233,761 ¥49,673 5,531 27,337 3,091 1,949 6,721 ¥94,302 $1,721,505 16,301 573,039 46,291 16,844 (90,757) $2,283,223 Japan Sales totaled ¥3,362.8 billion, up 10% compared with the previous fiscal year. This largely reflected the upswing in sales in the factory automation systems, automotive equipment and air conditioners businesses. Operating income increased by ¥60.3 billion to ¥177.3 billion. North America Sales increased by 31% year on year to ¥325.2 billion primarily due to higher sales in the power systems, automotive equipment and air conditioners businesses. Mitsubishi Electric reported operating income in its operations in North America totaling ¥1.6 bil- lion. This was an improvement of ¥3.4 billion compared with the previous fiscal year, turning into profit. Asia (excluding Japan) Sales totaled ¥887.0 billion, up 42% compared with the previous fiscal year mainly because of higher sales in the building sys- tems, factory automation systems and air conditioners businesses. Operating income increased by ¥22.8 billion to ¥59.0 billion. Europe Sales increased by 22% year on year to ¥352.9 billion mainly because of higher sales in the factory automation systems, automo- tive equipment and air conditioners businesses. Operating income increased by ¥0.2 billion to ¥4.7 billion. Others Sales in other regions, including figures for Mitsubishi Electric’s Australian subsidiary, amounted to ¥47.8 billion, while operating income was ¥1.7 billion. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 29 RESEARCH AND DEVELOPMENT R&D Expenditures Yen (billions) U.S. dollars (millions) Years ended March 31 2014 2013 2012 2011 2010 2014 Energy and Electric Systems ¥ 28.8 ¥ 29.8 ¥ 30.5 ¥ 27.0 ¥ 23.4 $ 280.4 Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Consolidated total 63.4 15.6 9.3 34.1 27.5 58.9 16.4 8.2 30.8 27.7 54.9 16.1 9.3 30.4 28.2 44.9 14.9 8.5 30.7 25.5 34.7 12.5 7.3 29.6 26.1 616.0 151.6 90.6 331.5 267.0 ¥178.9 ¥172.2 ¥169.6 ¥151.7 ¥133.7 $1,737.3 The Mitsubishi Electric Group actively promotes R&D initiatives that cover fundamental and advanced applications as well as product commercialization and manufacturing technologies. Carrying out these initiatives are various Group facilities, including corporate laboratories in Japan and laboratories in the United States and Europe as well as the R&D departments of factories and consolidated subsidiaries. Moreover, we pursue advanced and wide-ranging R&D activities in partnership with universities and research institutions both in Japan and overseas. In fiscal 2014, total R&D expenditures, including quality improvement expenses constituting manufacturing costs, amount- ed to ¥178.9 billion. Mitsubishi Electric reports R&D activities by business segment according to purpose, type, result and expenditure. In the Energy and Electric Systems segment, our research is directed at boosting the competitiveness of such core products as rotating machines for generators, electric motors and other machinery, switches and transformers; other power transmission/ distribution/reception equipment and systems; transportation systems; elevators and escalators; and particle therapy systems. Other R&D areas include IT-application systems for supervision and control, power information systems, building management systems and visual information systems. Notable among Mitsubishi Electric’s recent R&D achievements are traction inverters with all-SiC power modules for the rolling stocks; Diamond Vision high-resolution technology; movable steps for platform screen gates; proton-type particle therapy systems; smart meter systems; the addition of large-capacity models to the lineup of standard elevators AXIEZ; a destination oriented allocation system compatible with double-deck elevators; and enhancements to manage- ment support functions in building energy management systems. R&D expenditures in this segment totaled ¥28.8 billion. In the Industrial Automation Systems segment, R&D activities are aimed at enhancing the competitiveness of our lineup, which includes motors and related products; CNC systems; electrical discharge machines & laser processing machines; FA con- trol equipment and systems; automotive electric and electronic components, including electric power steering (EPS) and related products; and car multimedia systems. Mitsubishi Electric’s important R&D successes encompass the Top runner transformers R-series; the GT27 model of the GOT2000 series of programmable display equipment; the FREQROL-A800 series of general- purpose inverters; the GTW4 series of laser drilling machines; the HV2-R series of carbon dioxide 2D laser processing machines; the EMIRAI 2 EV concept car; the DIATONE SOUND.NAVI car audio and navigation system; an electric supercharger for automo- biles; high power starter for heavy-duty diesel engine; and eco driving assistance technologies for in-vehicle information system. R&D expenditures in this segment R&D expenditures R&D expenditures ratio totaled ¥63.4 billion. In the Information and Communication Systems segment, Mitsubishi Electric pursues research related to the development of information and communication technology (ICT) systems, which include network systems for telecommunication operators and network solutions equipment, as well as space systems, includ- ing satellites, ground systems and large telescopes. Notable R&D successes for Mitsubishi Electric include the Prime Focus Unit of the Hyper Suprime-Cam (HSC) newly installed in the Subaru Telescope; 100Gbps digital coherent transponders for submarine cable systems; 100Gbps WDM transmission systems for metro networks; IPTV set-top box AM900; high-speed digital watermarking gen- eration technology for video content delivery; AnalyticMart®*1 on Demand, the cloud-based data analysis service; NECAROKU 4.0, the recording and delivering 30 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 172 178 169 151 133 4.7 4.8 4.4 4.2 4.0 10 11 12 13 14 10 11 12 13 14 R&D expenditures (Yen in billions) R&D expenditures / Net sales (%) server for surveillance camera; DIACERT®*2, the electronic certificate issuing service with new encryption algorithms; and ALIVE SOLUTION®*3 Version 5.0, integrated system for the accounting, personnel and general affairs department. R&D expenditures in this segment totaled ¥15.6 billion. In the Electronic Devices segment, our R&D focuses on semiconductor and other electronic devices that are themselves vital components used in all our business segments. Major R&D achievements include SiC power semiconductor modules; the super-mini DIPIPM Version 6 series; the J1-Series of power semiconductor modules for automobiles; a 4-wavelength integrated 100Gbps EML-TOSA; a Ku-band 80W GaN HEMT amplifier for satellite earth stations; and TFT-LCD modules with intelligent GUI. R&D expenditures in this segment totaled ¥9.3 billion. In the Home Appliances segment, Mitsubishi Electric is engaged in the development of products in such wide-ranging fields as air conditioning equipment, kitchen appliances, vacuum cleaners, lighting, visual information systems, electronic hous- ing products and photovoltaic systems. Major R&D achievements include the KIRIGAMINE room air conditioners with Move Eye Kiwami and Takumi Flap functions; SMART CUBE (Energy conservation & Large capacity); the TC-FXC series Be-K dust bag vac- uum cleaners (Lightweight & Compact); the LSR6 series red laser backlight LCD TV; the MILCO.S®*4 automated dimming system for LED lighting; and Mitsubishi HEMS(Home Energy Management System), enable to connect up to seven products. R&D expen- ditures in this segment totaled ¥34.1 billion. In Others, fundamental technology R&D that benefits the entire Group is carried out at the Corporate Research and Development Group and the Corporate Total Productivity Management & Environmental Programs Group research centers, which strive to enhance global business competitiveness and create new businesses. In our main areas of R&D we have developed micro glass-processing technology incorporating pulsed CO2 laser; technologies for Smart Grid & Smart Community and its demonstra- tion system; EV Motor Drive System; HEVC encoder for 8K Super Hi-Vision*5; Ultra-simple Human Machine Interface for in-car device operation, high-speed algorithms for optimization; brushless DC motor for ventilation fans; and high voltage and high frequency inverter of laser drilling machine for printed circuit board. R&D expenditures in this area amounted to ¥27.5 billion. *1. AnalyticMart is a registered trademark of Mitsubishi Electric Information Technology Corporation *2. DIACERT is a registered trademark of Japan Net Corporation *3. ALIVE SOLUTION is a registered trademark of Mitsubishi Electric Business Systems Co., Ltd. *4. MILCO.S is a registered trademark of Mitsubishi Electric Lighting Corporation *5. Joint development with Japan Broadcasting Corporation MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 31 FINANCIAL POSITION Total assets amounted to ¥3,612.9 billion as of March 31, 2014, an increase of Interest-bearing debt Debt ratio ¥202.5 billion compared with the end of previous fiscal year. The change in the balance of total assets is mainly attributable to increases of ¥119.1 billion in cash and cash equivalents; ¥71.7 billion in investments in securities and other on the back of such factors as the upswing in share prices; ¥46.3 billion in tangible fixed 537 542 540 484 assets; ¥11.6 billion in inventories; and ¥11.2 billion in trade receivables and 373 16.7 16.0 15.9 14.5 10.3 long-term trade receivables. Under liabilities, the outstanding balance of debt and corporate bonds fell by ¥167.0 billion compared with the end of the previous fiscal year to ¥373.4 billion. As a result, the ratio of interest-bearing debt to total assets was 10.3%, a decrease of 5.6 percentage points year on year. While trade payables and accrued expenses increased by ¥106.1 billion and ¥44.5 billion, respectively, retirement and severance benefits fell by ¥42.3 billion largely because of an increase in pension plan assets caused by higher share prices. As a result of these and other factors, total liabilities dropped by ¥30.8 billion to ¥2,012.6 billion. Mitsubishi Electric Corp. shareholders’ equity rose by ¥224.2 billion com- pared with the end of previous fiscal year to ¥1,524.3 billion and the ratio of Mitsubishi Electric Corp. shareholders’ equity to total assets was 42.2%, up 4.1 10 11 12 13 14 10 11 12 13 14 Interest-bearing debt (Yen in billions) Interest-bearing debt / Total assets (%) Total assets / Mitsubishi Electric Corp. shareholders’ equity Shareholders’ equity ratio percentage points year on year. Despite the decrease attributable to the payment of cash dividends totaling ¥25.7 billion, this increase was largely the result of the 3,332 3,215 3,3913,410 3,612 42.2 38.1 net income attributable to Mitsubishi Electric Corp. amounting to ¥153.4 billion for the fiscal year and the increase in accumulated other comprehensive income of ¥95.4 billion reflecting such factors as the upswing in share prices and weak yen. 33.4 31.5 30.0 1,524 1,300 1,132 1,050 964 10 11 12 13 14 10 11 12 13 14 Total assets (Yen in billions) Mitsubishi Electric Corp. shareholders’ equity (Yen in billions) Shareholders’ equity ratio (%) 32 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 CAPITAL EXPENDITURES In line with its policy of improving performance by implementing the Balanced Capital expenditures Depreciation Corporate Management Policy while pursuing further growth, the Mitsubishi Electric Group aims to realize its growth strategies as it increases profitability. To that end, the Group directed its capital investment mainly toward the areas of energy and electric systems, factory automation equipment, automotive products, power devices and air conditioning equipment. At the same time the Group con- tinued to reinforce its solid business platform through the careful selection and concentration of investments. On an individual business segment basis, investments were made in Energy and Electric Systems (including power systems, electric equipment for rolling stock and elevators/escalators) aimed at increasing production capacity, streamlining and enhancing quality. In Industrial Automation, capital expenditures were used primar- ily for boosting production capacity for factory automation systems and automo- tive equipment operations. In Information and Communication Systems, funds 159 150 151 127 127 132 119 105 109 107 10 11 12 13 14 10 11 12 13 14 Capital expenditures (Yen in billions) Depreciation (Yen in billions) were appropriated for bolstering research and development capabilities, while in Electronic Devices, Mitsubishi Electric directed investment mainly toward augmenting production in the power device business. In Home Appliances, expenditures focused largely on increasing the air conditioners production capacity, streamlining operations and enhancing quality. In Common and Others, investments mainly went toward boosting research and development capabilities. Capital expenditures are derived from cash on hand and funds from operations. For this fiscal year, production capacity was not materially affected by the sale, disposal, damage or loss due to natural disaster of property, plant and equipment. CASH FLOWS In the year ended March 31, 2014, net cash provided by operating activities Cash flows amounted to ¥440.4 billion, while net cash used in investing activities was ¥130.2 billion. As a result, free cash flow was an inflow of ¥310.2 billion, a posi- tive turnaround of ¥381.2 billion from the outflow recorded in the previous fis- 330 327 cal year. Taking this into account along with net cash used in financing activities of ¥209.0 billion, the end of fiscal year cash and cash equivalents amounted to 75 82 440 310 195182 ¥418.0 billion, an increase of ¥119.1 billion year on year. Net cash provided by operating activities increased by ¥357.7 billion com- pared with the previous fiscal year to ¥440.4 billion. This increase was largely due to higher net income and deferred income taxes as well as an increase in trade payables. -134 -145 -156 -153 -130 -80 -70 10 11 12 13 14 10 11 12 13 14 Net cash used in investing activities decreased by ¥23.4 billion year on year to ¥130.2 billion. During the period, proceeds from sale of short-term invest- ments and investment securities increased while loans receivable decreased. Net cash used in financing activities was ¥209.0 billion, up ¥167.8 billion Net cash provided by operating activities (Yen in billions) Net cash used in investing activities (Yen in billions) Free cash flows (Yen in billions) year on year. This largely represented the repayment of long-term debt. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 33 Consolidated Balance Sheets Mitsubishi Electric Corporation and Subsidiaries March 31, 2014 and 2013 Assets Current assets: 2014 Yen (millions) 2013 U.S. dollars (thousands) (note 2) 2014 Cash and cash equivalents ¥ 418,049 ¥ 298,881 $ 4,058,728 Short-term investments (notes 3, 17 and 18) Trade receivables (notes 4, 6 and 15) Inventories (note 5) Prepaid expenses and other current assets (notes 9, 14 and 18) Total current assets 51 983,468 602,341 812 974,505 590,735 495 9,548,233 5,847,971 286,098 279,327 2,290,007 2,129,395 2,777,650 22,233,077 Long-term receivables and investments: Long-term trade receivables (note 17) Investments in securities and other (notes 3, 6, 14, 17 and 18) Investments in and advances to affiliated companies (note 6) Total long-term receivables and investments 4,813 314,047 183,463 502,323 2,521 242,271 181,285 426,077 46,728 3,049,000 1,781,194 4,876,922 Property, plant and equipment (notes 7, 18, 19 and 20): Land Buildings Machinery and equipment Construction in progress Less accumulated depreciation Net property, plant and equipment 104,272 703,223 105,449 659,411 1,712,632 1,637,682 54,632 2,574,759 1,925,374 649,385 50,813 2,453,355 1,850,355 603,000 1,012,350 6,827,407 16,627,495 530,408 24,997,660 18,692,951 6,304,709 Other assets (notes 9, 10 and 18) 171,251 251,938 1,662,632 Total assets ¥3,612,966 ¥3,410,410 $35,077,340 See accompanying notes to consolidated financial statements. 34 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Liabilities and Equity Current liabilities: Bank loans (note 7) Current portion of long-term debt (notes 7, 17 and 20) Trade payables (notes 6 and 8) Accrued expenses (note 16) Accrued income taxes (note 9) Other current liabilities (notes 10, 14 and 18) 2014 Yen (millions) 2013 U.S. dollars (thousands) (note 2) 2014 ¥ 60,275 ¥ 131,837 $ 585,194 101,777 758,913 337,571 17,151 218,556 103,081 652,718 292,990 11,919 193,522 988,126 7,368,087 3,277,388 166,515 2,121,904 Total current liabilities 1,494,243 1,386,067 14,507,214 Long-term debt (notes 7, 17 and 20) Retirement and severance benefits (note 10) Other liabilities (notes 9, 14, 16 and 18) 211,426 212,638 94,308 305,654 254,977 96,721 2,052,680 2,064,447 915,611 Total liabilities 2,012,615 2,043,419 19,539,952 Mitsubishi Electric Corp. shareholders’ equity Common stock (note 11): Authorized 8,000,000,000 shares; issued 2,147,201,551 shares in 2014 and in 2013 Capital surplus (note 11) Legal reserve Retained earnings Accumulated other comprehensive 175,820 207,089 62,739 1,076,999 175,820 205,945 61,406 950,621 1,706,990 2,010,573 609,117 10,456,301 income (loss) (notes 3, 9, 10, 12 and 14) 1,957 (93,487) 19,000 Treasury stock, at cost 348,999 shares in 2014 and 306,490 shares in 2013 (282) (235) (2,738) Total Mitsubishi Electric Corp. shareholders’ equity 1,524,322 1,300,070 14,799,243 Noncontrolling interests Total equity 76,029 66,921 1,600,351 1,366,991 738,145 15,537,388 Commitments and contingent liabilities (note 16) Total liabilities and equity ¥3,612,966 ¥3,410,410 $35,077,340 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 35 Consolidated Statements of Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2014, 2013 and 2012 Revenues: Net sales (note 6) Interest and dividends (note 6) Equity in earnings of affiliated companies (note 6) Other (notes 3, 12, 14 and 19) Total revenues Costs and expenses: Cost of sales (notes 10 and 20) Selling, general and administrative (notes 10, 19 and 20) Research and development Loss on impairment of long-lived assets (notes 18 and 19) Interest Equity in losses of affiliated companies (note 6) Other (notes 3, 6, 12, 14, 15, 16 and 19) Total costs and expenses 2014 2013 Yen (millions) 2012 ¥4,054,359 7,799 23,153 24,554 4,109,865 ¥3,567,184 7,742 — 25,361 3,600,287 ¥3,639,468 8,332 — 22,196 3,669,996 2,914,589 737,042 163,765 3,791 4,539 — 37,149 3,860,875 2,604,360 648,890 157,522 4,317 6,507 14,619 98,931 3,535,146 2,628,964 625,283 155,995 3,782 6,818 3,366 21,708 3,445,916 U.S. dollars (thousands) (note 2) 2014 $39,362,709 75,718 224,786 238,389 39,901,602 28,296,981 7,155,748 1,589,951 36,806 44,068 — 360,669 37,484,223 Income before income taxes 248,990 65,141 224,080 2,417,379 Income taxes (note 9): Current Deferred 34,241 51,957 86,198 23,490 (32,999) (9,509) 42,187 63,628 105,815 332,437 504,437 836,874 Net income 162,792 74,650 118,265 1,580,505 Net income attributable to noncontrolling interests 9,319 5,133 6,202 90,476 Net income attributable to Mitsubishi Electric Corp. ¥ 153,473 ¥ 69,517 ¥ 112,063 $ 1,490,029 Net income per share attributable to Mitsubishi Electric Corp. (note 13): Basic Diluted See accompanying notes to consolidated financial statements. ¥71.49 — ¥32.38 — Yen ¥52.20 — U.S. dollars (note 2) $0.694 — Consolidated Statements of Comprehensive Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2014, 2013 and 2012 Net income Other comprehensive income (loss), net of tax (note 12): Foreign currency translation adjustments Pension liability adjustments (note 10) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 14) Total 2014 ¥162,792 2013 ¥ 74,650 Yen (millions) 2012 ¥118,265 U.S. dollars (thousands) (note 2) 2014 $1,580,505 51,769 (6,756) 55,556 (80) 100,489 66,592 47,633 14,845 43 129,113 (8,843) 2,234 6,298 54 (257) 502,612 (65,593) 539,379 (777) 975,621 Comprehensive income 263,281 203,763 118,008 2,556,126 Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Mitsubishi Electric Corp. See accompanying notes to consolidated financial statements. 14,364 12,130 5,629 139,456 ¥248,917 ¥191,633 ¥112,379 $2,416,670 36 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Consolidated Statements of Equity Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2014, 2013 and 2012 Balance at March 31, 2011 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 12): Foreign currency translation adjustments Pension liability adjustments (note 10) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 14) Transfer to legal reserve Equity transactions with noncontrolling interests and other Dividends paid to Mitsubishi Electric Corp. shareholders’ equity Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2012 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 12): Foreign currency translation adjustments Pension liability adjustments (note 10) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 14) Transfer to legal reserve Equity transactions with noncontrolling interests and other Dividends paid to Mitsubishi Electric Corp. shareholders’ equity Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2013 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 12): Foreign currency translation adjustments Pension liability adjustments (note 10) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 14) Transfer to legal reserve Equity transactions with noncontrolling interests and other Dividends paid to Mitsubishi Electric Corp. shareholders’ equity Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2014 Balance at March 31, 2013 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 12): Foreign currency translation adjustments Pension liability adjustments (note 10) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 14) Transfer to legal reserve Equity transactions with noncontrolling interests and other Dividends paid to Mitsubishi Electric Corp. shareholders’ equity Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2014 Common stock Legal reserve ¥175,820 ¥208,669 ¥59,223 Capital surplus Retained earnings ¥822,750 112,063 Accumulated other comprehensive income (loss) ¥(215,919) Total Mitsubishi Electric Corp. shareholders’ equity ¥ (203) ¥1,050,340 Treasury stock Non- controlling interests Total equity ¥56,685 ¥1,109,025 Yen (millions) (8,254) 2,234 6,285 51 1, 817 (1,817) 112,063 (8,254) 2,234 6,285 51 112,379 — 6,202 (589) 13 3 5,629 112,063 6,202 (8,843) 2,234 6,298 54 118,008 — (2,326) (2,326) (5,759) (8,085) (27,910) ¥175,820 ¥206,343 ¥61,040 ¥905,086 ¥(215,603) 69,517 59,631 47,633 14,803 49 366 (366) (27,910) (20) 2 ¥ (221) ¥1,132,465 (20) 2 (27,910) (20) 2 ¥58,555 ¥1,191,020 69,517 59,631 47,633 14,803 49 191,633 — 5,133 6,961 42 (6) 12,130 69,517 5,133 66,592 47,633 14,845 43 203,763 — (398) (398) (3,764) (4,162) (23,616) ¥175,820 ¥205,945 ¥61,406 ¥ 950,621 ¥ (93,487) 153,473 46,675 (6,756) 55,591 (66) 1, 333 (1,333) (23,616) (16) 2 ¥ (235) ¥1,300,070 (16) 2 (23,616) (16) 2 ¥66,921 ¥1,366,991 153,473 46,675 (6,756) 55,591 (66) 248,917 — 9,319 5,094 (35) (14) 14,364 153,473 9,319 51,769 (6,756) 55,556 (80) 263,281 — 1.144 1,144 (5,256) (4,112) (25,762) ¥175,820 ¥207,089 ¥62,739 ¥1,076,999 ¥ 1,957 (25,762) (48) 1 ¥ (282) ¥1,524,322 (48) 1 (25,762) (48) 1 ¥76,029 ¥1,600,351 U.S. dollars (thousands) (note 2) Accumulated other comprehensive income (loss) $(907,641) 453,157 (65,593) 539,718 (641) Common stock Retained earnings $1,706,990 $1,999,466 $596,175 $ 9,229,331 Capital surplus Legal reserve 1,490,029 12,942 (12,942) 11,107 (250,117) $1,706,990 $2,010,573 $609,117 $10,456,301 $ 19,000 Total Mitsubishi Electric Corp. shareholders’ equity Non- controlling interests Treasury stock Total equity $(2,282) $12,622,039 $649,718 $13,271,757 1,490,029 453,157 (65,593) 539,718 (641) 2,416,670 — 90,476 49,455 (339) (136) 139,456 1,490,029 90,476 502,612 (65,593) 539,379 (777) 2,556,126 — 11,107 (51,029) (39,922) (250,117) (466) 10 $(2,738) $14,799,243 $738,145 $15,537,388 (250,117) (466) 10 (466) 10 See accompanying notes to consolidated financial statements. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 37 Consolidated Statements of Cash Flows Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2014, 2013 and 2012 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) (note 2) 2014 ¥ 162,792 ¥ 74,650 ¥ 118,265 $ 1,580,505 132,956 127,942 127,244 1,290,835 3,627 4,014 3,367 35,214 67 51,957 1,108 607 (23,153) 14,812 18,141 (12,580) 83,179 (10,756) 21,494 (3,764) 440,487 (296) (32,999) (2,480) 4,828 14,619 (49) 16,706 (21,241) (62,549) (63,638) 16,787 6,458 82,752 834 63,628 (1,682) 6,961 3,366 (166,091) (55,737) (17,553) 9,113 (61,108) (7,311) 51,884 75,180 650 504,437 10,757 5,893 (224,786) 143,806 176,126 (122,136) 807,563 (104,427) 208,680 (36,544) 4,276,573 (151,840) (150,425) (159,346) (1,474,174) 4,930 4,792 5,085 47,864 (21,312) (13,036) (11,766) (206,913) 44,134 1,882 (8,015) (130,221) 193 (105,445) (73,266) (25,762) (48) 1 (4,694) 29,088 (14,398) (9,722) (153,701) 57,003 (90,786) 19,237 (23,616) (16) 2 (2,977) 15,961 90 (6,198) (156,174) 138,283 (139,775) 46,630 (27,910) (20) 2 (10,182) 428,485 18,272 (77,816) (1,264,282) 1,874 (1,023,738) (711,320) (250,117) (466) 10 (45,573) (209,021) (41,153) 7,028 (2,029,330) 17,923 119,168 298,881 ¥ 418,049 18,802 (93,300) 392,181 ¥ 298,881 (5,920) (79,886) 472,067 ¥ 392,181 174,010 1,156,971 2,901,757 $ 4,058,728 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Impairment losses of property, plant and equipment Loss (gain) from sales and disposal of property, plant and equipment, net Deferred income taxes Loss (gain) from sales of securities and other, net Devaluation losses of securities and other, net Equity in losses (earnings) of affiliated companies Decrease (increase) in trade receivables Decrease (increase) in inventories Decrease (increase) in other assets Increase (decrease) in trade payables Increase (decrease) in accrued expenses and retirement and severance benefits Increase (decrease) in other liabilities Other, net Net cash provided by operating activities Cash flows from investing activities: Capital expenditure Proceeds from sale of property, plant and equipment Purchase of short-term investments and investment securities Proceeds from sale of short-term investments and investment securities Decrease (increase) in loans receivable Other, net Net cash used in investing activities Cash flows from financing activities: Proceeds from long-term debt Repayment of long-term debt Increase (decrease) in short-term debt, net Dividends paid Purchase of treasury stock Reissuance of treasury stock Other, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See accompanying notes to consolidated financial statements. 38 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Notes to Consolidated Financial Statements Mitsubishi Electric Corporation and Subsidiaries (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Mitsubishi Electric Corporation (the “Company”) is a multina- tional organization which develops, manufactures, sells and distributes a broad range of electrical and electronic equip- The Company evaluates Variable Interest Entities (VIEs) whether it has a controlling financial interest in an entity through means other than voting rights and whether it should consolidate the entity as the primary beneficiary when the ments in the fields as diverse as home appliances and space Company has a controlling financial interest. electronics. The Company and its subsidiaries’ principal lines of business are: (1) Energy and Electric Systems, (2) Industrial Automation Systems, (3) Information and Communication Systems, (4) Electronic Devices, (5) Home Appliances and (6) Others. Each line’s sales as a percentage of total consolidated sales, before elimination of internal sales, for the year ended March 31, 2014 are as follows: Energy and Electric Systems – 25%, Industrial Automation Systems – 24%, Information and Communication Systems – 12%, Electronic Devices – 4%, Home Appliances – 20% and Others – 15%. Majority of the operations of the Company and its sub- sidiaries is mainly conducted in Japan. Net sales for the year ended March 31, 2014 comprises of the following geo- graphical locations: Japan – 61%, North America – 8%, Asia (excluding Japan) – 20%, Europe – 9% and Others – 2%. Our manufacturing operations are conducted principally at the Parent company with 22 manufacturing sites located in Japan as well as overseas manufacturing sites located in the United States, United Kingdom, Thailand, Malaysia, China and other countries. (b) Basis of Presentation The Company and its subsidiaries maintain their books of account in conformity with financial accounting standards in the countries of their domicile. The Company prepares the consolidated financial state- ments with reflecting the adjustments which are considered necessary to conform with accounting principles generally accepted in the United States of America. (c) Consolidation The Company prepares the consolidated financial statements including the accounts of the parent company and those of its majority-owned subsidiaries, whether directly or indi- rectly controlled. All significant intercompany transactions, accounts, and unrealized gains or losses have been eliminated. Investments in corporate joint ventures and affiliated companies with the ownership interest of 20% to 50%, in which the Company does not have control, but has the abil- ity to exercise significant influence, are accounted for by the equity method of accounting. Investments of less than 20% or on which the Company does not have significant influence are accounted for by the cost method. (d) Use of Estimates The Company makes estimates and assumptions to prepare the consolidated financial statements in conformity with generally accepted accounting principles, and those estimates and assumptions affect the reported amounts of assets and liabilities as well as the disclosed amounts of contingent assets and liabilities at the date of the consolidated financial state- ments and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include valuation allowances for receivables, inventories and deferred tax assets; the carrying amount of property, plant and equipment; and assets and obligations related to employee benefits. Actual results could differ from those estimates. (e) Cash and Cash Equivalents The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equiva- lents for the consolidated cash flow statements. (f) Short-Term Investments and Investment Securities The Company classifies investments in debt and equity secu- rities into trading, available-for-sale, or held-to-maturity securities. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to- maturity securities are those securities which the Company has the ability and intent to hold until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amor- tized cost, adjusted for the amortization or accretion of pre- miums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for- sale securities are excluded from earnings and are reported as a separate component of other comprehensive income (loss) until realized. Realized gains or losses from the sale of securi- ties are determined on the average cost of the particular secu- rity held at the time of sale. A decline in the fair value of any available-for-sale security below costs that is other-than-temporary results in a reduction in carrying amount to the fair value, which becomes the new cost basis for the security. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 39 To determine whether an impairment of equity security is other-than-temporary, the Company considers whether it (k) Income Taxes The Company recognizes deferred tax assets and liabilities has the ability and intent to hold the security until a market for the future tax consequences attributable to differences price recovery and considers whether evidence indicating between the financial statement carrying amounts of existing the market price of the security is recoverable to the carrying assets and liabilities and their respective tax basis, operating amount outweighs the counter evidence. Evidence considered loss and tax credit carryforwards. Deferred tax assets and in this assessment includes the reasons for the impairment, liabilities are measured using enacted tax rates expected to the severity and duration of the impairment, changes in value apply to taxable income in the years in which the temporary subsequent to year-end, and forecasted performance of the differences are expected to be recovered or settled. The effect investee. on deferred tax assets and liabilities of a change in tax rates To determine whether an impairment of debt security is is recognized in income in the period that includes the enact- other-than-temporary, the Company considers whether it has ment date. the intent to sell the equity investment and more likely than Valuation allowances are established to reduce deferred not that the Company is required to sell until a market price tax assets to their net realizable value if it is more likely than of the investment is recoverable to the amortized cost. not that some portion or all of the deferred tax asset will not Other investments are stated at cost. The Company rec- be realized. ognizes a loss when there is other-than-temporary decline in The Company recognizes the financial statement effects value of other investments, using the same policy as described of unrecognized tax benefits only if those positions are more above for available-for-sale security impairments. likely than not of being sustained. (g) Allowance for Doubtful Receivables The Company records an allowance for doubtful receivables (l) Product Warranties The Company generally offers warranties on its products based on credit loss history and evaluation of specific doubtful against certain manufacturing and other defects for the spe- receivables. (h) Inventories In work-in-process, the Company records the ordered prod- ucts at the acquisition cost and the regular purchased prod- ucts at the average production costs. Those products are cific periods of time and/or usage of the product depending on the nature of the product, the geographic location of its sale and other factors. The Company recognizes accrued war- ranty costs based primarily on historical experience of actual warranty claims as well as current information on repair costs. recorded at the lower of cost or market. Net costs in excess of billings on long-term contracts are included in inventories. (m) Retirement and Severance Benefits The Company recognizes the funded status (i.e., the differ- Raw material and finished product inventories are gener- ence between the fair value of plan assets and the projected ally recorded using the average-cost method, and evaluated benefit obligations) of its pension plans in the consolidated at the lower of cost or market. In accordance with the general balance sheet at the end of the year, and records the cor- practice in the heavy electrical industry, inventories related to responding amount to accumulated other comprehensive Energy and Electric Systems include items with long manufac- income (loss), net of tax. The adjustment items for accumulat- turing periods which are not realizable within one year. ed other comprehensive income (loss) are unrecognized prior (i) Property, Plant and Equipment The Company records property, plant and equipment at cost. Depreciation of property, plant and equipment is generally cal- service cost and unrecognized net gain or loss. The amounts of these adjustments are recognized as net periodic pension cost in future years. culated by the declining-balance method, except for certain assets which are depreciated by the straight-line method, over (n) Revenue Recognition The Company recognizes revenue when persuasive evidence the estimated useful life of the assets according to general of an arrangement including title transfer exists, delivery has class, type of construction, and use of these assets. occurred, the sales price is fixed or determinable, and collect- The estimated useful life of buildings is 3 to 50 years, ibility is probable. These criteria are met for mass-merchandis- while machinery and equipment is 2 to 20 years. ing products such as consumer products and semiconductors (j) Leases The Company records capital leases at the inception of the lease at the lower of the discounted present value of future minimum lease payments or the fair value of the leased assets. The amortization of the leased assets is calculated in accordance with the Company’s normal depreciation policy. at the time when the product is received by the customer, and for products with acceptance provisions such as heavy machinery and industrial products at the time when the prod- uct is received by the customer and the specific criteria of the product are demonstrated by the Company with only certain inconsequential or perfunctory work left to be performed 40 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 by the customer. Revenue from maintenance agreements is recognized over the contract term when the maintenance is (s) Derivatives The Company recognizes all derivatives as either assets or lia- provided and the cost is incurred. Also, the Company applies bilities in the consolidated financial statements and measures the percentage of completion method for long-term con- them at fair value. For derivatives designated as fair value struction contracts. The Company measures the percentage hedges, changes in fair value of the hedged item and the of completion by comparing expenses recognized through derivative are recognized in current earnings. For derivatives the current year to the aggregate amount of estimated cost. designated as cash flow hedges, fair value changes of the Any anticipated losses on fixed price contracts are charged effective portion of the hedging instruments are recognized as to operations when such losses can be estimated. Provisions a component of other comprehensive income (loss) until the are made for contingencies in the period when they become hedged item is recognized in earnings. The ineffective portion known pursuant to specific contract terms and conditions and of all hedges is recognized in earnings immediately. are estimable. The Company discloses the use and purpose of derivative For the contract which may consists of any combination instruments, accounting for derivative instruments and related of products, equipment, installation and maintenance, rev- hedged items. The Company also discloses the effects on the enue is allocated to each accounting unit based on its relative entity’s financial position, results of operations, and cash flows fair value, when each deliverable is accounted for separate by the derivative instruments and hedging activities accounting unit. (o) Research and Development and Advertising The Company accounts for the costs of research and devel- (t) Securitizations The Company accounts for the securitization of the accounts receivables as a sale, if it is determined based on the opment and advertising as expense when those costs are Company’s evaluation that it has surrendered control over the incurred. transferred receivables. (p) Shipping and Handling Costs The Company records shipping and handling costs mainly as selling, general and administrative expenses. (q) Net Income per Share The Company calculates basic net income per share attribut- able to Mitsubishi Electric Corp. divided net income attribut- able to Mitsubishi Electric Corp. by the weighted-average number of common shares outstanding during each year. Diluted net income per share attributable to Mitsubishi Electric Corp. reflects the potential dilution and is calculated on the basis that dilutive securities were converted at the beginning of the year or at time of issuance (if later), and that dilutive stock option were exercised (less the number of treasury stock assumed to be purchased from the proceeds using the aver- age market price of the Company’s common stock). (r) Foreign Currency Translation The Company translates receivables and payables in foreign currency at the prevailing rates of exchange at the balance sheet date. Gains and losses resulting from translation of receivables and payables are recognized in current earnings. Assets and liabilities of the Company’s overseas consolidating subsidiaries are translated into Japanese yen at the prevail- ing rates of exchange at the balance sheet date. Income and expense items are translated at the average exchange rate prevailing during the year. Gains and losses resulting from translation of financial statements are recognized as foreign currency translation adjustments in other comprehensive income (loss). Accordingly, the receivables sold under these facilities are excluded from Trade receivables in the accompanying consolidated balance sheets. Gain or loss on sale of receiv- ables is calculated based on the allocated carrying amount of the receivables sold. When a portion of accounts receivables is transferred, the participating interest that continues to be held is recorded at the allocated carrying amount of the assets based on their relative fair values at the date of the transfer. The Company estimates fair value based on the present value of future expected cash flows less credit losses. (u) Impairment of Long-Lived Assets The Company reviews for impairment of long-lived assets such as property, plant, and equipment and purchased intan- gibles subject to amortization, to be held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment loss is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.　Long-lived assets to be disposed of other than sale continue to be classified as held and used until they are disposed. Long-lived assets classified as held-for-sale are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 41 no longer depreciated. The assets and liabilities of a disposed group classified as held-for-sale are presented separately in (z) Reclassifications The Company has made certain reclassifications of the previ- the appropriate asset and liability sections of the consolidated ous fiscal years’ consolidated financial statements to conform balance sheets. to the presentation used for the year ended March 31, 2014. (v) Goodwill and Other Intangible Assets The Company accounts for business combinations using the (aa) Future Application of New Accounting Standards In March 2013, the Financial Accounting Standards Board acquisition method. The Company recognizes at fair value the (FASB) issued Accounting Standards Updates (ASU) 2013- assets acquired, the liabilities assumed, any noncontrolling 05 "Parent's Accounting for the Cumulative Translation interests in the acquiree, and acquired goodwill at the acquisi- Adjustment upon Derecognition of Certain Subsidiaries or tion date. The Company discloses the nature of business com- Groups of Assets within a Foreign Entity or of an Investment bination to enable the readers to evaluate the effects of such in a Foreign Entity (a consensus of the FASB Emerging Issues transaction on the consolidated financial statements. Task Force)" (An Amendment of Accounting Standards The Company does not amortize goodwill but tests it for Codification (ASC) Topic 830 "Foreign Currency Matters"). impairment at least annually. Also other intangible assets with ASU 2013-05 addresses the accounting for the cumulative indefinite useful life are not amortized, but instead tested for translation adjustment when a parent either sells a part or impairment until its useful life is determined. On the other all of its investment in a foreign entity or no longer holds a hand, other intangible assets determined to have useful life controlling financial interest in a subsidiary or group of assets are amortized over their respective estimated useful life and that is a nonprofit activity or a business within a foreign entity. tested for impairment. (w) Cost Associated with Exit or Disposal Activities The Company recognizes the costs associated with exit or dis- posal activities as liability only when it meets the definition of a liability in the Statements of Financial Accounting Concepts No. 6, “Elements of Financial Statements”. The Company uses fair value for initial measurement of liabilities related to exit or disposal activities. (x) Guarantees The Company recognizes the guarantees and indemnifica- tion arrangements as liability measured at fair value as they are issued or modified by the Company, and discloses the guarantees that the Company has undertaken, including a rollforward of the Company’s product warranty liabilities. The Company continually monitors the conditions of the guaran- tees and indemnifications to identify occurrence of probable losses, and when such losses are identified and if estimable, they are recognized in current earnings. (y) Asset Retirement Obligations The Company recognizes legal obligations associated with the ASU 2013-05 requires entities to apply the guidance in ASC 830-30 to release any related cumulative translation adjust- ment into net income. The Company is required to adopt ASU 2013-05 on April 1, 2014. The adoption of ASU 2013-05 will not have a material effect on the Company's consolidated financial position and results of operations. In April 2013, the FASB issued ASU 2013-07 "Liquidation Basis of Accounting" (An Amendment of ASC Topic 205 "Presentation of Financial Statements"). ASU 2013-07 clarifies when an entity should apply the liquidation basis of account- ing and provides guidance on principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. ASU 2013-07 requires entities to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent and to present relevant informa- tion about an entity's expected resources in liquidation by measuring and presenting assets at the amount of the expect- ed cash proceeds from liquidation that include any items that it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities. retirement of long-lived assets that result from an acquisition, The Company is required to adopt ASU 2013-07 on April 1, construction and development, and (or) from a normal opera- 2014. The adoption of ASU 2013-07 will not have a material tion of a long-lived asset, except for certain lease obligations. effect on the Company's consolidated financial position and The Company recognizes a liability for an asset retirement results of operations. obligation at fair value in the period which it is incurred if a In May 2014, the FASB issued ASU 2014-09 “Revenue reasonable estimate of fair value can be made. The associated from Contracts with Customers” (A Creation of ASC Topic asset retirement costs are capitalized as part of the carrying 606 “Revenue from Contracts with Customers”). ASU 2014- amount of the long-lived asset and subsequently allocated to expense over the asset’s useful life. Subsequent to the initial 09 requires an entity to recognize revenue to depict the trans- fer of promised goods or services to customers in an amount measurement of the asset retirement obligation, the obliga- that reflects the consideration to which the entity expects tion is adjusted at the end of each period to reflect the pas- to be entitled in exchange for those goods or services. The sage of time and changes in the estimated future cash flows Company is required to adopt ASU 2014-09 on April 1, 2017 underlying the obligation. retrospectively to each prior reporting period presented or 42 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 retrospectively with the cumulative effect of initially adopt- apply and is currently evaluating the effects on the Company's ing this update recognized at the date of initial adoption. consolidated financial position and results of operations upon The Company has not yet determined which method it will adoption of ASU 2014-09. (2) U.S. DOLLAR AMOUNTS The Company has presented the consolidated financial state- exchange rate prevailing on the Tokyo Foreign Exchange ments in Japanese yen, and solely for the convenience of the Market at the end of March 2014. This translation should not reader, has provided translated amounts in United States dol- be construed as a representation that the amounts shown lars at the rate of ¥103=U.S.$1, which was the approximate could be converted into United States dollars at such rate. (3) SECURITIES Marketable securities included in short-term investments and unrealized holding losses and fair value for such securities by investments in securities and other consist of available-for- equity securities and debt securities at March 31, 2014 and sale securities. The cost, gross unrealized holding gains, gross 2013 were as follows: 2014: Available-for-sale: Equity securities Debt securities 2013: Available-for-sale: Equity securities Debt securities 2014: Available-for-sale: Equity securities Debt securities Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥ 96,587 3,861 ¥100,448 ¥127,931 — ¥127,931 ¥1,345 49 ¥1,394 ¥223,173 3,812 ¥226,985 Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥ 77,663 37,348 ¥115,011 ¥ 44,736 1,113 ¥ 45,849 ¥1,512 2,442 ¥3,954 ¥120,887 36,019 ¥156,906 Gross unrealized holding gains Gross unrealized holding losses Cost Fair value U.S. dollars (thousands) $937,738 37,485 $1,242,049 — $975,223 $1,242,049 $13,058 476 $13,534 $2,166,729 37,009 $2,203,738 Debt securities consist of Japanese government debt ($539,718 thousand) , ¥14,803 million and ¥6,285 million, securities, corporate debt securities and others. respectively. In the years ended March 31, 2014, 2013 and 2012, net As of March 31, 2014 and 2013, the cost of non-market- unrealized gains on available-for-sale securities, net of taxes able equity securities were ¥14,550 million ($141,262 thou- and noncontrolling interests, increased by ¥55,591 million sand) and ¥15,033 million, respectively. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 43 Maturities of marketable securities classified as available-for-sale at March 31, 2014 were as follows: Due within one year Due after one year through five years Due after five years Marketable equity securities Cost ¥ 51 210 3,600 96,587 ¥100,448 Yen (millions) Fair value ¥ 51 210 3,551 223,173 ¥226,985 U.S. dollars (thousands) Fair value $ 495 2,039 34,475 2,166,729 $2,203,738 Cost $ 495 2,039 34,951 937,738 $975,223 Gross unrealized losses on available-for-sale securities and the fair value of the related securities, aggregated by length of time that individual securities have been in a continuous unrealized loss positions, at March 31, 2014 were as follows: Available-for-sale: Equity securities Debt securities Available-for-sale: Equity securities Debt securities Less than 12 months Fair value Unrealized losses 12 months or more Fair value Unrealized losses Yen (millions) Total Fair value Unrealized losses ¥5,557 492 ¥6,049 ¥ 997 8 ¥1,005 ¥ 603 2,459 ¥3,062 ¥348 41 ¥389 ¥6,160 2,951 ¥9,111 ¥1,345 49 ¥1,394 Less than 12 months Fair value Unrealized losses 12 months or more Fair value Unrealized losses U.S. dollars (thousands) Total Fair value Unrealized losses $53,951 4,777 $58,728 $9,679 78 $9,757 $ 5,855 23,873 $29,728 $3,379 398 $3,777 $59,806 28,650 $13,058 476 $88,456 $13,534 The Company did not recognize an impairment loss from the sonable period of time sufficient for a recovery of fair value, decline in the fair value of the marketable securities includ- the Company does not consider those securities to be other- ing the unrealized losses. Based on that evaluation and the than-temporarily impaired. Company’s ability and intent to hold those securities for a rea- Proceeds from the sale of available-for-sale securities and gross realized gains and losses on those sales in the years ended March 31, 2014, 2013 and 2012 were as follows: Proceeds Gross realized gains Gross realized losses 2014 ¥26,964 161 1,327 2013 ¥22,287 2,527 47 Yen (millions) 2012 ¥1,460 486 5 U.S. dollars (thousands) 2014 $261,786 1,563 12,883 For the year ended March 31, 2014, the Company did not recognize any material losses on impairment of marketable securities due to other-than-temporary declines in fair value. For the years ended March 31, 2013 and 2012, the Company recognized loss on impairment of marketable securities of ¥3,860 million and ¥6,912 million, respectively due to other-than-temporary declines in fair value. (4) TRADE RECEIVABLES Trade receivables are summarized as follows: Notes receivable Accounts receivable Allowance for doubtful receivables 44 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 2014 ¥ 68,335 925,181 (10,048) ¥983,468 Yen (millions) 2013 ¥ 56,284 926,511 (8,290) ¥974,505 U.S. dollars (thousands) 2014 $ 663,446 8,982,340 (97,553) $9,548,233 (5) INVENTORIES Inventories are comprised of the following: Work in process Less accumulated billings on long-term contracts Raw materials Finished products (6) INVESTMENTS IN AFFILIATED COMPANIES 2014 ¥262,466 14,955 247,511 100,150 254,680 Yen (millions) 2013 ¥271,574 13,166 258,408 90,477 241,850 ¥602,341 ¥590,735 U.S. dollars (thousands) 2014 $2,548,214 145,195 2,403,019 972,331 2,472,621 $5,847,971 For the fiscal year ended March 31, 2013, the Company recorded an amount of ¥13,785 million, the portion of the costs of investments in affiliated companies accounted for by the equity method of accounting at date of acquisition that exceeds the amounts of net assets attributable to the Company, included in investments in affiliated companies as goodwill related to equity investments on its consolidated balance sheets. At the year ended March 31, 2013, the Company did not recognize any goodwill impairment loss. On September 30, 2013, Renesas Electric Corporation (Renesas) issued additional shares to third parties. As a result, the Company’s ownership interest in Renesas decreased from 25.05% to 6.27% such that the Company no longer has the abil- ity to exercise significant influence over Renesas. Therefore, the Company excluded Renesas from an affiliate of the Company accounted for by the equity method of accounting, and reclassified the amounts of investment in Renesas from “Investment in and advances to affiliated companies” to “Investment in securities and other” and recognized a loss resulting from the share issuance. The Company recorded the loss resulting from the share issuance of ¥4,355 million ($42,282 thousand) in “Costs and expenses - Other” for the year ended March 31, 2014. A summary of the combined financial information relating to affiliated companies accounted for by the equity method of accounting (Toshiba Mitsubishi-Electric Industrial Systems Corporation, Shanghai Mitsubishi Elevator Co., Ltd, etc.) as of March 31, 2014 and 2013, and for the years ended March 31, 2014, 2013 and 2012 is as follows: The Financial Position as of March 31, 2013 and Results of Operations for the years ended March 31, 2014, 2013 and 2012 include the financial information of Renesas. Financial Position Current assets Property, plant and equipment Other assets Total assets Current liabilities Long-term debt Total liabilities Shareholders’ equity 2014 ¥1,240,376 109,668 105,591 ¥1,455,635 ¥ 830,046 133,766 963,812 491,823 Yen (millions) 2013 U.S. dollars (thousands) 2014 ¥1,395,527 343,725 192,039 ¥1,931,291 ¥ 948,324 517,159 1,465,483 465,808 $12,042,486 1,064,738 1,025,155 $14,132,379 $ 8,058,699 1,298,699 9,357,398 4,774,981 Total liabilities and shareholders’ equity ¥1,455,635 ¥1,931,291 $14,132,379 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 45 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2014 Results of Operations Sales Net income (loss) attributable to affiliated companies ¥1,648,617 54,383 ¥1,869,079 (84,953) ¥1,956,596 (36,010) $16,005,990 527,990 The balances and transactions with affiliated companies accounted for by the equity method of accounting as of March 31, 2014 and 2013, and for the years ended March 31, 2014, 2013 and 2012 are as follows: The balances as of March 31, 2013 and transactions for the years ended March 31, 2014, 2013 and 2012 include those with Renesas. Trade receivables Trade payables Sales Purchases Dividends 2014 ¥ 71,578 149,964 2014 ¥313,119 173,897 12,418 2013 ¥298,033 166,633 10,174 Yen (millions) 2013 ¥ 74,470 129,123 Yen (millions) 2012 ¥314,740 184,766 6,945 U.S. dollars (thousands) 2014 $ 694,932 1,455,961 U.S. dollars (thousands) 2014 $3,039,990 1,688,320 120,563 Investments in affiliated companies accounted for by the equity method of accounting include the shares of 9 publicly quoted affiliates (10 publicly quoted affiliates existed in 2013), which are summarized as follows: Investments at equity Quoted market value (7) BANk LOANS AND LONG-TERM DEBT Bank loans consisted of the following: Borrowings from banks and others Commercial paper 2014 ¥35,378 45,595 Yen (millions) 2013 ¥52,720 65,751 2014 ¥60,275 — ¥60,275 Yen (millions) 2013 ¥101,617 30,220 ¥131,837 U.S. dollars (thousands) 2014 $343,476 442,670 U.S. dollars (thousands) 2014 $585,194 — $585,194 The weighted average interest rates on borrowings from At March 31, 2014, the Company and its subsidiaries had banks and others outstanding as of March 31, 2014 and 2013 unused committed lines of credit that can provide short-term were 0.51% and 0.71%, respectively. funds from subscribing financial institutions amounting to ¥115,500 million ($1,121,359 thousand). 46 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Long-term debt consisted of the following: Borrowings from banks and other companies, due 2014 to 2022 with bearing interest rate ranging from 0.29% to 3.20% at March 31, 2014: due 2013 to 2022 with bearing interest rate ranging from 0.35% to 3.00% at March 31, 2013: Secured Unsecured 1.17% Japanese yen bonds due 2014 0.58% Japanese yen bonds due 2013 Capital lease obligations Less amount due within one year 2014 Yen (millions) 2013 U.S. dollars (thousands) 2014 ¥ 403 256,877 30,000 — 25,923 313,203 101,777 ¥211,426 ¥ 821 319,527 30,000 30,000 28,387 408,735 103,081 ¥305,654 $ 3,913 2,493,951 291,262 — 251,680 3,040,806 988,126 $2,052,680 U.S. dollars (thousands) $ 988,126 879,350 478,233 220,175 234,699 240,223 $3,040,806 The aggregate annual maturities of long-term debt outstanding at March 31, 2014 were as follows: Year ending March 31: 2015 2016 2017 2018 2019 Thereafter Total Yen (millions) ¥101,777 90,573 49,258 22,678 24,174 24,743 ¥313,203 Substantially all of the loans with banks and others have basic Certain of the secured loan agreements contain provi- written agreements. With respect to all present or future sions that permit the lenders to require additional collateral, loans, these agreements state that the Company would need and substantially all of the unsecured loan agreements permit to provide collateral or guarantors immediately upon the the lenders to require collateral or guarantors. Property, plant banks’ requests and that any collateral furnished pursuant to and equipment carried at ¥891 million ($8,650 thousand) such agreements will be used against repayment of debts in are pledged as security for long-term loans from banks and case of default. others. (8) TRADE PAYABLES Trade payables are summarized as follows: Notes payable Accounts payable 2014 ¥ 15,029 743,884 ¥758,913 Yen (millions) 2013 ¥ 16,868 635,850 ¥652,718 U.S. dollars (thousands) 2014 $ 145,912 7,222,175 $7,368,087 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 47 (9) INCOME TAXES Total income taxes were allocated as follows: Income before income taxes Shareholders’ equity—accumulated other comprehensive income (loss): Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments 2014 ¥ 86,198 2013 ¥(9,509) Yen (millions) 2012 ¥105,815 U.S. dollars (thousands) 2014 $ 836,874 4,280 (2,151) 30,818 (24) 5,037 26,637 7,230 38 (135) (144) 2,777 37 41,552 (20,882) 299,204 (233) ¥119,121 ¥29,433 ¥108,350 $1,156,515 The significant components of deferred tax expense attributable to income taxes are as follows: Change in valuation allowance related to deferred tax assets Other 2014 2013 ¥ (4,129) 56,086 ¥51,957 ¥(40,029) 7,030 ¥(32,999) Yen (millions) 2012 ¥ (6,915) 70,543 ¥63,628 U.S. dollars (thousands) 2014 $ (40,087) 544,524 $504,437 The Company is subjected to a number of income taxes. The ed to be recovered or settled after April 1, 2014. Before the statutory tax rate is approximately 38% for the years ended adjustment, the statutory tax rates applied were approximate- March 31, 2014 and 2013, approximately 41% for the year ly 38% for temporary differences expected to be recovered ended March 31, 2012. or settled through March 31, 2015 and approximately 35.5% The “Act to Partially Revise the Income Tax Act” (Act No. for temporary differences expected to be recovered or settled 10 of 2014) was enacted and promulgated in March 2014, for the subsequent fiscal years after April 1, 2015. After the resulting in a reduction of the corporation tax rate effective adjustment, the statutory tax rate applied is approximately for fiscal years beginning after April 1, 2014, and the “Local 35.5% for temporary differences expected to be recovered or Corporate Tax Act” (Act No. 11 of 2014) was enacted and settled for the subsequent fiscal years after April 1, 2014. promulgated in March 2014, resulting in a newly imposed For the year ended March 31, 2014, ¥7,856 million Local Corporate Tax effective for fiscal years beginning after ($76,272 thousand) of income tax expense is included in April 1, 2015. As a result, the Company adjusted the statu- “Income taxes – Deferred” in the Consolidated Statements of tory tax rates to be applied in the calculation of deferred tax Income, as a result of the adjustment of deferred tax assets assets and liabilities arising from temporary differences expect- and liabilities. The effective tax rate for the years ended March 31, 2014, 2013 and 2012 is reconciled with the Japanese statutory tax rate in the following table: Japanese statutory tax rate Change in valuation allowance Adjustment for unrealized profit on intercompany transactions Expenses permanently not deductible for tax purposes International tax rate difference Tax credits Tax effect attributable to investments at equity Effect of income tax rate change Other Effective tax rate 48 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 2014 38.0% (1.9) 2.4 4.2 (8.4) (0.1) (2.1) 3.2 (0.7) 34.6% 2013 38.0% (60.1) 21.4 2.8 (17.9) (0.3) (10.4) 7.6 4.3 (14.6)% 2012 41.0% 3.6 (0.4) 1.0 (5.1) (3.3) (2.6) 14.3 (1.3) 47.2% For the year ended March 31, 2013, because it was expected more likely than not that the temporary differences related to that certain investments in affiliated companies would no its investment in affiliated companies would be realized. The longer be accounted for by the equity method of accounting effects were included in Change in valuation allowance. during the following year, the Company concluded that it was The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2014 and 2013 are as follows: Deferred tax assets: Retirement and severance benefits Accrued expenses Property, plant and equipment Inventories Pension liability adjustments Tax loss carryforwards Other Total gross deferred tax assets Valuation allowance Deferred tax assets, less valuation allowance Deferred tax liabilities: Securities contributed to employee retirement benefit trust Property, plant and equipment Net unrealized gains on securities Other Total gross deferred tax liabilities Net deferred tax assets 2014 ¥ 60,624 88,148 32,566 21,779 81,317 35,506 78,569 398,509 (64,547) 333,962 30,404 10,252 25,385 39,298 105,339 ¥228,623 Yen (millions) 2013 U.S. dollars (thousands) 2014 ¥ 77,846 77,609 34,815 23,998 79,533 18,484 155,207 467,492 (68,676) 398,816 30,404 10,939 14,637 33,162 89,142 ¥309,674 $ 588,583 855,806 316,175 211,447 789,485 344,718 762,805 3,869,019 (626,669) 3,242,350 295,184 99,534 246,456 381,535 1,022,709 $2,219,641 The valuation allowance for deferred tax assets as of April temporary differences become deductible. Management 1, 2012 was ¥108,705 million. The net change in the total considers the scheduled reversal of deferred tax liabilities, pro- valuation allowance for the year ended March 31, 2013 was jected future taxable income, and tax planning strategies in a decrease of ¥40,029 million. The net change in the total making this assessment. valuation allowance for the year ended March 31, 2014 was At March 31, 2014, the Company and certain subsidiar- a decrease of ¥4,129 million ($40,087 thousand). In assessing ies had net operating loss carryforwards of ¥64,911 million the realizability of deferred tax assets, management considers ($630,204 thousand) and ¥181,917 million ($1,766,184 whether it is more likely than not that some portion or all of thousand) for corporate and local income tax purposes, the deferred tax assets will be realized. The ultimate realiza- respectively, which were available to offset future taxable tion of deferred tax assets is dependent upon the generation income, if any. A significant portion of the net operating loss of future taxable income during the periods in which those carryforwards will expire in the years ending March 31, 2023. Net deferred tax assets and liabilities at March 31, 2014 and 2013 are reflected in the accompanying consolidated balance sheets under the following captions: Prepaid expenses and other current assets Other assets Other liabilities 2014 ¥120,413 113,773 (5,563) ¥228,623 Yen (millions) 2013 ¥112,019 201,794 (4,139) ¥309,674 U.S. dollars (thousands) 2014 $1,169,058 1,104,592 (54,009) $2,219,641 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 49 Deferred tax liabilities have not been recognized for undis- of income.　Both interest and penalties accrued as of March tributed earnings of domestic subsidiaries and some affili- 31, 2014 and 2013, and interest and penalties for the years ated companies as such income, if distributed in the form of ended March 31, 2014, 2013 and 2012 are not material. dividends, is either not taxable under present circumstances The Company and its subsidiaries file income tax returns or is not material. Deferred tax liabilities for the undistributed in Japan and various foreign tax jurisdictions. The tax years income of foreign subsidiaries and affiliated companies have that remain subject to examination by major tax jurisdictions been recognized. Although the Company believes that there are no sig- nificant unrecognized tax benefits as of March 31, 2014 and 2013, future determination by tax authorities could affect the effective tax rate in the future periods. The Company records interest and penalties related to additional income tax, etc. in the consolidated statements are as follows: Location Japan United States Thailand Europe (10) RETIREMENT AND SEVERANCE BENEFITS Open tax years 2007-2014 2011-2014 2009-2014 2008-2014 The Company has non-contributory and contributory defined 2005, and established a defined contribution plan on April benefit plans covering substantially all of its employees who 1, 2005. In addition, the Company amended its contributory meet eligibility requirements. defined benefit plan and introduced a cash balance pension Under the non-contributory plans, employees with less plan. Under the cash balance pension plan, each participant than twenty years of service are entitled to lump-sum sever- has a notional account which is credited yearly based on the ance indemnities at date of severance, and employees with current rate of contribution and market-related interest rate. twenty or more years of service are entitled to annuity pay- The domestic consolidated subsidiaries sponsor various ments subsequent to retirement, determined by the current pension plans, which are partially or entirely employees’ pen- basic rate of pay, length of service and termination condi- sion fund plan, and/or corporate pension fund plan, based on tions. In addition, certain employees who meet the eligibility each subsidiary’s respective pension policies. requirements are entitled to additional lump-sum payments In addition, the foreign consolidated subsidiaries that at the date of retirement based on the retirement age. Under have adopted pension policy mainly sponsors defined contri- the contributory plans, employees are entitled to annuity bution pension plan. payments at a certain age. The assets of certain of the non- The Company measures the fair value of plan assets and contributory plans and the contributory plans are combined in the projected benefit obligation at the end of the year, and accordance with the regulations and administered by a board recognizes the funded status (i.e., the difference between the of trustees comprised equally of employer and employee fair value of plan assets and the projected benefit obligations) representatives. An employee retirement benefit trust is estab- of pension in consolidated balance sheets with the amount of lished for certain of the non-contributory plans. corresponding adjustment to Accumulated other comprehen- The Company amended its benefit plan under labor and management agreement during the year ended March 31, sive income (loss), net of tax. 50 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Obligations and funded status Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows: Change in benefit obligations: Benefit obligations at beginning of year Service cost Interest cost Plan participants’ contributions Amendments Actuarial loss Benefits paid Acquisitions and divestitures, etc. Benefit obligations at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants’ contributions Benefits paid Acquisitions and divestitures, etc. Fair value of plan assets at end of year 2014 ¥1,038,169 29,486 19,123 1,063 339 50,408 (74,167) 2,719 1,067,140 784,686 56,929 48,280 1,063 (35,477) 2,452 857,933 Yen (millions) 2013 U.S. dollars (thousands) 2014 ¥1,052,970 29,433 21,562 1,077 957 8,823 (77,667) 1,014 1,038,169 683,258 90,710 47,051 1,077 (38,251) 841 784,686 $10,079,311 286,272 185,660 10,320 3,291 489,398 (720,068) 26,398 10,360,582 7,618,311 552,709 468,738 10,320 (344,437) 23,806 8,329,447 Funded status at end of year ¥ (209,207) ¥ (253,483) $ (2,031,135) Amounts recognized in the consolidated balance sheets at March 31, 2014 and 2013 consist of: Other assets Other current liabilities Retirement and severance benefits 2014 ¥ 7,651 (4,220) (212,638) ¥(209,207) Yen (millions) 2013 ¥ 7,353 (5,859) (254,977) ¥(253,483) Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2014 and 2013 consist of: Actuarial gain or loss Prior service cost 2014 ¥286,221 (54,959) ¥231,262 Yen (millions) 2013 ¥300,091 (77,514) ¥222,577 U.S. dollars (thousands) 2014 $ 74,282 (40,970) (2,064,447) $(2,031,135) U.S. dollars (thousands) 2014 $2,778,845 (533,583) $2,245,262 The accumulated benefit obligations for all defined benefit plans were as follows: Accumulated benefit obligations 2014 ¥1,050,423 Yen (millions) 2013 ¥1,031,769 U.S. dollars (thousands) 2014 $10,198,282 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 51 Components of net periodic retirement and severance costs and other amounts recognized in other comprehensive income (loss) Net periodic retirement and severance costs for the years ended March 31, 2014, 2013 and 2012 consisted of the following components: Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost Amortization of actuarial loss Plan participants’ contributions 2014 ¥ 30,549 19,123 (13,911) (22,216) 21,544 35,089 (1,063) 2013 ¥ 30,510 21,562 (13,556) (21,748) 27,253 44,021 (1,077) Yen (millions) 2012 ¥ 30,330 21,838 (12,834) (17,044) 27,904 50,194 (1,108) Net periodic retirement and severance costs ¥ 34,026 ¥ 42,944 ¥ 49,086 U.S. dollars (thousands) 2014 $ 296,592 185,660 (135,058) (215,689) 209,165 340,670 (10,320) $ 330,350 Other changes in plan assets and projected benefit obligations recognized in other comprehensive income (loss) for the years ended March 31, 2014 and 2013 were summarized as follows: Actuarial gain or loss Amortization of actuarial loss (gain) Prior service cost Amortization of prior service cost 2014 ¥ 7,674 (21,544) 339 22,216 ¥ 8,685 Yen (millions) 2013 ¥(68,295) (27,253) 957 21,748 ¥(72,843) U.S. dollars (thousands) 2014 $ 74,505 (209,165) 3,291 215,689 $ 84,320 The estimated actuarial gain or loss and prior service cost for the defined benefit pension plans that will be amortized from accu- mulated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follows: Actuarial gain or loss Prior service cost Yen (millions) ¥ 15,119 (11,571) U.S. dollars (thousands) $ 146,786 (112,340) Actuarial assumptions Actuarial assumptions used to determine benefit obligations at March 31, 2014 and 2013 were as follows: Discount rate Assumed rate of increase in future compensation levels 2014 1.5% 1.7% 2013 2.0% 1.7% Actuarial assumptions used to determine net periodic retirement and severance costs for the years ended March 31, 2014, 2013 and 2012 were as follows: Discount rate Assumed rate of increase in future compensation levels Expected long-term rate of return on plan assets 2014 2.0% 1.7% 2.5% 2013 2.0% 1.7% 2.5% 2012 2.0% 1.7% 2.5% The expected long-term rate of return is based on actual historical returns and the expectations for future returns of each plan asset category in which the Company invests. 52 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Plan Assets The fair values of the Company’s pension plan assets at March 31, 2014 and 2013 were as follows: Equity securities Marketable equity securities Pooled funds Debt securities Government, municipal and corporate debt securities Pooled funds Other assets Life insurance company general accounts Other 2014 Yen (millions) Level 1 Level 2 Level 3 Total ¥178,946 — ¥ — 179,921 ¥ — — ¥178,946 179,921 5,111 — 21,727 322,495 — — 26,838 322,495 — — 91,567 42,604 — 15,562 91,567 58,166 ¥184,057 ¥658,314 ¥15,562 ¥857,933 Notes: 1. Marketable equity securities include mainly domestic stocks. 2. Pooled funds of equity securities include approximately 20% domestic stocks and 80% foreign stocks. 3. Pooled funds of debt securities include approximately 70% domestic bonds and 30% foreign bonds. 4. Government, municipal and corporate debt securities of level 1 include government debt securities. Equity securities Marketable equity securities Pooled funds Debt securities Government, municipal and corporate debt securities Pooled funds Other assets Life insurance company general accounts Other 2013 Yen (millions) Level 1 Level 2 Level 3 Total ¥172,899 — ¥ — 171,648 ¥ — — ¥172,899 171,648 4,224 — 21,447 276,469 — — 25,671 276,469 — — 88,260 34,601 — 15,138 88,260 49,739 ¥177,123 ¥592,425 ¥15,138 ¥784,686 Notes: 1. Marketable equity securities include mainly domestic stocks. 2. Pooled funds of equity securities include approximately 20% domestic stocks and 80% foreign stocks. 3. Pooled funds of debt securities include approximately 70% domestic bonds and 30% foreign bonds. 4. Government, municipal and corporate debt securities of level 1 include government debt securities. Equity securities Marketable equity securities Pooled funds Debt securities Government, municipal and corporate debt securities Pooled funds Other assets Life insurance company general accounts Other U.S. dollars (thousands) 2014 Level 1 Level 2 Level 3 Total $1,737,340 — $ — 1,746,806 $ — $1,737,340 1,746,806 — 49,621 — 210,942 3,131,019 — — 260,563 3,131,019 — — 889,000 413,631 — 151,088 889,000 564,719 $1,786,961 $6,391,398 $151,088 $8,329,447 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 53 The Company’s investment policies are designed to ensure the contents of investment, and appropriately diversified adequate plan assets are available to provide future pay- investments. ments of pension benefits to eligible participants. Taking into See note 18 which shows categorized input for fair value account the expected long-term rate of return on plan assets, measurements by the valuation technique into a three-level the Company formulates an investment portfolio comprised hierarchy. of the optimal combination of equity and debt securities. Each level into which assets are categorized is based on Plan assets are invested in individual equity and debt securi- inputs used to measure the fair value of the assets. ties using the guidelines of the investment portfolio in order Level 1 assets are comprised principally of equity securi- to produce a total return that will match the expected return ties and government bonds, which are valued using unad- on a mid-term to long-term basis. The Company evaluates the justed quoted market prices in active markets with sufficient gap between expected return and actual return of invested volume and frequency of transactions. Level 2 assets are plan assets on an annual basis. In addition, taking into the comprised principally of pooled funds that invest in equity consideration the management environment and the revision and debt securities, corporate bonds and investments in life of regulations, the Company revises the investment portfolio insurance company general accounts. Pooled funds are valued when and to the extent considered necessary to achieve the at their net asset values that are calculated by the sponsor of expected long-term rate of return on plan assets based on the the fund. Corporate bonds are valued using quoted prices for pension asset and liability management method. identical assets in markets that are not active. Investments in The Company’s investment portfolio consists of life insurance company general accounts are valued at the three　major components: approximately 30% is invested in equity securities, approximately 65% is invested in debt amounts that are the conventional interest adding to the principle amounts calculated by life insurance company. Level securities and investments in life insurance company general 3 assets comprise hedge funds, which are valued based on accounts,　and approximately 5% is invested in hedge funds. unobservable inputs. As for selection of plan assets, the Company has examined An analysis of the changes in Level 3 assets which comprise hedge funds measured at fair value for the years ended March 31, 2014 and 2013 is as follows: Balance at beginning of year Actual return: Relating to assets sold Relating to assets still held Purchases, sales and settlements Transfers in and/or out of Level 3 Balance at end of year 2014 ¥15,138 Yen (millions) 2013 ¥15,151 (8) 432 — — — (13) — — U.S. dollars (thousands) 2014 $146,971 (77) 4,194 — — ¥15,562 ¥15,138 $151,088 Cash Flows The Company expects to contribute ¥48,744 million ($473,243 thousand) to its pension plan in the year ending March 31, 2015. Estimated future benefit payments are as follows: Year ending March 31: 2015 2016 2017 2018 2019 2020–2024 Yen (millions) ¥ 67,643 67,474 61,193 55,897 56,177 260,033 U.S. dollars (thousands) $ 656,728 655,087 594,107 542,689 545,408 2,524,592 The amount of cost recognized for the Company and certain subsidiaries’ defined contribution plans for the years ended March 31, 2014, 2013 and 2012 were ¥8,423 million ($81,777 thousand), ¥7,447 million and ¥6,938 million, respectively. 54 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 (11) SHAREHOLDERS’ EqUITY Changes in common stock for the years ended March 31, 2014 and 2013 were as follows: Number of common shares issued: Balance at beginning of year Balance at end of year 2014 2013 Shares 2,147,201,551 2,147,201,551 2,147,201,551 2,147,201,551 Conversions into common stock of convertible debenture The amount available for dividends under the Japanese issued subsequent to October 1, 1982 and exercise of war- Corporate Law is based on the amount recorded in the rants were accounted for in accordance with the provisions of Company’s books of account in accordance with accounting the Japanese Commercial Code by crediting one-half of the standards of Japan. The adjustments included in the accom- conversion price and exercise price to each of the common panying consolidated financial statements to have them stock account and the capital surplus account. conform with accounting principles generally accepted in The Japanese Corporate Law enforced on May 1, 2006 the United States of America, but not recorded in the books requires that an amount equal to 10% of dividends and other of account, have no effect on the determination of retained distributions paid in cash by the Company and its domes- earnings available for dividends under the Japanese Corporate tic subsidiaries be appropriated as a legal reserve until the aggregated amount of additional paid-in capital and the legal Law. Retained earnings available for dividends shown in the Company’s books of account amounted to ¥301,412 million reserve equal to 25% of the common stocks. The additional ($2,926,330 thousand) at March 31, 2014. paid-in capital and the legal reserve may be used to reduce Cash dividends and appropriations to the legal reserve a deficit or transferred to common stock with a resolution of charged to retained earnings during the years ended March the shareholders’ meeting. 31, 2014, 2013 and 2012 represent dividends paid out during the years and the related appropriations to the legal reserve. (12) OTHER COMPREHENSIVE INCOME (LOSS) Starting year ended March 31, 2014, the Company adopts of accumulated other comprehensive income and into net FASB ASU 2013-02 "Reporting of Amounts Reclassified Out income. The adoption of ASU　2013-02 does not have a of Accumulated Other Comprehensive Income" (An amend- material effect on the Company's consolidated financial posi- ment of ASC Topic 220 "Comprehensive Income"). ASU tion and results of operations. 2013-02 requires entities to disclose items reclassified out Change in accumulated other comprehensive income (loss) is as follows: Foreign currency translation adjustments Pension liability adjustments 2014 Unrealized gains (losses) on securities Balance at beginning of year ¥ (8,023) ¥(112,523) ¥27,045 Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year Balance at end of year 46,675 (6,323) 54,831 — (433) 760 46,675 ¥38,652 (6,756) ¥(119,279) 55,591 ¥82,636 Yen (millions) Total ¥(93,487) 95,085 359 95,444 ¥ 1,957 Unrealized gains (losses) on derivative instruments ¥ 14 (98) 32 (66) ¥(52) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 55 Balance at beginning of year Net change during the year Balance at end of year Balance at beginning of year Net change during the year Balance at end of year Foreign currency translation adjustments ¥(67,654) 59,631 ¥ (8,023) Pension liability adjustments ¥(160,156) 47,633 ¥(112,523) Foreign currency translation adjustments ¥(59,400) (8,254) ¥(67,654) Pension liability adjustments ¥(162,390) 2,234 ¥(160,156) Foreign currency translation adjustments Pension liability adjustments 2013 Unrealized gains (losses) on securities ¥12,242 14,803 ¥27,045 2012 Unrealized gains (losses) on securities ¥ 5,957 6,285 ¥12,242 2014 Unrealized gains (losses) on securities Balance at beginning of year $ (77,894) $(1,092,456) $262,573 Unrealized gains (losses) on derivative instruments ¥(35) 49 ¥ 14 Unrealized gains (losses) on derivative instruments ¥(86) 51 ¥(35) Yen (millions) Total ¥(215,603) 122,116 ¥ (93,487) Yen (millions) Total ¥(215,919) 316 ¥(215,603) U.S. dollars (thousands) Unrealized gains (losses) on derivative instruments $ 136 Total $(907,641) Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year Balance at end of year 453,157 (61,389) 532,339 (952) 923,155 — (4,204) 7,379 311 3,486 453,157 $375,263 (65,593) $(1,158,049) 539,718 $802,291 (641) $(505) 926,641 $ 19,000 56 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Reclassifications out of accumulated other comprehensive income (loss) are as follows: Details about Accumulated other comprehensive income components Pension liability adjustments 　Amortization of prior service cost 　Amortization of actuarial loss Unrealized gains (losses) on securities Realized losses on sales Other Unrealized gains (losses) on derivative instru- ments 　 Other 2014 Amounts reclassified from accumulated other comprehensive income Yen (millions) U.S. dollars (thousands) Affected line items in consolidated statements of income ¥(22,216) 21,544 (672) 239 (433) 1,166 13 1,179 (419) 760 42 42 (10) 32 $(215,689) 209,165 (6,524) 2,320 (4,204) 11,320 127 11,447 (4,068) 7,379 See Note See Note Total before tax Income tax Net of tax Other costs and expenses Other costs and expenses Total before tax Income tax Net of tax 408 408 (97) 311 Other costs and expenses Total before tax Income tax Net of tax Total amounts reclassified ¥ 359 $ 3,486 Net of tax Note: These accumulated other comprehensive income components are included in the computation of net periodic retirement and severance costs. See Note 10 “Retirement and Severance Benefits”. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 57 　 Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments are as follows: Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount 2014: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments ¥ 50,955 ¥ (4,280) ¥46,675 — — — 50,955 (4,280) 46,675 (8,235) (672) (8,907) 85,230 1,179 86,409 (132) 42 (90) 1,912 239 2,151 (30,399) (419) (30,818) 34 (10) 24 (6,323) (433) (6,756) 54,831 760 55,591 (98) 32 (66) Other comprehensive income (loss) ¥128,367 ¥(32,923) ¥95,444 2013: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Other comprehensive income (loss) 58 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount ¥ 64,668 ¥ (5,037) ¥ 59,631 — 64,668 68,765 5,505 74,270 20,071 1,962 22,033 134 — (5,037) (24,545) (2,092) (26,637) (6,489) (741) (7,230) (53) — 59,631 44,220 3,413 47,633 13,582 1,221 14,803 81 (47) 87 ¥161,058 15 (38) ¥(38,942) (32) 49 ¥122,116 2012: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Other comprehensive income (loss) Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount ¥(8,379) ¥ 135 ¥(8,244) (10) (8,389) (8,770) 10,860 2,090 3,536 5,526 9,062 72 16 88 ¥ 2,851 — 135 4,597 (4,453) 144 (654) (2,123) (2,777) (30) (10) (8,254) (4,173) 6,407 2,234 2,882 3,403 6,285 42 (7) (37) ¥(2,535) 9 51 ¥ 316 Before-tax amount U.S. dollars (thousands) Tax (expense) or benefit Net-of-tax amount 2014: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year $ 494,709 $ (41,552) $453,157 Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments — — — 494,709 (41,552) 453,157 (79,951) (6,524) (86,475) 18,562 2,320 20,882 (61,389) (4,204) (65,593) 827,475 (295,136) 532,339 11,447 838,922 (4,068) (299,204) 7,379 539,718 (1,282) 408 (874) 330 (97) 233 (952) 311 (641) Other comprehensive income (loss) $1,246,282 $(319,641) $926,641 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 59 (13) NET INCOME PER SHARE ATTRIBUTABLE TO MITSUBISHI ELECTRIC CORP. A reconciliation of the numerators and denominators of the basic and diluted net income per share attributable to Mitsubishi Electric Corp. calculations is as follows: Net income attributable to Mitsubishi Electric Corp. Effect of dilutive securities Diluted net income attributable to Mitsubishi Electric Corp. Average common shares outstanding Effect of dilutive securities: Diluted common shares outstanding Net income per share attributable to Mitsubishi Electric Corp.: Basic Diluted 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2014 ¥153,473 — ¥69,517 — ¥112,063 — $1,490,029 — ¥153,473 ¥69,517 ¥112,063 $1,490,029 2014 2,146,871,671 — 2,146,871,671 2013 2,146,906,220 — 2,146,906,220 Shares 2012 2,146,926,221 — 2,146,926,221 2014 2013 2012 2014 Yen U.S. dollars ¥71.49 — ¥32.38 — ¥52.20 — $0.694 — Diluted net income per share attributable to Mitsubishi Electric Corp. is not presented as no dilutive securities existed as of and for the years ended March 31, 2014, 2013 and 2012. (14) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Foreign Exchange Risk Management and Interest Rate Risk Management The Company and its subsidiaries operate internationally, giv- ing rise to significant exposure to market risks from changes in foreign currencies and interest rates. Derivative financial instruments are comprised principally of foreign exchange contracts, foreign currency swaps and interest rate swaps uti- lized by the Company and certain of its subsidiaries to reduce these risks. The Company and its subsidiaries do not hold or issue financial instruments for trading purposes. . Contract Amounts, Notional Principal Amounts and Credit Risk The Company and its subsidiaries are exposed to risk of credit- related losses in the event of nonperformance by counterparties to foreign exchange contracts, foreign currency swaps and inter- est rate swaps. The Company believes such risk is minimal due to the high credit ratings of these counterparties. Other derivative instruments are debt securities that contain embedded deriva- tives with intention to hold for a certain period. The Company believes that no material risks exist on its debt securities because the principal of those debt securities are guaranteed. Information with Respect to Fair Value Hedges Certain subsidiaries have entered into foreign currency swaps to hedge currency exposure and designate them as fair value hedges. Information with Respect to Cash Flow Hedges The Company and certain of its subsidiaries have entered into forward foreign exchange contracts mainly with forecasted transactions to hedge against market risks from changes in foreign currencies and interest rate swap agreements to modify the interest rate characteristics of a portion of its long- term debt from a variable to a fixed rate. The Company and certain of its subsidiaries designate them as cash flow hedges. The maximum period for cash flow hedges is 26 months. The Company expects that the amounts of net gain of ¥15 mil- lion ($146 thousand) in accumulated other comprehensive income (loss) will be reclassified into earnings over the next 12 months with transactions such as collection of foreign cur- rency receivables and payment of foreign currency payables and interests on long-term debt.. Derivatives not designated as hedging Instruments The Company and certain of its subsidiaries enter into foreign exchange contracts and certain of foreign currency swaps and interest rate swaps that are not designated as hedging instru- ments to hedge against certain foreign currency and interest rate exposures. The Company and certain of its subsidiaries recognize the changes in unrealized gains and losses on such instruments in earnings. 60 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Contract amounts of foreign exchange contracts and foreign currency swaps and notional principal amounts of interest rate swaps and other derivative instruments at March 31, 2014 and 2013 are as follows: Foreign exchange contracts: Forwards to sell foreign currencies Forwards to buy foreign currencies Foreign currency swaps Interest rate swaps Other derivative instruments 2014 ¥208,775 91,194 37,010 2,000 3,000 Yen (millions) 2013 ¥106,974 66,586 17,196 7,000 28,300 U.S. dollars (thousands) 2014 $2,026,942 885,379 359,320 19,417 29,126 The estimated fair values of foreign exchange contracts, foreign currency swaps, interest rate swaps and other derivative instru- ments at March 31, 2014 and 2013 are as follows: Derivatives designated as hedging instruments Consolidated balance sheet line item 2014 Yen (millions) 2013 Asset derivatives Estimated fair value U.S. dollars (thousands) 2014 Foreign exchange contracts Prepaid expenses and other current assets ¥27 ¥118 $262 Derivatives designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Interest rate swaps Total Other current liabilities Other liabilities Derivatives not designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Foreign currency swaps Interest rate swaps Total Prepaid expenses and other current assets Prepaid expenses and other current assets Investments in securities and other Derivatives not designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Foreign currency swaps Other derivative instruments Total Other current liabilities Other current liabilities Other liabilities 2014 ¥115 — ¥115 Yen (millions) 2013 ¥23 61 ¥84 2014 Yen (millions) 2013 Liability derivatives Estimated fair value U.S. dollars (thousands) 2014 $1,117 — $1,117 Asset derivatives Estimated fair value U.S. dollars (thousands) 2014 ¥1,006 ¥6,686 $ 9,767 70 60 ¥1,136 211 84 ¥6,981 2014 ¥1,993 2 4 ¥1,999 Yen (millions) 2013 ¥4,076 197 1,819 ¥6,092 680 583 $11,030 Liability derivatives Estimated fair value U.S. dollars (thousands) 2014 $19,350 19 39 $19,408 The effect of foreign exchange contracts and interest rate swaps designated as cash flow hedges on the consolidated statements of income for the years ended March 31, 2014 and 2013 are as follows: Derivatives in cash flow hedging relationships Foreign exchange contracts Interest rate swaps Total 2014 ¥(151) 61 ¥ (90) Amount of gain or (loss) recognized in OCI on derivative (effective portion) U.S. dollars (thousands) Yen (millions) 2013 ¥ 85 49 ¥134 2014 $(1,466) 592 $ (874) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 61 Derivatives in cash flow hedging relationships Line item of gain or (loss) recognized from accumulated OCI into income (effective portion) Amount of gain or (loss) recognized from accumulated OCI into income (effective portion) U.S. dollars (thousands) Yen (millions) 2013 2014 2014 Foreign exchange contracts Other revenues (cost and expenses) ¥(42) ¥47 $(408) The effect of foreign exchange contracts, foreign currency swaps, interest rate swaps and other derivative instruments not desig- nated as hedging instruments on the consolidated statements of income for the years ended March 31, 2014 and 2013 are set forth below: Derivatives not designated as hedging instruments Line item of gain or (loss) recognized in income on derivative Foreign exchange contracts Foreign currency swaps Interest rate swaps Other revenues (cost and expenses) Other revenues (cost and expenses) Other revenues (cost and expenses) Other derivative instruments Other revenues Total (15) SECURITIzATIONS Amount of gain or (loss) recognized in income on derivative U.S. dollars (thousands) Yen (millions) 2013 2014 2014 ¥(19,807) ¥(8,302) $(192,301) 704 (24) 56 ¥(19,071) (88) (24) 2,090 ¥(6,324) 6,835 (233) 544 $(185,155) The Company sells its accounts receivable under several secu- receivables. ritization programs. The Company recognized losses of ¥485 million ($4,709 Whe n the Company retains subordinated interests in the thousand), ¥492 million and ¥450 million on the securitiza- certain accounts receivables after the sale of these receivables, tions of receivables for the years ended March 31, 2014, 2013 a portion of these, where the Company retains subordinated and 2012, respectively. interests, is not taken off the balance sheet and is recorded at Subsequent to securitization, the Company retains col- their fair value. Such carrying value is adjusted to reflect the lection and administrative responsibilities for the receiv- portion that is not expected to be collectible. As of March ables. The Company has not recorded a servicing asset or 31, 2014, the Company did not retain subordinated interests liability since the cost of collection effort is approximate to the in the certain accounts receivables after the sale of these amount of commission income. Certain cash flows received from special purpose entities (SPEs) and banks on the above transactions for the years ended March 31, 2014, 2013 and 2012 are as follows: Proceeds from new securitizations 2014 ¥424,556 2013 ¥404,156 Yen (millions) 2012 ¥383,396 U.S. dollars (thousands) 2014 $4,121,903 Quantitative information about trade receivables including securitized receivables as of March 31, 2014 and 2013 are as follows: Trade receivables Less: Securitized receivables Total receivables 2014 ¥1,106,139 122,671 ¥ 983,468 Yen (millions) 2013 ¥1,085,905 111,400 ¥ 974,505 U.S. dollars (thousands) 2014 $10,739,214 1,190,981 $ 9,548,233 As of March 31, 2014 and 2013, delinquencies and credit losses of trade receivables including securitized receivables are immaterial. 62 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 (16) COMMITMENTS AND CONTINGENT LIABILITIES At March 31, 2014, commitments outstanding for the pur- Commission, which would result in a downward modifica- chase of property, plant and equipment were ¥23,998 million tion of the fine. In December 2013, the Company received a ($232,990 thousand). judgment from the European Court of Justice upholding the It is common practice in Japan for companies, in the ordi- European Commission’s underlying facts. The legal action the nary course of business, to receive promissory notes in settle- Company filed in September 2012 with the European General ment of accounts receivable and to subsequently discount Court is currently pending. such notes at banks. At March 31, 2014, certain subsidiar- Since July 2011, the Company and certain of its subsidiaries ies were contingently liable to trade notes discounted in the have been subject to investigations and inquiries conducted by amount of ¥442 million ($4,291 thousand). Certain subsidiar- the United States Department of Justice in relation to United State ies account for the discounted notes as sale of receivables. Antitrust Laws regarding the sale of certain automotive parts in As of March 31, 2014, the Company has no significant the United States of America. Consequently, in September 2013, concentrations of credit risk. the Company entered into a plea agreement with the United While the Company and certain of its subsidiaries are States Department of Justice in which the Company agreed to defendants and co-defendants in various lawsuits and pay US$190,000 thousand (¥18,573 million based on the rate of legal actions, based upon the advice of legal counsel, the exchange in effect at the date of the transaction) in fines for the Company’s management is of the opinion that damages, if infringement of United States Antitrust Laws. any, would not have a material effect on the Company’s con- For the year ended March 31, 2014, the Company recorded solidated financial position and results of operations, except ¥7,738 million ($75,126 thousand), which is equivalent to the for the following cases. difference between the fines and its reserves as of the end of In January 2007, the Company received a decision ren- the previous fiscal year, in “Costs and expenses — Other”. The dered by the European Commission imposing fines for an actual payment of the fines was completed as of the end of this infringement of EU Competition Law in connection with its fiscal year. sales of certain gas-insulated switchgears in Europe. However, Civil lawsuits relating to United States Antitrust Laws have there was a significant inconsistency on recognition of the also been raised in the United States of America. In addition, material underlying facts between the European Commission since July 2011, the Company has been cooperating with and the Company. Therefore, the Company appealed to the Competition Law investigations and inquiries conducted by European General Court and challenged the decision. In July the European Commission regarding the sales of certain auto- 2011, the Company received a judgment from the European motive parts in Europe. General Court upholding the European Commission’s decision As of March 31, 2014, the Company recorded an esti- on the underlying facts while annulling the fine imposed on the mated amount of ¥22,866 million ($222,000 thousand) as a Company on the basis that the European Commission applied reserve for these various competition-law-related expenses in inconsistent methods of calculation to different companies. “Other liabilities” relating to the gas-insulated switchgears In September 2011, since there was still a significant case in Europe and certain automotive parts cases in the inconsistency on recognition of the material underlying facts United States of America and Europe. between the European Commission and the Company, the Company appealed to the European Court of Justice. In addition, the Company and certain of its subsidiaries have moved towards reconciliation with some DRAM purchas- In June 2012, the Company received the European ers in relation to the possibility of violation of the Competition Commission’s decision presenting an amount of fine as pay- Law concerning DRAM sales. Considering the progress of the able by the Company after revision of the pertinent computa- reconciliation, the Company believes that the DRAM case will tions. In September 2012, the Company took another legal not have a material effect on Company’s consolidated finan- action with the European General Court seeking a revision of cial position and results of operations. the current computation method presented by the European The following table provides the undiscounted maximum amount of potential future payments for each major group of guaran- tees at March 31, 2014: Guarantees of bank loan: Employees Affiliated and other companies Other Total Yen (millions) ¥ 4,150 2,214 6,561 ¥12,925 U.S. dollars (thousands) $ 40,291 21,495 63,699 $125,485 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 63 The guarantees for the employees are principally made for nies are made to enhance their credit, and the term of guar- their housing loans, and the term of guarantees is 1 year to antees is 1 year to 3 years. 15 years. The guarantees for the affiliated and other compa- Change in accrued product warranty for the years ended March 31, 2014 and 2013 is summarized as follows: Balance at beginning of year Addition Utilization Foreign currency translation adjustments Balance at end of year (17) FAIR VALUE OF FINANCIAL INSTRUMENTS 2014 ¥46,920 50,781 40,091 658 ¥58,268 Yen (millions) 2013 ¥41,107 39,935 35,049 927 ¥46,920 U.S. dollars (thousands) 2014 $455,534 493,019 389,233 6,389 $565,709 The Company uses the following methods and assumptions to estimate the fair value of each class of financial instrument for which it is practical to estimate its value: (a) Cash and cash equivalents, Trade receivables, Bank loans, Trade payables and Other current liabilities The carrying amount approximates fair value because of the short term nature of these instruments. (b) Short-term investments and Investments in securities and other The fair values of most short-term investments and invest- ments in securities and other are estimated based on quoted market prices for these instruments. For other investments (c) Long-term trade receivables The fair value of the Company’s long-term trade receivables is calculated under income approach using market interest rates, therefore, it is classified in level 2. (d) Long-term debt The fair value of the Company’s corporate bonds is calculated under market approach using quoted published price, therefore, it is classified in level 2. The fair value of the Company’s　long- term debt is calculated under income approach using market interest rates, therefore, it is classified in level 2. The Company excludes the financial instruments relating to lease activities because its carrying amount approximates fair value. for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring (e) Derivative financial instruments The fair values of derivative financial instruments, consisting excessive costs. principally of foreign exchange contracts, foreign currency swaps and interest rate swaps are estimated by obtaining quotes from brokers. (See note 14 about estimated fair value.) The estimated fair values of the Company’s financial instruments at March 31, 2014 and 2013 are summarized as follows: 2014 Carrying amount Yen (millions) 2013 Estimated fair value Carrying amount Estimated fair value U.S. dollars (thousands) Estimated fair value 2014 Carrying amount Nonderivatives: Assets: Marketable securities and other Long-term trade receivables ¥226,985 4,813 ¥226,985 4,865 ¥161,905 2,521 ¥161,905 2,555 $2,203,738 46,728 $2,203,738 47,233 Liabilities: Long-term debt, including current portion 287,280 287,852 380,348 381,579 2,789,126 2,794,680 Limitations Fair value estimates are made at a specific point in time based and involve uncertainties and matters of significant judgment on relevant market information and information about the and therefore cannot be determined with precision. Changes financial instrument. These estimates are subjective in nature in assumptions could significantly affect the estimates. 64 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 (18) FAIR VALUE MEASUREMENTS The Company defines fair value as “the price that would be Level 1 : Quoted prices in active markets for identical assets received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. On that basis, the Company has categorized the inputs for fair value measurement by the valuation technique into a three- or liabilities. Level 2 : Inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. level hierarchy, and placed the order of priority. Level 3 : Unobservable inputs for the asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and 2013. The Company measures the fair value of those assets and liabilities in accordance with the require- ments of FASB ASC for those assets and liabilities. Assets: Equity securities Marketable equity securities Debt securities Government, municipal and corporate debt securities, and others Investment trusts Derivatives Liabilities: Derivatives Assets: Equity securities Marketable equity securities Debt securities Government, municipal and corporate debt securities, and others Investment trusts Derivatives Liabilities: Derivatives Level 1 Level 2 Level 3 Total 2014 Yen (millions) ¥223,173 ¥ — ¥— ¥223,173 — — — — 2,952 860 1,163 2,114 — — — — 2,952 860 1,163 2,114 Yen (millions) Level 1 Level 2 Level 3 Total 2013 ¥120,887 ¥ — ¥— ¥120,887 — — — — 38,824 2,194 7,099 6,176 — — — — 38,824 2,194 7,099 6,176 U.S. dollars (thousands) Level 1 Level 2 Level 3 Total 2014 Assets: Equity securities Marketable equity securities Debt securities Government, municipal and corporate debt securities, and others Investment trusts Derivatives Liabilities: Derivatives $2,166,729 $ — $— $2,166,729 — — — — 28,660 8,349 11,292 20,525 — — — — 28,660 8,349 11,292 20,525 Level 1 equity securities are marketable equity securities, and frequency of transactions. Level 2 debt securities are which are valued using unadjusted quoted market prices in active markets with sufficient volume and frequency of trans- valued based on market approach, using quoted prices for identical assets in markets that are not active. Level 2 deriva- actions. Debt securities are comprised of government, munici- tives are comprised principally of foreign exchange contracts, pal and corporate debt securities and others, and investment which are valued based on market approach, using quotes trusts. Level 1 debt securities are valued using unadjusted obtained from counterparties or third parties. quoted market prices in active markets with sufficient volume MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 65 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis At March 31, 2014, in accordance with the requirements of portion of long-lived assets was written down to their fair FASB ASC Topic 360 “Property, Plant and Equipment”, a por- value of ¥4,226 million, resulting in an impairment charge tion of long-lived assets was written down to their fair value of ¥4,317 million, which was included in loss on impairment of ¥4,162 million ($40,408 thousand), resulting in an impair- of long-lived assets for the year ended March 31, 2013. The ment charge of ¥3,791 million ($36,806 thousand), which impaired long-lived assets are classified as Level 3 assets, was included in loss on impairment of long-lived assets for the because they are measured based on the unobservable inputs year ended March 31, 2014. The impaired long-lived assets such as estimated future cash flows under income approach are classified as Level 3 assets, because they are measured or net sale price under market approach. based on the unobservable inputs such as estimated future The valuation process of long-lived assets is docu- cash flows under income approach or net sale price under mented in “Notes to Consolidated Financial Statements (1) market approach. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT At March 31, 2013, in accordance with the requirements ACCOUNTING POLICIES (u)Impairment of Long-Lived Assets”. of FASB ASC Topic 360 “Property, Plant and Equipment”, a (19) SUPPLEMENTARY INCOME AND EXPENSE INFORMATION Advertising expenses Shipping and handling costs Exchange gains (losses) Refund payment for overcharged expenses Loss on impairment of long-lived assets 2014 ¥(23,847) (79,634) 9,709 — (3,791) 2013 ¥(18,029) (71,613) 8,034 (75,717) (4,317) Yen (millions) 2012 ¥(18,372) (73,283) (2,000) — (3,782) U.S. dollars (thousands) 2014 $(231,524) (773,146) 94,262 — (36,806) Advertising expenses are included in “Costs and expenses — assets”. Selling, general and administrative”. For the year ended March 31, 2014, the Company and Shipping and handling costs represents the costs included certain of its subsidiaries recognized impairment losses of in “Costs and expenses - Selling, general and administrative”. ¥3,627 million ($35,214 thousand) on tangible assets such as Exchange gains (losses) are included in “Revenues — land, buildings and tools, and ¥164 million ($1,592 thousand) Other” and “Costs and expenses — Other”. on intangible assets. The impairment losses included ¥1,217 Refund payment for overcharged expenses is included in million ($11,816 thousand) for Home Appliances business “Costs and expenses — Other”. related assets due to a decline in profitability and ¥2,260 For the electronic systems business, it was revealed in million ($21,942 thousand) for welfare related assets which January 2012 that the Company had been billing improperly are scheduled to be sold. The impairment losses were mainly overcharged project costs by transferring man-hours among measured based on the fair value less costs to sell. different contracts which the Company entered into with the Japanese Ministry of Defense(MOD), Cabinet Satellite For the year ended March 31, 2013, the Company and certain of its subsidiaries recognized impairment loss- Intelligence Center, Japan Aerospace Exploration Agency, es of ¥4,014 million on tangible assets such as buildings and National Institute of Information and Communications and machinery, and ¥303 million on intangible assets. The Technology. Also, similar incidents were identified concerning impairment losses included ¥2,404 million for Electronic contracts between four of the Company's affiliates and MOD. Devices business related assets and ¥1,212 million for Home As a result of investigation conducted by the entities, for the Appliances business related assets due to a decline in profit- year ended March 31, 2013, the Company recorded a total of ability. The impairment losses were mainly measured based ¥75,717 million as a refund payment for overcharged expens- on the fair value of the discounted present value of expected es in “Costs and expenses — Other” that covered the refund future cash flow. of overcharged expenses, related penalties and interest arising from the series of incidents referred to herein. For the year ended March 31, 2012, the Company and certain of its subsidiaries recognized impairment loss- Loss on impairment of long-lived assets is included in es of ¥3,367 million on tangible assets such as buildings “Costs and expenses — Loss on impairment of long-lived and machinery, and ¥415 million on intangible assets. The 66 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 impairment losses included ¥2,429 million for Electronic ability. The impairment losses were mainly measured based on Devices business related assets and ¥1,110 million for Home the fair value less costs to sell. Appliances business related assets due to a decline in profit- (20) LEASES The Company and certain of its subsidiaries enter into capital lease and operating lease agreements with Mitsubishi Electric Credit Corporation, an equity method investee. The leased assets, which are committed under capital lease agreements, are capitalized. The Company and certain of its subsidiaries lease machin- ery and equipments. At March 31, 2014, the aggregated cost and accumulated depreciation of leased assets under capital leases amounted to ¥42,520 million ($412,816 thousand) and ¥22,350 million ($216,990 thousand), respectively. Future minimum lease payments under capital and non-cancelable operating leases as of March 31, 2014 are as follows: Year ending March 31: 2015 2016 2017 2018 2019 Thereafter Total minimum lease payments Less: Estimated executory costs Net minimum lease payments Less: Amount representing interest Present value of net minimum capital lease payments Less: Current portion of obligations under capital leases Obligations under capital leases, excluding current portion Yen (millions) U.S. dollars (thousands) Capital leases Operating leases Capital leases Operating leases ¥ 5,174 3,944 2,397 1,523 1,041 1,723 ¥15,802 ¥10,704 8,333 5,536 2,911 733 37 28,254 1,421 26,833 910 25,923 9,820 ¥16,103 $ 50,233 38,291 23,272 14,786 10,107 16,728 $153,417 $103,922 80,903 53,748 28,262 7,117 359 274,311 13,796 260,515 8,835 251,680 95,340 $156,340 Rental expenses related to operating leases for the years ended March 31, 2014, 2013 and 2012 amounted to ¥45,246 million ($439,282 thousand), ¥42,587 million and ¥42,076 million, respectively. These operating leases are for office space, warehouses, employee facilities and computer equipment, and are customarily renewed. (21) SUPPLEMENTARY CASH FLOW INFORMATION Cash paid during the year for: Interest Income taxes 2014 2013 Yen (millions) 2012 ¥ 4,795 37,434 ¥ 6,425 41,022 ¥ 6,413 65,901 U.S. dollars (thousands) 2014 $ 46,553 363,437 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 67 (22) SEGMENT INFORMATION Operating segment presented below is identified based on the The Company conducts business through 6 reportable segments for which separate financial information is available, business segments, Energy and Electric Systems, Industrial and is periodically used for decision of business resources allo- cation and evaluation of business operation by the Company’s Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances, and Others, management. based on types and characteristics of products, production method, and similarity in market. Principal businesses of each segment are as follows: Energy and Electric Systems Industrial Automation Systems Turbine generators, hydraulic turbine generators, nuclear power plant equipment, motors, transformers, power electronics equipment, circuit breakers, gas insulated switches, switch control devices, surveillance-system control and security systems, large display devices, electrical equipment for locomotives and rolling stock, elevators, escalators, building security systems, building management systems, particle beam treatment systems, and others Programmable logic controllers, inverters, servomotors, human-machine interface, motors, hoists, magnetic switches, no-fuse circuit breakers, short-circuit breakers, transformers for electricity distribution, time and power meters, uninterruptible power supply, industrial fans, computerized numerical controllers, electrical-discharge machines, laser processing machines, industrial robots, clutches, automotive electrical equipment, car electronics and car mechatronics, car multimedia, and others Information and Communication Systems Wireless and wired communications systems, surveillance cameras, satellite communications equipment, satellites, radar equipment, antennas, missile systems, fire control systems, broadcasting equipment, data transmission devices, network security systems, information systems equipment, systems integration, and others Electronic Devices Power modules, high-frequency devices, optical devices, LCD devices, and others Home Appliances LCD televisions, room air conditioners, package air conditioners, air-to-water heat pump boilers, refrigerators, electric fans, ventilators, photovoltaic power generation systems, hot water supply systems, LED lamps, fluorescent lamps, indoor lighting, compressors, chillers, dehumidifiers, air purifiers, showcases, cleaners, rice cookers, microwave ovens, IH cooking heaters, and others Others Procurement, logistics, real estate, advertising, finance and other services Intersegment transactions are conducted generally at the price that the Company’s management recognizes as approximate arm's length price. Operating income (loss) in Segment Information is measured in a manner consistent with consolidated oper- ating income. Segment Information Segment information for the years ended March 31, 2014, 2013 and 2012 are as follows: As of and for the year ended March 31, 2014 Yen (millions) Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures ¥1,171,292 8,801 1,180,093 1,103,769 ¥ 76,324 ¥1,089,109 9,687 1,098,796 1,000,717 ¥ 98,079 ¥513,712 34,570 548,282 542,753 ¥ 5,529 ¥174,082 20,576 194,658 184,608 ¥ 10,050 ¥927,868 16,483 944,351 891,473 ¥ 52,878 ¥178,296 497,738 676,034 656,233 ¥ 19,801 ¥4,054,359 587,855 4,642,214 4,379,553 ¥ 262,661 ¥ — ¥4,054,359 — 4,054,359 3,819,187 ¥ 235,172 (587,855) (587,855) (560,366) ¥ (27,489) ¥1,161,790 ¥932,857 ¥399,215 ¥172,925 ¥706,833 ¥242,496 ¥3,616,116 ¥(3,150) ¥3,612,966 27,852 52,381 21,289 11,638 28,748 6,000 147,908 — 32,639 — 63,660 — 22,172 115 10,405 1,217 30,334 2,459 8,490 3,791 167,700 — — — 147,908 3,791 167,700 68 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 As of and for the year ended March 31, 2013 Yen (millions) Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Total As of and for the year ended March 31, 2012 I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income (loss) II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures ¥1,049,982 8,195 1,058,177 973,037 ¥ 85,140 ¥918,123 9,734 927,857 867,265 ¥ 60,592 ¥491,792 30,630 522,422 520,831 ¥ 1,591 ¥142,961 21,104 164,065 169,645 ¥ (5,580) ¥799,817 21,481 821,298 801,998 ¥ 19,300 ¥164,509 425,857 590,366 571,576 ¥ 18,790 ¥3,567,184 517,001 4,084,185 3,904,352 ¥ 179,833 ¥ — ¥3,567,184 — 3,567,184 3,415,089 ¥ 152,095 (517,001) (517,001) (489,263) ¥ (27,738) ¥1,134,443 ¥863,477 ¥486,183 ¥132,793 ¥668,313 ¥213,989 ¥3,499,198 ¥ (88,788) ¥3,410,410 26,274 46,477 24,769 11,573 25,821 6,393 141,307 143 39,449 — 55,824 — 19,706 2,404 13,732 1,212 27,869 558 6,913 4,317 163,493 — — — 141,307 4,317 163,493 Yen (millions) Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Total ¥1,018,949 8,166 1,027,115 942,195 ¥ 84,920 ¥967,779 10,601 978,380 877,188 ¥101,192 ¥489,824 26,530 516,354 495,042 ¥ 21,312 ¥170,412 30,387 200,799 197,214 ¥ 3,585 ¥821,270 28,004 849,274 826,916 ¥ 22,358 ¥171,234 440,385 611,619 591,271 ¥ 20,348 ¥3,639,468 544,073 4,183,541 3,929,826 ¥ 253,715 ¥ — ¥3,639,468 — 3,639,468 3,414,024 ¥ 225,444 (544,073) (544,073) (515,802) ¥ (28,271) ¥1,064,369 ¥855,710 ¥477,646 ¥147,926 ¥636,835 ¥191,056 ¥3,373,542 ¥ 18,109 ¥3,391,651 24,365 43,380 29,036 11,207 26,678 5,480 140,146 — 30,269 — 56,487 — 22,116 2,429 21,424 1,110 35,160 243 5,620 3,782 171,076 — — — 140,146 3,782 171,076 U.S. dollars (thousands) As of and for the year ended March 31, 2014 I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Total $11,371,767 $10,573,874 94,048 10,667,922 9,715,699 $ 741,010 $ 952,223 85,447 11,457,214 10,716,204 $4,987,495 $1,690,117 199,767 1,889,884 1,792,311 $ 97,573 335,631 5,323,126 5,269,447 $ 53,679 $9,008,427 $1,731,029 $39,362,709 $ — $39,362,709 — 5,707,330 39,362,709 45,070,039 37,079,486 42,519,932 $ 513,379 $ 192,243 $ 2,550,107 $ (266,884) $ 2,283,223 (5,707,330) (5,707,330) (5,440,446) 4,832,408 6,563,437 6,371,194 160,029 9,168,456 8,655,077 $11,279,515 $9,056,864 $3,875,874 $1,678,883 $6,862,456 $2,354,330 $35,107,922 $(30,582) $35,077,340 270,408 508,554 206,689 112,990 279,107 58,252 1,436,000 — 316,884 — 618,058 — 215,262 1,117 101,019 11,815 294,505 23,874 82,427 36,806 1,628,155 — — — 1,436,000 36,806 1,628,155 Notes: 1 The amount of unallocatable R&D expenditure included in "Eliminations and other" on "Operating costs" for the years ended March 31, 2014, 2013 and 2012 are ¥27,489 million ($266,884 thousand), ¥27,738 million and ¥28,271 million, respectively. 2 The amount of company-wide shared assets included in "Eliminations and other" on "Assets" for the years ended March 31, 2014, 2013 and 2012 are ¥197,227 million ($1,914,825 thousand), ¥126,212 million and ¥211,012 million, respectively, and those amounts are mainly the Company’s deposit in bank. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 69 Geographical Information Sales to external customers by the location of customers, and long-lived assets by the location of the Company and its subsidiar- ies as of and for the years ended March 31, 2014, 2013 and 2012 are as follows: As of and for the year ended March 31, 2014 Yen (millions) Overseas Sales to external customers % of total net sales Long-lived assets Japan ¥2,480,369 North America ¥330,861 Asia (excluding Japan) ¥811,081 Europe ¥340,611 Others ¥91,437 Overseas total ¥1,573,990 Consolidated total ¥4,054,359 61.2% 8.2% 20.0% 8.4% 534,521 39,831 109,774 17,426 2.2% 3,742 38.8% 170,773 100.0% 705,294 As of and for the year ended March 31, 2013 Yen (millions) Overseas Sales to external customers % of total net sales Long-lived assets Japan ¥2,335,713 North America ¥262,706 Asia (excluding Japan) ¥604,335 65.5% 7.4% 516,568 27,663 16.9% 90,798 Europe ¥280,126 7.8% 14,160 Others ¥84,304 Overseas total ¥1,231,471 Consolidated total ¥3,567,184 2.4% 2,692 34.5% 135,313 100.0% 651,881 As of and for the year ended March 31, 2012 Yen (millions) Overseas Sales to external customers % of total net sales Long-lived assets Japan ¥2,419,275 North America ¥239,566 Asia (excluding Japan) ¥590,890 66.5% 6.6% 505,529 12,550 16.2% 66,488 Europe ¥304,233 8.4% 13,127 Others ¥85,504 Overseas total ¥1,220,193 Consolidated total ¥3,639,468 2.3% 2,235 33.5% 94,400 100.0% 599,929 As of and for the year ended March 31, 2014 U.S. dollars (thousands) Overseas Sales to external customers % of total net sales Long-lived assets Japan $24,081,252 North America $3,212,243 Asia (excluding Japan) $7,874,573 Europe $3,306,903 Others $887,738 Overseas total $15,281,457 Consolidated total $39,362,709 61.2% 8.2% 20.0% 8.4% 2.2% 38.8% 100.0% 5,189,524 386,709 1,065,767 169,184 36,330 1,657,990 6,847,514 Notes: The major countries and regions included in each segments are as follows: (1) North America : United States, and Canada (2) Asia (excluding Japan) : China, South Korea, Thailand, Malaysia, Singapore, and Indonesia (3) Europe : United Kingdom, France, Germany, the Netherlands, Spain, and Italy In addition to the disclosure requirement of FASB ASC Topic 280 “Segment Reporting”, the Company discloses the following information as supplement. Geographical Information Based on the Location of the Company and Its Subsidiaries As of and for the year ended March 31, 2014 Yen (millions) Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets ¥2,719,567 643,287 3,362,854 3,185,539 ¥ 177,315 ¥2,637,710 ¥306,537 18,687 325,224 323,545 ¥ 1,679 ¥254,978 ¥638,518 248,504 887,022 827,999 ¥ 59,023 ¥673,309 ¥342,072 10,878 352,950 348,182 ¥ 4,768 ¥233,252 ¥47,665 159 47,824 46,089 ¥ 1,735 ¥39,884 ¥4,054,359 921,515 4,975,874 4,731,354 ¥ 244,520 ¥3,839,133 ¥ — (921,515) (921,515) (912,167) ¥ (9,348) ¥(226,167) ¥4,054,359 — 4,054,359 3,819,187 ¥ 235,172 ¥3,612,966 70 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 As of and for the year ended March 31, 2013 Yen (millions) Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income (loss) II Assets ¥2,561,242 502,772 3,064,014 2,947,091 ¥ 116,923 ¥2,594,608 ¥233,548 14,557 248,105 249,849 ¥ (1,744) ¥210,356 ¥450,791 173,933 624,724 588,552 ¥ 36,172 ¥559,138 ¥281,400 8,533 289,933 285,406 ¥ 4,527 ¥184,872 ¥40,203 52 40,255 38,046 ¥ 2,209 ¥34,043 ¥3,567,184 699,847 4,267,031 4,108,944 ¥ 158,087 ¥3,583,017 ¥ — (699,847) (699,847) (693,855) ¥ (5,992) ¥(172,607) ¥3,567,184 — 3,567,184 3,415,089 ¥ 152,095 ¥3,410,410 As of and for the year ended March 31, 2012 Yen (millions) Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets ¥2,675,473 511,246 3,186,719 3,007,267 ¥ 179,452 ¥2,594,841 ¥206,359 16,184 222,543 219,204 ¥ 3,339 ¥177,694 ¥416,574 166,314 582,888 548,668 ¥ 34,220 ¥448,911 ¥300,891 9,106 309,997 303,678 ¥ 6,319 ¥169,676 ¥40,171 13 40,184 36,279 ¥ 3,905 ¥28,783 ¥3,639,468 702,863 4,342,331 4,115,096 ¥ 227,235 ¥3,419,905 ¥ — (702,863) (702,863) (701,072) ¥ (1,791) ¥ (28,254) ¥3,639,468 — 3,639,468 3,414,024 ¥ 225,444 ¥3,391,651 As of and for the year ended March 31, 2014 U.S. dollars (thousands) Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets 6,245,505 32,649,068 30,927,563 $26,403,563 $2,976,088 $6,199,204 $3,321,087 $462,767 $39,362,709 $ — $39,362,709 — 39,362,709 37,079,486 $ 1,721,505 $ 16,301 $ 573,039 $ 46,291 $ 16,844 $ 2,373,980 $ (90,757) $ 2,283,223 $25,608,835 $2,475,515 $6,536,981 $2,264,582 $387,223 $37,273,136 $(2,195,796) $35,077,340 (8,946,748) (8,946,748) (8,855,991) 8,946,748 48,309,457 45,935,477 2,412,660 8,611,864 8,038,825 105,612 3,426,699 3,380,408 181,427 3,157,515 3,141,214 1,544 464,311 447,467 Notes: 1 The Company has identified 5 location segments based on geographical proximity, similarity in market, and interconnectedness within business activities. 2 The major countries and regions included in each segments are as follows: (1) North America : United States, and Canada (2) Asia (excluding Japan) : China, South Korea, Thailand, Malaysia, Singapore, and Indonesia (3) Europe : United Kingdom, France, Germany, the Netherlands, Spain, and Italy 3 The amount of company-wide shared assets included in "Eliminations and other" on "Assets" for the years ended March 31, 2014, 2013 and 2012 is ¥197,227 million ($1,914,825 thousand), ¥126,212 million and ¥211,012 million, respectively, and those amounts are mainly the Company’s deposit in bank. (23) SUBSEqUENT EVENT The Company issued its 44th unsecured bonds and 45th unsecured bonds under approval of Officers’ Meeting held on May 12, 2014. 44th Unsecured Bonds (a) Total amount of issue ¥20,000 million (b) Issue date June 5, 2014 45th Unsecured Bonds (a) Total amount of issue ¥20,000 million (b) Issue date June 5, 2014 (c) Issue price ¥100 per face value of ¥100 (c) Issue price ¥100 per face value of ¥100 (d) Stated interest rate (e) Collateral 0.270% None (d) Stated interest rate (e) Collateral 0.428% None (f) Repayment date (g) Use of proceeds June 5, 2019 Repayment of bonds and capital expenditures (f) Repayment date (g) Use of proceeds June 4, 2021 Repayment of bonds and capital expenditures MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 71 Independent Auditors’ Report 72 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 Corporate Data / Shareholder Information (As of March 31, 2014) Corporate Data Mitsubishi Electric Corporation Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo 100-8310, Japan Tel: +81(3)3218-2111 Established: January 15, 1921 Paid-in Capital: ¥175,820 million Shares issued: 2,147,201,551 shares Employees: 124,305 Major Shareholders Annual Meeting The annual meeting of shareholders of the Corporation is regularly held in June each year. Additionally, special shareholders meetings may be held as necessary. Stock Exchange Listings Japan: Tokyo Europe: London The Master Trust Bank of Japan, Ltd. (Trust Account) State Street Bank and Trust Company Japan Trustee Services Bank, Ltd. (Trust Account) Meiji Yasuda Life Insurance Company Nippon Life Insurance Company Mitsubishi Electric Group Employees Shareholding Union The Bank of Tokyo-Mitsubishi UFJ, Ltd. Japan Trustee Services Bank, Ltd. (Trust Account 4) The Bank of New York Mellon SA/NV 10 The Master Trust Bank of Japan, Ltd. (Mitsubishi Heavy Industries, Limited Account, Retirement Benefit Trust Account) Number of Shares (thousands) Percentage of Ownership 164,681 105,952 99,436 81,862 67,039 46,799 36,822 32,708 31,114 30,087 7.7% 4.9% 4.6% 3.8% 3.1% 2.2% 1.7% 1.5% 1.4% 1.4% Distribution of Shareholders Other Corporations 6.2% Traders of Financial Instruments 1.3% Foreign Corporations 36.1% Financial Institutions 42.1% Individuals and Others 14.3% Stock Price (Yen) 1,500 1,200 900 600 300 0 ’11/4 Mitsubishi Electric’s Stock Price Nikkei Stock Average ’12/4 ’13/4 The Nikkei Stock Average is based on information copyrighted by Nihon Keizai Shimbun, Inc. 20,000 15,000 10,000 5,000 ’14/4 Nikkei Stock Average (Yen) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2014 73 Please address inquiries for further information to: Mitsubishi Electric Corporation, Corporate Finance Div. Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo 100-8310, Japan Phone: 81-3-3218-2391 X-X01-4-C9401-A　HQ1407〈IP〉 

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