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LPA Group PlcA Global, Leading Green Company That Enriches Society with Technology. 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. Contents 02 03 04 06 08 To Our Shareholders Financial Highlights Corporate Strategy At a Glance Fiscal 2016 Topics Review of Operations 08 Energy and Electric Systems 09 Industrial Automation Systems 10 Information and Communication Systems 11 12 Electronic Devices Home Appliances 13 16 19 21 22 23 25 75 Research and Development / Intellectual Property Corporate Social Responsibility Corporate Governance Directors and Executive Officers Organization Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information A Global, Leading Green Company That Contributes to the Realization of a Prosperous Society As the Mitsubishi Electric Group comes closer to celebrating in fiscal 2021 the 100th anniversary of our founding, we will contribute to the realization of a prosperous society as a global, leading green company. By “realization of a prosperous 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 2016 01 Contents 02 03 04 06 08 To Our Shareholders Research and Development / Intellectual Property Financial Highlights Corporate Social Responsibility Corporate Strategy Corporate Governance At a Glance Fiscal 2016 Overview Directors and Executive Officers Review of Operations Organization 08 09 10 11 12 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information 13 16 19 20 21 22 23 73 To Our Shareholders Corporate Mission Seven Guiding Principles The Mitsubishi Electric Group will continually improve its technologies and services by applying creativity to all aspects of its business. By doing so, we enhance the quality of life in our society. To this end, all mem- bers of the Group will pursue the following Seven Guiding Principles. Looking back on the economic situation during the fiscal year ended March 31, 2016 (hereinafter fiscal 2016), the economies of China and elsewhere in East Asia experienced growth, yet at a gradual and constantly slower pace. Meanwhile, personal con- sumption remained weak in Japan. Globally, while the economies of some newly emerging nations stagnated, the U.S. economy was robust and some European economies saw modest but sus- tained recovery. Turning to movements in foreign currency exchange rates, although the yen remained weak against the U.S. dollar compared to the previous fiscal year, there was a turn- around in January 2016, leading to the appreciation of the yen during the fourth quarter. Under these circumstances, the Mitsubishi Electric Group placed greater emphasis than ever before on promoting growth strategies rooted in its competitive advantages, as well as on initiatives to boost its competitiveness and strengthen its management structure. As a result, the Mitsubishi Electric Group recorded consolidated net sales of ¥4,394.3 billion in the fiscal year ended March 31, 2016, an increase of 2% compared to the previous fiscal year. Operating income decreased 5% year-on-year to ¥301.1 billion, for a Group operating income ratio of 6.9%. Moving forward, the plan is to implement initiatives that will enable the Group to maintain a return on equity (ROE) above 10%, while keeping the ratio of interest-bearing debt to total assets below 15%, in 02 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Trust, Quality, Technology, Citizenship, Ethics and Compliance, Environment, Growth accordance with management targets. At the same time, the goal is to achieve consolidated net sales of ¥5.0 trillion or more and an operating income ratio of 8% or more by fiscal 2021. Toward securing these fiscal 2021 growth targets and sustained business expansion, the Mitsubishi Electric Group is accelerating and strengthening its initiatives to create additional value by com- bining and coordinating its technologies and technologies, and businesses and businesses while enhancing each product, system, and service. Based on our Corporate Mission and Seven Guiding Principles, we of the Mitsubishi Electric Group position corporate social responsibility (CSR) initiatives as our main pillar of corporate man- agement. Accordingly, we are committed to taking on the chal- lenges that society is now confronting, such as environmental issues, and resource and energy issues, on a worldwide basis. In this way, we will become a global, leading green company capa- ble of contributing to the realization of a prosperous society. As we resolutely advance forward to achieve our goals, we ask for your continued support. July 2016 President & CEO Masaki Sakuyama Financial Highlights Performance for the Year Ended March 31, 2016 Years ended March 31 2016 2015 2014 Yen (millions) U.S. dollars (thousands) 2016 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 ¥4,394,353 ¥4,323,041 ¥4,054,359 $38,888,080 301,172 228,494 4,059,941 404,039 1,838,773 182,251 202,922 317,604 234,694 4,059,451 381,994 1,842,203 199,758 195,314 235,172 153,473 3,612,966 373,478 1,524,322 151,840 178,945 2,665,239 2,022,071 35,928,681 3,575,567 16,272,327 1,612,841 1,795,770 Yen U.S. dollars ¥106.43 ¥109.32 ¥71.49 — 27 — 27 — 17 % 6.9% 7.3% 5.8% 12.4 10.0 13.9 9.4 10.9 10.3 $0.942 — 0.239 — — — See accompanying Notes to Consolidated Financial Statements on page 41. 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 converted from yen at the rate of ¥113=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2016. Net Sales Breakdown by Business Segment Others 14.0% Net sales ¥707,746 million Energy and Electric Systems 25.0% Net sales ¥1,264,604 million Home Appliances 19.5% Net sales ¥982,064 million Electronic Devices 4.2% Net sales ¥211,580 million Industrial Automation Systems 26.2% ¥1,321,937 million Net sales Information and Communication Systems 11.1% ¥561,119 million Net sales Note: Inter-segment sales are included in the amounts of the diagram above. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 03 Corporate Strategy Management Policy Embodiment of the Corporate Mission Aim to Become a “Global, Leading Green Company” Corporate Mission The Mitsubishi Electric Group will continually improve its technologies and services by applying creativity to all aspects of its business. By doing so, we enhance the quality of life in our society. Contemporary Social Issues Environmental issues Resource/ Energy issues Solving problems globally by producing energy-saving products & systems and building social infrastructure Contribution to Society Realize a sustainable society Provide safety, security, and comfort Embodiment of the corporate mission in the context of the current environment “Global, Leading Green Company” Contribute to the realization of a prosperous society Management Targets Toward “High-Quality” Growth In line with its efforts to achieve a higher level of growth, the Mitsubishi Electric Group has revised its growth targets for fiscal 2021 to consolidated net sales of ¥5.0 trillion or more and an operating income ratio of 8% or more. The Group will also con- tinue with efforts to achieve the following management targets: secure an ROE of 10% or more and secure an interest-bearing debt to total assets ratio of 15% or less. In fiscal 2016, the Mitsubishi Electric Group achieved a second consecutive year of record-high consolidated net sales, which totaled ¥4,394.3 billion. Operating income stood at ¥301.1 billion. In addition, the Group continued to achieve its management targets for ROE of 10% or more and a ratio of interest-bearing debt to total assets of 15% or less, recording figures of 12.4% and 10.0%, respectively. Moving forward, the Group will continue to focus on executing balanced management initiatives, thereby pursuing “high-quality” growth. • Growth Targets to be Achieved by Fiscal 2021 Net sales ¥5.0 trillion or more Operating income ratio 8% or more • Management Targets to be Continuously and Stably Achieved ROE 10% or more Ratio of interest-bearing debt to total assets 15% or less 04 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Management Policy Maintain Balanced Corporate Management for Sustainable Growth Growth • Accelerate 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 Bolstering Growth Strategies Realizing Growth through Value Creation with Growth Drivers The Mitsubishi Electric Group’s strength lies in its abundant tech- nological assets, which encompass a wide range of technologies such as control technologies and power electronics. In addition, the Group possesses a solid operating platform that encompasses 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. Accordingly, the Group aspires to win the appreciation of its stakeholders for its initiatives aimed at resolving various challenges that society is now confronting. Furthermore, it seeks to become a corporation that is trusted by society, customers, shareholders, and employees, and that earns their satisfaction through its business activities. Taking on these challenges on a global basis, the Group is promoting energy-saving products and systems while helping to develop social infrastructure, with the aim of providing solutions for environmental issues, and resource and energy issues. In doing so, the Group embodies its corporate mission in the context of the current environment as a “global, leading green company” capable of contributing to the realization of a prosperous society that simultaneously achieves “sustainability” and “safety, security, and comfort.” Since fiscal 2002, the Mitsubishi Electric Group has continued to pursue sustainable growth by undertaking balanced man-agement initiatives that stem from the three perspectives of growth, profitability and efficiency, and soundness. Looking ahead, the Group will continue carrying out such initiatives and thereby increase its corporate value. As for corporate ethics and compliance, the entire Mitsubishi Electric Group will continue to strictly observe all statutory, regulatory, and ethical requirements while strengthening internal control. Growth through Value Creation—Overview Technological Assets Value Creation Mitsubishi Electric Group Control (motion, heat, fluid, and electricity) Power Electronics Human Machine Interface Encryption Communication Data Processing Electromagnetic Analysis Sensing Design Devices etc. Technological Platform s e i g r e n y S l y g o o n h c e T Energy & Electric Industrial Automation Information & Communication Electronic Devices Home Appliances s e i g r e n y S s s e n i s u B • Provide value which meets market needs • Create additional value through technology synergies and business synergies Make Strong Businesses Stronger Continuous Creation of New Strong Businesses Reinforce the Solutions Business Centered on Strong Businesses Operating Platform R&D and IP Procurement Productivity Quality Sales and Services Open & Global Innovation Enhance technological development capabilities through joint R&D initiatives Universities Corporations National Research and Development Agency Government Standardization Organizations materials procurement, production, quality assurance, and sales and services, in all of which a culture of improvement is firmly entrenched. The Mitsubishi Electric Group is thus well-positioned to freely leverage its competitive edge in a wide range of diverse businesses. With this in mind, the Group has positioned “making strong businesses stronger” as the core of its growth strategies. Currently, the Group has identified eight businesses—power systems, trans- portation systems, building systems, factory automation (FA) systems, automotive equipment, space systems, power devices, and air-conditioning and refrigeration systems—as growth drivers. Focusing on these businesses, the Group will expand its opera- tions in markets worldwide, ranging from Japan, North America, Europe, and China to newly emerging nations, including those elsewhere in Asia. As it moves forward, the Group will continue to create and provide new value to satisfy the needs of each mar- ket and garner the appreciation of customers, thereby securing sustainable growth. Additional Value Creation through Technology Synergies and Business Synergies Toward securing its fiscal 2021 growth targets and sustained business expansion, the Mitsubishi Electric Group is accelerating and strengthening its initiatives to create additional value by combining and coordinating its technologies and technologies, and businesses and businesses while enhancing each product, system, and service. Specifically, the Group seeks to create technology synergies and business synergies through the coordination of business activities. In addition to improving the performance and reliability of every product and service it offers, the Group will enhance its responsiveness to customers’ business challenges and needs by innovatively combining its technologies, products, systems, and services. Through these efforts, the Group will garner even greater customer recognition in existing business fields while developing new businesses and markets and thus secure greater earnings. Increasing the Allocation of Resources to Steps Aimed at Strengthening Competitiveness As it increases the allocation of development, capital, and other investment resources, the Mitsubishi Electric Group targets busi- ness fields where the Group is capable of quickly securing growth while generating short-term investment benefits as well as those exhibiting a high probability of expansion with little or no perfor- mance volatility. At the same time, the Group constantly reviews and refreshes its business portfolio to reallocate its management resources to growth fields. Moreover, the Group works to strengthen this portfolio by continuously creating new strong businesses capable of driving future growth. In addition, the Group is committed to forward-looking R&D aimed at securing a more robust technological platform that will, in turn, ensure its sustainable growth from fiscal 2021 onward. Additionally, aiming to augment its growth, the Mitsubishi Electric Group will actively pursue collaborative ties and M&As from the three perspectives of: supplementing product groups and technology fields in which the Group is lacking, to expand business; securing sales and service networks when advancing into new regions and markets; and acquiring new customer segments in order to bolster the Group’s business platform. Building a Robust Management Foundation To strengthen its management foundation, the Mitsubishi Electric Group continuously strives to enhance its capital efficiency. As a part of initiatives to this end, the Group continues to expand net sales and reduce costs while engaging in activities aimed at improving inventory turnover, trade receivables turnover, and Just in Time operations. In addition to implementing these efforts in an exhaustive manner, in fiscal 2016 the Group began utilizing an internal performance indicator, ROIC (calculated by Mitsubishi Electric’s own standards), to monitor asset efficiency by business segment, thereby improving the ROE of Group operations. Looking ahead, the Mitsubishi Electric Group will continue to focus on generating stable cash flows, actively investing in growth fields, maintaining well-balanced shareholder returns commensurate with profit growth, and diligently working to increase corporate value. Continuous Innovation The Mitsubishi Electric Group will steadfastly carry out its man- agement policies guided by a commitment to balanced manage- ment, while putting into practice its overarching corporate statement, Changes for the Better. Each and every employee will share the common goal of developing new frontiers through continuous innovation, and the Mitsubishi Electric Group—by continuing to undergo transformation itself—will mature into a corporation that is always producing something better. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 05 At a Glance Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 1,180 1,228 1,264 1,027 1,058 12 13 14 15 16 (Years ended March 31) Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 1,282 1,321 978 927 1,098 12 13 14 15 16 (Years ended March 31) Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 516 522 548 559 561 12 13 14 15 16 (Years ended March 31) Operating income Operating income Operating income Yen (billions) 160 140 120 100 80 60 40 20 0 -20 84 85 76 72 50 12 13 14 15 16 (Years ended March 31) Yen (billions) 160 140 120 100 80 60 40 20 0 -20 159 145 101 98 60 12 13 14 15 16 (Years ended March 31) Yen (billions) 160 140 120 100 80 60 40 20 0 -20 21 12 1 13 5 14 18 14 15 16 (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 switchgears, 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 Fiscal 2016 Topics • Awarded a contract by Spanish train builder • Established an elevator factory for Mitsubishi • Developed the EMIRAI3 xAUTO, an automated Construcciones y Auxiliar de Ferrocarriles, S.A. (CAF) to supply high tech traction equipment for 118 New Generation Sprinter (SNG) EMUs for Dutch Railways (NS). Elevator India Private Limited in Bangalore, India. concept car incorporating a full suite of Mitsubishi Electric technologies for safe, accurate next- generation automated driving, and the EMIRAI3 xDAS, a concept car featuring next-generation driving-assistance tech- nology that promises to enhance the safety and comfort of driving. 2015 • Expanded business in Africa with the launch of a new Mitsubishi Electric Europe B.V. office in Johannesburg, South Africa. • Expanded manufacturing and logistics capabilities with a new facility for Mitsubishi Electric Consumer Products (Thailand) Co., Ltd. in Chonburi Province, aiming to reinforce air-conditioning systems busi- ness in Asia and other regions. • Successfully launched the TURKSAT-4B satellite which was carried out under a turnkey contract awarded by Turksat Satellite Communication, Cable TV and Operation Inc. Co. (Turksat A.S.) in 2011. 06 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Electronic Devices Home Appliances Others Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 200 164 194 238 211 12 13 14 15 16 (Years ended March 31) Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 849 821 944 944 982 12 13 14 15 16 (Years ended March 31) Net sales Yen (billions) 1,400 1,200 1,000 800 600 400 200 0 611 590 676 740 707 12 13 14 15 16 (Years ended March 31) Operating income (loss) Operating income Operating income Yen (billions) 160 140 120 100 80 60 40 20 0 -20 3 12 -5 13 10 14 30 16 15 16 (Years ended March 31) Yen (billions) 160 140 120 100 80 60 40 20 0 -20 52 54 63 22 19 12 13 14 15 16 (Years ended March 31) Yen (billions) 160 140 120 100 80 60 40 20 0 -20 20 18 19 23 23 12 13 14 15 16 (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 • Established the Norwegian Branch of Mitsubishi Electric Europe B.V. by acquiring Norwegian air conditioning equipment distributor MIBA AS. • Opened a factory for transportation-systems busi- ness in Bidadi, near Bengaluru, India. • Delivered the world’s largest energy-storage system of 50 MW output and 300MWh rated capacity to Kyushu Electric Power Co. 2016 • Began operating the fourth factory of elevator and escalator manufacturing companies in China, Mitsubishi Electric Shanghai Electric Elevator Co., Ltd. (MESE). • Acquired DeLclima S.p.A. (“DeLclima”) as MELCO Hyrdronics & IT Cooling S.p.A., to strengthen com- mercial heating, ventilation and air conditioning (HVAC) business globally. • Awarded first contract with Siemens AG for railcar air-conditioning systems, which will be used in Desiro High Capacity railcars on the Rhine-Ruhr express (RRX) train network that connects cities and provinces in Germany’s North Rhine- Westphalia region. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 07 Review of Operations Energy and Electric Systems Net Sales Breakdown by Business Segment 25.0% Net Sales ¥1,264.6billion up 3% year on year Operating Income ¥50.3billion down ¥22.1 billion year on year The social infrastructure systems business saw increases in both orders and sales compared to the previous fiscal year due to increases in the power systems business and the transportation systems business in Japan, despite decreases in the public utility systems business in Japan and the transpor- tation systems business outside Japan. The building systems business experi- enced an increase in orders, while sales remained unchanged compared to the pre- vious fiscal year, owing to growth in the new installation of elevators and escalators outside Japan. As a result, total sales for this segment increased by 3% from the previous fiscal year to 1,264.6 billion yen. Operating income decreased by 22.1 billion yen from the previous fiscal year to 50.3 billion yen due primarily to a shift in project portfolios and lower profit in the social infrastructure systems business. 08 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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. Large-scale Visual Information System for QVC Marine Field A total of five Diamond Vision displays—one main screen, two sub-screens for outfield stands, and two sub-screens for the area behind the backstop netting—have been delivered to QVC Marine Field, the home field of the Chiba Lotte Marines (Japanese professional baseball team). Various images and videos can be shown in an interconnected display, further contributing to excitement throughout the ballpark. 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 26.2% Net Sales ¥1,321.9billion up 3% year on year Operating Income ¥159.1billion up ¥13.1 billion year on year The factory automation systems business saw a decrease in orders from the previous fiscal year mainly due to stagnant capital expenditures in China and other emerging markets, while sales remained unchanged from the previous fiscal year due to growth in capital expenditures relating to the auto- motive industry and facility replacements by manufacturers in Japan, and due additionally to the weaker yen. The automotive equipment business saw increases in both orders and sales from the previous fiscal year due primarily to growth in the car sales market in North America and Europe, as well as the positive influence of the weaker yen. As a result, total sales for this segment increased by 3% from the previous fiscal year to 1,321.9 billion yen. Operating income increased by 13.1 billion yen from the previous fiscal year to 159.1 billion yen due primarily to the 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. Industrial Robots Featuring cutting-edge technologies, Mitsubishi Electric’s robotic systems are key components in Factory Automation (FA). They are ideal for cell-based production coupled with intelligent sensors, thanks to their high-speed, high-precision core performance characteristics. By providing complete FA solutions that combine programmable logic controllers and AC servomotors, Mitsubishi Electric can create automated systems that encompass the assembly, inspection, and conveyance processes. 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 MP series, a strategic product on a global scale, Mitsubishi Electric provides a lineup of EDMs that add value and improve the manufacturing pro- ductivity of molds and precision components. Such equipment is indispensable 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. Car Navigation System The DIATONE SOUND. NAVI NR-MZ100 Series car audio- navigation system offers superior quality in terms of respon- siveness, image resolution, and design. It enhances the driving experience more than ever, with faster and more visually appealing navigation. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 09 Review of Operations Information and Communication Systems Net Sales Breakdown by Business Segment 11.1% Net Sales ¥561.1billion unchanged year on year Operating Income ¥14.9billion down ¥3.9 billion year on year The telecommunications equipment business remained unchanged in both orders and sales compared to the previous fiscal year. The information systems and service busi- ness saw an increase in sales compared to the previous fiscal year, mainly owing to an increase in the system integrations business. The electronic systems business saw an increase in orders compared to the previous fiscal year, due to an increase in orders for large-scale projects in the space business, while sales remained unchanged compared to the previous fiscal year due to a shift in the portfolios of large-scale projects in the defense systems business. As a result, total sales for this segment amounted to 561.1 billion yen, virtually unchanged from the previous fiscal year. Operating income decreased by 3.9 billion yen from the previous fiscal year to 14.9 billion yen due primarily to a shift in project portfolios. 10 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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 Network 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, having been selected for use in satellites Himawari-7, 8, and 9, and commercial satellites for Turkey and Qatar, and is employed in nine satellites currently circling the earth. 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 are employed by Japanese broad- casters, 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 ¥211.5billion down 11% year on year Operating Income 180W 90W 7W 5W ¥16.8billion down ¥13.2 billion year on year The electronic devices business saw decreas- es in both orders and sales from the previ- ous fiscal year due to a decrease in demand mainly for power modules used in automo- tive, railcar, consumer and industrial applica- tions, despite an increase in optical communication devices. As a result, total sales for this segment decreased by 11% compared with the previous fiscal year to 211.5 billion yen. Operating income decreased by 13.2 billion yen compared with the previous fiscal year to 16.8 billion yen due primarily to the decrease in sales. IGBT Modules T Series with 7th-generation IGBT Installation of the latest 7th-generation IGBT chips realizes industrial equipment such as general-purpose inverters, eleva- tors, and uninterruptible power supply devices with lower power consumption and higher reliability. Available in two packages1 and two pin layouts2, a new lineup of 65 products contributes to providing the best devices for wide-ranging applications and diversified industrial equipment needs. 1 NX package and standard package 2 Choice of solder-pin or press-fit pin models SLIMDIP Series of Power Semiconductor Modules The size of the power semiconductor packages for driving the inverters of home appliances such as residential-use air- conditioners and refrigerators has been reduced by 30% compared to conventional products1, realizing the world’s smallest2 1.5kW-class motor. The compact packages contribute to reducing the size and weight of the inverters used in home appliances. 1 Super-mini Dual In-Line Package Intelligent Power Module (DIPIPMTM) Ver.6 2 As of April 23, 2015, based on internal research 3.5GHz-band GaN HEMT for Mobile Communications Base Transceiver Stations Mitsubishi Electric has developed GaN1 HEMTs2 for use in Base Transceiver Stations (BTS) operating in the 3.5GHz-band of fourth generation mobile communication systems. The four new GaN-HEMTs offer output power and efficiency levels that are among the highest3 currently available. High efficiency allows use of a simple cooling system, which contributes to the smaller size and lower power consumption of BTSs. 1 Gallium Nitride 2 High Electron Mobility Transistor 3 As of December 22, 2015, based on internal research Compact Integrated 100Gbps EML-TOSA A high-performance EML1 helps to realize the industry's longest- distance2 (i.e., 40km) transmissions. With a size reduction to just 30 percent3 that of its predecessor, the new model will allow optical transceivers to be made more compact. This is expected to help reduce the size of 100Gbps communication facilities and expand high-speed 100Gbps optical transmission networks. 1 Electro-absorption Modulated Laser diode 2 As of March 16, 2016, based on internal research. IEEE 100GBASE-ER4 stan- dards (based on Ethernet basic standards for 100Gbps communication speed of the American Institute of Electrical and Electronics Engineers) 3 Compared with FU-401REA, previous Mitsubishi Electric product. Glove 7-inch WVGA TFT-LCD Modules with Touch Panels for Industrial Use The new TFT-LCD module with a projection-capacitive touch panel is able to operate with 5-mm-thick cover glass, multi- touch up to a maximum of 10 points, the use of thick heat- resistant gloves, and a wet screen. It is optimized for outdoor applications through pursuit of shock resistance and water resistance. Tough Series 10.4-inch SVGA Color TFT LCD Modules for Industrial Use In addition to the industry’s highest1 anti-vibration performance (i.e., 6.8G acceleration) and a wide guaranteed temperature operating range (-40°C to +85°C), ultrabright visual display (1,500cd/m2) is realized. This contributes to improving the visual quality of large-screen, high-brightness displays used in harsh environments outside, such as panels for construction machinery, agricultural machinery, and machining tools. 1 As of November 25, 2015, based on internal research MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 11 Review of Operations Home Appliances Net Sales Breakdown by Business Segment 19.5% Net Sales ¥982.0billion up ¥4% year on year Operating Income ¥63.8billion up ¥9.5 billion year on year The home appliances business saw an increase in sales of 4% compared with the previous fiscal year to 982.0 billion yen, due to an increase in sales of residential and industrial air conditioners in Japan, as well as air conditioners for Europe, Asia and North America. The weaker yen also brought about a positive influence. Operating income increased by 9.5 billion yen compared with the previous fiscal year to 63.8 billion yen largely due to the increase in sales. 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. Housing Equipment ENEDIA is a system that effectively uses renewable energy through the ingenious application of a home energy manage- ment system (HEMS) that stores electricity generated by solar panels in the batteries of an electric vehicle. ENEDIA is based on Mitsubishi Electric’s concept of a smart electric home that conserves energy by using highly efficient air conditioners, water heaters, and cooking equipment. It gives residents a way to conserve energy without sacrificing comfort. Home Appliances Mitsubishi Electric develops home appliances by incorporating its unique technologies and perspectives so that its products can be used in various scenes of daily life, such as the kitchen, living room, and bedroom. Efforts are made to develop products that contribute to making life more comfortable for users, meeting and even surpassing their expectations. Lighting Fixtures and Light Bulbs Mitsubishi Electric offers an extensive lineup of high-efficiency, long-lasting LED products that meet diverse needs for energy- saving light bulbs and equipment in households, stores, offices, and factories. The company’s LED products make the future brighter for families and society as a whole. Visual Equipment for Public and Business Applications Mitsubishi Electric’s high-quality image processing technolo- gies deliver exceptionally sharp images with superior color reproduction and are incorporated in a wide range of products developed to suit a variety of application needs. These systems are being used in Japan and abroad for large-screen applica- tions, such as digital signage used to display images, data, and information at public facilities and other venues. Customers Consumer electronics and home appliances Used products Mitsubishi Electric Corporation Hyper Cycle Systems Corporation Materials manufacturers Metals and glass Original recycling system Simple plastics Plastic PP, PS, ABS Mixed plastics Green Cycle Systems Corporation Recycling Consumer Electronics and Home Appliances Mitsubishi Electric has developed technologies for automati- cally sorting the three major types of plastic (polypropylene (PP), polystyrene (PS), and acrylonitrile-butadiene-styrene (ABS)) used in consumer electronics and home appliances. This original recycling system is being utilized to promote the reuse of plastics in the company’s products by improving the physical properties of the sorted materials. 12 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Research and Development / Intellectual Property Research and Development R&D Initiatives The Mitsubishi Electric Group’s R&D network consists of the At the same time, the Group is committed to making strong Advanced Technology R&D Center, Information Technology R&D businesses stronger by expanding the possibilities of the existing Center, and Industrial Design Center in Japan as well as laborato- operations. The Group also seeks to create new strong businesses ries in the United States, Europe, and China. These centers operate by, for example, exploring business areas into which it has yet to under the umbrella of the Corporate Research and Development enter, coordinating operations that involve similar business func- Group working in collaboration with the development depart- tions or areas of activity, and bringing together contrasting but ments of individual Mitsubishi Electric business groups. complementary businesses. The Mitsubishi Electric Group has positioned R&D as one of In addition to pursuing breakthroughs along the lines of short- the principal vehicles driving growth strategies forward. Aspiring and medium-term R&D themes, the Group is stepping up long- to deliver greater value to customers through R&D, the Group term R&D projects. To ensure sustainable growth, the Mitsubishi has identified four key areas—the Internet of Things, Smart Electric Group will engage in ongoing R&D initiatives, thereby Mobility, comfortable dwelling spaces, and a safe and secure contributing to society with an eye toward not only 2020 but ten infrastructure—as areas on which to focus its R&D efforts in years and even twenty years beyond that. order to help create a prosperous society. R&D Achievements in Fiscal 2016 V Development of Air Conditioner with Personal Twin Flow Mitsubishi Electric Corporation has developed the world’s first* air conditioner with Personal Twin Flow, featuring two independent- driven left and right fans. Move Eye KIWAMI, with its new independently driven left and right side fans and its improved sensing resolution, creates separate temperature spaces tailored to the preferences of different people in the same room, providing both a high level of comfort while reducing energy consumption. It adopts a simple design that har- monizes with room interiors, based on the concept of “changing the atmosphere of living rooms with a single air conditioner.” Mitsubishi Electric Corporation will continue to develop air conditioners that create refined living spaces. A simple rectangular design Two separate outlets allow the air volume and flow direction to be independently controlled * As of October 30, 2015. World’s first for air conditioner indoor units for domestic Creating separate temperature spaces in the same room use (survey conducted by Mitsubishi Electric Corporation). V Development of SeaAerial Seawater Antenna Mitsubishi Electric Corporation has developed an innovative antenna system, called SeaAerial, which shoots a column of sea- water in to the air to create a conductive plume for the transmis- sion and reception of radio-frequency waves. The system can be easily implemented offshore or along shore- lines. SeaAerial is thought to be the world’s first* seawater antenna capable of receiving digital terrestrial broadcasts for nor- mal viewing. The company will develop new businesses leveraging its com- pact size, such as using it as a substitute in the event of disasters or other situations in which conventional large-scale antennas cannot be used. *As of January 27, 2016 (survey conducted by Mitsubishi Electric Corporation) Illustration of application A column of seawater transmits/receives radio-frequency waves MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 13 Research and Development / Intellectual Property V Development of Air-Quality Sensor Capable of High-Precision Detection of PM2.5*1 Density Mitsubishi Electric Corporation has developed a small, high- precision air-quality sensor that can detect the density of PM2.5 using laser beams. This sensor uses a unique design that ensures stable air flow volume and laser beam paths to achieve high sensor accuracy and a compact design. It is the world’s first*2 sensor able to distinguish PM2.5 particles as well as pollen and dust. By accurately assessing the density of fine particles suspended in the air, it will contribute to creating environments with cleaner air. *1 All fine particles measuring no more than 2.5 micrometers in diameter. (1 micrometer is 1/1000 millimeter) *2 As of February 8, 2016 (survey conducted by Mitsubishi Electric Corporation) Intellectual Property Conventional New technology Illustration of application Contributing to creating environments with cleaner air Basic Policy Office IP Division formulates strategies for the entire Group, The Mitsubishi Electric Group recognizes that intellectual property promotes critical projects, coordinates interaction with external (IP) rights represent a vital management resource essential to its agencies including patent offices, and is in charge of IP public future and must be protected. Through integrating business, relations activities. At the Works, R&D center, and affiliated com- R&D, and IP activities, the Group is proactively strengthening its pany level, IP divisions promote individual strategies in line with the global IP assets, which are closely linked to the Group’s business Group’s overall IP strategies. Through mutual collaboration, these growth strategies and contribute to both business and society. divisions work to link and fuse their activities in an effort to Structure of the Intellectual Property Division develop more effective initiatives. Global IP Strategy The IP divisions of the Mitsubishi Electric Group include the Head The Mitsubishi Electric Group identifies critical IP-related themes Office IP Division, which is the direct responsibility of the president, based on its mainstay businesses and important R&D projects, and and the IP divisions at the Works, R&D centers, and affiliated is accelerating the globalization of IP activities also by filing patents companies. The activities of each IP division are carried out under prior to undertaking business development in emerging countries the executive officer in charge of IP at each location. The Head where an expansion of business opportunities is expected. Integrating Business, R&D, and IP Activities Annual Trends in Overseas Patent Applications by the Mitsubishi Electric Group Integration IP Network (No. of Applications) 12,000 IP/Standardization Strategy IP Division at Headquarters President Business Strategy IP Departments at Business Groups, Facilities, Affiliates Development Strategy R&D Centers IP Departments 9,000 6,000 3,000 0 14 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 2013 2014 2015 2016 (FY) (cid:31)(cid:31) USA (cid:31)(cid:31) Europe (cid:31)(cid:31) China (cid:31)(cid:31) Other Further Strengthening Global IP Capabilities IP representative Europe Asia Americas Head Office IP Division P Protecting products through IP rights P Acquiring international standard-related patents P Counterfeit product countermeasures Furthermore, resident officers are assigned to Mitsubishi Electric sites in the United States, Europe, and China to take charge of IP Activities Aimed at Preventing Infringement of the Group’s IP Rights activities and strengthen the IP capabilities of business offices, The Mitsubishi Electric Group works diligently to prevent any R&D centers, and affiliated companies in each country. Through infringement of its IP rights by other companies. In addition to these initiatives, we strive to create a robust global patent network. in-house activities, the Group places particular weight on collabo- IP Strategy for International Standardization agencies and other entities in Japan and overseas as a part of a wide rating with industry organizations while approaching government In order to expand business in global markets, the Mitsubishi Electric Group is actively promoting international standardization. Activities to acquire patents that support international standards range of measures to prevent the counterfeiting of its products. Respecting the IP Rights of Others (e.g., essential standards patents) are openly promoted. The Mitsubishi Electric Group recognizes that the infringement of As the member of an organization in which patent pools for items such as MPEG and Blu-ray DiscTM* collectively control another company’s IP rights has the potential to significantly impair its continued viability as a going concern. The resulting essential standards patents, the IP revenues obtained through the potential impairments include being obliged to pay significant organization are contributing to improvement and growth in licensing fees, being forced to discontinue manufacturing of a business earnings. The Group is also working to increase activities certain product, or other related actions. To prevent the infringe- for acquiring patents in competitive fields involving international ment of another company's IP rights, the Group provides educa- standards, and promoting IP activities that contribute to increasing tion and training—centering on engineers and employees product competitiveness and expanding market share. responsible for IP affairs—to raise awareness and instill the *Blu-ray DiscTM is a trademark of the Blu-ray Disc Association. utmost respect said rights. At the same time, the Group has put in place a set of rules to facilitate appropriate actions, such as surveying other companies’ patent rights at every stage from product development to sales, and ensuring strict adherence to these rules. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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 inter- nal control system. At the same time, it pursues initiatives related to quality management, global environmental conservation, philanthropy, and improved communication with all stakeholders. The Mitsubishi Electric Group’s Corporate Social Responsibility Group’s longstanding operations, this spirit is now encapsulated by the corporate statement “Changes for the Better.” Remaining The Mitsubishi Electric Group’s commitment to CSR was first true to this spirit, the Group will steadfastly transform itself into articulated in the Keys to Management (in Japanese, Keiei no a global leading green company, rallying its overall strength and Yotei), which was drawn up at the time of Mitsubishi Electric’s employing its robust product lineup ranging from home applianc- founding in 1921. The spirit of this document, which states the es to spacecraft components. In these ways, the Group will help Group’s contributions in areas such as the prosperity of society, realize a sustainable and prosperous society. product quality, and customer satisfaction, lives on today in its Corporate Mission and Seven Guiding Principles. With these Philanthropic Activities tenets as its core principles, the Group promotes various initia- Philosophy and Policies on Philanthropic Activities tives in order to fulfill its corporate social responsibilities. The Mitsubishi Electric Group shares a common Philosophy and In recent years, the Group has adopted a more CSR-centric Policies based on its Corporate Mission and Seven Guiding management approach, redefining CSR as an integral component Principles, and carries out a variety of activities accordingly. of corporate management activities with a long-term arc of exe- Philosophy cution. Currently well into fiscal 2016, the Mitsubishi Electric As a corporate citizen committed to meeting societal needs and Group has identified the challenges that society now faces and, expectations, the Mitsubishi Electric Group will make full use of by referring to such resources as international standards, it has the resources it has at hand to contribute to creating an affluent clarified what needs to be done by the Group as a global compa- society in partnership with its employees. ny. Among items needing to be addressed, the Group has priori- Policies tized the following CSR materialities, taking into account its • We shall carry out community-based activities in response to corporate strategies and the expectations of its stakeholders. societal needs in the fields of social welfare and global environ- Mitsubishi Electric Group’s Four CSR Materialities P Realize a sustainable society P Provide safety, security, and comfort P Respect human rights and promote the active participation of diverse human resources P Strengthen corporate governance and compliance on a continuous basis In fiscal 2017, the CSR Committee—chaired by an executive officer in charge of general affairs—has confirmed that the Group will address these materialities in partnership with entities in the supply chain, and is implementing ongoing improvement activities based on the PDCA (Plan-Do-Check-Action) approach. In addition, to facilitate customers’ understanding of the Group’s CSR initiatives, efforts are now under way to better communicate the environmental, social, and governance (ESG) aspects of these initiatives to the general public. Since its founding, the Mitsubishi Electric Group has main- tained a commitment to continuously adapting and evolving as part of its unwavering pursuit of excellence. Having bolstered the 16 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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. Supporting Children Affected by the Great East Japan Earthquake (Mitsubishi Electric Corporation) “Mouth and Foot Painting Artists of the World Exhibition” (Mitsubishi Electric Building Techno-Service Co., Ltd.) Supporting the Special Olympics (Mitsubishi Electric Europe B.V. Italian Branch, Mitsubishi Electric Europe, B.V. German Branch) Foundations identified specific activity targets as a part of its latest The Mitsubishi Electric America Foundation and Mitsubishi Electric medium-term environmental plan, which has been renewed every Thai Foundation, both founded in 1991, also carry out various three years since 1993. Having successfully completed each activities in the spirit of the Mitsubishi Electric Group’s Philosophy activity item identified in the Group’s 7th Environmental Plan, and Policies. The Mitsubishi Electric America Foundation, with the covering fiscal 2013 through fiscal 2015, it has embarked on the cooperation of its branches in the United States, helps young 8th Environmental Plan, covering fiscal 2016 through fiscal 2018. people with disabilities to become employed and participate more fully in society. The Mitsubishi Electric Thai Foundation, in P Activity Items of the 8th Environmental Plan addition to providing scholarships to university students and sup- 1. Initiatives aimed at realizing a low-carbon society porting a school lunch program for grade school students, has in Increase the level of contribution to society by reducing CO2. recent years been promoting employee-involved volunteer activi- Specifically, (1) reduce CO2 from production, and (2) reduce ties that support education and environmental protection. CO2 from product usage. 2. Initiatives aimed at forming a low-carbon society (1) Promote the effective use of resources utilizing the final disposal ratio as a key indicator, (2) reduce resource inputs, and (3) strengthen partnerships with resource recycling businesses. 3. Initiatives aimed at realizing a symbiotic society (1) Hold various events, including the Mitsubishi Electric Outdoor Classroom and the Satoyama Woodland Preservation Project, and (2) foster environmental awareness by promoting online environmental education on a global scale. 4. Efforts toward strengthening the environmental management platform An employee volunteer working with a student on Disability Mentoring Day (United States) Local Mitsubishi Electric Companies in joint tree planting activity (Thailand) Environmental Activities Transitioning from the 7th Environmental Plan to (1) Improve the execution of quantitative assessment of environ- the 8th Environmental Plan mental risk and management at factories in Japan and overseas, The Mitsubishi Electric Group defines a “global leading green and (2) adhere strictly to environmental rules and regulations. company” to be one that fully utilizes its advanced technologies in business activities around the world—including environmental • Major Activity Item 1: issues—in order to contribute to the realization of a prosperous Reducing CO2 Emissions from Production society where both a “sustainable society” and “safe, secure, and Under its 8th Environmental Plan, the Mitsubishi Electric Group comfortable lifestyles” are simultaneously achieved. In 2007, the will integrate and promote the reduction of CO2 from energy Group established Environmental Vision 2021, a long-term vision sources and the management of efforts aimed at reducing for environmental management. To realize this vision, the Group greenhouse gases other than CO2*1, activities that were previously is striving to fulfill its responsibilities to society from an environ- undertaken on an individual basis, in order to comprehensively mental perspective by developing and promoting the widespread evaluate and manage the impact of greenhouse gases on the use of products and services that boast outstanding resource and goal of realizing a low-carbon society. The plan, ending in fiscal energy efficiency across all business fields, and advancing efforts 2018, calls for the total of CO2 from energy sources and to reduce the environmental impact of all of its business activities greenhouse gases other than CO2 to be kept below 1,370,000 from procurement through production to logistics. tons on an annual CO2 equivalent emission basis, considerably In order to incorporate a PDCA cycle into its environmental activities in a systematic and definitive manner, the Group has lower than the base fiscal year figure of 2,640,000 tons. *1 Emissions of such substances as SF6, PFC, and HFC 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 2016 17 Corporate Social Responsibility Plan to Reduce CO2 Emissions from Production across the Mitsubishi Electric Group Total Amount of CO2 Emissions (10,000 t-CO2) 300 250 200 150 100 50 0 264 146 118 7th Environmental Plan 90% 87% 96% Reduction 120 119 124 28 92 26 93 29 95 86% 128 24 140 28 112 104 42% reduction 154 30 124 (Base fiscal year)*2 2013 2014 2015 2016 target 2016 result 2021 (FY) 0.422*3 Emission coefficient for domestic operations (t-CO2/MWh) 0.487*4 Amount of CO2 emissions*5 Amount of greenhouse gas emissions other than CO2*6 Total greenhouse gases Emissions per unit in comparison with the base fiscal year level *2 CO2 from energy sources: Mitsubishi Electric (non-consolidated) 1991; affiliates in Japan 2001; overseas affiliates 2006 Greenhouse gases other than CO2: Mitsubishi Electric (non-consolidated) and affiliates in Japan 2001; overseas affiliates 2006 *3 “The Japan Electrical Manufacturers’ Association”(1997) *4 “Federation of Electric Power Companies of Japan”(2013 During 8th Environmental Plan was preparing, 2 Nuclear Power Plants were running) *5 Quoted overseas “CO2 emission factors” published by “The Japan Electrical Manufacturers’ Association”(2006). *6 Quoted “global warming potentials” published by “IPCC Second Assessment Report: Climate Change 1995”. In an effort to reduce CO2 from energy sources, the Mitsubishi Therefore, the development and widespread use of highly energy- Electric Group is introducing high-efficiency air conditioners and efficient products can contribute significantly to the reduction of other equipment while shifting to LED lighting. The Group is also CO2 emissions. Under the 8th Environmental Plan, the Mitsubishi striving to understand energy consumption at the point of produc- Electric Group is aiming for an average CO2 reduction ratio of tion. To eliminate waste, the Group is looking at improving heat 35% or more compared with fiscal 2001 for specific products loss while reducing standby power. Working to reduce such green- where the Group can take the initiative regarding design and house gases as SF6, HFC, and PFC, the Group is shifting to the use development and where the reduction of CO2 emissions during of refrigerant gases with low global warming potential. Other product use is deemed important from an environmental aspect. ongoing initiatives include the building of a handling scheme that The number of specified products in fiscal 2016 was 107. The extends from gas recovery through recycling to eventual destruc- average rate of CO2 emissions reduction among these products tion; efforts to reinforce countermeasures aimed at preventing was 34%. Based on this result, the Group is making steady prog- leaking; and the early introduction of treatment systems. ress toward achieving its target. Looking ahead, the Group will In fiscal 2016, the Mitsubishi Electric Group reduced total continue to promote improvements. annual greenhouse gas emissions to 1.28 million tons, which is 12 thousand less than the target of 1.4 million tons. While the scale of production is projected to rise during the period of the 8th Environmental Plan, the Mitsubishi Electric Group expects to achieve the aforementioned target by steadfastly implementing the previously identified measures. • Major Activity Item 2: Reducing CO2 Emissions from Product Usage through Improved Energy Efficiency Performance Regarding 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. When the amount of CO2 emitted during product use is calculated, the levels during product use can be several dozen times the amount emitted during production. 0 10 20 30 ) % ( n o i t c u d e r f o e t a r e g a r e v A Plan for Reducing CO2 from Product Usage through Improved Energy Efficiency 17% 26% 29% 33% 33% 34% 35% 30% or more 100 2001 (Base fiscal year) 2008 107 specified products 2012 2013 2014 2015 2016 2017 2018 7th Environmental Plan 8th Environmental Plan 2021 (FY) Environmental Vision 2021 Target 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 2016 Corporate Governance Basic Corporate Governance Policy A framework is also in place for reporting to the Audit To realize sustained growth and increase corporate value, the Committee. The Internal Control Department keeps the Audit Mitsubishi Electric Group works to maintain the flexibility of its oper- Committee informed of information about Mitsubishi Electric ations while promoting management transparency. These endeavors and affiliate companies, and an internal reporting system is are supported by an efficient corporate governance structure that used to report that information to audit committee members. clearly defines and reinforces the supervisory functions of manage- Audit committee members attend executive officers’ meetings ment while ensuring that the Company is responsive to the expec- and other such important conferences, and conduct hearings tations of customers, shareholders, and all of its stakeholders. and surveys of executive officers and the executive staff of Mitsubishi Electric offices and affiliated companies. It also Corporate Management and Governance Structure receives regular reports from the accounting auditor and execu- Corporate Management Structure tive officer in charge of auditing, and discusses auditing policies In June 2003, Mitsubishi Electric became a company with a com- and methods and the implementation status and results of audits. mittee system. Key to this structure is the separation of supervisory 2. Internal regulations and system are in place to ensure proper and executive functions; the Board of Directors plays a supervisory operations by the Mitsubishi Electric Group. Within this system, decision-making role and executive officers handle the day-to-day executive officers undertake their duties on their own responsi- running of the Company. bility and hold executive officers' meetings to deliberate on The present Board is comprised of twelve directors (five of whom important matters. are outside directors), who objectively supervise and advise the Executive officers themselves make periodic inspections of the Company’s management. The Board of Directors has three internal operational status of the system, and the Internal Control bodies: the Audit, Nomination and Compensation committees. Each Department inspects the design and operation of the internal con- body has five members, the majority of whom are outside directors. trol framework and regulations, and the status of internal reporting The Audit Committee is supported by dedicated independent staff. system and then report the result to audit committee members. A salient characteristic of Mitsubishi Electric’s management Furthermore, an internal auditor audits the operational status structure is that the roles of Chairman of the Board, who heads the of the framework, and through an executive officer in charge supervisory function, and the President, who is head of all executive of auditing, regularly reports the results of such audits to the officers, are clearly separated. Additionally, neither is included Audit Committee. among the members of the Nomination and Compensation Committees. The clear division of supervisory and executive functions Corporate Auditing Division and Audit Committee allows the Company to ensure effective corporate governance. Acting independently, Mitsubishi Electric’s Corporate Auditing Internal Control System Division conducts internal audits of the Company from a fair and impartial standpoint. In addition, the division’s activities are sup- 1. For proper execution of duties by the Audit Committee, the ported by auditors with profound knowledge of their particular committee’s independence is ensured such as by assigning dedi- fields, assigned from certain business units. cated employees to assist in its duties, and the expenses and The Audit Committee is made up of five directors, three of whom responsibilities incurred by the committee in the course of exe- are outside directors. In accordance with the policies and assignments cuting its duties are appropriately processed according to inter- agreed to by the committee, the performances of directors and nal regulations. executive officers as well as affiliated companies are audited. Corporate Governance Framework 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 2016 19 Corporate Governance The Corporate Auditing Division, through the executive officer Outside Directors in charge of auditing, submits reports to the Audit Committee, Effective Utilization of Outside Directors which holds periodic meetings to exchange information and dis- The Board of Directors comprises twelve members, including five cuss auditing policies. In addition, the Audit Committee discusses Outside Directors (42% composition ratio). policies and methods of auditing with accounting auditors, who Outside Directors receive reports about the activity status of furnish it with reports on the status and results of the audits of internal auditors, the audit committee, accounting auditors, and the Company that they themselves conduct. internal control departments via the Board of Directors, and pro- vide their impartial views regarding Mitsubishi Electric’s manage- Policies Regarding Decisions on Compensation, Etc. Compensation Scheme for Directors and Executive Officers ment from an objective perspective. By doing so, they bring greater transparency to the management framework and Policies regarding decisions on compensation, etc. will be made strengthen the Board's function of supervising management. through resolutions by the Compensation Committee, the majority of which consists of Outside Directors. A summary of the policies Criteria for Judgment of the Independence of Independent is as follows. Outside Directors Outside Directors are expected to supervise management from a Compensation Scheme for Directors high-level perspective based on their abundant experience. Those 1. Directors give advice to and supervise the Company’s manage- who are comprehensively judged to possess the character, acumen, ment from an objective point of view, and therefore, the com- and business and professional experience suited to fulfill that role, pensation scheme for Directors is the payment of fixed-amount and who satisfy the requirements of independent executives compensation and the retirement benefit upon resignation. specified by the Tokyo Stock Exchange and the requirements 2. Directors will receive their compensation as a fixed amount, specified in Mitsubishi Electric’s Guidelines on the Independence and the compensation to be paid will be set at a level consid- of Outside Directors (see below) and thus possess no risk of giving ered reasonable, while taking into account the contents of the rise to any conflict of interest with the general shareholders of Directors' duties and the Company’s conditions, etc. the company, are selected as outside director candidates by the 3. Directors will receive the retirement benefit upon their resigna- Nominating Committee. tion, and the retirement benefit to be paid will be set at a level decided on the basis of the monthly amount of compensation < Independency Guideline for Outside Directors > and the number of service years, etc. Mitsubishi Electric Corporation nominates persons with experi- ence in company management in the business world, attorneys Compensation Scheme for Executive Officers and academics, among other specialists, who are appropriate to 1. The compensation scheme for the Executive Officers focuses on oversee the Company’s business operations and not falling under incentives for the realization of management policies and the any of the following cases, as candidates for Outside Directors. improvement of business performance, and performance-based Note that each of the following 1), 2), 4) and 5) includes a case compensation will be paid in addition to the payment of fixed- in any fiscal year during the past three fiscal years. amount compensation and the retirement benefit upon resignation. 2. Fixed-amount compensation will be set at a level considered 1. Persons who serve as Executive Directors, Executive Officers, reasonable taking into account the contents of the Executive managers or other employees (hereinafter ”business executers”) Officers duties and the Company’s conditions. at a company whose amount of transactions with the Company 3. The level of performance-based compensation will be decided accounts for more than 2% of the consolidated sales of the while taking into account the consolidated business performance Company or the counterparty and the performance of the business to which the respective 2. Persons who serve as business executers at a company to which Executive Officer is assigned, etc. With the purposes of meshing the Company has borrowings that exceed 2% of the consoli- the interest of shareholders with the Executive Officers and fur- dated total assets ther raising management awareness that places importance on 3. Persons who are related parties of the Company’s independent the interest of shareholders, and increasing the incentives for auditor the improvement of business performance from the mid- and 4. Persons who receive more than ¥10 million of compensation long-term perspectives, 50% of performance-based compensa- from the Company as specialists or consultants tion will be paid in the form of shares. The Company sets a rule 5. Persons who serve as Executive Officers (Directors, etc.) of an orga- that, when the Executive Officers acquire the Company shares nization to which the Company offers contribution that exceeds as a part of compensation, they are required to continue the ¥10 million and 2% of the total revenue of the organization shareholding until 1 year has passed from resignation. 6. Persons who are the Company’s major shareholders (holding more 4. The amount of the retirement benefit will be decided on the than 10% of voting rights) or who serve as their business executers basis of the monthly amount of compensation and the number 7. Persons who are related parties of a person or company that of service years, etc. have material conflict of interest with the Company 20 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Directors and Executive Officers Directors (As of June 29, 2016) Executive Officers (As of April 1, 2016) Kenichiro Yamanishi ......... Chairman Masaki Sakuyama Hiroki Yoshimatsu ............. Chairman of the Audit Committee President & CEO: Masaki Sakuyama Nobuyuki Okuma .............. Member of the Nomination Committee, Executive Vice Presidents: Chairman of the Compensation Committee Akihiro Matsuyama ........... Member of the Compensation Committee Masayuki Ichige ....................Member of the Audit Committee Hideyuki Okubo ................... In charge of Export Control and Total Productivity Management & Environmental Programs Yutaka Ohashi Mitoji Yabunaka ................ Member of the Nomination Committee, Yutaka Ohashi ....................... In charge of Corporate Strategic Planning and Operations of Associated Companies Member of the Compensation Committee, Advisor, Nomura Research Institute, Ltd. Senior Vice Presidents: Hiroshi Obayashi ............... Chairman of the Nomination Committee, Member of the Audit Committee, Attorney-at-Law Kazunori Watanabe .......... Member of the Audit Committee, Isao Iguchi ..............................In charge of Automotive Equipment Nobuyuki Okuma ................. In charge of Auditing, General Affairs, Human Resources and Legal Affairs & Compliance Member of the Compensation Committee, Certified Public Accountant, Registered Tax Accountant Akihiro Matsuyama .............In charge of Accounting and Finance Kenji Kondo ...........................In charge of IT and Research & Development Katsunori Nagayasu ............ Member of the Nomination Committee, Takeshi Sugiyama ................. In charge of Living Environment & Member of the Audit Committee, Senior Advisor, The Bank of Tokyo-Mitsubishi UFJ, Ltd. Hiroko Koide ......................... Member of the Nomination Committee, Member of the Compensation Committee, Senior Vice President, Global Marketing, Newell Brands Inc. Digital Media Equipment Executive Officers: Takashi Sakamoto ............. In charge of Purchasing Takahiro Kikuchi ................ In charge of Public Utility Systems Nobuyuki Abe .................... In charge of Building Systems Katsuya Takamiya .............. In charge of Global Strategic Planning & Representative Executive Officers (As of April 1, 2016) Marketing Masaki Sakuyama Hideyuki Okubo Yutaka Ohashi Nobushi Morooka ............. In charge of Government & External Relations, Public Relations and Export Control 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 Takashi Nishimura ............. In charge of Communication Systems Shinya Fushimi ................... In charge of Information Systems & Network Service Kei Uruma .......................... In charge of Factory Automation Systems Hisashi Kato ...........................In charge of Intellectual Property Minoru Hagiwara ................. In charge of Advertising and Domestic Marketing Masamitsu Okamura ...........In charge of Electronic Systems MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 21 Organization (As of April 1, 2016) 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 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) Corporate Purchasing Div. (cid:31) Energy & Industrial Systems Group (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) 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. Olympic and Paralympic Promotion 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. Design Systems Engineering Center Manufacturing Engineering Center Component Production 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 Business Development & Strategic Planning Div. Transmission & Distribution Systems Marketing Div. Power & Energy Systems Marketing Div. Nuclear Energy, Advanced Magnetic & Medical Systems 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. 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. Overseas Air-Conditioning & Refrigeration Systems Div. Lighting, Ventilation, Home Equipment and Photovoltaic 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 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 22 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Major Subsidiaries and Affiliates (As of March 31, 2016) Manufacturing Sales/Installation/Services Comprehensive Sales Companies Energy and Electric Systems Toyo Electric Corporation Mitsubishi Electric Building Techno-Service Co., Ltd. Mitsubishi Electric Power Products, Inc. Mitsubishi Electric Plant Engineering Corporation Mitsubishi Electric Shanghai Electric Elevator Co., Ltd. Mitsubishi Electric Control Software Corporation Mitsubishi Elevator Asia Co., Ltd. Mitsubishi Elevator Korea Co., Ltd. Ryoden Elevator Construction, Ltd. Ryoko Co., Ltd. Taiwan Mitsubishi Elevator Co., Ltd. RYO-SA BUILWARE Co., Ltd. Toshiba Mitsubishi-Electric Industrial Systems Corporation Mitsubishi Hitachi Home Elevator Corporation Shanghai Mitsubishi Elevator Co., Ltd. Zhuzhou Shiling Transportation Equipment Company Limited Mitsubishi Elevator Hong Kong Co., Ltd. Mitsubishi Electric Saudi Ltd. Hitachi Mitsubishi Hydro Corporation ETA-Melco Elevator Co. L.L.C. Industrial Automation Systems DB Seiko Co., Ltd. Ryowa Corporation Mitsubishi Electric Automotive America, Inc. Setsuyo Astec Corporation Mitsubishi Electric Thai Auto-Parts Co., Ltd. Ryoden Koki Engineering Co., Ltd. Mitsubishi Electric Automotive (China) Co., Ltd. Meldas System Engineering Corporation Mitsubishi Electric Automation, Inc. Mitsubishi Electric Mechatronics Software Corporation Mitsubishi Electric Dalian Industrial Products Co., Ltd. Mitsubishi Electric Automation (Hong Kong) Ltd. Mitsubishi Electric Automotive Czech s.r.o. Mitsubishi Electric Automation Korea Co., Ltd. Chiyoda Mitsubishi Electric Co., Ltd. and other regional comprehensive sales companies (9 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 (H.K.) Ltd. Mitsubishi Electric Australia Pty. Ltd. Ryoden Trading Co., Ltd. Kanaden Corporation Mansei Corporation Information and Communication Systems Electronic Devices Home Appliances Others Shizuki Electric Co., Inc. Nippon Injector Corporation Shihlin Electric & Engineering Corporation Mitsubishi Electric TOKKI Systems Corporation Mitsubishi Electric Information Systems Corporation Mitsubishi Precision Co., Ltd. SPC Electronics Corporation Seiryo Electric Co., Ltd. Oi Electric Co., Ltd. Miyoshi Electronics Corporation Mitsubishi Electric Information Network Corporation Mitsubishi Space Software Co., Ltd. Mitsubishi Electric Micro-Computer Application Software Co., Ltd. Itec Hankyu Hanshin Co., Ltd. Melco Power Device Corporation Melco Semiconductor Engineering Corporation Melco Display Technology Inc. Vincotech Holdings S.à r.l. Powerex, Inc. 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. MELCO Hydronics & IT Cooling S. p. A. 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. Mitsubishi Electric Life Service Corporation The Kodensha Co., Ltd. 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. 3. The name of Ryoden Koki Engineering Co., Ltd. was changed to Mitsubishi Electric Mechatronics Engineering Corporation on April 1, 2016. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 23 24 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Financial Section Contents 26 Five-Year Summary 27 Financial Review 36 Consolidated Balance Sheets 38 Consolidated Statements of Income 38 Consolidated Statements of Comprehensive Income 39 Consolidated Statements of Equity 40 Consolidated Statements of Cash Flows 41 Notes to Consolidated Financial Statements 74 Independent Auditors’ Report MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 25 Five-Year Summary Mitsubishi Electric Corporation and Subsidiaries Years ended March 31 2016 2015 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2016 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 ¥4,394,353 ¥4,323,041 ¥4,054,359 ¥3,567,184 ¥3,639,468 $38,888,080 3,071,435 3,032,161 2,914,589 2,604,360 2,628,964 27,180,842 1,013,264 970,191 900,807 806,412 781,278 8,966,938 8,482 3,085 3,791 4,317 3,782 4,093,181 301,172 318,476 4,005,437 317,604 322,968 3,819,187 235,172 248,990 3,415,089 152,095 65,141 3,414,024 225,444 224,080 75,062 36,222,841 2,665,239 2,818,372 to Mitsubishi Electric Corp. ¥ 228,494 ¥ 234,694 ¥ 153,473 ¥ 69,517 ¥ 112,063 $ 2,022,071 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 5.20 12.41 5.63 45.29 5.43 13.94 6.12 45.38 3.79 10.87 4.37 42.19 1.95 5.72 2.04 38.12 3.08 10.27 3.33 33.39 — — — — ¥ 106.43 — ¥ 109.32 — ¥ 71.49 — ¥ 32.38 — ¥ 52.20 — $ 0.942 — ¥ 27 ¥ 27 ¥ 17 ¥ 11 ¥ 12 $ 0.239 ¥2,551,863 1,507,943 1,043,920 ¥2,633,445 1,612,582 1,020,863 ¥2,290,007 1,494,243 795,764 ¥2,129,395 1,386,067 743,328 ¥2,180,362 1,387,744 792,618 $22,582,858 13,344,628 9,238,230 1,838,773 1,842,203 1,524,322 1,300,070 1,132,465 16,272,327 57,963 4,059,941 182,251 202,922 ¥ 145,249 42,936 4,059,451 199,758 195,314 ¥ 156,205 25,762 3,612,966 151,840 178,945 ¥ 132,956 23,616 3,410,410 150,425 172,222 ¥ 127,942 27,910 3,391,651 159,346 169,686 ¥ 127,244 512,947 35,928,681 1,612,841 1,795,770 $ 1,285,389 (at the end of the year) 135,160 129,249 124,305 120,958 117,314 — 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 ¥113=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2016. 5. The Company has 218 consolidated subsidiaries and 38 equity-method companies as of March 31, 2016. 6. Diluted net income per share attributable to Mitsubishi Electric Corp. is not included in the above table as no dilutive securities existed. 26 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Financial Review OVERVIEW The business environment in the fiscal year ended March 31, 2016 (hereinafter, fiscal 2016) experienced buoyancy in the U.S. economy, which showed expansion, and a gradual trend of economic recovery continuing in Europe, despite a gradual slow- down continuing in China and other east Asian markets, weakness in personal consumption in Japan and stagnation in certain emerging markets. In addition, the yen weakened against the U.S. dollar compared to the previous year, while becoming stron- ger in the fourth quarter. Under these circumstances, the Mitsubishi Electric Group has been working even harder than before to promote growth strategies rooted in its advantages, while continuously implementing initiatives to strengthen its competitiveness and business structure. As a result, in fiscal 2016, the Mitsubishi Electric Group recorded net sales of 4,394.3 billion yen and operating income of 301.1 billion yen. Income before income taxes came to 318.4 billion yen. Net income attributable to Mitsubishi Electric Corporation was 228.4 billion yen for the fiscal year. Net Sales The Mitsubishi Electric Group recorded increases in sales in the following segments: Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems and Home Appliances. In the fiscal year, consolidated net sales climbed by ¥71.3 billion year on year to ¥4,394.3 billion. Cost of Sales, Expenses and Operating Income The cost of sales increased by ¥39.2 billion compared with the previous fiscal year to ¥3,071.4 billion, representing 69.9% of total net sales, an improvement of 0.2 of a percentage point. Selling, general and administrative (SG&A) expenses together with research and development (R&D) expenses totaled ¥1,013.2 billion, up ¥43.0 billion year on year. As a result, the ratio of SG&A and R&D expenses to net sales deteriorated by 0.5 of a percentage point year on year to 23.0%. Loss on impairment of long- lived assets increased by ¥5.3 billion year on year to ¥8.4 billion. Accounting for the aforementioned factors, operating income amounted to ¥301.1 billion, a decrease of ¥16.4 billion com- pared with the previous fiscal year. This decrease was primarily attributable to decreases in income in Energy and Electric Systems, Information and Communications Systems and Electronic Devices business segments. Non-Operating Income and Expenses Financial income, the sum of interest and dividend income less interest expenses, amounted to ¥5.0 billion, an improvement of ¥1.7 billion compared with the previous fiscal year. Equity in earnings of affiliated companies totaled ¥29.4 billion, an improve- ment of ¥1.7 billion compared with the previous fiscal year. Other income decreased by ¥20.7 billion to ¥22.5 billion year on year. Other expenses decreased by ¥29.2 billion year on year to ¥39.7 billion. Income before Income Taxes Income before income taxes decreased by ¥4.4 billion compared with the previous fiscal year to ¥318.4 billion, for a ratio to net sales of 7.2%. This is largely attributable to the aforementioned decrease in operating income of ¥16.4 billion, which offset upswing in the balance of non-operating income totaling ¥11.9 billion. Net Income Attributable to Mitsubishi Electric Corp. Net income attributable to Mitsubishi Electric Corp. decreased by ¥6.2 billion year on year to ¥228.4 billion (a ratio to net sales of 5.2%) largely on the back of the decrease in income before income taxes. Net sales / Operating income Net income attributable to Mitsubishi Electric Corp. / Basic net income per share attributable to Mitsubishi Electric Corp. (Yen in billions) 4,500 3,639 3,567 4,323 4,394 4,054 317 301 (Yen in billions) (Yen in billions) 400 300 200 100 0 234 228 109.32 106.43 153 71.49 250 200 150 100 50 0 112 52.20 69 32.38 (Yen) 200 150 100 50 0 225 235 152 3,000 1,500 0 12 13 14 15 16 12 13 14 15 16 (Years ended March 31) (Years ended March 31) Net sales (left) Operating income (right) Net income attributable to Mitsubishi Electric Corp. (left) Basic net income per share attributable to Mitsubishi Electric Corp. (right) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 27 Business Risks The Mitsubishi Electric Group (hereinafter “the Group”) is involved in development, manufacture and sales in a wide range of fields including Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices and Home Appliances, and these operations extend globally, not only inside Japan, but also in North America, Europe, Asia and other regions. While the statements herein are based on certain assumptions and premises that the Company trusts and considers to be reasonable under the circumstances on the date of announcement, actual operating results are subject to change due to any of the factors as contemplated hereunder and/or any additional factor unforeseeable as of the date of this announce- ment. Such factors materially affecting the expectations expressed herein shall include but are not limited to the following: (1) Important trends The 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 the Group’s sales of exported products and purchases of imported mate- rials that are denominated in U.S. dollars or euros, as well as its Asian production bases’ sales of exported products and pur- chases 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 material prices due to a worsening of material and component procurement conditions, may adversely affect the Group’s performance. (5) Fund raising An increase in interest rates, the yen interest rate in particular, would increase the Group’s interest expenses. (6) Significant patent matters Important patent filings, licensing, copyrights and patent-related disputes may adversely affect related businesses. (7) Environmental legislation or relevant issues The Group may incur losses or expenses owing to changes in environmental legislation or the occurrence of environmental issues. Such changes in legislation or the occurrence of environmental issues may also impact manufacturing and all corpo- rate activities of the Group. (8) Flaws or defects in products or services The Group may incur losses or expenses resulting out of flaws or defects in products or services, and the lowered reputation of the quality of all its products and services may affect the entire Group. (9) Litigation and other legal proceedings The Group’s operations may be affected by lawsuits or other legal proceedings against Mitsubishi Electric, its subsidiaries and/or equity-method affiliated companies. (10) Disruptive changes Disruptive changes in technology, development of products using new technology, timing of production and market intro- duction may adversely affect the Group’s performance. (11) Business restructuring The Group may record losses due to restructuring measures. (12) Information security The performance of the 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 Group’s operations, particularly manufacturing activities, may be affected by the occurrence of earthquakes, typhoons, tsunami, fires and other large-scale disasters. (14) Other significant factors The 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. 28 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 RESULTS BY BUSINESS SEGMENT Net Sales by Business Segment Years ended March 31 2016 2015 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2016 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations Consolidated total ¥1,264,604 1,321,937 ¥1,228,958 1,282,749 ¥1,180,093 1,098,796 ¥1,058,177 927,857 ¥1,027,115 978,380 $11,191,186 11,698,558 561,119 211,580 982,064 707,746 5,049,050 (654,697) ¥4,394,353 559,521 238,402 944,830 740,517 4,994,977 (671,936) ¥4,323,041 548,282 194,658 944,351 676,034 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 4,965,655 1,872,389 8,690,832 6,263,239 44,681,859 (5,793,779) $38,888,080 Operating Income (Loss) by Business Segment Years ended March 31 2016 2015 2014 2013 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Consolidated total ¥ 50,342 159,160 ¥ 72,448 145,982 ¥ 76,324 98,079 ¥ 85,140 60,592 14,999 16,870 63,856 23,620 328,847 (27,675) ¥301,172 18,934 30,163 54,296 23,742 345,565 (27,961) ¥317,604 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 Yen (millions) 2012 ¥ 84,920 101,192 21,312 3,585 22,358 20,348 253,715 (28,271) ¥225,444 U.S. dollars (thousands) 2016 $ 445,504 1,408,496 132,735 149,292 565,097 209,027 2,910,151 (244,912) $2,665,239 Energy and Electric Systems The social infrastructure systems business saw increases in both orders and sales Net sales and Operating income of Energy and Electric Systems compared to the previous fiscal year due to increases in the power systems busi- ness and the transportation systems business in Japan, despite decreases in the public utility systems business in Japan and the transportation systems business (Yen in billions) 1,500 outside Japan. The building systems business experienced an increase in orders, while sales 1,027 1,058 1,000 remained unchanged compared to the previous fiscal year, owing to growth in 84 85 the new installation of elevators and escalators outside Japan. As a result, total sales for this segment increased by 3% from the previous fiscal year to 1,264.6 billion yen. Operating income decreased by 22.1 billion yen from the previous fiscal year to 50.3 billion yen due primarily to a shift in project portfolios and lower profit in the social infrastructure systems business. 500 0 (Yen in billions) 1,180 1,228 1,264 76 72 50 12 13 14 15 16 (Years ended March 31) Net sales (left) Operating income (right) Industrial Automation Systems The factory automation systems business saw a decrease in orders from the pre- Net sales and Operating income of Industrial Automation Systems vious fiscal year mainly due to stagnant capital expenditures in China and other (Yen in billions) (Yen in billions) emerging markets, while sales remained unchanged from the previous fiscal year 1,500 due to growth in capital expenditures relating to the automotive industry and facility replacements by manufacturers in Japan, and due additionally to the weaker yen. The automotive equipment business saw increases in both orders and sales from the previous fiscal year due primarily to growth in the car sales market in North America and Europe, as well as the positive influence of the weaker yen. As a result, total sales for this segment increased by 3% from the previous fiscal year to 1,321.9 billion yen. Operating income increased by 13.1 billion yen 500 0 1,282 1,321 159 1,000 978 927 1,098 145 101 98 60 from the previous fiscal year to 159.1 billion yen due primarily to the increase in Net sales (left) Operating income (right) sales. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 29 12 13 14 15 16 (Years ended March 31) 200 150 100 50 0 200 150 100 50 0 Information and Communication Systems The telecommunications equipment business remained unchanged in both Net sales and Operating income of Information and Communication Systems orders and sales compared to the previous fiscal year. (Yen in billions) (Yen in billions) The information systems and service business saw an increase in sales com- pared to the previous fiscal year, mainly owing to an increase in the system inte- grations business. The electronic systems business saw an increase in orders compared to the previous fiscal year, due to an increase in orders for large-scale projects in the space business, while sales remained unchanged compared to the previous fiscal year due to a shift in the portfolios of large-scale projects in the defense systems business. As a result, total sales for this segment amounted to 561.1 billion yen, virtu- ally unchanged from the previous fiscal year. Operating income decreased by 3.9 billion yen from the previous fiscal year to 14.9 billion yen due primarily to a shift in project portfolios. Electronic Devices The electronic devices business saw decreases in both orders and sales from the previous fiscal year due to a decrease in demand mainly for power modules used in automotive, railcar, consumer and industrial applications, despite an increase in optical communication devices. As a result, total sales for this segment decreased by 11% compared with the previous fiscal year to 211.5 billion yen. Operating income decreased by 13.2 billion yen compared with the previous fiscal year to 16.8 billion yen due primari- ly to the decrease in sales. Home Appliances The home appliances business saw an increase in sales of 4% compared with the previous fiscal year to 982.0 billion yen, due to an increase in sales of residential and industrial air conditioners in Japan, as well as air conditioners for Europe, Asia and North America. The weaker yen also brought about a positive influence. Operating income increased by 9.5 billion yen compared with the previous fiscal year to 63.8 billion yen largely due to the increase in sales. 600 400 200 0 516 522 548 559 561 21 18 14 5 1 50 40 30 20 10 0 12 13 14 15 16 (Years ended March 31) Net sales (left) Operating income (right) Net sales and Operating income (loss) of Electronic Devices (Yen in billions) (Yen in billions) 250 200 150 100 50 0 -50 200 194 164 238 211 30 16 10 3 -5 50 40 30 20 10 0 -10 12 13 14 15 16 (Years ended March 31) Net sales (left) Operating income (loss) (right) Net sales and Operating income of Home Appliances (Yen in billions) 1,000 944 944 (Yen in billions) 982 100 849 821 63 52 54 750 500 250 0 22 19 75 50 25 0 12 13 14 15 16 (Years ended March 31) Net sales (left) Operating income (right) Others Sales decreased by 4% compared with the previous fiscal year to 707.7 billion Net sales and Operating income of Others (Yen in billions) (Yen in billions) yen due to decreases mainly at affiliated companies involved in materials 900 procurement. Operating income decreased by 0.1 billion yen from the previous fiscal year 611 590 600 740 707 676 to 23.6 billion yen due primarily to the decrease in sales. 20 18 19 23 23 300 0 50 40 30 20 10 0 12 13 14 15 16 (Years ended March 31) Net sales (left) Operating income (right) 30 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 RESULTS BY GEOGRAPHIC SEGMENT Net Sales by Geographic Segment Years ended March 31 2016 2015 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2016 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total ¥3,563,530 ¥ 3,578,960 388,021 446,935 1,047,758 1,054,563 383,965 387,628 49,495 50,260 (1,125,158) (1,108,563) ¥4,394,353 ¥ 4,323,041 ¥3,362,854 ¥3,064,014 ¥3,186,719 $31,535,664 325,224 887,022 352,950 47,824 (921,515) ¥4,054,359 248,105 624,724 289,933 40,255 (699,847) ¥3,567,184 222,543 582,888 309,997 40,184 (702,863) ¥3,639,468 3,955,177 9,332,416 3,430,336 444,779 (9,810,292) $38,888,080 Operating Income (Loss) by Geographic Segment Years ended March 31 2016 2015 2014 2013 Yen (millions) 2012 U.S. dollars (thousands) 2016 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total ¥173,383 9,421 91,006 14,806 904 11,652 ¥301,172 ¥226,199 ¥177,315 ¥116,923 ¥179,452 5,178 82,419 11,803 402 (8,397) ¥317,604 1,679 59,023 4,768 1,735 (9,348) ¥235,172 (1,744) 36,172 4,527 2,209 (5,992) ¥152,095 3,339 34,220 6,319 3,905 (1,791) ¥225,444 $1,534,363 83,372 805,363 131,026 8,000 103,115 $2,665,239 Japan Sales totaled 3,563.5 billion yen, virtually unchanged from the previous fiscal year. Operating income decreased by 52.8 billion yen to 173.3 billion yen. This largely reflected a shift in project portfolios and lower profit in the social infrastructure systems business. North America Sales increased by 15% year on year to 446.9 billion yen primarily due to higher sales in the power systems and automotive equipment businesses. Operating income increased by 4.2 billion yen to 9.4 billion yen. Asia (excluding Japan) Sales totaled 1,054.5 billion yen, up 1% compared with the previous fiscal year mainly because of higher sales in the automotive equipment and air conditioner businesses. Operating income increased by 8.5 billion yen to 91.0 billion yen. Europe Sales increased by 1% year on year to 387.6 billion yen mainly because of higher sales in the automotive equipment and air con- ditioner businesses. Operating income increased by 3.0 billion yen to 14.8 billion yen. Others Sales in other regions, including figures for Mitsubishi Electric’s Australian subsidiary, amounted to 50.2 billion yen, while operat- ing income was 0.9 billion yen. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 31 RESEARCH AND DEVELOPMENT R&D Expenditures Years ended March 31 2016 2015 2014 2013 Yen (billions) 2012 U.S. dollars (millions) 2016 Energy and Electric Systems ¥ 33.7 ¥ 31.4 ¥ 28.8 ¥ 29.8 ¥ 30.5 $ 298.2 Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Consolidated total 70.8 18.9 10.6 39.8 28.7 70.5 16.3 10.9 37.3 28.6 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 28.2 626.5 167.3 93.8 352.2 254.0 ¥202.9 ¥195.3 ¥178.9 ¥172.2 ¥169.6 $1,795.8 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 2016, total R&D expenditures, including quality improvement expenses constituting manufacturing costs, amounted to ¥202.9 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; and elevators and escalators. Other R&D areas include IT-application systems for supervision and control, power information systems, building management systems and visual informa- tion systems. Notable among Mitsubishi Electric’s recent R&D achievements are the Mitsubishi Infrastructure Monitoring System for Diagnosis (MMSD) designed to maintain social infrastructure; a compact and upgraded version of the Station Energy Saving Inverter (S-EIV); a water-cooling propulsion and control system for high-speed train; reduction in size and weight of gas-insulated switchgear for overseas markets; high-capacity energy-storage system; upgrading of the MELSAFETY-Pχ access control system for use in small to medium-sized buildings; and enhancing competitiveness of the NEXIEZ-MR, standard passenger elevator for overseas customers. R&D expenditures in this segment totaled ¥33.7 billion. In the Industrial Automation Systems segment, R&D activities are aimed at enhancing the competitiveness of our lineup, which includes FA control equipment and systems; drive products such as AC servo motor systems; power distribution and con- trol equipment; mechatronics equipment; industrial robots; automotive electric and electronic components, including electric power steering (EPS) and related products; car multimedia systems; and automated driving and driving assistance systems. Mitsubishi Electric’s important R&D successes encompass the ML3015eX-F40 2-Dimensional fiber laser processing systems, the ML3015SR-32XP CO2 2-Dimensional laser processing systems; MELSEC iQ-R series programmable controllers (safety); GTW4- UVF20 series laser drilling systems; the EA12PS die sinking electrical discharge machine; the DIATONE SOUND. NAVI NR-MZ100 Series car audio-navigation sys- R&D expenditures / R&D expenditures ratio tem; EP-E216SBG/SB in-vehicle DSRC unit (ETC 2.0); and the EMIRAI3 xAUTO and EMIRAI3 xDAS concept cars exhibited at the Tokyo Motor Show 2015. R&D expenditures in this segment totaled ¥70.8 billion. In the Information and Communication Systems segment, Mitsubishi Electric pursues research related to the development of information and communications infrastructure, network solutions equipment, and space systems. Notable R&D successes for Mitsubishi Electric include road inspection vehicle utilizing Mobile Mapping System (MMS) with high density laser and line cameras, real time visu- alization of laser point clouds obtained by MMS; new products of versatile, high- quality video surveillance system; video content analysis; 100Gbps, 88-channel, 8-degree optical cross connect systems; an active phased array antenna for 5G; an optical network unit with a built-in Wi-Fi; a 150MHz band digital train radio (Yen in billions) 169 4.7 195 202 172 178 4.4 4.5 4.6 4.8 250 200 150 100 50 0 (%) 10.0 7.5 5.0 2.5 0 12 13 14 15 16 (Years ended March 31) R&D expenditures (left) R&D expenditures / Net sales (right) 32 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 system; the DIAPLANET TOWNEMS cloud services for town energy management systems; the CloudMinder hybrid cloud service; an advanced persistent threat detection service; and the Package Plus Transporter service for the secure transmission of confiden- tial data files. R&D expenditures in this segment totaled ¥18.9 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 power semiconductor modules with 7th gener- ation IGBT; a high-speed transmission laser diode modules for optical-fiber communication in 100Gbps Systems; a silicon RF MOSFET-RD70HUP2; and a color TFT-LCD module, which boasts super-wide viewing angles for industrial use. R&D expenditures in this segment totaled ¥10.6 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 housing products and photovoltaic systems. Major R&D achievements include the KIRIGAMINE FZ series room air conditioners incorporat- ing two independent-driven fans; the SLIM series package air conditioners for store and office use; the WX and JX series refrig- erators with Supercool chilling compartment; the Hon-Sumigama KAMADO IH jar rice cooker; and the COMPACT CUBE DT-R air-cooling heat pump chiller for building and factory use. R&D expenditures in this segment totaled ¥39.8 billion. In the area of cutting-edge R&D, Mitsubishi Electric is developing cutting-edge technologies aimed at enriching society well into the future, and to this end, has identified four target categories: the Internet of Things, Smart Mobility, Comfortable Space, and Infrastructure for Safety and Relief. Major R&D achievements include machine-learning technology to detect cognitive dis- tractions in drivers; string-searchable encryption software to support partial-match searching of encrypted data; collision-avoid- ance technology for advanced driver-assistance system; road-illuminating directional indicators to help avoid accidents; a high-precision air-quality sensor for PM2.5; an Aerial Display that projects large images midair; cyber attack detection technology; and the SeaAerial antenna using seawater plume. With regard to fundamental R&D that benefits the entire Group, our achieve- ments included manufacturing technology for virtual validation; a high-efficiency DC fan motor for package air conditioners; and an automated painting technology for designed model of room air conditioners. R&D expenditures in this area totaled ¥28.7 billion. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 33 FINANCIAL POSITION Total assets amounted to ¥4,059.9 billion as of March 31, 2016, an increase of Interest-bearing debt / Debt ratio (Yen in billions) 542 540 16.0 15.9 381 9.4 404 10.0 373 10.3 600 450 300 150 0 (%) 20 15 10 5 0 12 13 14 15 16 (Years ended March 31) Interest-bearing debt (left) Interest-bearing debt/Total assets (right) Total assets / Mitsubishi Electric Corp. shareholders’ equity / Shareholders’ equity ratio (Yen in billions) 4,059 4,059 3,612 42.2 45.4 45.3 3,391 3,410 38.1 33.4 1,842 1,838 1,300 1,132 1,524 4,000 3,200 2,400 1,600 800 0 (%) 50 40 30 20 10 0 12 13 14 15 16 (Years ended March 31) Total assets (left) Mitsubishi Electric Corp. shareholders’ equity (left) Shareholders’ equity ratio (right) ¥0.4 billion compared with the end of the previous fiscal year. Negative factors contributing to this result included decreases of ¥65.0 billion in investments in securities and other due to lower share prices and ¥61.2 billion in inventories while positive factors included an increase of ¥135.0 billion in other assets due to the acquisition of MELCO Hydronics & IT Cooling S.p.A. Under liabilities, the outstanding balance of debt and corporate bonds grew by ¥22.0 billion compared with the end of the previous fiscal year to ¥404.0 bil- lion. As a result, the ratio of interest-bearing debt to total assets was 10.0%, an increase of 0.6 of a percentage point year on year. While retirement and sever- ance benefits rose by ¥47.4 billion largely because of a decrease in pension plan assets caused by lower share prices, trade payables, other non-current liabilities and other current liabilities decreased by ¥33.5 billion, ¥19.5 billion, and ¥17.5 billion, respectively. As a result of these and other factors, total liabilities decreased by ¥6.8 billion to ¥2,122.4 billion. Mitsubishi Electric Corp. shareholders’ equity fell by ¥3.4 billion compared with the end of the previous fiscal year to ¥1,838.7 billion and the ratio of Mitsubishi Electric Corp. shareholders’ equity to total assets was 45.3%, down 0.1 of a percentage point year on year. Despite the posting of net income attrib- utable to Mitsubishi Electric Corp. amounting ¥228.4 billion for the fiscal year, a decrease attributable to the payment of cash dividends totaling ¥57.9 billion and a decrease in accumulated other comprehensive income of ¥174.7 billion due to lower share prices from the end of the previous fiscal year until March 31, 2016, as well as the appreciation of the yen, led to the overall fall in shareholders’ equity. 34 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 CAPITAL EXPENDITURES In line with its policy of improving performance by implementing the Balanced Corporate Management Policy and pursuing sustainable growth, the Mitsubishi Capital expenditures / Depreciation Electric Group aims to realize its growth strategies as it increases profitability. To (Yen in billions) 199 177 156 145 159 150 151 127 127 132 200 150 100 50 0 12 13 14 15 16 (Years ended March 31) Capital expenditures Depreciation that end, the Group directed its capital investment mainly toward the areas of energy and electric systems, factory automation equipment, automotive equip- ment, power devices, and air conditioning equipment. At the same time the Group continued 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, stream- lining operations, and enhancing quality. In Industrial Automation, capital expen- ditures were used primarily for boosting production capacity for factory automation systems and automotive equipment operations. In Information and Communication Systems, funds 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 condi- tioners 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 opera- tions. 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, 2016, net cash provided by operating activities amounted to ¥366.6 billion, while net cash used in investing activities was ¥255.4 billion. As a result, free cash flow was an inflow of ¥111.2 billion, down ¥68.9 billion compared with the previous fiscal year. Taking this into account along with other factors, including net cash used in financing activities of ¥82.1 billion, the end of fiscal year cash and cash equivalents amounted to ¥574.1 bil- Cash flows (Yen in billions) 500 250 440 310 378 366 lion, an increase of ¥5.6 billion year on year. Net cash provided by operating activities decreased by ¥11.6 billion com- pared with the previous fiscal year. Despite a decrease in inventories, this down- turn was largely attributable to decreases in trade payables, accrued expenses and retirement and severance benefits. Net cash used in investing activities increased by ¥57.2 billion year on year, due mainly to the acquisition of shares of MELCO Hydronics & IT Cooling S.p.A. (net of cash acquired). Net cash used in financing activities increased by ¥32.5 billion year on year, due mainly to the acquisition of non-controlling equity in MELCO Hydronics & IT Cooling S.p.A. and an increase in the payment of cash dividends. 75 82 180 111 0 -80 -250 -70 -156 -153 -130 -198 12 13 14 15 Net cash provided by operating activities Net cash used in investing activities Free cash flows -255 16 (Years ended March 31) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 35 Consolidated Balance Sheets Mitsubishi Electric Corporation and Subsidiaries March 31, 2016 and 2015 Assets Current assets: Cash and cash equivalents Trade receivables (notes 4, 6 and 16) Inventories (note 5) Prepaid expenses and other current assets (notes 10, 15 and 19) 2016 Yen (millions) 2015 U.S. dollars (thousands) (note 2) 2016 ¥ 574,170 ¥ 568,517 $ 5,081,150 1,035,168 1,048,542 644,127 298,398 705,420 310,966 9,160,779 5,700,239 2,640,690 Total current assets 2,551,863 2,633,445 22,582,858 Long-term receivables and investments: Long-term trade receivables (note 18) Investments in securities and other (notes 3, 11, 15, 18 and 19) Investments in affiliated companies (note 6) Total long-term receivables and investments 4,661 336,328 201,378 542,367 5,633 401,367 194,461 601,461 41,248 2,976,354 1,782,106 4,799,708 Property, plant and equipment (notes 19, 20 and 21): Land Buildings Machinery and equipment Construction in progress Less accumulated depreciation Net property, plant and equipment 113,564 777,792 109,708 749,926 1,004,991 6,883,116 1,843,309 1,844,255 16,312,469 47,772 48,328 2,782,437 2,752,217 2,069,838 2,045,742 712,599 706,475 422,760 24,623,336 18,317,150 6,306,186 Other assets (notes 8, 10, 19, 20 and 22) 253,112 118,070 2,239,929 Total assets ¥4,059,941 ¥4,059,451 $35,928,681 See accompanying notes to consolidated financial statements. 36 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Liabilities and Equity Current liabilities: Bank loans (note 7) Current portion of long-term debt (notes 7, 18 and 21) Trade payables (notes 6 and 9) Accrued expenses (note 17) Accrued income taxes (note 10) Other current liabilities (notes 11, 15 and 19) 2016 Yen (millions) 2015 U.S. dollars (thousands) (note 2) 2016 ¥ 61,873 ¥ 72,385 $ 547,549 54,659 773,714 359,089 22,962 235,646 92,017 807,289 358,082 29,624 253,185 483,708 6,847,027 3,177,778 203,204 2,085,362 Total current liabilities 1,507,943 1,612,582 13,344,628 Long-term debt (notes 7, 18 and 21) Retirement and severance benefits (note 11) Other liabilities (notes 10 and 17) 287,507 229,750 97,238 217,592 182,282 116,828 2,544,310 2,033,186 860,513 Total liabilities 2,122,438 2,129,284 18,782,637 Mitsubishi Electric Corp. shareholders' equity Common stock (note 12): Authorized 8,000,000,000 shares; issued 2,147,201,551 shares in 2016 and in 2015 Capital surplus (note 12) Legal reserve Retained earnings Accumulated other comprehensive income (loss) (notes 3, 10, 11, 13 and 15) Treasury stock, at cost 415,396 shares in 2016 and 385,990 shares in 2015 175,820 211,999 65,652 175,820 211,155 64,058 1,555,929 1,876,097 580,991 1,436,375 1,267,438 12,711,284 (50,699) 124,064 (448,664) (374) (332) (3,310) Total Mitsubishi Electric Corp. shareholders' equity 1,838,773 1,842,203 16,272,327 Noncontrolling interests (note 22) 98,730 87,964 873,717 Total equity 1,937,503 1,930,167 17,146,044 Commitments and contingent liabilities (note 17) Total liabilities and equity ¥4,059,941 ¥4,059,451 $35,928,681 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 37 Consolidated Statements of Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2016, 2015 and 2014 Revenues: Net sales (note 6) Interest and dividends (note 6) Equity in earnings of affiliated companies (note 6) Other (notes 3, 13, 15 and 20) Total revenues Costs and expenses: 2016 2015 Yen (millions) 2014 ¥4,394,353 8,573 29,433 22,570 4,454,929 ¥4,323,041 7,365 27,725 43,304 4,401,435 ¥4,054,359 7,799 23,153 24,554 4,109,865 Cost of sales (notes 11 and 21) Selling, general and administrative (notes 11, 20 and 21) Research and development Loss on impairment of long-lived assets (notes 19 and 20) Interest Other (notes 3, 13, 15, 16, 17 and 20) Total costs and expenses 3,071,435 826,232 187,032 8,482 3,495 39,777 4,136,453 3,032,161 790,563 179,628 3,085 4,023 69,007 4,078,467 2,914,589 737,042 163,765 3,791 4,539 37,149 3,860,875 U.S. dollars (thousands) (note 2) 2016 $38,888,080 75,867 260,469 199,735 39,424,151 27,180,842 7,311,788 1,655,150 75,062 30,929 352,008 36,605,779 Income before income taxes 318,476 322,968 248,990 2,818,372 Income taxes (note 10): Current Deferred Net income 52,691 24,355 77,046 60,183 14,730 74,913 34,241 51,957 86,198 466,292 215,531 681,823 241,430 248,055 162,792 2,136,549 Net income attributable to noncontrolling interests 12,936 13,361 9,319 114,478 Net income attributable to Mitsubishi Electric Corp. ¥ 228,494 ¥ 234,694 ¥ 153,473 $ 2,022,071 Net income per share attributable to Mitsubishi Electric Corp. (note 14): Basic Diluted See accompanying notes to consolidated financial statements. ¥106.43 — ¥109.32 — Yen ¥71.49 — U.S. dollars (note 2) $0.942 — Consolidated Statements of Comprehensive Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2016, 2015 and 2014 Net income 2016 ¥241,430 2015 ¥248,055 Yen (millions) 2014 ¥162,792 Other comprehensive income (loss), net of tax (note 13): Foreign currency translation adjustments Pension liability adjustments (note 11) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 15) Total Comprehensive income (70,881) (86,516) (25,498) (8) (182,903) 58,527 72,583 21,171 36,710 7 130,471 378,526 51,769 (6,756) 55,556 (80) 100,489 263,281 U.S. dollars (thousands) (note 2) 2016 $2,136,549 (627,266) (765,628) (225,646) (71) (1,618,611) 517,938 Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Mitsubishi Electric Corp. See accompanying notes to consolidated financial statements. 4,796 21,725 14,364 42,442 ¥ 53,731 ¥356,801 ¥248,917 $ 475,496 38 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Consolidated Statements of Equity Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2016, 2015 and 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 13): Foreign currency translation adjustments Pension liability adjustments (note 11) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 15) 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 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 13): Foreign currency translation adjustments Pension liability adjustments (note 11) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 15) 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, 2015 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 13): Foreign currency translation adjustments Pension liability adjustments (note 11) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 15) Transfer to legal reserve Acquisition of subsidiary 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, 2016 Balance at March 31, 2015 Comprehensive income (loss): Net income attributable to Mitsubishi Electric Corp. Net income attributable to noncontrolling interests Other comprehensive income (loss), net of tax (note 13): Foreign currency translation adjustments Pension liability adjustments (note 11) Unrealized gains (losses) on securities (note 3) Unrealized gains (losses) on derivative instruments (note 15) Transfer to legal reserve Acquisition of subsidiary 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, 2016 Common stock ¥175,820 Capital surplus ¥205,945 Legal reserve ¥61,406 Retained earnings ¥950,621 Accumulated other comprehensive income (loss) ¥(93,487) Total Mitsubishi Electric Corp. shareholders’ equity ¥(235) ¥1,300,070 Treasury stock Non- controlling interests ¥66,921 153,473 46,675 (6,756) 55,591 (66) 1,333 (1,333) 1,144 (25,762) ¥175,820 0 ¥207,089 ¥62,739 ¥1,076,999 ¥1,957 234,694 64,307 21,171 36,616 13 1,319 (1,319) 4,066 (42,936) ¥175,820 0 ¥211,155 ¥64,058 ¥1,267,438 ¥124,064 153,473 46,675 (6,756) 55,591 (66) 248,917 - 1,144 (25,762) (48) 1 ¥(282) ¥1,524,322 (48) 1 234,694 64,307 21,171 36,616 13 356,801 - 4,066 (42,936) (50) 0 ¥(332) ¥1,842,203 (50) 0 228,494 228,494 (63,112) (86,123) (25,510) (18) (63,112) (86,123) (25,510) (18) 53,731 - - 844 1,594 (1,594) 844 (57,963) Yen (millions) Total equity ¥1,366,991 153,473 9,319 51,769 (6,756) 55,556 (80) 263,281 - (4,112) (25,762) (48) 1 ¥1,600,351 234,694 13,361 72,583 21,171 36,710 7 378,526 - (5,724) (42,936) (50) 0 ¥1,930,167 228,494 12,936 (70,881) (86,516) (25,498) (8) 58,527 - 33,439 (26,625) 9,319 5,094 (35) (14) 14,364 (5,256) ¥76,029 13,361 8,276 94 (6) 21,725 (9,790) ¥87,964 12,936 (7,769) (393) 12 10 4,796 33,439 (27,469) ¥175,820 0 ¥211,999 ¥65,652 ¥1,436,375 ¥(50,699) Accumulated other comprehensive Legal income (loss) reserve $1,555,929 $1,868,628 $566,885 $11,216,266 $1,097,911 Common stock Retained earnings Capital surplus (57,963) (43) 1 ¥(374) ¥1,838,773 (43) 1 ¥98,730 (57,963) (43) 1 ¥1,937,503 U.S. dollars (thousands) (note 2) Total Mitsubishi Electric Corp. shareholders’ equity Non- controlling interests Treasury stock Total equity $(2,938) $16,302,681 $778,442 $17,081,123 2,022,071 (558,514) (762,150) (225,752) (159) 14,106 (14,106) 7,469 (512,947) 0 $1,555,929 $1,876,097 $580,991 $12,711,284 $(448,664) 2,022,071 114,478 2,022,071 114,478 (558,514) (762,150) (225,752) (68,752) (3,478) 106 (159) 475,496 - - 7,469 88 42,442 295,920 (243,087) (627,266) (765,628) (225,646) (71) 517,938 - 295,920 (235,618) (512,947) (381) 9 $(3,310) $16,272,327 $873,717 $17,146,044 (512,947) (381) 9 (381) 9 See accompanying notes to consolidated financial statements. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 39 Consolidated Statements of Cash Flows Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2016, 2015 and 2014 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 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 (net of cash acquired) Purchase of shares of MELCO Hydronics & IT Cooling S.p.A. (net of cash acquired) 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 Purchase of MELCO Hydronics & IT Cooling S.p.A.'s noncontrolling interests Other, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase 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. 40 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 2016 2015 Yen (millions) 2014 U.S. dollars (thousands) (note 2) 2016 ¥241,430 ¥248,055 ¥162,792 $2,136,549 145,249 156,205 132,956 1,285,389 5,766 2,751 3,627 51,026 2,159 24,355 (1,511) 1,110 (29,433) 1,583 39,220 7,612 (21,754) (53,706) (39,104) 43,701 366,677 (1,950) 14,730 (383) 1,148 (27,725) (42,044) (75,829) (6,966) 47,948 (18,772) 60,595 20,550 378,313 67 51,957 1,108 607 (23,153) 14,812 18,141 (12,580) 83,179 (10,756) 21,494 (3,764) 440,487 19,106 215,531 (13,372) 9,823 (260,469) 14,009 347,080 67,363 (192,513) (475,274) (346,053) 386,734 3,244,929 (182,251) 2,400 (199,758) 6,768 (151,840) 4,930 (1,612,841) 21,239 (13,285) (5,608) (21,312) (117,566) (50,587) — — (447,673) 8,511 (854) (19,377) (255,443) 110,108 (93,163) (13,912) (57,963) (43) 1 (21,825) (5,347) 10,722 24 (10,311) (198,163) 90,598 (103,497) 11,392 (42,936) (50) 0 — (5,130) 44,134 1,882 (8,015) (130,221) 193 (105,445) (73,266) (25,762) (48) 1 — (4,694) 75,319 (7,558) (171,478) (2,260,558) 974,408 (824,451) (123,115) (512,947) (381) 9 (193,142) (47,319) (82,144) (49,623) (209,021) (726,938) (23,437) 5,653 568,517 ¥574,170 19,941 150,468 418,049 ¥568,517 17,923 119,168 298,881 ¥418,049 (207,407) 50,026 5,031,124 $5,081,150 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- through means other than voting rights and whether it should consolidate the entity as the primary beneficiary when the tional organization which develops, manufactures, sells and Company has a controlling financial interest. distributes a broad range of electrical and electronic equip- ments in the fields as diverse as home appliances and space electronics. The Company and its subsidiaries’ principal lines of busi- ness 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, 2016 are as follows: Energy and Electric Systems – 25%, Industrial Automation Systems – 26%, Information and Communication Systems – 11%, Electronic Devices – 4%, Home Appliances – 20% and Others – 14%. Majority of the operations of the Company and its sub- sidiaries is mainly conducted in Japan. Net sales for the year ended March 31, 2016 comprises of the following geographi- cal locations: Japan – 57%, North America – 10%, Asia (excluding Japan) – 22%, Europe – 9% and Others – 2%. Our manufacturing operations are conducted principally (d) Use of Estimates The Company makes estimates and assumptions to prepare the consolidated financial statements in conformity with gen- erally accepted accounting principles, and those estimates and assumptions affect the reported amounts of assets and liabili- ties as well as the disclosed amounts of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such esti- mates and assumptions include valuation allowances for receivables, inventories and deferred tax assets; the carrying amount of property, plant and equipment; goodwill and other intangible assets; 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. at the Parent company with 23 manufacturing sites located in Japan as well as overseas manufacturing sites located in the (f) Short-Term Investments and Investment Securities The Company classifies investments in debt and equity securi- United States, United Kingdom, Thailand, Malaysia, China and ties into trading, available-for-sale, or held-to-maturity other countries. securities. (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 indirectly 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 ability 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. The Company evaluates Variable Interest Entities (VIEs) whether it has a controlling financial interest in an entity 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. Marketable trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized hold- ing gains and losses, net of the related tax effect, on avail- able-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 securities are determined on the average cost of the particular security 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 acquisition cost for the security. To determine whether an impairment of equity security is other-than-temporary, the Company considers whether it has the ability and intent to hold the security until a market price MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 41 recovery and considers whether evidence indicating the mar- assets and liabilities and their respective tax basis, operating ket price of the security is recoverable to the carrying amount loss and tax credit carryforwards. Deferred tax assets and lia- outweighs the counter evidence. Evidence considered in this bilities are measured using enacted tax rates expected to assessment includes the reasons for the impairment, the apply to taxable income in the years in which the temporary severity and duration of the impairment, changes in value differences are expected to be recovered or settled. The effect subsequent to year-end, and forecasted performance of the on deferred tax assets and liabilities of a change in tax rates is investee. recognized in income in the period that includes the enact- To determine whether an impairment of debt security is ment date. other-than-temporary, the Company considers whether it has Valuation allowances are established to reduce deferred the intent to sell the debt security and it is more likely than tax assets to their net realizable value if it is more likely than not that the Company is required to sell until a market price not that some portion or all of the deferred tax asset will not of the investment is recoverable to the amortized cost. be realized. Other investments are stated at cost. The Company rec- The Company recognizes the financial statement effects ognizes a loss when there is other-than-temporary decline in of unrecognized tax benefits only if those positions are more value of other investments, using the same policy as described likely than not of being sustained. above for available-for-sale security impairments. (g) Allowance for Doubtful Receivables The Company records an allowance for doubtful receivables (l) Product Warranties The Company generally offers warranties on its products against certain manufacturing and other defects for the spe- based on credit loss history and evaluation of specific doubtful cific periods of time and/or usage of the product depending receivables. (h) Inventories In work-in-process, the Company records the ordered prod- ucts at the acquisition cost and the regular purchased prod- 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. ucts at the average production costs. Those products are recorded at the lower of cost or market. Net costs in excess of (m) Retirement and Severance Benefits The Company recognizes the funded status (i.e., the differ- billings on long-term contracts are included in inventories. ence between the fair value of plan assets and the projected Raw material and finished product inventories are generally benefit obligations) of its pension plans in the consolidated recorded using the average-cost method, and evaluated at the balance sheet at the end of the year, and records the corre- lower of cost or market. In accordance with the general prac- sponding amount to accumulated other comprehensive tice in the heavy electrical industry, inventories related to income (loss), net of tax. The adjustment items for accumulat- Energy and Electric Systems include items with long manufac- ed other comprehensive income (loss) are unrecognized prior turing periods which are not realizable within one year. service cost and unrecognized net gain or loss. The amounts (i) Property, Plant and Equipment The Company records property, plant and equipment at cost. Depreciation of property, plant and equipment is generally cal- culated by the declining-balance method, except for certain assets which are depreciated by the straight-line method, over of these adjustments are recognized as net periodic pension cost in future years. (n) Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement including title transfer exists, delivery has the estimated useful life of the assets according to general occurred, the sales price is fixed or determinable, and collect- class, type of construction, and use of these assets. ability is probable. These criteria are met for mass-merchandis- The estimated useful life of buildings is 3 to 50 years, ing products such as consumer products and semiconductors while machinery and equipment is 2 to 20 years. at the time when the product is received by the customer, and (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 depreciation of the leased assets is calculated in accordance with the Company’s normal depreciation policy. (k) Income Taxes The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing 42 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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 by the customer. Revenue from maintenance agreements is rec- ognized over the contract term when the maintenance is pro- vided and the cost is incurred. Also, the Company applies the percentage of completion method for long-term construction contracts. The Company measures the percentage of comple- tion by comparing expenses recognized through the current year to the aggregate amount of estimated cost. Any antici- a component of other comprehensive income (loss) until the pated losses on fixed price contracts are charged to opera- hedged item is recognized in earnings. The ineffective portion tions when such losses can be estimated. Provisions are made of all hedges is recognized in earnings immediately. for contingencies in the period when they become known The Company discloses the use and purpose of derivative pursuant to specific contract terms and conditions and are instruments, accounting for derivative instruments and related estimable. hedged items. The Company also discloses the effects on the For the contract which may consist of any combination of entity’s financial position, results of operations, and cash flows products, equipment, installation and maintenance, revenue is by the derivative instruments and hedging activities. allocated to each accounting unit based on its relative fair value, when each deliverable is accounted for by each sepa- rate accounting unit. (o) Research and Development and Advertising The Company accounts for the costs of research and develop- (t) Securitizations The Company accounts for the securitization of the accounts receivables as a sale, if it is determined based on the Company’s evaluation that it has surrendered control over the transferred receivables. ment and advertising as expense when those costs are Accordingly, the receivables sold under these facilities are incurred. (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. by dividing net income attrib- utable 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 consolidated subsidiaries are translated into Japanese yen at the prevailing 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). (s) Derivatives The Company recognizes all derivatives as either assets or lia- bilities in the consolidated financial statements and measures them at fair value. For derivatives designated as fair value hedges, changes in fair value of the hedged item and the derivative are recognized in current earnings. For derivatives designated as cash flow hedges, fair value changes of the effective portion of the hedging instruments are recognized as excluded from Trade receivables in the accompanying consoli- dated balance sheets. Gain or loss on sale of receivables is cal- culated 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 no longer depreciated. The assets and liabilities of a disposed group classified as held-for-sale are presented separately in the appropriate asset and liability sections of the consolidated balance sheets. (v) Goodwill and Other Intangible Assets The Company accounts for business combinations using the acquisition method. The Company recognizes at fair value the assets acquired, the liabilities assumed, any noncontrolling interests in the acquiree, and acquired goodwill at the acquisi- tion date. The Company discloses the nature of business com- bination to enable the readers to evaluate the effects of such MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 43 transaction on the consolidated financial statements. exchange for those goods or services. The Company does not amortize goodwill and other intangi- In August 2015, the FASB issued ASU2015-14 “Revenue ble assets with indefinite useful life but tests it for impairment from Contracts with Customers-Deferral of the Effective at least annually. Also other intangible assets determined to Date”. ASU2015-14 defers the effective date of ASU2014-09 have useful life are amortized over their respective estimated for one year. The Company is required to adopt ASU2014-09 useful life and tested for impairment. and ASU2015-14 on April 1, 2018 retrospectively to each (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 indemnification arrangements as liability measured at fair value as they are issued or modified by the Company, and discloses the guaran- tees that the Company has undertaken, including a rollfor- ward 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. prior reporting period presented or retrospectively with the cumulative effect of initially adopting this update recognized at the date of the initial adoption. The Company has not yet determined which method it will apply and is currently evalu- ating the effects on the Company’s consolidated financial position and results of operations upon adoption of ASU 2014-09 and ASU2015-14. In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments” (an amendment of ASC Topic 805 ”Business Combinations”). ASU2015-16 eliminates the requirement to retrospectively adjust the financial statements for measure- ment-period adjustments that occur in periods after a busi- ness combination is consummated. The Company is required to adopt ASU 2015-16 on April 1, 2016. The adoption of ASU 2015-16 will not have a material effect on the Company's consolidated financial position and results of operations. In November 2015, the FASB issued ASU 2015-17 (y) Asset Retirement Obligations The Company recognizes legal obligations associated with the "Balance Sheet Classification of Deferred Taxes" (an amend- ment of ASC Topic 740 ”Income Taxes”). ASU 2015-17 retirement of long-lived assets that result from an acquisition, requires deferred tax assets and liabilities to be classified as construction and development, and (or) from a normal opera- noncurrent in a classified balance sheet. The Company is tion of a long-lived asset, except for certain lease obligations. required to adopt ASU 2015-17 on April 1, 2017 either pro- The Company recognizes a liability for an asset retirement spectively or retrospectively. The application of ASU2015-17 obligation at fair value in the period which it is incurred if a affects the Company's consolidated balance sheet, and as of reasonable estimate of fair value can be made. The associated March 31, 2016, deferred tax assets classified as current asset retirement costs are capitalized as part of the carrying assets are ¥130,569 million ($1,155,478 thousand). The amount of the long-lived asset and subsequently allocated to Company has not yet determined which method it will apply expense over the asset’s useful life. Subsequent to the initial upon adoption of ASU 2015-17. measurement of the asset retirement obligation, the obliga- In January 2016, the FASB issued ASU 2016-01 tion is adjusted at the end of each period to reflect the pas- sage of time and changes in the estimated future cash flows "Recognition and Measurement of Financial Assets and Financial Liabilities" (an amendment of ASC Topic 825-10 underlying the obligation. (z) Reclassifications The Company has made certain reclassifications of the previ- ous fiscal years’ consolidated financial statements to conform to the presentation used for the year ended March 31, 2016. (aa) Future Application of New Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-09 “Revenue from Contracts with Customers” (A Creation of Accounting Standards Codification (ASC) Topic 606 “Revenue from Contracts with Customers”). ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in ”Financial Instruments-Overall”). ASU 2016-01 is an amend- ment of recognition, measurement, presentation and disclo- sure of financial instruments and requires equity investments to be measured at fair value with changes in the fair value recognized in net income. The Company is required to adopt ASU 2016-01 on April 1, 2018 retrospectively with the cumu- lative effect of initially adopting this update recognized at the date of the initial adoption. The Company is currently evaluat- ing the effects on the Company's consolidated financial posi- tion and results of operations upon adoption of ASU 2016-01. In February 2016, the FASB issued ASU 2016-02 "Leases" (an amendment of ASC Topic 842 ”Leases”). ASU 2016-02 requires the recognition of lease assets and lease liabilities on balance sheet by lessees for most leases including operating leases. The Company is required to adopt ASU 2016-02 on 44 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 April 1, 2019 retrospectively with the cumulative effect of ini- the Company's consolidated financial position and results of tially adopting this update recognized at the date of the initial operations upon adoption of ASU 2016-02. adoption. The Company is currently evaluating the effects on (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 2016. 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 ¥113=U.S.$1, which was the approximate could be converted into United States dollars at such rate. (3) SECURITIES Marketable securities included in investments in securities and fair value for such securities by equity securities and debt other consists of available-for-sale securities. The cost, gross securities at March 31, 2016 and 2015 were as follows: unrealized holding gains, gross unrealized holding losses and 2016: Available-for-sale: Equity securities Debt securities 2015: Available-for-sale: Equity securities Debt securities 2016: Available-for-sale: Equity securities Debt securities Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥92,736 ¥142,998 ¥763 ¥234,971 200 — 1 199 ¥92,936 ¥142,998 ¥764 ¥235,170 Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥96,210 ¥176,013 ¥780 ¥271,443 500 21 2 519 ¥96,710 ¥176,034 ¥782 ¥271,962 Gross unrealized holding gains Gross unrealized holding losses Cost Fair value U.S. dollars (thousands) $820,673 $1,265,469 $6,752 $2,079,390 1,770 — 9 1,761 $822,443 $1,265,469 $6,761 $2,081,151 Debt securities consist of investment trusts. In the year ended March 31, 2016, net unrealized gains by ¥36,616 million and ¥55,591 million, respectively. on available-for-sale securities, net of taxes and noncontrolling As of March 31, 2016 and 2015, the cost of non-market- interests, decreased by ¥25,510 million ($225,752 thousand), able equity securities were ¥15,738 million ($139,274 thou- and in the years ended March 31, 2015 and 2014, increased sand) and ¥14,545 million, respectively. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 45 Maturities of marketable securities classified as available-for-sale at March 31, 2016 were as follows: Due after one year through five years Marketable equity securities Cost ¥ 200 92,736 ¥96,710 Yen (millions) Fair value ¥ 199 234,971 ¥271,962 U.S. dollars (thousands) Fair value $ 1,761 2,079,390 $2,266,350 Cost $ 1,770 820,673 $805,917 Gross unrealized losses on available-for-sale securities and the fair value of the related securities, aggregated by length of time that individual securities has been in continuous unrealized loss positions, at March 31, 2016 were as follows: Available-for-sale: Equity securities Debt securities Available-for-sale: Equity securities Debt securities Less than 12 months Unrealized losses Fair value 12 months or more Unrealized Fair losses value Yen (millions) Total Unrealized losses Fair value ¥5,362 — ¥5,362 ¥698 — ¥698 ¥133 199 ¥332 ¥65 1 ¥66 ¥5,495 199 ¥5,694 ¥763 1 ¥764 Less than 12 months Unrealized losses Fair value 12 months or more Unrealized Fair losses value U.S. dollars (thousands) Total Unrealized losses Fair value $47,451 — $47,451 $6,177 — $6,177 $1,177 1,761 $2,938 $575 9 $584 $48,628 1,761 $50,389 $6,752 9 $6,761 The Company did not recognize any impairment losses from the decline in the fair value of the marketable securities. Based on that evaluation and the Company’s ability and intention to hold those securities for a reasonable period of time sufficient for recovery of fair value, the Company does not consider those securities to be other-than-temporarily impaired. Proceeds from the sale of available-for-sale securities and gross realized gains and losses on those sales in the years ended March 31, 2016, 2015 and 2014 were as follows: Proceeds Gross realized gains Gross realized losses 2016 ¥3,834 1,488 3 2015 ¥3,034 111 74 Yen (millions) 2014 ¥26,964 161 1,327 U.S. dollars (thousands) 2016 $33,929 13,168 27 For the years ended March 31, 2016, 2015 and 2014, the Company did not recognize any material losses on impairment of marketable securities 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 2016 ¥ 78,124 967,631 (10,587) Yen (millions) 2015 ¥ 81,995 977,044 (10,497) ¥1,035,168 ¥1,048,542 U.S. dollars (thousands) 2016 $ 691,363 8,563,106 (93,690) $9,160,779 46 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 (5) INVENTORIES Inventories are comprised of the following: Work in process Less accumulated billings on long-term contracts Raw materials Finished products 2016 ¥265,779 19,082 246,697 110,889 286,541 ¥644,127 Yen (millions) 2015 ¥297,976 19,182 278,794 116,027 310,599 ¥705,420 U.S. dollars (thousands) 2016 $2,352,027 168,868 2,183,159 981,319 2,535,761 $5,700,239 (6) INVESTMENTS IN AFFILIATED COMPANIES 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, 2016 and 2015, and for the years ended March 31, 2016, 2015 and 2014 is as follows: Results of Operations for the year ended March 31, 2014 include the financial information of Renesas Electric Corporation (Renesas) which was excluded from affiliated companies accounted for by the equity method of accounting on September 30, 2013. Financial Position Current assets Property, plant and equipment Other assets Total assets Current liabilities Long-term debt Total liabilities Shareholders’ equity 2016 Yen (millions) 2015 U.S. dollars (thousands) 2016 ¥1,320,753 ¥1,363,332 $11,688,079 121,211 117,243 114,754 115,663 1,072,664 1,037,549 ¥1,559,207 ¥1,593,749 $13,798,292 ¥ 890,608 ¥ 933,014 $ 7,881,487 124,689 1,015,297 543,910 139,057 1,072,071 521,678 1,103,442 8,984,929 4,813,363 Total liabilities and shareholders’ equity ¥1,559,207 ¥1,593,749 $13,798,292 Results of Operations Sales 2016 2015 Yen (millions) 2014 ¥1,363,861 ¥1,255,026 ¥1,648,617 Net income attributable to affiliated companies 76,158 70,429 54,383 U.S. dollars (thousands) 2016 $12,069,566 673,965 The balances and transactions with affiliated companies accounted for by the equity method of accounting as of March 31, 2016 and 2015, and for the years ended March 31, 2016, 2015 and 2014 are as follows: The transactions for the year ended March 31, 2014 include those with Renesas. Trade receivables Trade payables Sales Purchases Dividends 2016 ¥62,119 51,366 2016 ¥300,524 139,666 18,084 2015 ¥307,841 143,904 16,886 Yen (millions) 2015 ¥ 69,997 154,915 Yen (millions) 2014 ¥313,119 173,897 12,418 U.S. dollars (thousands) 2016 $549,726 454,566 U.S. dollars (thousands) 2016 $2,659,504 1,235,982 160,035 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 47 Investments in affiliated companies accounted for by the equity method of accounting include the shares of 9 publicly quoted affiliates, 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 2016 ¥40,646 48,761 Yen (millions) 2015 ¥41,121 55,640 2016 ¥61,873 Yen (millions) 2015 ¥72,385 U.S. dollars (thousands) 2016 $359,699 431,513 U.S. dollars (thousands) 2016 $547,549 The weighted average interest rates on borrowings from banks and others outstanding as of March 31, 2016 and 2015 were 0.81% and 0.83%, respectively. At March 31, 2016, the Company and its subsidiaries had unused committed lines of credit that can provide short-term funds from subscribing financial institutions amounting to ¥81,500 million ($721,239 thousand). Long-term debt consisted of the following: Borrowings from banks and other companies, due2016 to 2025 with bearing interest rate ranging from 0.15% to 5.42% at March 31, 2016: due2015 to 2022 with bearing interest rate ranging from 0.15% to 5.42% at March 31, 2015: Unsecured 0.27% Japanese yen bonds due 2019 0.43% Japanese yen bonds due 2021 Capital lease obligations Less amount due within one year 2016 Yen (millions) 2015 U.S. dollars (thousands) 2016 ¥278,504 ¥245,765 $2,464,637 20,000 20,000 23,662 342,166 54,659 20,000 20,000 23,844 309,609 92,017 176,991 176,991 209,399 3,028,018 483,708 ¥287,507 ¥217,592 $2,544,310 The aggregate annual maturities of long-term debt outstanding at March 31, 2016 were as follows: Year ending March 31: 2017 2018 2019 2020 2021 Thereafter Total Yen (millions) ¥ 54,659 64,748 64,628 43,665 37,688 76,778 ¥342,166 U.S. dollars (thousands) $ 483,708 572,991 571,929 386,417 333,522 679,451 $3,028,018 Substantially all of the loans with banks and others have basic written agreements. With respect to all present or future loans, these agreements state that the Company would need to provide collateral or guarantors immediately upon the banks’ requests and that any collateral furnished pursuant to such agreements will be used against repayment of debts in case of default. 48 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 (8) GOODWILL AND OTHER INTANGIBLE ASSETS The gross carrying amount, accumulated amortization and net carrying amount of intangible assets other than goodwill as of March 31, 2016 and 2015 were as follows: 2016: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total 2015: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total 2016: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total Gross carrying amount Accumulated amortization Yen (millions) Net carrying amount ¥ 99,472 ¥63,356 ¥36,116 29,500 35,800 164,772 2,983 1,156 13,609 78,121 — 28,344 22,191 86,651 2,983 ¥167,755 ¥78,121 ¥89,634 Gross carrying amount Accumulated amortization Yen (millions) Net carrying amount ¥ 86,899 ¥52,826 ¥34,073 2,310 15,865 105,074 3,876 411 7,290 60,527 — 1,899 8,575 44,547 3,876 ¥108,950 ¥60,527 ¥48,423 Gross carrying amount Accumulated amortization Net carrying amount U.S. dollars (thousands) $ 880,283 $560,673 $319,610 261,062 316,814 1,458,159 26,398 10,230 120,434 691,337 — 250,832 196,380 766,822 26,398 $1,484,557 $691,337 $793,220 Finite-lived intangible assets acquired during the year ended March 31, 2016 were ¥64,745 million ($572,965 thousand), mainly related to assets acquired as part of the acquisition of MELCO Hydronics & IT Cooling S.p.A. Amortization expense of intangible assets for the years ended March 31, 2016, 2015 and 2014 was ¥19,006 million ($168,195 thousand), ¥15,998 million and ¥14,484 million, respectively. Estimated amortization expense for the next five years is as follows: Year ending March 31: 2017 2018 2019 2020 2021 Yen (millions) ¥18,575 13,969 9,543 6,322 4,768 U.S. dollars (thousands) $164,381 123,619 84,451 55,947 42,195 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 49 Changes in the carrying amount of goodwill for the years ended March 31, 2016 and 2015 are as follows: Balance at beginning of year Acquisition Foreign currency translation adjustments, etc Balance at end of year 2016 ¥ 8,017 58,034 (2,072) ¥63,979 Yen (millions) 2015 ¥6,315 1,702 — ¥8,017 U.S. dollars (thousands) 2016 $ 70,947 513,575 (18,336) $566,186 Goodwill is mainly allocated to the Home Appliances segment by ¥59,929 million ($530,345 thousand) as of March 31, 2016. 2016 ¥117,629 656,085 ¥773,714 Yen (millions) 2015 ¥ 14,141 793,148 ¥807,289 U.S. dollars (thousands) 2016 $1,040,965 5,806,062 $6,847,027 (9) TRADE PAYABLES Trade payables are summarized as follows: Notes payable Accounts payable (10) 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 2016 ¥ 77,046 2015 ¥ 74,913 Yen (millions) 2014 ¥ 86,198 (5,551) (40,390) (8,558) (20) ¥ 22,527 9,096 12,595 14,316 7 4,280 (2,151) 30,818 (24) ¥110,927 ¥119,121 U.S. dollars (thousands) 2016 $ 681,823 (49,124) (357,434) (75,734) (177) $ 199,354 U.S. dollars (thousands) 2016 $ (45,398) 260,929 $215,531 The significant components of deferred tax expense attributable to income taxes are as follows: Change in valuation allowance related to deferred tax assets Other 2016 2015 ¥ (5,130) 29,485 ¥24,355 ¥(14,531) 29,261 ¥ 14,730 Yen (millions) 2014 ¥ (4,129) 56,086 ¥51,957 The Company is subjected to a number of income taxes. The rary differences expected to be recovered or settled on or statutory tax rate is approximately 33.0% for the year ended after April 1, 2016. Before the adjustment, the statutory tax March 31, 2016, approximately 35.5% for the year ended rate applied was approximately 32.0% for temporary differ- March 31, 2015, approximately 38.0% for the year ended ences expected to be recovered or settled on or after April 1, March 31, 2014. 2016. After the adjustment, the statutory tax rates applied are The “Act to Partially Revise the Local Tax Act” (Act No. 13 approximately 31.0% for temporary differences expected to of 2016) and the “Act to Partially Revise the Income Tax Act” (Act No. 15 of 2016) were enacted and promulgated in March be recovered or settled between April 1, 2016 and March 31, 2018 and approximately 30.5% for temporary differences 2016 in Japan, resulting in a reduction of the corporation tax expected to be recovered or settled on or after April 1, 2018. rate effective for fiscal years beginning on or after April 1, For the year ended March 31, 2016, ¥7,586 million 2016. As a result, the Company and domestic subsidiaries ($67,133 thousand) of income tax expense is included in adjusted the statutory tax rates to be applied in the calcula- “Income taxes – Deferred” in the Consolidated Statements of tion of deferred tax assets and liabilities arising from tempo- Income, as a result of the aforementioned adjustment of 50 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 deferred tax assets and liabilities balances. The effective tax rate for the years ended March 31, 2016, 2015 and 2014 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 2016 33.0% (4.3) (0.5) 1.1 (6.6) (2.5) (2.4) 4.4 2.0 24.2% 2015 35.5% (1.6) (4.3) 0.5 (7.3) (4.1) (0.6) 4.6 0.5 23.2% 2014 38.0% (1.9) 2.4 4.2 (8.4) (0.1) (2.1) 3.2 (0.7) 34.6% The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2016 and 2015 are as follows: Deferred tax assets: Retirement and severance benefits ¥ 23,008 ¥ 41,966 $ 203,611 2016 Yen (millions) 2015 U.S. dollars (thousands) 2016 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 85,356 32,975 37,317 98,470 18,293 80,540 375,959 (44,886) 331,073 26,122 5,239 23,145 72,769 127,275 82,973 30,699 39,260 62,436 12,738 89,508 359,580 (50,016) 309,564 27,407 5,900 32,315 61,873 127,495 755,363 291,814 330,239 871,416 161,885 712,743 3,327,071 (397,221) 2,929,850 231,168 46,363 204,823 643,973 1,126,327 ¥203,798 ¥182,069 $1,803,523 The valuation allowance for deferred tax assets as of April 1, uled reversal of deferred tax liabilities, projected future taxable 2014 was ¥64,547 million. The net change in the total valua- income, and tax planning strategies in making this tion allowance for the years ended March 31, 2016 and 2015 assessment. was a decrease of ¥5,130 million ($45,398 thousand) and At March 31, 2016, the Company and certain subsidiaries ¥14,531 million, respectively. In assessing the realizability of had net operating loss carryforwards of ¥53,316 million deferred tax assets, management considers whether it is more ($471,823 thousand) and ¥85,529 million ($756,894 thou- likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax sand) for corporate and local income tax purposes, respective- ly, which were available to offset future taxable income, if any. assets is dependent upon the generation of future taxable A part of the net operating loss carryforwards will never income during the periods in which those temporary differ- expire. The rest of the net operating loss carryforwards will ences become deductible. Management considers the sched- expire mainly in the years ending March 31, 2019 and 2023. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 51 Net deferred tax assets and liabilities at March 31, 2016 and 2015 are reflected in the accompanying consolidated balance sheets under the following captions: Prepaid expenses and other current assets Other assets Other liabilities 2016 ¥130,569 89,701 (16,472) ¥203,798 Yen (millions) 2015 ¥135,994 51,593 (5,518) ¥182,069 U.S. dollars (thousands) 2016 $1,155,478 793,815 (145,770) $1,803,523 Deferred tax liabilities have been recognized for the undistrib- ties accrued as of March 31, 2016 and 2015, and interest and uted earnings of subsidiaries and affiliated companies. penalties for the years ended March 31, 2016, 2015 and Deferred tax liabilities have not been recognized for undistrib- 2014 are not material. uted earnings of some domestic subsidiaries as such earnings, The Company and its subsidiaries file income tax returns if distributed in the form of dividends, is not taxable under in Japan and various foreign tax jurisdictions. The tax years present circumstances. that remain subject to examination by major tax jurisdictions Although the Company believes that there are no signifi- are as follows: cant unrecognized tax benefits as of March 31, 2016 and 2015, 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 Income taxes in the Consolidated Statements of Income. Both interest and penal- Location Japan United States Thailand Europe Open tax years 2009-2016 2011-2016 2011-2016 2011-2016 (11) RETIREMENT AND SEVERANCE BENEFITS The Company has non-contributory and contributory defined 2005, and established a defined contribution plan on April 1, benefit plans covering substantially all of its employees who 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 conditions. sion fund plan, and/or corporate pension fund plan, based on In addition, certain employees who meet the eligibility each subsidiary’s respective pension policies. requirements are entitled to additional lump-sum payments at In addition, the foreign consolidated subsidiaries that the date of retirement based on the retirement age. Under the have adopted pension policy mainly sponsor defined contribu- contributory plans, employees are entitled to annuity pay- tion pension plan. ments at a certain age. The assets of certain of the non-con- The Company measures the fair value of plan assets and tributory plans and the contributory plans are combined in the projected benefit obligations 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 rep- fair value of plan assets and the projected benefit obligations) resentatives. 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 sive income (loss), net of tax. management agreement during the year ended March 31, 52 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Obligations and funded status Reconciliations of beginning and ending balances of the projected benefit obligations and the fair value of the plan assets are as follows: Change in projected benefit obligations: Projected benefit obligations at beginning of year ¥1,119,133 ¥1,067,140 $ 9,903,832 2016 Yen (millions) 2015 U.S. dollars (thousands) 2016 Service cost Interest cost Plan participants’ contributions Actuarial loss Benefits paid Acquisitions and divestitures, etc. Projected 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 32,947 11,403 1,033 75,541 (70,866) (1,723) 1,167,468 986,514 (34,166) 47,920 929 (35,113) (1,595) 964,489 30,284 15,205 1,047 73,625 (68,263) 95 1,119,133 857,933 113,876 47,513 1,047 (34,029) 174 986,514 291,566 100,912 9,141 668,504 (627,133) (15,247) 10,331,575 8,730,212 (302,354) 424,071 8,221 (310,734) (14,115) 8,535,301 Funded status at end of year ¥ (202,979) ¥ (132,619) $(1,796,274) Amounts recognized in the consolidated balance sheets at March 31, 2016 and 2015 consist of: Investments in securities and other Other current liabilities Retirement and severance benefits 2016 ¥ 32,153 (5,382) (229,750) ¥(202,979) Yen (millions) 2015 ¥ 53,691 (4,028) (182,282) ¥(132,619) Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2016 and 2015 consist of: Actuarial loss Prior service cost 2016 ¥355,092 (30,793) ¥324,299 Yen (millions) 2015 ¥240,293 (42,837) ¥197,456 U.S. dollars (thousands) 2016 $ 284,540 (47,628) (2,033,186) $(1,796,274) U.S. dollars (thousands) 2016 $3,142,407 (272,504) $2,869,903 The accumulated benefit obligations for all defined benefit plans were as follows: Accumulated benefit obligations 2016 ¥1,160,546 Yen (millions) 2015 ¥1,093,819 U.S. dollars (thousands) 2016 $10,270,319 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 53 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, 2016, 2015 and 2014 consisted of the following components: Service cost Interest cost on projected benefit obligations Expected return on plan assets Amortization of prior service cost Amortization of actuarial loss Plan participants’ contributions Net periodic retirement and severance costs 2016 ¥ 33,980 11,403 (16,482) (12,044) 12,077 28,934 (1,033) ¥ 27,901 2015 ¥ 31,331 15,205 (15,123) (12,122) 20,721 40,012 (1,047) ¥ 38,965 Yen (millions) 2014 ¥ 30,549 19,123 (13,911) (22,216) 21,544 35,089 (1,063) ¥ 34,026 U.S. dollars (thousands) 2016 $ 300,707 100,912 (145,858) (106,584) 106,876 256,053 (9,141) $ 246,912 Other changes in plan assets and projected benefit obligations recognized in other comprehensive income (loss) for the years ended March 31, 2016, 2015 and 2014 were summarized as follows: Actuarial loss (gain) Amortization of actuarial loss Prior service cost Amortization of prior service cost 2016 ¥126,876 (12,077) — 12,044 ¥126,843 2015 ¥(25,207) (20,721) — 12,122 ¥(33,806) Yen (millions) 2014 ¥ 7,674 (21,544) 339 22,216 ¥ 8,685 U.S. dollars (thousands) 2016 $1,122,796 (106,876) — 106,584 $1,122,504 The estimated actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follows: Actuarial loss Prior service cost Yen (millions) ¥ 18,203 (10,084) U.S. dollars (thousands) $161,089 (89,239) Actuarial assumptions Actuarial assumptions used to determine benefit obligations at March 31, 2016 and 2015 were as follows: Discount rate Assumed rate of increase in future compensation levels 2016 0.5% 1.7% 2015 1.0% 1.7% Actuarial assumptions used to determine net periodic retirement and severance costs for the years ended March 31, 2016, 2015 and 2014 were as follows: Discount rate Assumed rate of increase in future compensation levels Expected long-term rate of return on plan assets 2016 1.0% 1.7% 2.5% 2015 1.5% 1.7% 2.5% 2014 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. 54 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Plan Assets The fair values of the Company’s pension plan assets at March 31, 2016 and 2015 were as follows: 2016 Yen (millions) Level 1 Level 2 Level 3 Total Equity securities Marketable equity securities Pooled funds Debt securities ¥194,023 — ¥ — 170,658 Government, municipal and corporate debt securities 4,193 14,920 358,670 99,067 78,326 ¥198,216 ¥721,641 ¥ — — — — — 44,632 ¥44,632 ¥194,023 170,658 19,113 358,670 99,067 122,958 ¥964,489 Pooled funds Other assets Life insurance company general accounts Other Total plan assets 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. 2015 Yen (millions) Level 1 Level 2 Level 3 Total Equity securities Marketable equity securities Pooled funds Debt securities ¥228,741 — ¥ — 188,634 Government, municipal and corporate debt securities 4,864 18,862 354,320 95,127 60,525 ¥233,605 ¥717,468 ¥ — — — — — 35,441 ¥35,441 ¥228,741 188,634 23,726 354,320 95,127 95,966 ¥986,514 Pooled funds Other assets Life insurance company general accounts Other Total plan assets — — — — — — 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. Government, municipal and corporate debt securities 37,106 Equity securities Marketable equity securities Pooled funds Debt securities Pooled funds Other assets Life insurance company general accounts Other Total plan assets 2016 U.S. dollars (thousands) Level 1 Level 2 Level 3 Total $1,717,018 $ — $ — $1,717,018 — 1,510,248 132,036 3,174,071 876,699 693,150 — — — — — — — 1,510,248 169,142 3,174,071 876,699 394,973 1,088,123 $1,754,124 $6,386,204 $394,973 $8,535,301 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 55 The Company’s investment policies are designed to ensure tents of investment, and appropriately diversified investments. adequate plan assets are available to provide future payments See note 19 which shows categorized input for fair value of pension benefits to eligible participants. Taking into measurements by the valuation technique into a three-level account the expected long-term rate of return on plan assets, hierarchy. the Company formulates an investment portfolio comprised Each level into which assets are categorized is based on of the optimal combination of equity and debt securities. Plan inputs used to measure the fair value of the assets. assets are invested in individual equity and debt securities Level 1 assets are comprised principally of equity securi- using the guidelines of the investment portfolio in order to ties and government bonds, which are valued using unadjust- produce a total return that will match the expected return on ed quoted market prices in active markets with sufficient a mid-term to long-term basis. The Company evaluates the volume and frequency of transactions. Level 2 assets are com- gap between expected return and actual return of invested prised principally of pooled funds that invest in equity and plan assets on an annual basis. In addition, taking into the debt securities, corporate bonds and investments in life insur- consideration the management environment and the revision ance company general accounts. Pooled funds are valued at of regulations, the Company revises the investment portfolio their net asset values that are calculated by the sponsor of the when and to the extent considered necessary to achieve the fund. Corporate bonds are valued using quoted prices for expected long-term rate of return on plan assets based on the identical assets in markets that are not active. Investments in pension asset and liability management method. life insurance company general accounts are valued at the The Company’s investment portfolio consists of three amounts that are the conventional interest adding to the prin- major components. The Company’s target asset allocation percentage is that approximately 25% is invested in equity ciple amounts calculated by a life insurance company. Level 3 assets comprise hedge funds, which are valued based on securities, approximately 65% is invested in debt securities unobservable inputs. and investments in life insurance company general accounts, An analysis of the changes in Level 3 assets which com- and approximately 10% is invested in hedge funds. As for prise hedge funds measured at fair value for the years ended selection of plan assets, the Company has examined the con- March 31, 2016 and 2015 is as follows: Balance at beginning of year Actual return: Relating to assets sold Relating to assets still held Purchases, sales and settlements Balance at end of year 2016 ¥35,441 494 (1,545) 10,242 Yen (millions) 2015 ¥15,562 — 379 19,500 ¥44,632 ¥35,441 U.S. dollars (thousands) 2016 $313,637 4,372 (13,673) 90,637 $394,973 Cash Flows The Company expects to contribute ¥49,451 million ($437,619 thousand) to its pension plan in the year ending March 31, 2017. Estimated future benefit payments are as follows: Year ending March 31: 2017 2018 2019 2020 2021 2022-2026 Yen (millions) ¥ 64,807 59,487 60,307 58,259 57,882 270,677 U.S. dollars (thousands) $ 573,513 526,434 533,690 515,566 512,230 2,395,372 The amount of cost recognized for the Company and certain subsidiaries’ defined contribution plans for the years ended March 31, 2016, 2015 and 2014 were ¥10,265 million ($90,841 thousand), ¥9,469 million and ¥8,423 million, respectively. 56 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 (12) SHAREHOLDERS’ EQUITY Changes in common stock for the years ended March 31, 2016 and 2015 were as follows: Number of common shares issued: Balance at beginning of year Balance at end of year 2016 2015 Shares 2,147,201,551 2,147,201,551 2,147,201,551 2,147,201,551 Conversions into common stock of convertible debenture Corporate Law is based on the amount recorded in the issued subsequent to October 1, 1982 and exercise of war- Company’s books of account in accordance with accounting rants were accounted for in accordance with the provisions of standards of Japan. The adjustments included in the accompa- the Japanese Commercial Code by crediting one-half of the nying consolidated financial statements to have them conform conversion price and exercise price to each of the common with accounting principles generally accepted in the United stock account and the capital surplus account. States of America, but not recorded in the books of account, The Japanese Corporate Law enforced on May 1, 2006 have no effect on the determination of retained earnings requires that an amount equal to 10% of dividends and other available for dividends under the Japanese Corporate Law. distributions paid in cash by the Company and its domestic Retained earnings available for dividends shown in the subsidiaries be appropriated as a legal reserve until the aggre- Company’s books of account amounted to ¥489,751 million gated amount of additional paid-in capital and the legal reserve equal to 25% of the common stocks. The additional ($4,334,080 thousand) at March 31, 2016. Cash dividends and appropriations to the legal reserve paid-in capital and the legal reserve may be used to reduce a charged to retained earnings during the years ended March deficit or transferred to common stock with a resolution of 31, 2016, 2015 and 2014 represent dividends paid out during the shareholders’ meeting. the years and the related appropriations to the legal reserve. The amount available for dividends under the Japanese (13) OTHER COMPREHENSIVE INCOME (LOSS) Changes in accumulated other comprehensive income (loss) for the years ended March 31, 2016, 2015 and 2014 are as follows: Foreign currency translation adjustments ¥102,959 Pension liability adjustments ¥ (98,108) 2016 Unrealized gains (losses) on securities ¥119,252 Unrealized gains (losses) on derivative instruments ¥(39) Yen (millions) Total ¥124,064 (63,112) (86,145) (24,547) (8) (173,812) Balance at beginning of year Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year — (63,112) 22 (86,123) (963) (25,510) Balance at end of year ¥ 39,847 ¥(184,231) ¥ 93,742 Balance at beginning of year Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year Foreign currency translation adjustments ¥ 38,652 Pension liability adjustments ¥(119,279) 2015 Unrealized gains (losses) on securities ¥ 82,636 65,788 15,625 36,452 (1,481) 64,307 5,546 21,171 164 36,616 (10) (18) ¥(57) (951) (174,763) ¥ (50,699) Unrealized gains (losses) on derivative instruments Yen (millions) Total ¥(52) ¥ 1,957 22 (9) 13 117,887 4,220 122,107 Balance at end of year ¥102,959 ¥ (98,108) ¥119,252 ¥(39) ¥124,064 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 57 Balance at beginning of year Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year Balance at end of year Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments 2014 Yen (millions) Total ¥ (8,023) ¥(112,523) ¥27,045 ¥ 14 ¥(93,487) 46,675 (6,323) 54,831 (98) 95,085 — 46,675 ¥38,652 (433) (6,756) ¥(119,279) 760 55,591 ¥82,636 32 (66) ¥(52) 359 95,444 ¥ 1,957 Foreign currency translation adjustments Pension liability adjustments U.S. dollars (thousands) 2016 Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments Total Balance at beginning of year $ 911,142 $ (868,213) $1,055,327 $(345) $ 1,097,911 Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net change during the year Balance at end of year (558,514) (762,345) (217,230) (71) (1,538,160) — (558,514) $ 352,628 195 (762,150) $(1,630,363) (8,522) (225,752) $ 829,575 (88) (159) $(504) (8,415) (1,546,575) $ (448,664) Reclassifications out of accumulated other comprehensive income (loss) for the years ended March 31, 2016, 2015 and 2014 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 Unrealized gains (losses) on derivative instruments 2016 Amounts reclassified from accumulated other comprehensive income Yen (millions) U.S. dollars (thousands) Affected line items in consolidated statements of income ¥(12,044) 12,077 33 (11) 22 (1,485) (1,485) 522 (963) (18) (18) 8 (10) $(106,584) 106,876 292 (97) 195 (13,141) (13,141) 4,619 (8,522) (159) (159) 71 (88) See Note See Note Total before tax Income tax Net of tax Other revenues Total before tax Income tax Net of tax Other revenues Total before tax Income tax Net of tax Total amounts reclassified ¥ (951) $ (8,415) Net of tax Note: These accumulated other comprehensive income components are included in the computation of net periodic retirement and severance costs. See Note 11 “Re- tirement and Severance Benefits”. 58 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Details about Accumulated other comprehensive income components Foreign currency translation adjustments 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 instruments 2015 Amounts reclassified from accumulated other comprehensive income Yen (millions) Affected line items in consolidated statements of income ¥ (1,481) (1,481) — (1,481) ¥(12,122) 20,721 8,599 (3,053) 5,546 (37) 189 152 12 164 (15) (15) 6 (9) Other revenues Total before tax Income tax Net of tax See Note See Note Total before tax Income tax Net of tax Other revenues Other costs and expenses Total before tax Income tax Net of tax Other revenues Total before tax Income tax Net of tax Total amounts reclassified ¥ 4,220 Net of tax Note: These accumulated other comprehensive income components are included in the computation of net periodic retirement and severance costs. See Note 11 “Re- tirement and Severance Benefits”. 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 instruments 2014 Amounts reclassified from accumulated other comprehensive income Yen (millions) 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 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 Other costs and expenses Total before tax Income tax Net of tax Total amounts reclassified ¥ 359 Net of tax Note: These accumulated other comprehensive income components are included in the computation of net periodic retirement and severance costs. See Note 11 “Re- tirement and Severance Benefits”. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 59 Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2016, 2015 and 2014 are as follows: Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount 2016: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year ¥ (68,663) ¥ 5,551 ¥ (63,112) Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year — — — (68,663) 5,551 (63,112) Pension liability adjustments: Amount arising during the year on pension liability adjustments (126,546) 40,401 (86,145) 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 33 (126,513) (32,583) (1,485) (34,068) (20) (18) (38) (11) 40,390 8,036 522 8,558 12 8 20 22 (86,123) (24,547) (963) (25,510) (8) (10) (18) Other comprehensive income (loss) ¥(229,282) ¥54,519 ¥(174,763) Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount 2015: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year ¥ 74,884 ¥ (9,096) ¥ 65,788 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 (1,481) — (1,481) 73,403 25,167 8,599 33,766 50,780 152 50,932 35 (15) 20 (9,096) (9,542) (3,053) (12,595) (14,328) 12 (14,316) (13) 6 (7) 64,307 15,625 5,546 21,171 36,452 164 36,616 22 (9) 13 Other comprehensive income (loss) ¥158,121 ¥(36,014) ¥122,107 60 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 2014: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year ¥ 50,955 ¥ (4,280) ¥46,675 Before-tax amount Tax (expense) or benefit Yen (millions) Net-of-tax amount 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 (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 Before-tax amount U.S. dollars (thousands) Tax (expense) or benefit Net-of-tax amount 2016: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year $ (607,638) $ 49,124 $ (558,514) Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year — — — (607,638) 49,124 (558,514) Pension liability adjustments: Amount arising during the year on pension liability adjustments (1,119,876) 357,531 (762,345) 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 292 (1,119,584) (97) 357,434 195 (762,150) (288,345) 71,115 (217,230) (13,141) (301,486) 4,619 75,734 (8,522) (225,752) (177) (159) (336) 106 71 177 (71) (88) (159) Other comprehensive income (loss) $(2,029,044) $482,469 $(1,546,575) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 61 (14) 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 2016 2015 Yen (millions) 2014 ¥228,494 — ¥234,694 — ¥153,473 — ¥228,494 ¥234,694 ¥153,473 2016 2,146,799,336 — 2,146,799,336 2015 2,146,835,581 — 2,146,835,581 U.S. dollars (thousands) 2016 $2,022,071 — $2,022,071 Shares 2014 2,146,871,671 — 2,146,871,671 2016 2015 2014 2016 Yen U.S. dollars ¥106.43 — ¥109.32 — ¥71.49 — $0.942 — 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, 2016, 2015 and 2014. (15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Foreign Exchange Risk Management and Interest Rate Risk Management The Company and its subsidiaries operate internationally, giv- Information with Respect to Cash Flow Hedges The Company and certain of its subsidiaries have entered into forward foreign exchange contracts mainly with forecasted ing rise to significant exposure to market risks from changes transactions to hedge against market risks from changes in in foreign currencies and interest rates. Derivative financial foreign currencies and interest rate swap agreements to modi- instruments are comprised principally of foreign exchange fy the interest rate characteristics of a portion of its long-term contracts, foreign currency swaps and interest rate swaps uti- debt from a variable to a fixed rate. The Company and certain lized by the Company and certain of its subsidiaries to reduce of its subsidiaries designate them as cash flow hedges. The these risks. The Company and its subsidiaries do not hold or maximum period for cash flow hedges is 18 months. The issue financial instruments for trading purposes. Company expects that the amounts of net loss of ¥105 mil- 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 counterpar- ties to foreign exchange contracts, foreign currency swaps and interest rate swaps. The Company believes such risk is minimal due to the high credit ratings of these counterparties. 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. lion ($929 thousand) in accumulated other comprehensive income (loss) will be reclassified into earnings over the next 12 months with transactions such as collection of foreign curren- cy 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. 62 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Contract amounts of foreign exchange contracts and foreign currency swaps and notional principal amounts of interest rate swaps at March 31, 2016 and 2015 are as follows: Foreign exchange contracts: Forwards to sell foreign currencies Forwards to buy foreign currencies Foreign currency swaps Interest rate swaps 2016 ¥214,525 131,564 41,891 1,606 Yen (millions) 2015 ¥240,279 97,441 31,400 2,000 U.S. dollars (thousands) 2016 $1,898,451 1,164,283 370,717 14,212 The estimated fair values of foreign exchange contracts, foreign currency swaps and interest rate swaps at March 31, 2016 and 2015 are as follows: Derivatives designated as hedging instruments Consolidated balance sheet line item 2016 Yen (millions) 2015 Asset derivatives Estimated fair value U.S. dollars (thousands) 2016 Foreign exchange contracts Prepaid expenses and other current assets ¥63 ¥95 $558 Derivatives designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Other current 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 Total Other current liabilities Other current liabilities 2016 ¥120 Yen (millions) 2015 ¥61 2016 Yen (millions) 2015 Liability derivatives Estimated fair value U.S. dollars (thousands) 2016 $1,062 Asset derivatives Estimated fair value U.S. dollars (thousands) 2016 ¥6,457 ¥5,499 $57,142 242 — ¥6,699 2016 ¥2,330 20 ¥2,350 126 21 ¥5,646 Yen (millions) 2015 ¥2,673 381 ¥3,054 2,141 — $59,283 Liability derivatives Estimated fair value U.S. dollars (thousands) 2016 $20,619 177 $20,796 The effect of foreign exchange contracts designated as cash flow hedges on the consolidated statements of income for the years ended March 31, 2016 and 2015 are as follows: Derivatives designated as cash flow hedging instruments Foreign exchange contracts Derivatives designated as cash flow hedging instruments Line item of gain or (loss) recognized from accumulated OCI into income Foreign exchange contracts Other revenues 2016 ¥18 Amount of gain or (loss) recognized in OCI on derivative (effective portion) U.S. dollars (thousands) 2016 ¥(38) Amount of gain or (loss) recognized from accumulated OCI into income (effective portion) U.S. dollars (thousands) Yen (millions) 2015 ¥20 Yen (millions) 2015 ¥15 2016 $(336) 2016 $159 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 63 The effect of foreign exchange contracts, foreign currency swaps and interest rate swaps not designated as hedging instruments on the consolidated statements of income for the years ended March 31, 2016 and 2015 are set forth below: Derivatives not designated as hedging instruments Line item of gain or (loss) recognized in income on derivative Amount of gain or (loss) recognized in income on derivative U.S. dollars (thousands) Yen (millions) 2015 2016 2016 Foreign exchange contracts Foreign currency swaps Interest rate swaps Total Other revenues (cost and expenses) Other revenues (cost and expenses) Other revenues (cost and expenses) ¥(2,090) ¥(12,324) $(18,496) 278 (1,779) 2,460 (32) ¥(1,844) (39) ¥(14,142) (283) $(16,319) (16) SECURITIZATIONS The Company sells its accounts receivable under several secu- these receivables. ritization programs. The Company recognized losses of ¥389 million ($3,442 When the Company retains subordinated interests in the certain accounts receivables after the sale of these receivables, thousand), ¥541 million and ¥485 million on the securitiza- tions of receivables for the years ended March 31, 2016, 2015 a portion of these, where the Company retains subordinated and 2014, respectively. interests, is not taken off from the balance sheet and is Subsequent to securitization, the Company retains collec- recorded at their fair value. Such carrying value is adjusted to tion and administrative responsibilities for the receivables. The reflect the portion that is not expected to be collectible. As of Company has not recorded a servicing asset or liability since March 31, 2016, the Company did not retain subordinated the cost of collection effort is approximate to the amount of interests in the certain accounts receivables after the sale of commission income. Certain cash flows received from special purpose entities (SPEs) and banks on the above transactions for the years ended March 31, 2016, 2015 and 2014 are as follows: Proceeds from new securitizations 2016 ¥381,429 2015 ¥441,395 Yen (millions) 2014 ¥424,556 U.S. dollars (thousands) 2016 $3,375,478 Quantitative information about trade receivables including securitized receivables as of March 31, 2016 and 2015 are as follows: Trade receivables Less: Securitized receivables Total receivables 2016 ¥1,143,536 108,368 ¥1,035,168 Yen (millions) 2015 ¥1,182,431 133,889 ¥1,048,542 U.S. dollars (thousands) 2016 $10,119,788 959,009 $ 9,160,779 As of March 31, 2016 and 2015, delinquencies and credit losses of trade receivables including securitized receivables are immaterial. (17) COMMITMENTS AND CONTINGENT LIABILITIES At March 31, 2016, commitments outstanding for the pur- chase of property, plant and equipment were ¥29,961 million were contingently liable to trade notes discounted in the amount of ¥375 million ($3,319 thousand). Certain subsidiar- ($265,142 thousand). ies account for the discounted notes as sale of receivables. It is common practice in Japan for companies, in the ordi- As of March 31, 2016, the Company has no significant nary course of business, to receive promissory notes in settle- concentrations of credit risk. ment of accounts receivable and to subsequently discount While the Company and certain of its subsidiaries are such notes at banks. At March 31, 2016, certain subsidiaries defendants and co-defendants in various lawsuits and legal 64 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 actions, based upon the advice of legal counsel, the the pertinent calculation method. In September 2012, the Company’s management is of the opinion that damages, if Company took another legal action with the European any, would not have a material effect on the Company’s con- General Court seeking a revision of the current calculation solidated financial position and results of operations, except method presented by the European Commission, which for the following cases. would result in a downward modification of the fines. In In January 2007, the Company received a decision ren- December 2013, the Company received a judgment from the dered by the European Commission imposing fines for an European Court of Justice upholding the European infringement of EU Competition Law in connection with its Commission’s underlying facts. In January 2016, the Company sales of certain gas-insulated switchgears in Europe. However, received a judgment from the European General Court there was a significant inconsistency in the understanding of upholding the fine calculation method applied in the material underlying facts between the European Commission European Commission’s revised decision. and the Company. Therefore, the Company appealed to the Since July 2011, the Company has been cooperating with European General Court and challenged the decision. In July investigations and inquiries conducted by the European 2011, the Company received a judgment from the European Commission under EU Competition Law regarding the sales of General Court upholding the European Commission’s decision certain automotive parts in Europe. In January 2016, the on the underlying facts while annulling the fine imposed on the Company on the basis that the European Commission applied inconsistent methods of calculation to different Company received a decision rendered by the European Commission imposing a fine of €110,929 thousand (¥14,617 million) for the infringement of the said law. In addition, civil companies. In September 2011, since there was still a significant lawsuits were filed against the Company in the United States related to violations of the Antitrust Laws regarding the sale inconsistency in the understanding of material underlying of certain automotive parts. The Company has already agreed facts between the European Commission and the Company, to settle with some of the purchasers of the automotive parts the Company appealed to the European Court of Justice. and has made settlement payments. In June 2012, the Company received a revised decision from the European Commission imposing a fine of €74,817 thousand (¥7,472 million) on the Company and another fine of €4,650 thousand (¥464 million) to be borne jointly by TOSHIBA CORPORATION and the Company after revision of As of March 31, 2016, the Company recorded an esti- mated amount of ¥11,491 million ($101,690 thousand) as a reserve for possible losses of competition-law-related expens- es in “Other liabilities” relating to certain automotive parts cases mainly in the United States of America. The following table provides the undiscounted maximum amount of potential future payments for each major group of guaran- tees at March 31, 2016: Guarantees of bank loan: Employees Affiliated and other companies Other Total Yen (millions) ¥ 2,487 510 7,930 ¥10,927 U.S. dollars (thousands) $22,009 4,513 70,177 $96,699 The guarantees for the employees are principally made for their housing loans, and the term of guarantees is 1 year to 13 years. The guarantees for the affiliated and other companies are made to enhance their credit, and the term of guarantees is 1 year to 3 years. Change in accrued product warranty for the years ended March 31, 2016 and 2015 is summarized as follows: Balance at beginning of year Addition Utilization Foreign currency translation adjustments Balance at end of year 2016 ¥55,483 48,378 47,609 (418) ¥55,834 Yen (millions) 2015 ¥58,268 47,922 51,160 453 ¥55,483 U.S. dollars (thousands) 2016 $491,000 428,124 421,319 (3,699) $494,106 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 65 (18) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses the following methods and assumptions calculated under income approach using market interest rates, to estimate the fair value of each class of financial instrument therefore, it is classified in level 2. for which it is practical to estimate its value: (a) Cash and cash equivalents, Trade receivables, Bank (d) Long-term debt The fair value of the Company’s corporate bonds is calculated loans, Trade payables and Other current liabilities under market approach using quoted published price, there- The carrying amount approximates fair value because of the fore, it is classified in level 2. The fair value of the Company’s short term nature of these instruments. long-term debt is calculated under income approach using (b) Investments in securities and other The fair values of most investments in securities and other are estimated based on quoted market prices for these instru- 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. ments. For other investments for which there are no quoted market prices, a reasonable estimate of fair value could not be (e) Derivative financial instruments The fair values of derivative financial instruments, consisting made without incurring excessive costs. principally of foreign exchange contracts, foreign currency (c) Long-term trade receivables The fair value of the Company’s long-term trade receivables is swaps and interest rate swaps are estimated by obtaining quotes from brokers. (See note 15 about estimated fair value.) The estimated fair values of the Company’s financial instruments at March 31, 2016 and 2015 are summarized as follows: 2016 Yen (millions) 2015 U.S. dollars (thousands) 2016 Carrying amount Estimated fair value Carrying amount Estimated fair value Carrying amount Estimated fair value Nonderivatives: Assets: Marketable securities and other Long-term trade receivables ¥235,170 4,661 ¥235,170 4,627 ¥271,962 5,633 ¥271,962 5,615 $2,081,151 41,248 $2,081,151 40,947 Liabilities: Long-term debt, including current portion 318,504 316,570 285,765 285,407 2,818,619 2,801,504 Limitations Fair value estimates are made at a specific point in time based on relevant market information and information about the finan- cial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and there- fore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (19) FAIR VALUE MEASUREMENTS The Company defines fair value as “the price that would be Level 1: Quoted prices in active markets for identical assets or received to sell an asset or paid to transfer a liability in an liabilities. orderly transaction between market participants at the mea- surement date”. On that basis, the Company has categorized Level 2: Inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the the inputs for fair value measurement by the valuation tech- asset or liability. nique into a three-level hierarchy, and placed the order of Level 3: Unobservable inputs for the asset or liability. priority. 66 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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, 2016 and 2015. 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. Level 1 Level 2 Level 3 Total 2016 Yen (millions) Assets: Equity securities Marketable equity securities ¥234,971 ¥ — ¥ — ¥234,971 Debt securities Investment trusts Derivatives Liabilities: Derivatives Assets: Equity securities — — — 199 6,762 2,470 2015 — — — 199 6,762 2,470 Yen (millions) Level 1 Level 2 Level 3 Total Marketable equity securities ¥271,443 ¥ — ¥ — ¥271,443 Debt securities Investment trusts Derivatives Liabilities: Derivatives Assets: Equity securities — — — 519 5,741 3,115 — — — 519 5,741 3,115 U.S. dollars (thousands) Level 1 Level 2 Level 3 Total 2016 Marketable equity securities $2,079,390 $ — $ — $2,079,390 Debt securities Investment trusts Derivatives Liabilities: Derivatives — — — 1,761 59,841 21,858 — — — 1,761 59,841 21,858 Level 1 equity securities are marketable equity securities, which are valued using unadjusted quoted market prices in active mar- kets with sufficient volume and frequency of transactions. Level 2 Debt securities are comprised of investment trusts. Level 2 debt securities are valued based on market approach, using quoted prices for identical assets in markets that are not active. Level 2 derivatives are comprised principally of foreign exchange contracts, which are valued based on market approach, using quotes obtained from counterparties or third parties. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis At March 31, 2016, a portion of long-lived assets was written an impairment charge of ¥3,085 million, which was included down to their fair value of ¥8,037 million ($71,124 thou- in loss on impairment of long-lived assets for the year ended sand), resulting in an impairment charge of ¥8,482 million March 31, 2015. The impaired long-lived assets are classified ($75,062 thousand), which was included in loss on impair- as Level 3 assets, because they are measured based on the ment of long-lived assets for the year ended March 31, 2016. unobservable inputs such as estimated future cash flows The impaired long-lived assets are classified as Level 3 assets, under income approach or net sale price under market because they are measured based on the unobservable inputs approach. such as estimated future cash flows under income approach or net sale price under market approach. The valuation process of long-lived assets is documented in “Notes to Consolidated Financial Statements (1)BASIS OF At March 31, 2015, a portion of long-lived assets was P R E S E N TAT I O N A N D S U M M A RY O F S I G N I F I C A N T written down to their fair value of ¥4,197 million, resulting in ACCOUNTING POLICIES (u) Impairment of Long-Lived Assets”. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 67 (20) SUPPLEMENTARY INCOME AND EXPENSE INFORMATION Advertising expenses Shipping and handling costs Exchange gains (losses) Business restructuring costs Competition-law-related expenses (for the United States Department of Justice) Loss on impairment of long-lived assets 2016 ¥(30,498) (86,963) (14,269) — — (8,482) 2015 ¥(28,101) (87,610) 7,749 (4,804) — (3,085) Yen (millions) 2014 ¥(23,847) (79,634) 9,709 — (7,738) (3,791) U.S. dollars (thousands) 2016 $(269,894) (769,584) (126,274) — — (75,062) Advertising expenses are included in “Costs and expenses - Loss on impairment of long-lived assets is included in Selling, general and administrative”. “Costs and expenses - Loss on impairment of long-lived Shipping and handling costs represents the costs included assets”. in “Costs and expenses - Selling, general and administrative”. For the year ended March 31, 2016, the Company and Exchange gains (losses) are included in “Revenues - certain of its subsidiaries recognized impairment losses of Other” and “Costs and expenses – Other”. ¥5,766 million ($51,026 thousand) on tangible assets such as Business restructuring costs are included in “Costs and expenses - Other”. buildings and machineries, and ¥2,716 million ($24,036 thou- sand) on intangible assets and others. The impairment losses For the year ended March 31, 2015, the Company recog- included ¥2,428 million ($21,487 thousand) for Energy and nized business restructuring costs of ¥4,804 million related to Electric Systems business related assets and ¥2,418 million the loss associated with inventories under sales contracts, the ($21,398 thousand) for the Information and Communication removal and disposal of facilities and the retirement benefits Systems business related assets due to a decline in profitabili- resulting from the Company’s decision to discontinue the cop- ty. The impairment losses were mainly measured based on the per alloy business. fair value less cost to sell. Competition-law-related expenses (for the United States For the year ended March 31, 2015, the Company and Department of Justice) are included in “Costs and certain of its subsidiaries recognized impairment losses of expenses - Other”. ¥2,751 million on tangible assets such as buildings and tools, Since July 2011, the Company and certain of its subsidiar- and ¥334 million on intangible assets. The impairment losses ies had been subject to investigations and inquiries conducted included ¥562 million for Energy and Electric Systems business by the United States Department of Justice in relation to related assets and ¥1,740 million for Home Appliances busi- United States Antitrust Laws regarding the sale of certain ness related assets due to a decline in profitability. The impair- automotive parts in the United States of America. ment losses were mainly measured based on the fair value less Consequently, in September 2013, the Company entered into costs to sell. a plea agreement with the United States Department of For the year ended March 31, 2014, the Company and Justice in which the Company agreed to pay US$190,000 certain of its subsidiaries recognized impairment losses of thousand (¥18,573 million based on the rate of exchange in ¥3,627 million on tangible assets such as land, buildings and effect at the date of the transaction) in fines for the infringe- tools, and ¥164 million on intangible assets. The impairment ment of United States Antitrust Laws. For the year ended losses included ¥1,217 million for Home Appliances business March 31, 2014, the Company recorded ¥7,738 million, related assets due to a decline in profitability and ¥2,260 mil- which was equivalent to the difference between the fines and lion for welfare related assets which are scheduled to be sold. its reserves as of March 31, 2013 as various competition-law- The impairment losses were mainly measured based on the related expenses. fair value less costs to sell. (21) LEASES The Company and certain of its subsidiaries enter into capital ings, machineries and equipments. At March 31, 2016, the lease and operating lease agreements with Mitsubishi Electric Credit Corporation, an equity method investee. The leased aggregated cost and accumulated depreciation of leased assets under capital leases amounted to ¥34,753 million assets, which are committed under capital lease agreements, ($307,549 thousand) and ¥17,822 million ($157,717 thou- are capitalized. sand), respectively. The Company and certain of its subsidiaries lease build- 68 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Future minimum lease payments under capital and non-cancelable operating leases as of March 31, 2016 are as follows: Year ending March 31: 2017 2018 2019 2020 2021 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) Capital leases Operating leases U.S. dollars (thousands) Capital leases Operating leases ¥12,439 11,015 9,616 8,004 6,856 13,303 ¥61,233 ¥ 9,223 8,249 5,081 2,508 746 60 25,867 1,408 24,459 797 23,662 8,469 ¥15,193 $110,080 97,478 85,097 70,832 60,672 117,726 $541,885 $ 81,619 73,000 44,965 22,195 6,602 531 228,912 12,460 216,452 7,053 209,399 74,947 $134,452 Rental expenses related to operating leases for the years ended March 31, 2016, 2015 and 2014 amounted to ¥48,786 million ($431,735 thousand), ¥47,670 million and ¥45,246 million, respectively. These operating leases are for office space, warehouses, employee facilities and computer equipment, and are customarily renewed. (22) BUSINESS COMBINATIONS On December 23, 2015, the Company acquired approximately solidated subsidiary of the Company. In addition, the 74.97% of the share capital of MELCO Hydronics & IT Cooling Company conducted a tender offer in order to acquire the S.p.A. (hereinafter “MEHIT”, previously “DeLclima S.p.A.”), remaining shares representing approximately 25.03% of the an Italian company that designs, manufactures and sells com- share capital of MEHIT. As a result, MEHIT is a wholly owned mercial heating, ventilation and air conditioning (HVAC) equipment, for €508 million (¥67,141 million) from De’Longhi Industrial S.A. for the purpose of expanding its HVAC business subsidiary as of March 31, 2016. The purchase price and the fair values of the noncontrol- ling interests, the assets acquired and liabilities assumed as of in the European market. Consequently, MEHIT became a con- the acquisition date are summarized as follows; Purchase price Noncontrolling interests Total Current assets Goodwill Intangible assets Other assets Total assets acquired Total liabilities assumed Net assets acquired Yen (millions) ¥ 67,141 33,439 ¥100,580 ¥ 35,537 58,034 41,823 6,533 141,927 41,347 ¥100,580 U.S. dollars (thousands) $ 594,168 295,920 $ 890,088 $ 314,487 513,575 370,115 57,814 1,255,991 365,903 $ 890,088 The fair value of the noncontrolling interests is measured The operating results of MEHIT included in the consolidat- based on the valuation performed by a third party specialist ed statement of income were immaterial for the year ended considering MEHIT’s financial condition. Intangible assets March 31, 2016. acquired consist of finite-lived assets primarily including Pro forma results of operations were not disclosed “Customer relationship” of ¥27,290 million ($241,504 thou- because the effect on the consolidated financial statement sand). Goodwill is allocated to the Home Appliances segment. was immaterial. Goodwill is not expected to be deductible for tax purposes. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 69 (23) SUPPLEMENTARY CASH FLOW INFORMATION Cash paid during the year for: Interest Income taxes 2016 2015 Yen (millions) 2014 ¥ 3,038 69,981 ¥ 3,816 53,712 ¥ 4,795 37,434 U.S. dollars (thousands) 2016 $ 26,885 619,301 (24) SEGMENT INFORMATION Operating segment presented below is identified based on the segments for which separate financial information is available, and is periodically used for decision of business resources allocation and evaluation of business operation by the Company’s management. The Company conducts business through 6 reportable business segments, Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances, and Others, 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 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 Industrial Automation Systems 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 operat- ing income. 70 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Segment Information Segment information for the years ended March 31, 2016, 2015 and 2014 are as follows: As of and for the year ended March 31, 2016 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, 2015 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 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 ¥1,255,062 9,542 1,264,604 1,214,262 ¥ 50,342 ¥1,308,776 13,161 1,321,937 1,162,777 ¥ 159,160 ¥512,156 48,963 561,119 546,120 ¥ 14,999 ¥180,618 30,962 211,580 194,710 ¥ 16,870 ¥964,172 17,892 982,064 918,208 ¥ 63,856 ¥173,569 534,177 707,746 684,126 ¥ 23,620 ¥4,394,353 654,697 5,049,050 4,720,203 ¥ 328,847 ¥ — ¥4,394,353 — (654,697) 4,394,353 (654,697) 4,093,181 (627,022) ¥ 301,172 ¥ (27,675) ¥1,314,185 ¥1,051,511 ¥391,323 ¥162,772 ¥855,241 ¥245,065 ¥4,020,097 ¥ 39,844 ¥4,059,941 29,559 59,276 18,922 17,469 32,745 6,612 164,583 2,428 42,037 — 70,677 2,418 22,954 1,719 17,792 1,514 40,379 403 5,126 8,482 198,965 — — — 164,583 8,482 198,965 Yen (millions) Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Total ¥1,219,983 8,975 1,228,958 1,156,510 ¥ 72,448 ¥1,268,858 13,891 1,282,749 1,136,767 ¥ 145,982 ¥520,853 38,668 559,521 540,587 ¥ 18,934 ¥209,235 29,167 238,402 208,239 ¥ 30,163 ¥925,004 19,826 944,830 890,534 ¥ 54,296 ¥179,108 561,409 740,517 716,775 ¥ 23,742 ¥4,323,041 671,936 4,994,977 4,649,412 ¥ 345,565 ¥ — ¥4,323,041 — (671,936) 4,323,041 (671,936) 4,005,437 (643,975) ¥ 317,604 ¥ (27,961) ¥1,300,581 ¥1,064,560 ¥383,692 ¥206,981 ¥769,899 ¥246,136 ¥3,971,849 ¥ 87,602 ¥4,059,451 29,056 56,842 23,814 26,055 30,605 6,241 172,613 562 35,500 26 67,943 2 18,383 203 38,406 1,740 46,598 552 8,382 3,085 215,212 — — — 172,613 3,085 215,212 Yen (millions) 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 ¥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 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 71 As of and for the year ended March 31, 2016 U.S. dollars (thousands) 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 $11,106,743 $11,582,089 116,469 11,698,558 10,290,062 $ 445,504 $ 1,408,496 84,443 11,191,186 10,745,682 $4,532,354 $1,598,389 274,000 1,872,389 1,723,097 $ 132,735 $ 149,292 433,301 4,965,655 4,832,920 $8,532,496 $1,536,009 $38,888,080 $ — $38,888,080 5,793,779 — 38,888,080 44,681,859 36,222,841 41,771,708 $ 565,097 $ 209,027 $ 2,910,151 $ (244,912) $ 2,665,239 (5,793,779) (5,793,779) (5,548,867) 4,727,230 6,263,239 6,054,212 158,336 8,690,832 8,125,735 $11,629,956 $ 9,305,407 $3,463,035 $1,440,460 $7,568,505 $2,168,717 $35,576,080 $ 352,601 $35,928,681 261,584 524,566 167,451 154,593 289,779 58,514 1,456,487 21,487 372,009 — 625,460 21,398 203,133 15,213 157,451 13,398 357,336 3,566 45,363 75,062 1,760,752 — — — 1,456,487 75,062 1,760,752 Notes: 1 The amount of unallocatable R&D expenditure included in “Eliminations and other” on “Operating costs” for the years ended March 31, 2016, 2015 and 2014 are ¥27,675 million ($244,912 thousand), ¥27,961 million and ¥27,489 million, respectively. 2 The amount of company-wide shared assets included in «Eliminations and other» on «Assets» for the years ended March 31, 2016, 2015 and 2014 are ¥266,378 million ($2,357,327 thousand), ¥309,521 million and ¥197,227 million, respectively, and those amounts are mainly the Company’s deposit in bank. 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, 2016, 2015 and 2014 are as follows: As of and for the year ended March 31, 2016 Sales to external customers % of total net sales Long-lived assets Japan ¥2,521,194 57.4% 546,879 North America ¥447,578 10.2% 54,326 Asia (excluding Japan) ¥963,684 21.9% 137,704 Europe ¥369,978 8.4% 68,623 Others ¥91,919 2.1% 2,416 Overseas total ¥1,873,159 42.6% 263,069 Overseas As of and for the year ended March 31, 2015 Sales to external customers % of total net sales Long-lived assets Japan ¥2,512,357 58.1% 542,524 North America ¥398,501 Asia (excluding Japan) ¥959,540 9.2% 22.2% 55,757 144,669 Europe ¥360,668 8.4% 24,391 Others ¥91,975 2.1% 3,611 Overseas total ¥1,810,684 41.9% 228,428 Overseas As of and for the year ended March 31, 2014 Sales to external customers % of total net sales Long-lived assets Japan ¥2,480,369 61.2% 534,521 North America ¥330,861 Asia (excluding Japan) ¥811,081 8.2% 20.0% 39,831 109,774 Europe ¥340,611 8.4% 17,426 Others ¥91,437 2.2% 3,742 Overseas total ¥1,573,990 38.8% 170,773 Overseas Yen (millions) Consolidated total ¥4,394,353 100.0% 809,948 Yen (millions) Consolidated total ¥4,323,041 100.0% 770,952 Yen (millions) Consolidated total ¥4,054,359 100.0% 705,294 As of and for the year ended March 31, 2016 U.S. dollars (thousands) Overseas Sales to external customers % of total net sales Long-lived assets Japan $22,311,451 North America $3,960,867 Asia (excluding Japan) $8,528,177 Europe $3,274,142 Others $813,443 Overseas total $16,576,629 Consolidated total $38,888,080 57.4% 10.2% 21.9% 8.4% 2.1% 42.6% 100.0% 4,839,637 480,761 1,218,619 607,283 21,381 2,328,044 7,167,681 Notes: 1 The major countries and regions included in each segments are as follows: (1) North America : United States, Canada, and Mexico (2) Asia (excluding Japan) : China, South Korea, Thailand, Malaysia, Singapore, Indonesia, and India (3) Europe : United Kingdom, France, Germany, the Netherlands, Spain, Italy, and Czech 2 Long-lived assets consist of property, plant and equipment, intangible assets, and others. 72 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 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, 2016 Yen (millions) Japan North America Asia (excluding Japan) Europe 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 ¥2,786,357 777,173 3,563,530 3,390,147 ¥ 173,383 ¥2,743,024 ¥423,958 22,977 446,935 437,514 ¥ 9,421 ¥296,077 ¥ 759,765 294,798 1,054,563 963,557 ¥ 91,006 ¥ 835,934 ¥374,184 13,444 387,628 372,822 ¥ 14,806 ¥311,829 ¥50,089 171 50,260 49,356 ¥ 904 ¥36,924 ¥4,394,353 1,108,563 5,502,916 5,213,396 ¥ 289,520 ¥4,223,788 ¥ — (1,108,563) (1,108,563) (1,120,215) ¥ 11,652 ¥ (163,847) As of and for the year ended March 31, 2015 ¥4,394,353 — 4,394,353 4,093,181 ¥ 301,172 ¥4,059,941 Yen (millions) Japan North America Asia (excluding Japan) Europe 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 ¥2,782,686 796,274 3,578,960 3,352,761 ¥ 226,199 ¥2,809,868 ¥364,686 23,335 388,021 382,843 ¥ 5,178 ¥304,311 ¥ 755,081 292,677 1,047,758 965,339 ¥ 82,419 ¥ 872,163 ¥371,235 12,730 383,965 372,162 ¥ 11,803 ¥248,599 ¥49,353 142 49,495 49,093 ¥ 402 ¥45,607 ¥4,323,041 1,125,158 5,448,199 5,122,198 ¥ 326,001 ¥4,280,548 ¥ — (1,125,158) (1,125,158) (1,116,761) ¥ (8,397) ¥ (221,097) As of and for the year ended March 31, 2014 ¥4,323,041 — 4,323,041 4,005,437 ¥ 317,604 ¥4,059,451 Yen (millions) I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations and other Total ¥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 ¥ — ¥4,054,359 — 4,054,359 3,819,187 ¥ 235,172 ¥3,612,966 (921,515) (921,515) (912,167) ¥ (9,348) ¥(226,167) As of and for the year ended March 31, 2016 Japan North America Asia (excluding Japan) Europe Others Subtotal U.S. dollars (thousands) Eliminations and other Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets 6,877,637 31,535,664 30,001,301 $24,658,027 $3,751,841 $6,723,584 $3,311,363 $443,265 $38,888,080 $ — $38,888,080 (9,810,292) 118,973 — (9,810,292) 3,430,336 38,888,080 (9,913,407) 3,299,310 36,222,841 $ 2,665,239 $ 1,534,363 $ 83,372 $ 805,363 $ 131,026 $ 8,000 $ 2,562,124 $ 103,115 $24,274,549 $2,620,150 $7,397,646 $2,759,548 $326,761 $37,378,654 $(1,449,973) $35,928,681 9,810,292 48,698,372 46,136,248 2,608,832 9,332,416 8,527,053 203,336 3,955,177 3,871,805 1,514 444,779 436,779 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, Canada, and Mexico (2) Asia (excluding Japan) : China, South Korea, Thailand, Malaysia, Singapore, Indonesia, and India (3) Europe : United Kingdom, France, Germany, the Netherlands, Spain, Italy, and Czech 3 The amount of company-wide shared assets included in “Eliminations and other” on “Assets” for the years ended March 31, 2016, 2015 and 2014 are ¥330,357 million ($2,923,513 thousand), ¥309,521 million and ¥197,227 million, respectively, and those amounts are mainly the Company’s deposit in bank and goodwill. (25) SUBSEQUENT EVENT On June 29, 2016, the date the consolidated financial statements were issued, there are no incidence of subsequent events that would have material effects on the Company’s consolidated financial position and results of operations. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 73 Independent Auditors’ Report 74 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 Corporate Data / Shareholder Information (As of March 31, 2016) 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: 135,160 Major Shareholders 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 JP Morgan Chase Bank 385632 The Bank of Tokyo-Mitsubishi UFJ, Ltd. Japan Trustee Services Bank, Ltd. (Trust Account 4) The Bank of New York Mellon SA/NV 10 Distribution of Shareholders Individuals and Others 13.7% 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 Number of Shares (thousands) Percentage of Ownership 138,061 108,266 106,124 81,862 61,639 43,602 41,759 36,822 35,595 32,515 6.4% 5.0% 4.9% 3.8% 2.9% 2.0% 1.9% 1.7% 1.7% 1.5% Foreign Corporations 36.2% Financial Institutions 41.7% Other Corporations 6.3% Traders of Financial Instruments 2.1% Stock Price (Yen) 2,000 1,600 1,200 800 400 0 ’13/4 Mitsubishi Electric’s Stock Price Nikkei Stock Average ’14/4 ’15/4 The Nikkei Stock Average is based on information copyrighted by Nihon Keizai Shimbun, Inc. 20,000 15,000 10,000 5,000 ’16/4 Nikkei Stock Average (Yen) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2016 75 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-X01-6-C9834-A HQ 1607〈IP〉
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