To Our Shareholders and Investors Research and Development Financial Highlights Intellectual Property Corporate Strategy CSR at Mitsubishi Electric Group Contents 02 03 04 06 08 At a Glance Fiscal 2018 Topics Review of Operations 08 09 10 11 12 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances 13 14 15 26 27 28 29 79 Note 15 17 21 23 CSR Management G: Governance E: Environment S: Social Directors and Executive Officers Organization Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information FY2014: April 1, 2013–March 31, 2014 FY2015: April 1, 2014–March 31, 2015 FY2016: April 1, 2015–March 31, 2016 FY2017: April 1, 2016–March 31, 2017 FY2018: April 1, 2017–March 31, 2018 FY2019: April 1, 2018–March 31, 2019 FY2020: April 1, 2019–March 31, 2020 FY2021: April 1, 2020–March 31, 2021 Aiming to Become 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 are contributing to the realization of a prosperous society, aiming to become a “Global, Leading Green Company.“ The Mitsubishi Electric Group has become a global network of diverse businesses providing cutting-edge technologies that encompass a wide variety of applications ranging from homes, offices, and factories to social infrastructure and outer space. Looking ahead, we will increase collaboration within the Group and continually take on the challenges of “Always improving” and “Always delivering new value.” Aiming to Become 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 are contributing to the realization of a prosperous society, aiming to become a “Global, Leading Green Company.“ The Mitsubishi Electric Group has become a global network of diverse businesses providing cutting-edge technologies that encompass a wide variety of applications ranging from homes, offices, and factories to social infrastructure and outer space. Looking ahead, we will increase collaboration within the Group and continually take on the challenges of “Always improving” and “Always delivering new value.” Contents 02 03 04 06 08 To Our Shareholders and Investors Financial Highlights Corporate Strategy At a Glance Fiscal 2018 Topics Review of Operations 08 Energy and Electric Systems 09 Industrial Automation Systems 10 11 12 Information and Communication Systems Electronic Devices Home Appliances Research and Development Intellectual Property CSR at Mitsubishi Electric Group 15 17 21 23 CSR Management G: Governance E: Environment S: Social Directors and Executive Officers Organization Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information 13 14 15 26 27 28 29 79 Note FY2014: April 1, 2013–March 31, 2014 FY2015: April 1, 2014–March 31, 2015 FY2016: April 1, 2015–March 31, 2016 FY2017: April 1, 2016–March 31, 2017 FY2018: April 1, 2017–March 31, 2018 FY2019: April 1, 2018–March 31, 2019 FY2020: April 1, 2019–March 31, 2020 FY2021: April 1, 2020–March 31, 2021 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 01 To Our Shareholders and Investors 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. To this end, all members of the Group will pursue the following Seven Guiding Principles. Seven Guiding Principles Trust, Quality, Technology, Citizenship, Ethics and Compliance, Environment, Growth Looking back on the economic situation during the fiscal year Moving forward toward securing sustained business expansion ended March 31, 2018 (hereinafter, “fiscal 2018”), the Chinese thereafter, the Mitsubishi Electric Group will also keep a focus on economy remained virtually flat, while the U.S. economy experi- accelerating efforts to expand strong businesses while taking enced steady expansion. In addition, Japan and Europe saw advantage of Technology Synergies and Business Synergies to moderate recovery. Turning to movements in foreign currency support a variety of management initiatives. exchange rates, from May through early November 2017 the yen remained weak against U.S. dollar and euro, compared to the Based on our Corporate Mission and Seven Guiding Principles, previous fiscal year. However, the yen strengthened against U.S. we of the Mitsubishi Electric Group position corporate social dollar from late November 2017 onward. responsibility (CSR) initiatives as our main pillar of corporate man- Under these circumstances, the Mitsubishi Electric Group placed agement. Accordingly, the entire Group is committed to provid- greater emphasis than ever before on promoting growth strategies ing products, systems and services on a worldwide basis while rooted in its competitive advantages, as well as on initiatives to being mindful of the challenges that society now faces—particu- boost its competitiveness and strengthen its management structure. larly environmental issues and resource and energy issues. In this As a result, the Mitsubishi Electric Group recorded consolidated way, we aim to be recognized as a “Global, Leading Green net sales of ¥4,431.1 billion in fiscal 2018—an increase of 5% Company” capable of contributing to the realization of a pros- compared to the previous fiscal year. Operating income increased perous society. 18% year-on-year to ¥318.6 billion, for a Group operating As we resolutely advance forward to achieve our goals, we ask income ratio of 7.2%. for your continued support. In accordance with its management targets, the Group will remain committed to maintaining a return on equity (ROE) of above 10% and keeping the ratio of interest-bearing debt to total assets below 15% while striving to achieve its growth targets, namely, consolidated net sales of ¥5.0 trillion or more and an operating income ratio of 8% or more, by fiscal 2021. 02 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 July 2018 President & CEO Takeshi Sugiyama Financial Highlights Performance for the Year Ended March 31, 2018 Years ended March 31 2018 2017 2016 Yen (millions) U.S. dollars (thousands) 2018 Net sales Operating income Net income attributable to Mitsubishi Electric Corp. Total assets Interest-bearing debt Mitsubishi Electric Corp. shareholders’ equity Capital expenditure (Based on the recognized value of property, plant and equipment) 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 ¥4,431,198 ¥4,238,666 ¥4,394,353 $41,803,755 318,637 271,880 4,264,559 311,485 2,259,355 181,513 210,308 270,104 210,493 4,172,270 352,124 2,039,627 175,542 201,330 301,172 228,494 4,059,941 404,039 1,838,773 177,801 202,922 3,006,009 2,564,906 40,231,689 2,938,538 21,314,670 1,712,387 1,984,038 Yen U.S. dollars ¥126.70 ¥98.07 ¥106.43 — 40 — 27 — 27 % 7.2% 6.4% 6.9% 12.6 7.3 10.9 8.4 12.4 10.0 $1.195 — 0.377 — — — See accompanying Notes to Consolidated Financial Statements on page 45. 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 From the fiscal year ended March 31, 2018, the Company has adopted Accounting Standards Update 2015-17 “Balance Sheet Classification of Deferred Taxes” issued by the Financial Accounting Standards Board. The consolidated balance sheet as of the previous fiscal year has been reclassified to reflect this adoption. 3 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. 4 Diluted net income per share attributable to Mitsubishi Electric Corp. is not included in the above figure as no dilutive securities existed. 5 U.S. dollar amounts are converted from yen at the rate of ¥106=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2018. Net Sales Breakdown by Business Segment Others 14.9% Net sales ¥764,346 million Energy and Electric Systems 24.2% Net sales ¥1,241,952 million Home Appliances 20.4% Net sales ¥1,049,369 million Electronic Devices 3.9% Net sales ¥202,294 million Note: Inter-segment sales are included in the amounts of the diagram above. Industrial Automation Systems 28.1% Net sales ¥1,444,928 million Information and Communication Systems 8.5% ¥436,068 million Net sales MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 03 Corporate Strategy Management Philosophy and Policy Growth • Accelerate growth of strong businesses • Technology synergies/ Business synergies • Agile response to changes in business environment Profitability Efficiency • Enhance capital efficiency • Create a stronger business foundation Greater Corporate Value Soundness • Constantly review and refresh business portfolio • Maintain sound financial standing • Strengthen corporate governance and compliance on a continuous basis 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. Embodiment of the Corporate Mission “Global, Leading Green Company” Contribute to the realization of a prosperous society that simultaneously achieves “sustainability” and “safety, security and comfort” Initiatives to Create Value Growth Targets to be Achieved by FY2021 Net Sales 5 trillion JPY or more OPM 8% or more Provide Products, Systems, and Services Globally Make Strong Businesses Stronger Technology Synergies/ Business Synergies Contemporary Challenges in 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 work to continuously and stably achieve the following management targets: secure an ROE of 10% or more, and secure an interest- bearing debt ratio of 15% or less of total assets. In fiscal 2018, the Mitsubishi Electric Group achieved consoli- dated net sales of ¥4,431.1 billion and operating income of ¥318.6 billion, achieving record highs for both. In addition, the Group continued to achieve its management targets for ROE of 10% or more and an interest-bearing debt of 15% or less of total assets, recording figures of 12.6% and 7.3%, respectively, as of March 31, 2018. Growth Targets to be Achieved by FY2021 Net sales Operating income ratio ¥5.0 trillion or more 8% or more Environmental issues Resource/ Energy issues Management Targets to be Continuously and Stably Achieved ROE Ratio of interest-bearing debt to total assets 10% or more 15% or less Bolstering Growth Strategies The Mitsubishi Electric Group’s distinctive strengths lie in the fol- lowing three areas: 1) A wide range of technological assets such as controls and power electronics; 2) Activities in diverse busi- nesses with different business features; and 3) “Kaizen” (improve- ment) culture taking root in every field, including production, quality management, sales, services, etc. Fully utilizing these strengths, the Group is striving to make strong businesses stronger while taking advantage of technology synergies and business synergies. Having positioned these pursuits as the core of its growth strategies, the Mitsubishi Electric Group will thus endeavor to achieve its fiscal 2021 growth targets and secure sustained business expansion thereafter. 04 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 The Mitsubishi Electric Group has positioned corporate social responsibility (CSR) as a pillar of its corporate man-agement, based on its Corporate Mission and Seven Guiding Principles. Accordingly, the Group has made com-mitted efforts to become a corporation whose efforts are appreciated through its initiatives toward solving social issues. Or in other words, a corporation that is trusted by its stakeholders, including its society, customers, shareholders, and employees as a whole, and that earns their satisfaction through its business practices. The Group has taken on the challenge of resolving envi-ronmental issues, resource and energy issues, and other social issues all of us face today on a global scale through its products, systems and services. In doing so, it aims to be recognized as a “Global, Leading Green Company” contrib-uting to the realization of a prosperous society that simul-taneously achieves “sustainability” and “safety, security and comfort.” In these ways, the Mitsubishi Electric Group pur-sues the sustainable development of the entire Group.To ensure its corporate growth is sustainable, since fiscal 2002 the Group has adhered to the management policy of maintaining Balanced Corporate Management based on three perspectives: growth, profitability and efficiency, and soundness. Through these perspectives it has striven to secure greater corporate value. The Group is also committed to continuously enhancing its corporate governance and compliance systems. Growth Strategy (Initiatives for value creation) Make Strong Businesses Stronger: Promote investments and improvements to further strengthen growth drivers Technology Synergies and Business Synergies: Pursue value creation and competitiveness by leveraging our strengths Strength of the Mitsubishi Electric Group (cid:693) A wide range of technological assets such as controls and power electronics (cid:693) Activities in diverse businesses with different business features (cid:693)“Kaizen” (improvement) culture taking root in every field, including production, quality management, sales, services, etc. Technological Assets Value Creation p u o r G c i r t c e l E i h s i b u s t i M Control (motion, heat, fluid, and electricity) Power Electronics Human Machine Interface Encryption Communication Data Processing Electromagnetic Analysis Sensing Design Devices ... Technological Platform s e i g r e n y S y g o o n h c e T l 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 Technology Synergies: Create value and strengthen competitiveness of products/systems/services through optimal combination of technological assets Business Synergies: Create additional value and competitiveness through collaboration of a wide variety of businesses (through combination of products/ systems/services) Operating Platform R&D and IP Procurement Productivity Quality Sales Services Open & Global Innovation Enhance technological development capabilities through joint R&D initiatives Universities Corporations R&D Agency Government Standardization Organizations Make Strong Businesses Stronger Currently, the Group has identified eight businesses—Power Systems, Transportation Systems, Building Systems, Factory Automation (FA) Systems, Automotive Equipment, Space Systems, Power Devices, and Air-Conditioning & Refrigeration Systems—as growth drivers. In addition to these businesses being prioritized for the allocation of management resources, ongoing initiatives are under way to improve these operations and enhance their strengths. Focusing on these businesses, the Group will thus expand its operations into markets worldwide, ranging from Japan, North America, Europe, and China to newly emerg- ing markets, including those elsewhere in Asia. By satisfying the needs of each market, the Group will continue to provide and create value for its customers, and thereby secure sustainable growth going forward. Technology Synergies and Business Synergies Fully employing its strengths, the Mitsubishi Electric Group will pursue the coordination of diverse technologies and businesses to create additional value and secure greater competitiveness. Specifically, the Group seeks to improve the performance and reliability of every product and system it offers by creating technology synergies through optimal combinations of its strong technological assets, which encompass a wide range of techno- logical fields, as well as business synergies through the coordina- tion of its diverse business activities. At the same time, the Group will improve its ability to respond to its customers’ business chal- lenges and needs by further accelerating the strategic combina- tion of its technologies, products, systems, and services. Through these efforts, the Group will secure greater reputation with its customers in existing markets while developing new businesses and markets. While executing its growth strategies, the Mitsubishi Electric Group will continue to allocate a high volume of investment resources, including research and development and capital, while actively pursuing collaborative ties and M&As to boost corporate growth for the Group with the following three perspectives in mind: Supplement missing parts (products/ technology) essential for business expansion; Secure distribution-/ service-network (supply chain) in entering new regions/ markets; and Acquire tal- ent in order to strengthen business execution capabilities. By doing so, the Group will maximize its investment outcome. At the same time, the Group will review and refresh its business portfolio to reallocate its management resources to areas that show growth. Moreover, the Group will strengthen this portfolio by continuously creating new strong businesses capable of driving future growth. Building Robust Management Foundation To strengthen its management foundation, the Mitsubishi Electric Group continuously strives to improve 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 with the aim of 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 (Mitsubishi Electric ver- sion) to monitor asset efficiency by business segment, thereby improving the ROE of all Group operations. Looking ahead, the Mitsubishi Electric Group will continue to focus on generating stable cash flows while maintaining a well- balanced approach in securing funds for executing strategic growth investment and enhancing shareholder returns in step with profit growth. In these ways, the Group will diligently work to increase corporate value. Striving for Continuous Innovation The Mitsubishi Electric Group will steadfastly carry out its man- agement policies guided by a commitment to Balanced Corporate Management, while putting into practice the concept behind its overarching corporate statement: Changes for the Better. Each and every employee will share the common goal of “Always improving” and “Always delivering new value,” and the Mitsubishi Electric Group—by continuing to undergo transforma- tion itself—will mature into a corporation that is always produc- ing something better. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 05 At a Glance Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Net sales Yen (billions) 1,500 1,200 900 600 300 0 1,180 1,228 1,264 1,227 1,241 Net sales Yen (billions) 1,500 1,200 1,098 1,282 1,321 1,310 1,444 14 15 16 17 18 (Years ended March 31) 900 600 300 0 14 15 16 17 18 (Years ended March 31) Net sales Yen (billions) 1,500 1,200 900 600 300 0 548 559 561 447 436 14 15 16 17 18 (Years ended March 31) Operating income Yen (billions) Operating income Operating income Yen (billions) Yen (billions) 200 160 120 80 40 0 76 72 50 44 51 14 15 16 17 18 (Years ended March 31) 200 160 120 80 40 0 190 159 145 140 98 14 15 16 17 18 (Years ended March 31) 200 160 120 80 40 0 5 14 18 15 14 16 12 17 11 18 (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, transmission and distribution systems, large display devices, electrical equipment for locomotives and rolling stock, elevators, escalators, building security systems, building management 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, network camera systems, 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 2018 Topics • Began rolling out Maisart brand AI technologies that employ proprietary Mitsubishi Electric AI expertise and application technologies. • Guinness World Records Ltd. certified1 KIRIGAMINE as the longest-running air-conditioner brand.2 1 Certified on June 27, 2017 2 Longest running cross-flow-fan air conditioner brand; 49 years and 258 days • Became the first* in the industry to mass-produce a crankshaft-mounted integrated starter-generator (ISG) system for 48V hybrid vehicles. Daimler AG is planning to incorporate this ISG system into its Mercedes-Benz vehicles. * As of October 26, 2017 (Mitsubishi Electric research) 2017 • Completed a new satellite component production facility in June 2018 to manufacture and test solar array panels and other products made using composite materials within the premises of the Kamakura Works’ Sagami Factory (Sagamihara City, Kanagawa Prefecture), with plans calling for bringing this facility online in October. • Chosen by CDP, an international NGO focused on researching, assessing and disclosing environ- mental initiatives undertaken by businesses and municipal bodies, to receive the highest rating under its fiscal 2018 assessment program in the three categories: “Climate Change,” “Water” and “Supply Chain.” The Company secured this rating for a second consecutive year. 06 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 • Became a co-founder of the Edgecross Consortium, an inter-company, inter-industry initiative aimed at creating new value through the pursuit of edge computing technologies, such as MELIPCs, real-time data analyzers and other Edgecross solutions. Electronic Devices Home Appliances Others Net sales Yen (billions) 1,500 1,200 900 600 300 0 194 238 211 186 202 14 15 16 17 18 (Years ended March 31) Net sales Yen (billions) 1,500 1,200 900 600 300 0 944 944 982 1,004 1,049 14 15 16 17 18 (Years ended March 31) Net sales Yen (billions) 1,500 1,200 900 600 300 0 676 740 707 713 764 14 15 16 17 18 (Years ended March 31) Operating income Operating income Operating income Yen (billions) Yen (billions) Yen (billions) 200 160 120 80 40 0 10 14 30 15 16 16 8 17 14 18 (Years ended March 31) 200 160 120 80 40 0 52 54 63 69 56 14 15 16 17 18 (Years ended March 31) 200 160 120 80 40 0 19 14 23 15 23 16 23 23 17 18 (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 Room air conditioners, package air conditioners, chillers, showcases, compressors, refrigeration units, air-to-water heat pump boilers, ventilators, photovoltaic systems, hot water supply systems, IH cooking heaters, LED lamps, fluorescent lamps, indoor lighting, LCD televisions, refrigerators, electric fans, dehumidifiers, air purifiers, cleaners, jar rice cookers, microwave ovens, and others Procurement, logistics, real estate, advertising, finance, and other services • Mitsubishi Electric Automation Manufacturing (Changshu) Co., Ltd. (Jiangsu Province, China) established a new industrial robot manufacturing line at its second factory and brought it online. • Bringing its new factory online, Mitsubishi Electric Turkey Klima Sistemleri Üretim Anonim ¸Sirketi (Mitsubishi Electric Air Conditioning Systems Manufacturing Turkey) became the Mitsubishi Electric Group’s local operating base for room air conditioner development and manufacturing. • Delivered equipment/systems that contribute to ZEB (net Zero Energy Building) for the new head office building of SHIRASAGI DENKI KOGYO Co., Ltd., as the first ZEB planner among electrical equipment manu- facturers, in January 2018. 2018 • Became the first* Japanese company to receive an order from French National Railways for prototype traction transformers for rolling stock. * As of December 5, 2017 (Mitsubishi Electric research) • Developed a 6.5 kV full-SiC power semiconductor module that is believed to offer the world’s highest* power density rating thanks to its unique single-chip structure and a newly developed package. • Mitsubishi Electric’s Power Distribution Systems Center (Marugame City, Kagawa Prefecture) completed a new factory equipped with IoT-driven innovative production systems employing the “e-F@ctory” to manufacture vacuum valves and circuit breakers. * Among high-voltage power semiconductor modules; as of January 31, 2018; Mitsubishi Electric research MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 07 Review of Operations Energy and Electric Systems Net Sales Breakdown by Business Segment 24.2% Net Sales ©CHIBA LOTTE MARINES ¥1,241.9 billion up 1% year on year Operating Income ¥51.7 billion up ¥7.3 billion year on year The social infrastructure systems business saw decreases in both orders and sales compared to the previous fiscal year due primarily to decreases in the transportation systems business outside Japan and the power systems business in Japan. The building systems business remained substantially unchanged in orders, while sales increased compared to the previous fiscal year due primarily to growth in the renewal business in Japan and the new installation of elevators and escalators outside Japan. As a result, total sales for this segment increased by 1% from the previous fiscal year to ¥1,241.9 billion. Operating income increased by ¥7.3 billion from the previous fiscal year to ¥51.7 billion due primarily to a shift in project portfolios. 08 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 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 Offerings in the Mitsubishi Electric Group’s lineup of large- scale visual information systems boast Diamond VisionTM—a technology that helps fuel audience excitement in such venues as stadiums—along with cutting-edge information distribution platforms that employ the internet and data broadcasting. As such, the Group provides visual information systems that enrich people’s lives in various ways. Transmission & Distribution Systems Transmission and distribution facilities are essential parts of the electricity supply infrastructure, and to ensure stability their components must meet stringent requirements for reliability, functionality and performance. Satisfying customer needs for sophisticated solutions, Mitsubishi Electric boasts a broad lineup of high-quality products that support such facilities. D-SMiree Smart Power Distribution Network Systems for Medium or Low Voltage Direct Current In response to growing calls for standalone power distribution structures in which individual buildings’ electricity needs are met by discrete on-site generation facilities, Mitsubishi Electric has created the Energy Management System (EMS), which is specifi- cally designed for direct current distribution. Boasting predictive functions covering both generator output and electricity demand, the EMS helps control charging and discharging schedules to best utilize direct current generated by photovoltaic generators as well as that released from batteries, thus eliminating energy loss attributable to conversion to alternating current. NEXIEZ Machine-room-less Elevators Compact, lightweight, and energy-saving, NEXIEZ machine-room- less elevators are the global flagship product. They are widely used throughout the world, mainly in low- to mid-rise buildings. Models designed with various functions and features for specific regions are also available to meet the preferences and customer needs of each region. Series Z Escalators The Z-Series escalators offer enhanced safety through several features that ease stepping on/off and help prevent clothing from getting caught, so that passengers of all ages, from small children to the elderly, can use the escalators safely. They also offer a higher level of energy conservation by providing optional features such as VVVF inverters. Environmentally friendly, people-friendly, and beautiful, the Z-Series show the future of escalators. Industrial Automation Systems Net Sales Breakdown by Business Segment 28.1% Net Sales ¥1,444.9 billion up 10% year on year Operating Income ¥190.8 billion up ¥50.7 billion year on year The factory automation systems business saw increases in both orders and sales from the previous fiscal year due primarily to growth in capital expenditures in the fields of organic light emitting diodes (OLED) mainly in Korea, smartphones and electric cars in China as well as buoyancy in exports by machinery manufacturers in Japan. The automotive equipment business saw increases in both orders and sales from the previous fiscal year, due primarily to increases in sales volume of Japanese car manufacturers in China, as well as the weaker yen, despite decreased car sales in North America. As a result, total sales for this segment increased by 10% from the previous fiscal year to ¥1,444.9 billion. Operating income increased by ¥50.7 billion from the previous fiscal year to ¥190.8 billion due primarily to an increase in sales. Programmable Logic Controllers Mitsubishi Electric’s MELSEC series of programmable logic controllers supports a wide array of production and social infrastructure applications; solutions range from control and safety devices to information and instrumentation management. As a leading global brand, the MELSEC series contributes to the construction of cutting-edge control systems owing to its capabilities, performance, product variety, and high reliability. AC Servos The MELSERVO Series enhance all aspects of production devices and facilities. From rotary servo motors to linear servo motors and direct drive motors, a wide range of products is available to meet any number of applications and to significantly improve the performance of all relevant devices. Computerized Numerical Controllers—CNCs A broad range of CNCs is available. Including, for example, the M800/80 Series, which increases productivity and precision and optimizes machine tool operation through an independently developed dedicated CPU and abundant control functions. It is also compatible with the various field networks that are necessary for constructing automated systems. 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-MZ300PREMI/NR-MZ200PREMI-2 car audio-navigation system offers superior quality in terms of responsiveness, image resolution, and design. It enhances the driving experience more than ever, with faster and more visually appealing navigation. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 09 Review of Operations Information and Communication Systems Net Sales Breakdown by Business Segment 8.5% Net Sales ¥436.0 billion down 3% year on year Operating Income ¥11.9 billion down ¥0.7 billion year on year The telecommunications equipment business saw decreases in both orders and sales compared to the previous fiscal year due primarily to decreased demand in communications infrastructure equipment. The information systems and service business 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 mainly due to increases in the defense systems and space systems businesses, while sales experienced a decrease compared to the previous fiscal year due primarily to a shift in large-scale projects in the defense systems business. As a result, total sales for this segment decreased by 3% from the previous fiscal year to ¥436.0 billion. Operating income decreased by ¥0.7 billion from the previous fiscal year to ¥11.9 billion due primarily to a decrease in sales. 10 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 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) “kizkia”: Video Analysis Solution using Artificial Intelligence Powered by AI, this system can identify attributes of persons or things and automatically recognize their movements, conditions and situations by analyzing security footage in real-time. It notifies irregular situations which may require staff’s support but would otherwise been overlooked by human observers. The system also makes it possible to support forecasting future conditions. (Mitsubishi Electric Information Systems Corporation) DS2000 Standard Satellite Platform The DS2000 is a standard satellite platform modeled after JAXA’s ETS-VIII. It meets the need for high-quality, low-cost satellites with shortened delivery times. It has already been adopted for use by Japan and other countries; more than ten satellites currently in orbit use it. It will eventually be incorpo- rated into JAXA’s Engineering Test Satellite 9, which is being launched in response to the need for high-throughput commu- nications satellites. 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 3.9% Net Sales ¥202.2billion up 8% year on year Operating Income ¥14.5 billion up ¥6.1 billion year on year The electronic devices business saw an increase in orders from the previous fiscal year due to increases in demand for power modules used in consumer and industrial applications, despite a decrease in demand for optical communication devices, and total sales increased by 8% compared to the previous fiscal year to ¥202.2 billion. Operating income increased by ¥6.1 billion from the previous fiscal year to ¥14.5 billion due primarily to an increase in sales. 19.0-inch SXGA 1200V Large DIPIPM*TM Ver. 6 The Mitsubishi Electric has expanded its lineup of 1200V large DIPIPMTM Ver. 6 to include those suited for 40kW-class package air conditioners, thus contributing to downsizing, light-weight- ing and energy-saving inverters for use in air conditioners and other appliances. * DIPIPM: Transfer mold package intelligent power module with short-circuit protection. LV100-Type X-Series HVIGBT1 Modules Incorporating 7th-generation IGBT and RFC diodes, these high- voltage power semiconductor modules are designed to support traction, power transmission systems and large industrial appli- cation with their large capacities. The modules will offer high power and high efficiency of the inverter systems by realizing the greatest power density on the market2 and it will enable inverter systems to be more flexible configurations and higher reliability by new package structure and optimized terminal layout. 1 High Voltage Insulated Gate Bipolar Transistor 2 As of May 11, 2017, Mitsubishi Electric research Ka-Band1 GaN2 HEMT3 MMIC4 for Satellite Earth Stations This GaN HEMT MMIC suitable for satellite communication system which are used for high-speed communication during natural disasters and in areas where ground networks are dif- ficult to construct. Playing key roles in these systems, the GaN HEMT MMIC offers industry top-level low distortion5 and output power of 8W, will help to downsize satellite earth stations. 1 Microwaves with frequencies ranging from 26 to 40 GHz 2 Gallium Nitride 3 High Electron Mobility Transistor 4 Monolithic Microwave Integrated Circuit 5 Based on Mitsubishi Electric research as of October 4, 2017; compared with other Ka-band GaN HEMT MMIC devices for use in satellite earth stations Compact Integrated 400Gbps1 EML2-TOSA3 The Mitsubishi Electric became the first in the industry4 to release 400Gbps EML TOSAs conforming to the IEEE 400GBASE-LR8 standards5 established for high-capacity communication systems supporting 400Gbps transmissions by covering 8 wavelengths with a pair of TOSAs. Used in facil- ities such as data centers, these devices thus help enhance optical com- munications infrastructure by boosting transmission speed and capacity. 1 Gigabits per seconds 2 Electro-absorption Modulated Laser diode 3 Transmitter Optical Sub Assembly 4 As of March 7, 2018, based on internal research 5 Ethernet basic standards formulated by the American Institute of Electrical and Electronics Engineers for 400Gbps communication speed, 10 km transmission distance and eight different wavelengths TFT-LCD Modules with Touch Panels for Industrial Applications (19.0-inch SXGA, 8.0-inch WVGA, 12.1-inch XGA/WXGA) These projected capacitive touch panels using cover glass of up to five millimeters in thickness, support maximum 10 simul- taneous touch inputs, and can be used even with thick, heat- resisting gloves or when the screen is wet. They are ideal for outdoor applications that require impact or water resistance. 8.4-inch VGA Transflective Series TFT-LCD Modules for Industrial Applications (8.4-inch VGA and 10.4-inch XGA) Transflective series TFT-LCD modules ensure low power consumption by switching off backlight when ambient light is available. As these modules boast market-leading visibility under direct sunlight and are capable of operating in wide temperature range, this lineup provides superior solutions for display used outdoors in industrial equipment. 10.4-inch XGA MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 11 Review of Operations Home Appliances Net Sales Breakdown by Business Segment 20.4% Net Sales ¥1,049.3 billion up 4% year on year Operating Income ¥56.0 billion down ¥13.6 billion year on year The home appliances business saw a 4% increase in sales compared to the previous fiscal year to ¥1,049.3 billion, due to increases in sales of air conditioners in the European, Chinese and U.S. markets, in addition to positive influences caused by the weaker yen. Operating income decreased by ¥13.6 billion compared to the previous fiscal year to ¥56.0 billion due primarily to increases in material prices and sales expenses. Air Conditioning Systems 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. Home 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 2018 Research and Development Basic Policy on Research and Development As the cornerstone of its growth strategy, the Mitsubishi Electric Group will promote short-, medium-, and long-term R&D themes R&D policy in a balanced manner. Well balanced short-, mid- and long-term R&D In addition to thoroughly strengthening current businesses, the External technologies/entities Group is striving to leverage its accumulated strengths as an innova- tive, diversified electrical equipment manufacturer to create greater value through technological and business synergies and is engaging in R&D of future technologies needed to realize its ideal vision. At the same time, the Group is also focused on research into fundamental technologies that support all of its products. Furthermore, the Group will maximize achievements by promoting enhancement of efficiency of development through proactive utilization of open innovation in collaboration with universities and other external R&D institutions. B ackcast Future society Future society Super smart society Society 5.0 Open Innovation Developing technologies necessary to realize future society Creating further value through synergy of technologies and businesses Thoroughly strengthening current businesses S h o r Deepening common fundamental technologies t e r m - t M i d - t e r m ( 4 Y s ~ ) t e r m L o n g - ( 1 0 Y s ~ ) Society 5.0: It is contained in the 5th Science and Technology Basic Plan approved by the Government of Japan in Jan. 2016. SDGs: A set of 17 “Global Goals” with 169 targets as the sustainable development goals toward 2030, adopted by the United Nations in Sep. 2015. Major R&D Achievements in Fiscal 2018 Development of Object-Recognition Camera Technology for Coming Mirrorless Cars Mitsubishi Electric Corporation has developed what is believed to Development of 6.5 kV Full-SiC Power Semiconductor Module*1 Mitsubishi Electric Corporation has developed a 6.5 kV full-SiC*2 be the industry’s highest*1 performing automotive camera tech- power semiconductor module featuring the world’s highest*3 nology for coming mirrorless cars*2 that instantly detects various power density*4 of 9.3 kVA/cm3 (1.8 times compared with Si*5 object types at distances of up to 100 meters using Mitsubishi module) enabled by insulating substrate with both thermal conduc- Electric Corporation’s proprietary Maisart*3 -brand artificial intelli- tivity and heat tolerance, and by high reliable bonding technology. gence (AI) technology. Since the replacement of Si modules with full-SiC modules sub- As a result of the approval of mirrorless cars for use in Europe stantially reduces switching loss and makes it possible to conduct and Japan in June 2016, the market is expected to rapidly expand high frequency operations, which had been difficult to carry out with in the future. Si modules, this technology can realize energy-efficient power elec- This technology instantly detects approaching objects and iden- tronics equipment as well as compact peripheral components. The tifies the type of object at the same time, which is expected to help application of this module will lead to smaller and more energy- prevent accidents, especially when drivers change lanes, by warn- efficient power electronics equipment for high-voltage electrical ing drivers. As such, the development of this technology will con- equipment for railcars and power system and transformer equipment. tribute to the realization of a safe and secure automobile society. *1 This development is subsidized by the New Energy and Industrial Technology *1 As of January 17, 2018 (survey conducted by Mitsubishi Electric Corporation) *2 System that replaces rearview and side mirrors with camera-monitoring systems *3 Mitsubishi Electric’s AI creates the State-of-the-ART in technology Mitsubishi Electric’s AI technology brand aimed at making all equipment smart Development Organization (NEDO). *2 SiC: Silicon Carbide (a compound of carbon and silicon) *3 As of January 31, 2018, as high-voltage power semiconductor module (survey conducted by Mitsubishi Electric Corporation) *4 The magnitude of power generated by a certain volume at the time of standard operation *5 Si: Silicon Power density rating (kVA/cm3) 9.3 5.1 1.8 times higher Instant recognition of distant objects to help ensure driving safety Contributing to advances in railcar- and power facility-related equipment in terms of energy efficiency and miniaturization Conventional (Si) New model (SiC) Improved power density rating 6.5kV full-SiC power semiconductor module MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 13 Intellectual Property Protection of Intellectual Property Rights Basic Policy R&D centers, and affiliated companies in each country. Through these initiatives, we strive to create a robust global patent network. The proper protection of intellectual property (IP) rights promotes As an indication of the Mitsubishi Electric Group’s IP capability technological progress and sound competition, and also contrib- and global IP activities, the company ranked 1st in Japan in terms utes to realizing affluent lifestyles and the development of society. of the number of patent registrations (in 2017) announced by the The Mitsubishi Electric Group recognizes that intellectual prop- Japan Patent Office (JPO), and 4th in the world in terms of Patent erty (IP) rights represent a vital management resource essential to Cooperation Treaty (PCT) applications by businesses (in 2017) its future and must be protected. Through integrating business, announced by the World Intellectual Property Organization (WIPO). R&D, and IP activities, the Group is proactively strengthening its global IP assets, which are closely linked to the Group’s business growth strategies and contribute to both business and society. Annual Trends in Overseas Patent Applications by the Mitsubishi Electric Group Structure of the Intellectual Property Division The IP divisions of the Mitsubishi Electric Group include the Head (No. of Applications) 12,000 Office IP Division, which is the direct responsibility of the president, 9,000 and the IP divisions at the Works, R&D centers, and affiliated companies. The activities of each IP division are carried out under 6,000 the executive officer in charge of IP at each location. The Head Office IP Division formulates strategies for the entire Group, promotes critical projects, coordinates interaction with external agencies including patent offices, and is in charge of IP public relations activities. At the Works, R&D center, and affiliated com- pany level, IP divisions promote individual strategies in line with the Group’s overall IP strategies. Through mutual collaboration, these divisions work to link and fuse their activities in an effort to 3,000 0 2015 2016 2017 2018 (FY) (cid:31)(cid:31) USA (cid:31)(cid:31) Europe (cid:31)(cid:31) China (cid:31)(cid:31) Others Respecting IP Rights develop more effective initiatives. The Mitsubishi Electric Group firmly recognizes the importance of Integrating Business, R&D and IP Activities tual property rights but the intellectual property rights of others Integration IP Network Group Conduct Guidelines and practiced throughout the Group. as well. This stance is clearly set forth in the Mitsubishi Electric mutually acknowledging and respecting not only its own intellec- IP/Standardization Strategy IP Division at Headquarters Business Strategy IP Departments Business Groups, Facilities, Affiliates Development Strategy R&D Centers IP Departments Global IP Strategy Any infringements on the IP rights of others not only violate the Code of Corporate Ethics and Compliance, but also have the potential to significantly impair the Group’s continued viability as a going concern. The resulting potential impairments include being obliged to pay significant licensing fees or being forced to discontinue the manufacture of a certain product. In order to prevent any infringement on the IP rights of others, various educational measures are provided mainly to engineers and IP officers, to raise employee awareness and promote greater respect for the IP rights of others. At the same time, a set of rules has been put in place to ensure that a survey of the patent rights The Mitsubishi Electric Group identifies critical IP-related themes of others is carried out at every stage from development to pro- based on its mainstay businesses and important R&D projects, duction, and is strictly enforced throughout the entire Group. and is accelerating the globalization of IP activities also by filing The Mitsubishi Electric Group also works diligently to prevent patents prior to undertaking business development in emerging any infringement on its IP rights by others. In addition to in-house countries where an expansion of business opportunities is expected. activities, we place particular weight on collaborating with industry Furthermore, resident officers are assigned to Mitsubishi Electric organizations while approaching government agencies both in sites in the United States, Europe, and China to take charge of IP Japan and overseas as a part of a wide range of measures to activities and strengthen the IP capabilities of business offices, prevent the counterfeiting of our products. 14 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 CSR at Mitsubishi Electric Group CSR Management Principles of CSR The Mitsubishi Electric Group regards its corporate social responsibility (CSR) initiatives as the foundation of its corporate management, and upholds its Corporate Mission and Seven Guiding Principles as the basic policies of its CSR. Particularly with respect to initiatives related to ethics and legal compliance, Group-wide efforts are made to enforce measures such as enhancing training and strengthening internal controls. Active measures are also taken to ensure and improve quality assurance, environmental preservation activities, philanthropic activities, and communication with stakeholders. By engaging in corporate activities based on a management plan and implementing ongoing improvement activities related to CSR and key performance indicators (KPI) based on the PDCA approach, we will contribute toward creating an affluent society. Mission Management Policy Corporate Activities CSR Materiality 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, enhance the quality of life in our society. To this end, all member of the Group will pursue the following Seven Guiding Principles. Seven Guiding Principles Trust, Quality, Technology, Citizenship, Ethics and compliance, Environment, Growth Balanced Corporate Management Strive for Continuous Innovation Pursue the Satisfaction of the Four Stakeholder Categories Initiatives through Business Initiatives That Support Business ESG(cid:1) (Environment/Social/Governance) Realize a sustainable society Provide safety, security, and comfort Respect human rights and promote the active participation of diverse human resources Strengthen corporate governance and compliance on a continuous basis Key Performance Indicators (KPI) Contribute to the realization of a prosperous society Promotional System for CSR The policies and planning for the CSR activities of the Mitsubishi Electric Group are decided by a CSR Committee appointed by Mitsubishi Electric’s executive officers. The Committee is composed of the heads of Mitsubishi Electric’s management departments (19 members in charge of environmental, social and governance aspects from divisions such as Corporate Strategic Planning and Corporate Human Resources), and discusses the results of activi- ties performed during the previous fiscal year, decisions on future activity plans, and responses to law amendments, from a per- spective that spans the entire Mitsubishi Electric Group. Knowing that CSR activities are directly linked to corporate management, each department responsible for ethics and legal compliance, quality assurance and improvement, environmental conservation and philanthropy activities, and communication with stakeholders implements their own initiatives, based on the CSR policy of the Mitsubishi Electric Group. In addition to the CSR Committee that is generally held once a year, various activities are also promoted and implemented in communication with the CSR Expert Committee and CSR Business Promotion Committee, which are convened as a forum for sharing and executing the policies and plans established by the CSR Committee. Main agenda of the CSR Committee (held in April 2018) • Report on achievements made in the previous fiscal year and activities planned in the current fiscal year • Responses to the sustainable development goals (SDGs*) • Responses to ESG (environment, society, governance) investment • Human rights initiatives • Supply chain management * The Sustainable Development Goals (SDGs) comprise a set of targets adopted by the U.N. General Assembly in 2015 as part of an action plan to be accomplished by 2030 that would end poverty, protect the planet, and ensure prosperity for all. CSR Committee Chairman: Director in charge of CSR Director-general: General Manager of the Corporate Administration Div. Corporate Administration Div. CSR Promotion Center CSR Expert Committee CSR Business Promotion Committee Departments Affiliates in Japan Overseas Affiliates MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 15 CSR at Mitsubishi Electric Group Initiatives related to the SDGs Through our numerous businesses and the entirety of our corpo- and electronic manufacturer, and are consistent with the nature rate activities, including environment, society and governance of the company we are aiming to become. We will contribute (ESG)-related activities, the Mitsubishi Electric Group is playing its even more to achieving the SDGs by creating value in these areas part in achieving the 17 SDGs. via technological and business synergy, prioritizing the initiatives At the same time, we believe we need to define specific fields we advance. and focus our efforts to further contribute to attaining the SDGs. Into the future, the Mitsubishi Electric Group will integrate the Goal 7, “Affordable and clean energy,” Goal 11, “Sustainable concept of the SDGs with our management direction, and con- cities and communities,” and Goal 13, “Climate action,” are areas tinue to advance initiatives related to the SDGs. where we can apply our strengths as a comprehensive electrical SDGs for the Mitsubishi Electric Group to prioritize A global leading green company that contributes to creating an affluent society Sustainability hand-in-hand with safety, security and comfort Increased energy efficiency in products and systems Realizing sustainable lifestyles that are safe, secure and comfortable Technological synergy, business synergy and innovation making strong businesses stronger Target vision for Group Contribution through value creation Contribution through all of our corporate activities Environment Initiatives / External Evaluation In May 2018, the Mitsubishi Electric Group signed the United Nations Global Compact (UNGC) aimed at promoting CSR activities based on international norms. Mitsubishi Electric has once again in fiscal 2018 been named to the A List Companies, the highest ranking given by the interna- tional non-governmental organization CDP, in recognition of its environmental initiatives in the three categories of “Climate Change,“ “Water“ and “Supply Chain“ for the second consecu- tive year following fiscal 2017. In addition, Mitsubishi Electric is included in a number of ESG- centered stock indices. 16 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Governance Social G: Governance Corporate Governance Basic Corporate Governance Policy Compensation Committees. The clear division of supervisory and To realize sustained growth and increase corporate value, the executive functions allows the Company to ensure effective cor- Mitsubishi Electric Group works to maintain the flexibility of its porate governance. operations while promoting management transparency. These endeavors are supported by an efficient corporate governance Internal Control System structure that clearly defines and reinforces the supervisory (A) For proper execution of duties by the Audit Committee, the functions of management while ensuring that the Company is committee’s independence is ensured such as by assigning responsive to the expectations of customers, shareholders, and all dedicated employees to assist in its duties, and the expenses of its stakeholders. • IR Library and responsibilities incurred by the committee in the course of executing its duties are appropriately processed according http://www.MitsubishiElectric.com/en/investors/library/ to internal regulations. Corporate Management and Governance Structure Corporate Management Structure A framework is also in place for reporting to the Audit Committee. The Internal Control Department keeps the Audit Committee informed of information about Mitsubishi Electric and affiliate companies, and an internal reporting system is In June 2003, Mitsubishi Electric became a company with a com- used to report that information to audit committee members. mittee system. Key to this structure is the separation of supervisory Audit committee members attend executive officers’ meet- and executive functions; the Board of Directors plays a supervisory ings and other such important conferences, and conduct decision-making role and executive officers handle the day-to-day hearings and surveys of executive officers and the executive running of the Company. staff of Mitsubishi Electric offices and affiliated companies. It The present Board is comprised of twelve members (five of also receives regular reports from the accounting auditor and whom are Outside Directors, one of whom is a woman), who executive officer in charge of auditing, and discusses auditing objectively supervise and advise the Company’s management. policies and methods and the implementation status and The Board of Directors has three internal bodies: the Audit, results of audits. Nomination and Compensation committees. Each body has five (B) Internal regulations and system are in place to ensure proper members, the majority of whom are outside directors. The Audit operations by the Mitsubishi Electric Group. Within this system, Committee is supported by dedicated independent staff. executive officers undertake their duties on their own respon- A salient characteristic of Mitsubishi Electric’s management sibility and hold executive officers’ meetings to deliberate on structure is that the roles of Chairman of the Board, who heads important matters. the supervisory function, and the President & CEO, who is head Executive officers themselves make periodic inspections of of all executive officers, are clearly separated. Additionally, the operational status of the system, and the Internal Control neither is included among the members of the Nomination and Department inspects the design and operation of the internal 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 2018 17 CSR at Mitsubishi Electric Group control framework and regulations, and the status of internal As a result of the recent review, the Board of Directors was reporting system and then report the result to audit commit- evaluated for making ongoing improvements in response to the tee members. results of previous reviews and engaging in discussions in an even Furthermore, an internal auditor audits the operational sta- more active and open manner compared to before, based on the tus of the framework, and through an executive officer in understanding that sharing timely and appropriate management charge of auditing, regularly reports the results of such audits information with executive officers is essential for the Board to to the Audit Committee. properly fulfill its business supervisory function. This evaluation in effect endorses the performance of the Board of Directors, but Corporate Auditing Division and Audit Committee further efforts will be made to enhance debates and discussion Acting independently, Mitsubishi Electric’s Corporate Auditing by the Board, such as by expanding deliberation times. Division conducts internal audits of the Company from a fair and impartial standpoint. In addition, the division’s activities are sup- ported by auditors with profound knowledge of their particular Policies regarding decisions on compensation, etc. fields, assigned from certain business units. Compensation scheme for Directors and Executive Officers The Audit Committee is made up of five directors, three of whom Policies regarding decisions on compensation, etc. will be made are outside directors. In accordance with the policies and assign- through resolutions by the Compensation Committee, the majority ments agreed to by the committee, the performances of directors of which consists of Outside Directors. A summary of the policies and executive officers as well as affiliated companies are audited. is as follows. The Corporate Auditing Division, through the executive officer in charge of auditing, submits reports to the Audit Committee, Compensation scheme for Directors which holds periodic meetings to exchange information and dis- 1. Directors give advice to and supervise the Company’s manage- cuss auditing policies. In addition, the Audit Committee discusses ment from an objective point of view, and therefore, the com- policies and methods of auditing with accounting auditors, who pensation scheme for Directors is the payment of fixed-amount furnish it with reports on the status and results of the audits of compensation and the retirement benefit upon resignation. the Company that they themselves conduct. 2. Directors will receive their compensation as a fixed amount, Providing Directors with Appropriate Information at the Appropriate Time, and Conducting Reviews of the Board with Analyses and Evaluations and the compensation to be paid will be set at a level considered reasonable, while taking into account the contents of the Directors’ duties and the Company’s conditions, etc. 3. Directors will receive the retirement benefit upon their resigna- tion, and the retirement benefit to be paid will be set at a level To strengthen the Board’s capacity to supervise Company’s man- decided on the basis of the monthly amount of compensation agement, the bureaus of the Board of Directors and each com- and the number of service years, etc. mittee provide the directors with the information necessary for supervising management, in a timely and appropriate manner. Compensation scheme for Executive Officers And, to further improve the Board of Directors’ capacity to super- 1. The compensation scheme for the Executive Officers focuses vise management, venues have been established for supplying on incentives for the realization of management policies and information to and exchanging views with outside directors, and the improvement of business performance, and performance- the Company is working to further enhance the provision of based compensation will be paid in addition to the payment of management-related information to the Board of Directors itself. fixed-amount compensation and the retirement benefit upon Additionally, in order to further enhance the functioning of the resignation. Board of Directors, the Board meetings are reviewed on an annual 2. Fixed-amount compensation will be set at a level considered basis, and analyses and evaluations are conducted in the follow- reasonable taking into account the contents of the Executive ing areas. Officers duties and the Company's conditions. • Frequency, scheduling, and time spent on the meetings 3. The level of performance-based compensation will be decided • The information supplied in relation to discussions at the meet- while taking into account the consolidated business performance ings (quality and quantity) and the method of its provision and the performance of the business to which the respective • Materials, details and methods of explanation, question-and- Executive Officer is assigned, etc. With the purposes of meshing answer guidelines, time apportioned for each proposal on the the interest of shareholders with the Executive Officers and meetings further raising management awareness that places importance • Other mechanisms for improving the functioning of the Board on the interest of shareholders, and increasing the incentives of Directors. for the improvement of business performance from the mid- • Points for improvement of policies based on previous reviews of and long-term perspectives, 50% of performance-based the Board of Directors, etc. 18 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 compensation will be paid in the form of shares. The Company giving rise to any conflict of interest with the general shareholders sets a rule that, when the Executive Officers acquire the Company of the company, are selected as outside director candidates by shares as a part of compensation, they are required to continue the Nominating Committee. the shareholding until 1 year has passed from resignation. 4. The amount of the retirement benefit will be decided on the basis of the monthly amount of compensation and the number of service years, etc. * For the amount of compensation given to directors and executive officers, please refer to our financial statements. (Japanese only) http://www.MitsubishiElectric.co.jp/ir/data/negotiable_securities/ Outside Directors Effective Utilization of Outside Directors The Board of Directors comprises twelve members, five of whom are Outside Directors (one of whom is a woman), who objectively supervise and advise the Company’s management (composition ratio of outside directors: 42%). Outside Directors receive reports about the activity status of internal auditors, the audit committee, accounting auditors, and internal control departments via the Board of Directors, and pro- vide their impartial views regarding Mitsubishi Electric’s manage- ment from an objective perspective. By doing so, they bring greater transparency to the management framework and strengthen the Board's function of supervising management. Criteria for Judgment of the Independence of Independent Outside Directors Outside Directors are expected to supervise management from a high-level perspective based on their abundant experience. Those who are comprehensively judged to possess the character, acumen, and business and professional experience suited to fulfill that role, and who satisfy the requirements of independent executives specified by the Tokyo Stock Exchange and the requirements specified in Mitsubishi Electric’s Guidelines on the Independence of Outside Directors (see note at right) and thus possess no risk of Outside Directors (as of June 28, 2018) Independency Guideline for Outside Directors Mitsubishi Electric Corporation nominates persons with experience in company management in the business world, attorneys and academics, among other specialists, who are appropriate to over- see the Company’s business operations and not falling under any of the following cases, as candidates for Outside Directors. Note that each of the following 1), 2), 4) and 5) includes a case in any fiscal year during the past three fiscal years. 1. Persons who serve as Executive Directors, Executive Officers, managers or other employees (hereinafter ”business executers”) at a company whose amount of transactions with the Company accounts for more than 2% of the consolidated sales of the Company or the counterparty 2. Persons who serve as business executers at a company to which the Company has borrowings that exceed 2% of the consolidated total assets 3. Persons who are related parties of the Company’s independent auditor 4. Persons who receive more than ¥10 million of compensation from the Company as specialists or consultants 5. Persons who serve as Executive Officers (Directors, etc.) of an organization to which the Company offers contribution that exceeds ¥10 million and 2% of the total revenue of the organization 6. Persons who are the Company’s major shareholders (holding more than 10% of voting rights) or who serve as their business executers 7. Persons who are related parties of a person or company that have material conflict of interest with the Company Board Attendance Rate (FY2018) 100% (7/7) 100% (7/7) Title Name Positions Held Reasons for Nomination Outside Director Mitoji Yabunaka Outside Director Hiroshi Obayashi Outside Director Kazunori Watanabe Outside Director Katsunori Nagayasu Outside Director Hiroko Koide Member of the Nomination Committee Member of the Compensation Committee Chairman of the Nomination Committee Member of the Audit Committee Member of the Audit Committee Member of the Compensation Committee Member of the Nomination Committee Member of the Audit Committee Member of the Nomination Committee Member of the Compensation Committee Mr. Yabunaka's experience and insights as an expert in international affairs cultivated through the course of a career are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. Mr. Obayashi's experience and insights cultivated through the course of a career as a lawyer (public prosecutor, attorney-at-law) are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. Mr. Watanabe's experience and insights as a certified public accountant cultivated over the course of his career are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. 100% (7/7) Mr. Nagayasu's experience and insights as a business specialist cultivated over the course of his career in bank management are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. 86% (6/7) Ms. Koide's experience and insights as a business specialist cultivated over the course of her career in international corporate management are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects her to bring an objective viewpoint to the overseeing of the Company's business operations. 100% (7/7) Mitsubishi Electric Corporation held seven Board of Directors meetings during the fiscal year. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 19 CSR at Mitsubishi Electric Group Compliance Our Concept of Compliance With the Mitsubishi Electric Group Corporate Ethics and Compliance Statement formulated in 2001 as our basic guideline for compliance, the Mitsubishi Electric Group recognizes the importance of ethics and abso- lute compliance with legal requirements as a funda- mental precondition for the Group’s continued existence. Based on this awareness, we are attempting to perfect a compliance system which promotes com- pliance in the broadest sense, encompassing the per- spective of corporate ethics, rather than merely focusing on following the letter of the law. At the same time, we are working to educate our employees in this area. The Corporate Ethics and Compliance Statement Compliance with the Law Respect for Human Rights We will conduct ourselves always in compliance with applicable laws and with a high degree of sensitivity to changes in social ethics or local practices. We will never establish a target, nor make a commitment, that can only be achieved with conduct that would violate applicable laws or business ethics or practices. We will conduct ourselves always with a respect for human rights. We will not discriminate based on nationality, race, religion, gender, disability, or any other reason prohibited by applicable laws nor will we violate international laws providing protection for individual and human rights or any treaties providing such protection to which the country where any of our companies is located is a party. Contributing to Society Concurrently with the pursuit of a reasonable profit, we will conduct ourselves always with an awareness of our corporate social responsibility in order to further the progress of society as a whole. Collaboration and Harmonization with the Community As a good corporate citizen and neighbor, we will support civic and charitable organizations and activities in the communities where we reside or work that in our view contribute to community development. Consideration of Environmental Issues As part of our goal to achieve a recycling-oriented society, we will pay attention to and respect the global environment in every aspect of our business. Awareness of Personal Integrity We will conduct ourselves with the highest integrity, making a proper distinction between public and private matters, and we will use company resources—including money, time, and information—for legitimate business purposes. We will use company computers and various networks and online services, including e-mail and Internet access, primarily for company business. Mitsubishi Electric Group compliance promotion structures Associated companies in Japan Mitsubishi Electric Corporation (alone) Associated companies outside of Japan President Executive Officers Meeting Corporate Compliance Committee Legal and regulatory management divisions Compliance Promotion Committee President Group President President Corporate Compliance Officers Conference Corporate Compliance Officer Head of each division Group Compliance General Manager Group Vice President, head of site Group Compliance General Manager Conference Compliance Manager Department Senior Manager Compliance Leader Compliance Managers Conference Compliance Manager Section Manager Operation site Business unit, branch office, manufacturing site, research center Site-Specific Compliance Promotion Committee Compliance Information Liaison Conference Compliance Promotion Committee Compliance Information Liaison Conference Regional Chief Compliance Officer Corporate Compliance Officer Regional Compliance Managers Conferences Head of each division Risk management Basic policy management into business activities, risks are managed according The Mitsubishi Electric Group engages in the development, man- to the size and characteristics of each business, and important risks ufacture and sale of a broad range of products in diverse sectors, that cover the entire Group are mainly managed by corporate including the Energy & Electric Systems, Industrial Automation departments. Systems, Information & Communication Systems, Electronic Devices and Home Appliances. Moreover, the Group operates Risk Management Framework (Mitsubishi Electric Group) these businesses not only in Japan but overseas, such as in North Executive Board America, Europe and Asia. To respond to the expectations of all stakeholders beginning with society, customers and shareholders, and to realize sustain- able growth, the Group has a framework in place for managing business-related risks in an appropriate manner. Company-wide Emergency Response Office (emergency situations) Planning Committee Business Council Business Investment Review Committee Risk Review Board Joint Review Commission Regional Corporate Offices (overseas) The framework provides proper responses to risks depending on Important matters Risk cases Quality / Environment Disasters, etc. their type, size and impact. For example, by incorporating risk Operations departments 20 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 E: Environment Environmental Vision 2021 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 promotes environmental activities with the aim of realizing Environmental Vision 2021, which sets forth the long-term environmental management vision of the Mitsubishi Electric Group. With the guideline of making positive contributions to the earth and its people through technology and action, the Company is working toward the realization of a sustainable society utilizing wide-ranging and sophisticated technologies as well as the promotion of proactive and ongoing actions by our employees. The Vision sets 2021 as its target year, coinciding with the 100th anniversary of Mitsubishi Electric's founding. Environmental Initiatives and the SDGs Shaping the World of 2030 SDGs Closely Related to Mitsubishi Electric Group Environmental Activities Example 1 Offering Technologies that Contribute Example 2 Increasing Product Energy Efficiency to the Conservation of the Aquatic Environment We have provided ozone generators, which use ozone instead of chlorine to purify water, for nearly 50 years. The ozone generators can be used at water purification and sewage treatment plants, pharmaceutical and chemical plants, and aquariums, contributing to the conservation of our aquatic environment. Mitsubishi Electric Group products consume electricity when used. As increased product energy efficiency results in less CO2 generated during use, our goal is to develop energy-efficient products. Cultivating Innovation for the Future Great expectations are being placed on corporate innovation to achieve the SDGs and Paris Agreement goals. Mitsubishi Electric set up the Center for Future Innovation in July 2015 to promote open innovation, with future-oriented research and development instead of focusing on prolonging the use of existing technologies. Accelerating the cultivation of innovation in this way, alongside making full use of the strengths of our products and services, will allow us to contribute to the environment across a wide range of fields. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 21 CSR at Mitsubishi Electric Group 9th Environmental Plan The Mitsubishi Electric Group has formulated a three-year envi- 3. Creating a Society in Tune with Nature ronmental plan that defines specific activity targets since 1993 (1) Carry out leaving creature studies and launch biodiversity pro- and engages in enhancing environmental management with the tection activities that include the preservation of local species, goal of becoming a global, leading green company. The 9th control of non-native species, and maintenance of green space Environmental Plan (FY2019 -2021) was formulated in April 2018 in consideration of the surrounding ecosystem at all manufac- toward achieving the goals of Environmental Vision 2021, and turing bases in Japan based on internal guidelines set in line takes into account a medium to long-term perspective that is with the Aichi Targets*2. based on the Paris Agreement and measures against future water (2) Continue to hold Mitsubishi Electric Outdoor Classrooms and shortage. Through this plan, we will contribute to achieving six the “Satoyama” Woodland Preservation Project in Japan, and targets out of the 17 Sustainable Development Goals (SDGs) set aim to draw in 12,000 participants (cumulative total of more by the United Nations, including “7. Affordable and Clean than 51,000). Energy” and “13. Climate Action.” Major initiatives of the Mitsubishi Electric Group’s 9th Environmental Plan 1. Realizing a Low-carbon Society (1) Reduce CO2 emissions from production and emissions of non- CO2 greenhouse gases (gases such as SF6, PFCs and HFCs that were specified for reduction in the Kyoto Protocol), and suppress total annual emissions (CO2 equivalent) from 2.66 million tons in the base year*1 to less than 1.47 million tons in fiscal 2021. (2) Improve the energy-saving performance of products and reduce CO2 emissions from product usage by 35% on average compared to fiscal 2001. *1 CO2 emissions from production: Mitsubishi Electric, FY1991; affiliates in Japan, FY2001; overseas affiliates, FY2006. Non-CO2 greenhouse gases: Mitsubishi Electric and affiliates in Japan, FY2001; overseas affiliates, FY2006. 2. Creating a Recycling-based Society (1) Reduce water usage per unit of sales by 1% per annum com- pared to the base year (FY2011). (New target) (2) Make products compact and lightweight, and reduce resource *2 Global targets adopted at the 10th Meeting of the Conference of the Parties to the Convention of Biological Diversity (COP 10), which was held in Nagoya City, Aichi Prefecture in October 2010. They form the core of the Strategic Plan for Biodiversity 2011-2020. Initiatives for creating a low-carbon society — Reducing CO2 emissions from product usage by improving the energy-saving performance of products— Reduce CO2 emissions from product usage by an average of 35% from FY2001 • FY2018 result Average reduction rate of CO2 emissions from product usage by improving the energy-saving performance of products: Target achieved (35% reduction achieved in 107 product categories compared to FY2001) • Target of the 9th Environmental Plan Average reduction rate of CO2 emissions from product usage: Maintain the 35% reduction rate compared to FY2001 Base year FY2001 0 2008 2012 2013 2014 2015 2016 2017 2018 2021 17% 26% 29% 33% 33% 34% 35% 35% 35% Environmental Vision 2021 target (30%) 10 20 30 40 inputs by an average of 40% from fiscal 2001. Average reduction rate of CO2 emissions (%) Initiatives for creating a low-carbon society —Reducing CO2 emissions from production— Control CO2 emissions to suppress the increase in emissions from increased production and increased number of offices that formulate an environmental plan. Total emissions (10,000t-CO2) CO2 emissions*3 Non-CO2 greenhouse gas emissions*4 266 146 128 24 104 143 134 26 108 127 19 108 137 120 *5 140 45% reduction 30% reduction 143 25 144 25 147 25 118 119 122 186 300 250 200 150 100 50 0 Base year*1 FY2016 plan 2016 result 2017 plan 2017 result 2018 plan 2018 result 2019 2020 2021 Environmental Vision 2021 Target 8th Environmental Plan *2 9th Environmental Plan *1 Base year for CO2: Mitsubishi Electric, FY1991; affiliates in Japan, FY2001; overseas affiliates, FY2006 Base year for non-CO2 greenhouse gases: Mitsubishi Electric and affiliates in Japan, FY2001; overseas affiliates, FY2006 *2 The emission coefficient for Japan has been calculated based on the figure published by the Federation of Electric Power Companies of Japan at the time of formulation of the 8th Environmental Plan (2013, two nuclear plants in operation). *3 The overseas emission coefficient has been calculated in reference to the figure published by JEMA (2006). *4 The Global Warming Potential (GWP) of non-CO2 greenhouse gases has been calculated in reference to the figure published in IPCC’s Second Assessment Report (1995). *5 20,000 t-CO2 has been added, as two overseas affiliates have been newly included in the scope of calculations. 22 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 S: Social Human rights management Basic policy Specific initiatives The Mitsubishi Electric Group established Policies on Respect for In fiscal 2019, the Mitsubishi Electric Group will launch human Human Rights in September 2017 and declared its commitment rights due diligence initiatives by identifying and evaluating impacts to ensure human rights responses that match international norms. on human rights (a human rights impact assessment) at all com- In particular, we are striving to implement measures to prevent pany sites. We will also explore ways to improve the mechanism and mitigate adverse impacts on human rights. To do so, we are for receiving grievances from those who have suffered a human conducting due diligence on human rights in conformance with rights violation and provide an avenue for relief (a grievance han- the UN Guiding Principles on Business and Human Rights, and dling mechanism). At the same time, all suppliers along our supply creating a corrective mechanism in the event it comes to light chain will be requested to strengthen their human rights responses that a company’s action or involvement has inflicted an adverse as part of their initiatives to promote CSR procurement. impact on human rights. In fiscal 2020 and beyond, we will promote these initiatives further, and plan to create a system that also includes the supply chain in preventing and mitigating adverse impacts on human rights. The program will include follow-up evaluations of the initiatives for human rights responses. Workforce Diversity Basic policy Creating a Working Environment where Work-Life Balance Within today’s rapidly changing workforce environment, providing Can Be Achieved by Everyone through a ”Reform of a workplace where employees can work to their full potential Working Styles” regardless of gender or age is essential to business development. Since fiscal 2017, Mitsubishi Electric promotes a ”reform of work- Furthermore, it has become more vital than ever before to employ ing styles” as a management policy, and strives to create a working an even greater diversity of people, given the increasingly aging environment where work-life balance can be achieved by everyone and diminishing population in Japan. Based on this awareness, by ”creating a corporate culture that places even greater emphasis Mitsubishi Electric promotes employee diversity through the on achievements and efficiency” and ”reforming employees’ following measures. attitudes toward work.“ Women’s Participation Each department, organization and office implements specific measures that promote the reform of working styles based on To formulate and implement original measures that would help the following four perspectives. female employees and employees with children form a career – Improvement of productivity by streamlining operations while also enriching their personal lives, Mitsubishi Electric estab- – Further pursuit of achievements and efficiency lished the CP-Plan* Promotion Center within its Corporate – Work-life fulfillment Human Resources Division in April 2006, with a mandate to pro- – Promotion of communication in the workplace mote recruitment, training, assignment, and institutional initiatives We provided information and promoted employee awareness from a diversified perspective. was promoted through posters, in-house newsletters, the internal *Career management & Personal life well-balanced Plan website and other such tools, and implemented an education Trend in the number of female employees (main career track) campaign to raise awareness of work-style reform for employees in managerial positions. In February 2017, the “President’s Forum Number of female employees Ratio of female employees (No.) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% (FY) on Work-Style Reforms” was launched, in which the presi- dent of Mitsubishi Electric makes a round of all offices to personally explain the objec- tives and importance of the ini- tiative to all employees. In addition to this Group- wide initiative, each office also implements activities that suit their specific situations. Work-Style Reforms MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 23 CSR at Mitsubishi Electric Group Supply Chain Management Basic policy offices in China, Asia, Europe and Americas to implement pur- The Mitsubishi Electric Group ensures fair and impartial selection chasing strategies through conferences of procurement officers and evaluation of business partners in Japan and overseas by and other such meetings. Accompanying this initiative, the supply providing an explanation of the Group’s Purchasing Policy and chain has also expanded to various countries where the Group CSR Procurement Policy, and requesting business partners’ operates, so initiatives are also pursued to mitigate any perceived understanding of these policies. By ensuring proper evaluation of risks regarding a range of issues related to labor laws and regula- suppliers based on selection and evaluation criteria established by tions, and to environmental problems. the Group, risks are also mitigated along the supply chain. The Group’s criteria for evaluating business partners include not only quality, cost, delivery schedules and services, but also initia- tives in response to environmental regulations and CSR initiatives. As a basic policy, the Group preferentially procures materials from suppliers who rank high in a comprehensive evaluation. Framework for Promotion of Supply Chain Management The Mitsubishi Electric Group launched the W 21II (Worldwide Strategic Integration for Global Markets in the 21st Century Advance to the Next Stage)* activity in April 2017, and is pro- moting optimal procurement activities suited to each region through the Materials Planning Office. The Materials Planning Office was established in collaboration among regional corporate * W 21II: An initiative of purchasing departments to work towards achieving the Mitsubishi Electric Group’s management goal of reaching net sales of 5 trillion yen and an operating income ratio of 8% or more by 2020. Expansion of CSR initiatives through the supply chain Partner companies The Mitsubishi Electric Group Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Partner companies Quality Management Basic policy the level of management, we also regularly report on the status The Mitsubishi Electric Group is committed to improving its tech- of quality at meetings of executive officers. nologies and services by applying creativity to all aspects of its Worldwide manufacturing bases take responsibility for the business, to thereby enhance the quality of life in our society, as quality assurance of each product and are implementing concrete stated in our corporate mission. This commitment inherits the improvement initiatives in relation to quality assurance measures principles outlined in the Keys to Management (in Japanese, Keiei (quality management) for processes at each stage, from market no Yotei) with regard to ”our contribution to social prosperity,” surveys regarding Mitsubishi Electric products, through product ”quality improvement,” and ”customer satisfaction,” and forms planning, development and design, manufacturing, transportation, the basic spirit of our relationship with society and our customers. storage, installation, maintenance and servicing, and education, To give concrete shape to this basic spirit, the Seven Guiding to the disposal of the product. Principles define our actions in response to society and customers. In addition, in operating our Quality Management System (QMS), It teaches us to establish relationships based on trust, provide the we regularly check our PDCA cycle with reference to ISO and other best products and services with unsurpassed quality, and respond international certification standards, seeking to realize ever higher to customer expectations through technology by promoting quality by process improvement. research and development and pioneering new markets. Under these principles, we constantly strive to increase customer satisfaction and contribute to social prosperity in all aspects of our business, from the production of high-quality, easy-to-use products to our after-purchase support and response to major issues. Management system Based on the Four Basic Quality Assurance Principles, we have established a system for quality assurance and improvement activities throughout the entire Group, including the appointment of a quality assurance promotion manager in all business group headquarters. We have also formulated quality assurance guide- e c n a r u s s A y t i l a u Q e t a r o p r o C Promotion of Quality Assurance and Improvement Activities President Business Group Business Group General Manager of Business Group General Manager of Business Group Quality Assurance Manager Quality Assurance Manager Executive Officer in Charge of Quality Assurance Executive Officers’ Meeting Head Office Liaison Committee t n e m t r a p e D g n n n a P l i Corporate Quality Assurance Managers’ Committee Factory Factory Factory Manager Factory Manager Quality Assurance Manager Quality Assurance Manager lines to ensure compliance with quality assurance legislation and Individual quality improvement projects and activities standards and further develop quality improvement activities. At 24 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Philanthropic Activities Philosophy and Policies Preservation Project focuses on restoring the natural environment The Mitsubishi Electric Group shares a common Philosophy and in the vicinity of operational sites with the help of employee vol- Policies based on its Corporate Mission and Seven Guiding unteers. The Mitsubishi Electric Science Workshop invites children Principles, and carries out a variety of activities accordingly. to experience the fun of science with the aim of nurturing future Philosophy engineers. In addition to these key activities undertaken by As a corporate citizen committed to meeting societal needs and Mitsubishi Electric, employees at Group affiliates in Japan and expectations, the Mitsubishi Electric Group will make full use of overseas are strongly committed to philanthropic activities, the resources it has at hand to contribute to creating an affluent participating in various volunteer activities and supporting local society in partnership with its employees. social welfare organizations and sports teams. Policies • We shall carry out community-based activities in response to Foundations societal needs in the fields of social welfare and global environ- The Mitsubishi Electric America Foundation and Mitsubishi Electric mental conservation. Thai Foundation, both founded in 1991, also carry out various • We shall contribute to developing the next generation through activities in the spirit of the Mitsubishi Electric Group’s Philosophy activities that support the promotion of science and technology, and Policies. The Mitsubishi Electric America Foundation, with the culture and arts, and sports. cooperation of its branches in the United States, helps young people with disabilities to become employed and participate more Community Contributions and Human Resource fully in society. The Mitsubishi Electric Thai Foundation, in addition Development Activities to providing scholarships to university students and supporting a The Mitsubishi Electric SOCIO-ROOTS Fund matching-gift program school lunch program for grade school students, has been pro- supports such beneficiaries as social welfare facilities through moting employee-involved volunteer activities that support edu- donations, with the Company making contributions equivalent in cation and environmental protection. value to the donations of employees. The ”Satoyama” Woodland The Mitsubishi Electric Science Workshop was chosen to receive an Encouragement Award under the Eighth Career Education Awards program (Mitsubishi Electric) “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) Disclosure of Non-Financial Information Mitsubishi Electric America Foundation was chosen to receive the “2018 CATALYST AWARD” by the American Association of People with Disabilities (the United States) Local Group companies engaging in joint coral planting activities (Thailand) The Mitsubishi Electric Group discloses key non-financial information via the “CSR Initiatives” section of its corporate website and CSR reports. Fulfilling the Group’s accountability obligations as a corporate citizen, these communication channels provide information on various initiatives classified under environmental, social and governance categories while providing an ESG survey index that helps readers quickly confirm the status of the Group’s initiatives spanning a variety of fields. CSR at Mitsubishi Electric http://www.MitsubishiElectric.com/en/sustainability/csr/ MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 25 Directors and Executive Officers Directors (As of June 28, 2018) Executive Officers (As of April 1, 2018) Masaki Sakuyama.................Chairman Takeshi Sugiyama Nobuyuki Okuma President & CEO: Takeshi Sugiyama Akihiro Matsuyama .............Chairman of the Audit Committee Executive Vice President: Masahiko Sagawa ................Member of the Audit Committee Yutaka Ohashi ....................... In charge of Export Control and Information Shinji Harada ......................... Member of the Nomination Committee, Chairman of the Compensation Committee Systems & Network Service Tadashi Kawagoishi .............Member of the Compensation Committee Senior Vice Presidents: Mitoji Yabunaka ................... Member of the Nomination Committee, Member of the Compensation Committee Hiroshi Obayashi .................. Chairman of the Nomination Committee, Member of the Audit Committee, Attorney-at-Law Kazunori Watanabe ............ Member of the Audit Committee, Member of the Compensation Committee, Certified Public Accountant, Registered Tax Accountant Katsunori Nagayasu ............ Member of the Nomination Committee, Member of the Audit Committee, Senior Advisor, MUFG Bank, Ltd. Hiroko Koide ......................... Member of the Nomination Committee, Member of the Compensation Committee, Director, Vicela Japan Co., Ltd. Representative Executive Officers (As of April 1, 2018) Takeshi Sugiyama Yutaka Ohashi Nobuyuki Okuma Nobuyuki Okuma ................. In charge of Corporate Strategic Planning and Operations of Associated Companies Isao Iguchi ..............................In charge of Automotive Equipment Takashi Sakamoto ................In charge of Purchasing Yasuyuki Ito ...........................In charge of Building Systems Kei Uruma ..............................In charge of Public Utility Systems Executive Officers: Toru Sanada ...........................In charge of Semiconductor & Device Takashi Nishimura ................In charge of Communication Systems Hisashi Kato ........................... In charge of Government & External Relations, Export Control and Intellectual Property Masamitsu Okamura ...........In charge of Electronic Systems Masahiro Fujita ..................... In charge of IT and Research & Development Satoshi Matsushita ............... In charge of Global Strategic Planning & Marketing Hiroshi Onishi ........................ In charge of Total Productivity Management & Environmental Programs Yoshikazu Miyata ................. In charge of Factory Automation Systems Tadashi Matsumoto ............. In charge of Living Environment & Digital Media Equipment Jun Nagasawa ....................... In charge of Advertising and Domestic Marketing Shinji Harada ......................... In charge of General Affairs, Human Resources and Public Relations Tadashi Kawagoishi .............In charge of Accounting and Finance Takakazu Murozono ........... In charge of Auditing and Legal Affairs & Compliance Koichi Orito ...........................In charge of Energy & Industrial Systems 26 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Organization (As of June 28, 2018) Board of Directors Chairman Nomination Committee Audit Committee Compensation Committee Audit Committee Office Executive Officers’ Meeting President & CEO Senior Vice Presidents Executive Officers (cid:31) Corporate Auditing Div. (cid:31) Corporate Marketing Group (cid:31) Corporate Strategic Planning Div. (cid:31) Corporate IT Strategy Div. (cid:31) Global Strategic Planning & Marketing Group (cid:31) Associated Companies Div. (cid:31) Government & External Relations Div. (cid:31) Corporate Administration Div. (cid:31) Corporate Human Resources Div. (cid:31) Corporate Accounting Div. (cid:31) Corporate Finance Div. (cid:31) Corporate Purchasing Div. (cid:31) Public Relations Div. (cid:31) Corporate Advertising Div. (cid:31) Corporate Legal & Compliance Div. (cid:31) Corporate Export Control Div. (cid:31) Corporate Licensing Div. (cid:31) Corporate Total Productivity Management & Environmental Programs Group (cid:31) Corporate Research and Development Group (cid:31) Information Systems & Network Service Group (cid:31) Public Utility Systems Group (cid:31) Energy & Industrial Systems Group (cid:31) Building Systems Group (cid:31) Electronic Systems Group (cid:31) Corporate Intellectual Property Div. (cid:31) Communication Systems Group (cid:31) Living Environment & Digital Media Equipment Group (cid:31) Factory Automation Systems Group (cid:31) Automotive Equipment Group (cid:31) Semiconductor & Device Group Business Planning Office Market Planning & Administration Dept. Compliance Dept. Marketing Research & Business Development Dept. 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 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. Domestic Marketing Div. Overseas Marketing Div. Building Systems Field Operation Div. Branch Offices Inazawa Works Electronic Systems Compliance Dept. Planning & Administration Dept. High-precision Positioning Systems Dept. Defense Systems Div. Space Systems Div. Integrated Sensing System 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 & Solutions 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. Solution Business Strategy Div. Industrial Products Marketing Div. Industrial Automation Marketing Div. Overseas Marketing 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 Dept. Compliance Dept. Semiconductor & Device Marketing Div. A Semiconductor & Device Marketing Div. B LCD Div. Branch Offices Power Device Works, High Frequency & Optical Device Works MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 27 Major Subsidiaries and Affiliates (As of March 31, 2018) 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 AG MELCO Elevator Co. L.L.C. Industrial Automation Systems DB Seiko Co., Ltd. Setsuyo Astec Corporation Mitsubishi Electric Automotive America, Inc. Ryowa Corporation Mitsubishi Electric Thai Auto-Parts Co., Ltd. Mitsubishi Electric Automotive (China) Co., Ltd. Mitsubishi Electric Mechatronics Engineering Corporation Mitsubishi Electric Automotive de Mexico, S.A. de C.V. Mitsubishi Electric Automation Manufacturing (Changshu) Co., Ltd. Meldas System Engineering Corporation Mitsubishi Electric Mechatronics Software Corporation Mitsubishi Electric Automation (Hong Kong) Ltd. Mitsubishi Electric Dalian Industrial Products Co., Ltd. Mitsubishi Electric Automation Korea Co., Ltd. Shizuki Electric Co., Inc. Nippon Injector Corporation Shihlin Electric & Engineering Corporation SETSUYO ENTERPRISE CO., LTD. Mitsubishi Electric TOKKI Systems Corporation Mitsubishi Electric Information Network Corporation Information and Communication Systems Mitsubishi Precision Co., Ltd. SPC Electronics Corporation Seiryo Electric Co., Ltd. Miyoshi Electronics Corporation Electronic Devices Melco Display Technology Inc. Melco Power Device Corporation Vincotech Holdings S.à r.l. Chiyoda Mitsubishi Electric Co., Ltd. and other regional comprehensive sales companies (9 companies) Mitsubishi Electric Information Systems Corporation Mitsubishi Space Software Co., Ltd. Mitsubishi Electric Europe B.V. Mitsubishi Electric Business Systems Co., Ltd. Mitsubishi Electric US, Inc. Mitsubishi Electric Micro-Computer Application Software Co., Ltd. Itec Hankyu Hanshin Co., Ltd. Melco Semiconductor Engineering Corporation Mitsubishi Electric & Electronics (Shanghai) Co., Ltd. Mitsubishi Electric (H.K.) Ltd. Mitsubishi Electric Taiwan Co., Ltd. Mitsubishi Electric Asia Pte. Ltd. Mitsubishi Electric Australia Pty. Ltd. Ryoden Trading Co., Ltd. Kanaden Corporation Mansei Corporation Home Appliances Others Mitsubishi Electric Lighting Corporation Mitsubishi Electric Home Appliance Co., Ltd. Mitsubishi Electric Consumer Products (Thailand) Co., Ltd. Shanghai Mitsubishi Electric & Shangling Air-Conditioner and Electric Appliance Co., Ltd. Mitsubishi Electric (Guangzhou) Compressor Co., Ltd. Mitsubishi Electric Hydronics & IT Cooling Systems S.p.A. 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. 28 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Financial Section Contents 30 Five-Year Summary 31 Financial Review 40 Consolidated Balance Sheets 42 Consolidated Statements of Income 42 Consolidated Statements of Comprehensive Income 43 Consolidated Statements of Equity 44 Consolidated Statements of Cash Flows 45 Notes to Consolidated Financial Statements 78 Independent Auditors’ Report MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 29 Five-Year Summary Mitsubishi Electric Corporation and Subsidiaries Years ended March 31 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 to Mitsubishi Electric Corp. 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 2018 2017 2016 2015 Yen (millions) 2014 U.S. dollars (thousands) 2018 ¥4,431,198 ¥4,238,666 ¥4,394,353 ¥4,323,041 ¥4,054,359 $41,803,755 3,030,902 2,950,729 3,071,435 3,032,161 2,914,589 28,593,415 1,061,778 1,014,389 1,013,264 970,191 900,807 10,016,774 19,881 3,444 8,482 3,085 3,791 187,557 4,112,561 3,968,562 4,093,181 4,005,437 3,819,187 38,797,745 318,637 364,578 270,104 296,249 301,172 318,476 317,604 322,968 235,172 248,990 3,006,009 3,439,415 ¥ 271,880 ¥ 210,493 ¥ 228,494 ¥ 234,694 ¥ 153,473 $ 2,564,906 6.1 12.6 6.4 53.0 5.0 10.9 5.1 48.9 5.2 12.4 5.6 45.3 5.4 13.9 6.1 45.4 3.8 10.9 4.4 42.2 — — — — ¥ 126.70 ¥ 98.07 ¥ 106.43 ¥ 109.32 ¥ 71.49 $ 1.195 — — — — — — ¥ 40 ¥ 27 ¥ 27 ¥ 27 ¥ 17 $ 0.377 ¥2,606,493 ¥2,500,685 ¥2431,456 ¥2,518,441 ¥2,173,150 $24,589,557 1,471,367 1,525,761 1,507,943 1,612,582 1,494,243 13,880,821 1,135,126 974,924 923,513 905,859 678,907 10,708,736 2,259,355 2,039,627 1,838,773 1,842,203 1,524,322 21,314,670 Cash dividends paid 68,696 57,963 57,963 42,936 25,762 648,076 Total assets 4,264,559 4,172,270 4,059,941 4,059,451 3,612,966 40,231,689 Capital expenditure (Based on the recognized value of property, plant and equipment) R&D expenditures Depreciation Employees (at the end of the year) 181,513 210,308 175,542 177,801 194,458 173,968 201,330 202,922 195,314 178,945 1,712,387 1,984,038 ¥ 154,559 ¥ 141,584 ¥ 145,249 ¥ 156,205 ¥ 132,956 $ 1,458,104 142,340 138,700 135,160 129,249 124,305 — 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. From the fiscal year ended March 31, 2018, the Company has adopted Accounting Standards Update 2015-17 “Balance Sheet Classification of Deferred Taxes” issued by the Financial Accounting Standards Board. The consolidated balance sheet as of the previous fiscal year has been reclassified to reflect this adoption. 3. 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. 4. R&D expenditures include elements spent on quality improvements, which constitute manufacturing costs. 5. U.S. dollar amounts are translated from yen at the rate of ¥106=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2018. 6. The Company has 205 consolidated subsidiaries and 36 equity-method companies as of March 31, 2018. 7. Diluted net income per share attributable to Mitsubishi Electric Corp. is not included in the above table as no dilutive securities existed. 30 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Financial Review OVERVIEW During the fiscal year ended March 31, 2018, the global economy saw a stable status in China, a buoyant expansion in the U.S. and gradual trends of recovery in Japan and Europe. In addition, the yen, compared to the previous fiscal year, weakened against the U.S. dollar and the euro in and after May, but became stronger against the U.S. dollar after the latter half of November. Under these circumstances, the Mitsubishi Electric Group has been working even harder than before to promote growth strate- gies rooted in its advantages, while continuously implementing initiatives to strengthen its competitiveness and business structure. As a result, in fiscal 2018, the Mitsubishi Electric Group recorded net sales of ¥4,431.1 billion and operating income of ¥318.6 billion. Income before income taxes came to ¥364.5 billion. Net income attributable to Mitsubishi Electric Corporation was ¥271.8 billion 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, Electronic Devices and Home Appliances. Consolidated net sales increased by ¥192.5 billion year on year to ¥4,431.1 billion. Cost of Sales, Expenses and Operating Income The cost of sales increased by ¥80.1 billion compared to the previous fiscal year to ¥3,030.9 billion, representing 68.4% of total net sales, an improvement of 1.2 percentage points. Selling, general and administrative (SG&A) expenses together with research and development (R&D) expenses totaled ¥1,061.7 billion, up ¥47.3 billion year on year. As a result, the ratio of SG&A and R&D expenses to net sales deteriorated by 0.1 of a percentage point year on year to 24.0%. Loss on impairment of long-lived assets increased by ¥16.4 billion year on year to ¥19.8 billion. Accounting for the aforementioned factors, operating income amounted to ¥318.6 billion, an increase of ¥48.5 billion com- pared to the previous fiscal year. This increase was primarily attributable to increases in income in the Energy and Electric Systems, Industrial Automation 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 ¥5.8 billion, an improvement of ¥1.4 billion compared to the previous fiscal year. Equity in earnings of affiliated companies totaled ¥22.2 billion, an increase of ¥0.7 billion compared to the previous fiscal year. Other income decreased by ¥2.2 billion to ¥29.5 billion year on year. Other expenses decreased by ¥19.8 billion year on year to ¥11.7 billion. Income before Income Taxes Income before income taxes increased by ¥68.3 billion compared to the previous fiscal year to ¥364.5 billion, for a ratio to net sales of 8.2%. This is largely attributable to the aforementioned increase in operating income of ¥48.5 billion and a ¥19.7 billion improvement in the balance of non-operating income and expenses. Net Income Attributable to Mitsubishi Electric Corp. Net income attributable to Mitsubishi Electric Corp. increased by ¥61.3 billion year on year to ¥271.8 billion (a ratio to net sales of 6.1%) largely on the back of the increase in income before income taxes. Net income attributable to Mitsubishi Electric Corp. / Basic net income per share attributable to Mitsubishi Electric Corp. Net sales / Operating income (Yen in billions) 4,500 4,054 4,323 4,394 4,238 317 301 318 270 3,000 235 1,500 0 (Yen in billions) (Yen in billions) 4,431 234 228 271 210 126.70 109.32 106.43 98.07 153 71.49 400 300 200 100 0 300 200 100 0 (Yen) 200 150 100 50 0 14 15 16 17 18 14 15 16 17 18 (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 2018 31 Financial Review Business Risks The Mitsubishi Electric Group (hereinafter “the Group”) is involved in development, manufacturing 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 Group trusts and considers to be reasonable under the circumstances on the date of announcement, actual financial standings and 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 announcement. 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 a decline in value of the Group’s marketable securities and 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, tsunamis, 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. 32 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 RESULTS BY BUSINESS SEGMENT Net Sales by Business Segment Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations Consolidated total 2018 2017 ¥1,241,952 ¥1,227,906 1,310,136 1,444,928 2016 ¥1,264,604 1,321,937 2015 ¥1,228,958 1,282,749 2014 ¥1,180,093 1,098,796 Yen (millions) 436,068 202,294 1,049,369 764,346 5,138,957 (707,759) 447,754 186,554 1,004,415 713,603 4,890,368 (651,702) ¥4,431,198 ¥4,238,666 561,119 211,580 982,064 707,746 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 Operating Income by Business Segment Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and other Consolidated total 2018 ¥ 51,710 190,826 2017 ¥ 44,319 140,073 2016 ¥ 50,342 159,160 2015 ¥ 72,448 145,982 11,987 14,554 56,057 23,900 349,034 (30,397) ¥318,637 12,700 8,382 69,696 23,214 298,384 (28,280) ¥270,104 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 Yen (millions) 2014 ¥ 76,324 98,079 5,529 10,050 52,878 19,801 262,661 (27,489) ¥235,172 U.S. dollars (thousands) 2018 $11,716,529 13,631,396 4,113,849 1,908,434 9,899,708 7,210,811 48,480,727 (6,676,972) $41,803,755 U.S. dollars (thousands) 2018 $ 487,830 1,800,245 113,085 137,302 528,839 225,472 3,292,773 (286,764) $3,006,009 Energy and Electric Systems The social infrastructure systems business saw decreases in both orders and sales compared to the previous fiscal year due primarily to decreases in the transporta- tion systems business outside Japan and the power systems business in Japan. The building systems business remained substantially unchanged in orders, while sales increased compared to the previous fiscal year due primarily to growth in the renewal business in Japan and the new installation of elevators and escalators outside Japan. As a result, total sales for this segment increased by 1% from the previous fis- cal year to ¥1,241.9 billion. Operating income increased by ¥7.3 billion from the previous fiscal year to ¥51.7 billion due primarily to a shift in project portfolios. Industrial Automation Systems The factory automation systems business saw increases in both orders and sales from the previous fiscal year due primarily to growth in capital expenditures in the fields of organic light emitting diodes (OLED) mainly in Korea, smartphones and electric cars in China as well as buoyancy in exports by machinery manufac- turers in Japan. The automotive equipment business saw increases in both orders and sales from the previous fiscal year, due primarily to increases in sales volume of Japanese car manufacturers in China, as well as the weaker yen, despite decreased car sales in North America. As a result, total sales for this segment increased by 10% from the previous fiscal year to ¥1,444.9 billion. Operating income increased by ¥50.7 billion from the previous fiscal year to ¥190.8 billion due primarily to an increase in sales. Net sales and Operating income of Energy and Electric Systems (Yen in billions) 1,500 (Yen in billions) 1,180 1,228 1,264 1,227 1,241 76 72 50 44 51 1,000 500 0 200 150 100 50 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) Net sales and Operating income of Industrial Automation Systems (Yen in billions) 1,500 1,282 (Yen in billions) 1,444 190 200 1,321 1,310 1,098 145 98 1,000 500 0 159 140 150 100 50 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 33 Financial Review Information and Communication Systems The telecommunications equipment business saw decreases in both orders and sales compared to the previous fiscal year due primarily to decreased demand in communications infrastructure equipment. 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 previ- ous fiscal year mainly due to increases in the defense systems and space systems busi- nesses, while sales experienced a decrease compared to the previous fiscal year due primarily to a shift in large-scale projects in the defense systems business. As a result, total sales for this segment decreased by 3% from the previous fiscal year to ¥436.0 billion. Operating income decreased by ¥0.7 billion from the previous fiscal year to ¥11.9 billion due primarily to a decrease in sales. Electronic Devices The electronic devices business saw an increase in orders from the previous fiscal year due to increases in demand for power modules used in consumer and industrial applications, despite a decrease in demand for optical communication devices, and total sales increased by 8% compared to the previous fiscal year to ¥202.2 billion. Operating income increased by ¥6.1 billion from the previous fiscal year to ¥14.5 billion due primarily to an increase in sales. Home Appliances The home appliances business saw a 4% increase in sales compared to the previ- ous fiscal year to ¥1,049.3 billion, due to increases in sales of air conditioners in the European, Chinese and U.S. markets, in addition to positive influences caused by the weaker yen. Operating income decreased by ¥13.6 billion compared to the previous fiscal year to ¥56.0 billion due primarily to increases in material prices and sales expenses. Others Sales increased by 7% compared to the previous fiscal year to ¥764.3 billion mainly due to an increase in sales at affiliated companies involved in materials procurement. Operating income increased by ¥0.6 billion to ¥23.9 billion from the previ- ous fiscal year due primarily to an increase in sales. 34 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Net sales and Operating income of Information and Communication Systems (Yen in billions) (Yen in billions) 600 548 559 561 447 436 400 200 0 18 14 12 11 5 50 40 30 20 10 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) Net sales and Operating income of Electronic Devices (Yen in billions) (Yen in billions) 194 238 30 211 202 186 10 16 14 8 250 200 150 100 50 0 50 40 30 20 10 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) Net sales and Operating income of Home Appliances (Yen in billions) 1,200 1,000 944 944 52 54 800 600 400 200 0 (Yen in billions) 100 982 1,004 1,049 69 63 56 75 50 25 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) Net sales and Operating income of Others (Yen in billions) (Yen in billions) 740 707 713 676 764 23 23 23 23 19 900 600 300 0 50 40 30 20 10 0 14 15 16 17 18 (Years ended March 31) Net sales (left) Operating income (right) RESULTS BY GEOGRAPHIC SEGMENT Net Sales by Geographic Segment Years ended March 31 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total 2018 2017 2016 2015 ¥ 3,506,240 ¥ 3,402,132 ¥ 3,563,530 ¥ 3,578,960 388,021 417,951 1,047,758 1,180,748 383,965 476,582 49,495 51,094 (1,125,158) (1,201,417) ¥ 4,431,198 ¥ 4,238,666 ¥ 4,394,353 ¥ 4,323,041 421,553 1,040,098 421,073 46,854 (1,093,044) 446,935 1,054,563 387,628 50,260 (1,108,563) Operating Income (Loss) by Geographic Segment Years ended March 31 Japan North America Asia (excluding Japan) Europe Others Eliminations Consolidated total 2018 ¥214,873 (3,941) 88,150 11,933 2,852 4,770 ¥318,637 2017 ¥152,027 9,002 93,318 12,828 2,458 471 ¥270,104 2016 ¥173,383 9,421 91,006 14,806 904 11,652 ¥301,172 2015 ¥226,199 5,178 82,419 11,803 402 (8,397) ¥317,604 Yen (millions) 2014 ¥3,362,854 325,224 887,022 352,950 47,824 (921,515) ¥4,054,359 Yen (millions) 2014 ¥177,315 1,679 59,023 4,768 1,735 (9,348) ¥235,172 U.S. dollars (thousands) 2018 $33,077,736 3,942,934 11,139,132 4,496,057 482,019 (11,334,123) $41,803,755 U.S. dollars (thousands) 2018 $2,027,103 (37,179) 831,604 112,575 26,906 45,000 $3,006,009 Japan Sales increased by 3% year on year to ¥3,506.2 billion primarily due to increases in sales in the factory automation systems, automotive equipment and electronic devices businesses. Operating income increased by ¥62.8 billion to ¥214.8 billion due mainly to the increase in sales. North America Sales decreased by 1% year on year to ¥417.9 billion primarily due to decreases in sales in the power systems and automotive equipment businesses. Operating loss amounted to ¥3.9 billion, a turnaround of ¥12.9 billion from the previous fiscal year, due mainly to the recording of a loss on impairment of long-lived assets associated with part of the power systems business. Asia (excluding Japan) Sales increased by 14% year on year to ¥1,180.7 billion mainly because of increases in sales in the building systems, factory automation systems and automotive equipment businesses. Operating income decreased by ¥5.1 billion to ¥88.1 billion, reflect- ing such factors as increases in material prices for the air conditioner business. Europe Sales increased by 13% year on year to ¥476.5 billion mainly because of higher sales in the factory automation systems, elec- tronic devices and air conditioner businesses. Operating income decreased by ¥0.8 billion to ¥11.9 billion due mainly to increases in material prices for the air conditioner business. Others Sales in other regions, including figures for Mitsubishi Electric’s Australian subsidiary, amounted to ¥51.0 billion, while operating income was ¥2.8 billion. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 35 Financial Review RESEARCH AND DEVELOPMENT R&D Expenditures Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Consolidated total 2018 ¥ 35.4 69.5 17.9 13.4 41.8 32.2 ¥210.3 2017 ¥ 35.5 66.4 18.2 10.0 41.1 29.7 ¥201.3 2016 ¥ 33.7 70.8 18.9 10.6 39.8 28.7 ¥202.9 2015 ¥ 31.4 70.5 16.3 10.9 37.3 28.6 ¥195.3 2014 ¥ 28.8 63.4 15.6 9.3 34.1 27.5 ¥178.9 2018 $ 334.4 656.1 168.9 126.4 394.5 303.8 $1,984.0 Yen (billions) U.S. dollars (millions) 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 2018, total R&D expenditures, including quality improvement expenses constituting manufacturing costs, amounted to ¥210.3 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 core products, including such rotating machinery as generators and electric motors; such power transmission/distribution equipment and systems as switchgears and transformers; transportation systems; and elevators and escalators. Other R&D areas include IT-application sys- tems for supervision and control, power information systems, building management systems, and visual information systems. Notable among Mitsubishi Electric’s recent R&D achievements are “INFOPRISM,” an IoT platform for social infrastructure and energy systems; radio equipment for Communication-based Train Control System (CBTC); the Mitsubishi Infrastructure Monitoring System for Diagnosis (MMSD) II vehicle; new integrated Station Energy Saving Inverter (S-EIV) which offers 400V AC-output; technology for electromagnetic-field and large-coupled analysis of Turbine Generators; a Modular Multilevel Converter (MMC) Cell for high-voltage direct current (HVDC) transmission that utilizes a SiC power semiconductor module; emergency machine-room-less elevators; Destination Oriented Allocation System for elevators that optimally guides and groups passengers at different departure points to cars that ensure they reach their destinations as fast as possible; and Building total solution BuilUnity. R&D expenditures in this segment totaled ¥35.4 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 control equipment; mechatronics equipment; industrial robots; automotive electric and electronic components, including electric power steering (EPS) and related products; car multimedia systems; and automated driv- ing, accident avoidance, and driving assistance systems. Mitsubishi Electric’s important R&D successes encompass M2PM Series electronic power meters; Graphic operation terminal GOT2000 Series explosion-proof GOT; eX-F D-CUBES Series fiber laser processing machines; MELSEC iQ-R Series redundant system complying with IEC 61508 SIL2; MELSENSOR vision sensors; BFS-80SUG and BFS- 80SG Straight Centrifugal Fan; a driver monitoring system with wide-angle cam- era; the DIATONE SOUND. NAVI NR-MZ300PREMI high-end car audio-navigation system; an interactive news reader function for car navigation systems; the DS-G300 in-vehicle DIATONE speaker; and the industry’s first1 crankshaft-mount- ed integrated starter-generator (ISG) system for 48V hybrid vehicles. R&D expen- ditures in this segment totaled ¥69.5 billion. R&D expenditures / R&D expenditures ratio (Yen in billions) 195 178 202 201 210 4.7 4.4 4.6 4.7 4.5 (%) 10.0 15 14 17 16 18 250 200 100 150 2.5 5.0 7.5 50 0 0 R&D expenditures (left) R&D expenditures / Net sales (right) (Years ended March 31) 36 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 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 a Ka-band converter for satellite communication achieving high frequency resolution and low phase noise property; 28GHz Massive-element Antenna and RF Module for 5G Base Stations; the “IoT GW” communications gateway designed for IoT systems; the 10G-EPON system for cable TV networks; “Eimon” image analysis technology capable of enhanc- ing the value of network camera systems; coaxial cameras for MELOOK 3 imaging security systems; an electronic signature server module “MistyGuard SignedXML2 Server”; the “Rakukake-Kun” paperless application window system; and the “Nekaroku5 NS-850”, a new product of the recording and delivering server for surveillance camera that boasts a compact housing and enables operating in rough environments. R&D expenditures in this segment totaled ¥17.9 billion. In the Electronic Devices segment, our R&D focuses on semiconductor and other electronic devices that are themselves vital com- ponents used in all our business segments. Major R&D achievements include LV100-type X-series HVIGBT modules; 25A/600V Super-mini full SiC DIPIPM; Compact Integrated 400Gbps EML-TOSA; and 19.0-inch TFT-LCD modules with projected capacitive touch panels for industrial applications. R&D expenditures in this segment totaled ¥13.4 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 KIRIGAMINE FZ Series room air conditioners—the first in the world3 to be equipped with an AI-driven function capable of predicting perceived temperature a minute into the future (chosen to receive the highest recognition under the Fiscal 2017 Energy Conservation Grand Prize commendation program); “Zubadan Mr. Slim” package air conditioners for cold regions enhancing comfort with continuous heating for up to 10 hours; “MX Series” large-capacity and slim and user-friendly refrigerators with drawer for vegetables, automatic ice maker, Supercool chilling case placed at the waist height; and Filterless cyclone vacuum cleaner “Fujin ZXG Series” equipped with a specially designed feather- duster nozzle to quickly and thoroughly remove dust from each nook and cranny in room. R&D expenditures in this segment totaled ¥41.8 billion. In the area of cutting-edge R&D, Mitsubishi Electric is developing cutting-edge technologies aimed at helping resolve issues which society is confronting and creating value for customers and, to this end, has identified four keywords: Smart manufactur- ing, Smart mobility, Comfortable space, and Infrastructure for safety, security and relief. Major R&D achievements include fast force-feedback control algorithm for industrial robots using AI technology; an object-recognition camera technology using pro- prietary AI for coming mirrorless cars; Safe and Secure Lighting system technologies for vehicles; a platform that enables smart appliances to cooperate; a friction charged dust-collecting device; a cyber-attack detection technology; the new “REESA” small, low-cost array antenna; a new 6.5kV full-SiC power semiconductor module; an intelligent wireless communication technology supported with artificial intelligence; a compact hardware AI technology; evaluation and analysis technologies for visualization of system behavior; design and fabrication technologies utilizing 3D model for sheet metal production; a manufacturing technology of low-profile direct drive motor. R&D expenditures in this area totaled ¥32.2 billion. 1. The first as a crankshaft-mounted ISG system for 48V hybrid vehicles; as of October 26, 2017; Mitsubishi Electric research 2. Trademark pending; Mitsubishi Electric Information Systems Corporation has submitted applications for trademark rights for SignedXML. 3. As of November 1, 2017; Mitsubishi Electric research MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 37 Interest-bearing debt / Debt ratio (Yen in billions) 373 381 404 10.3 9.4 10.0 352 8.4 311 7.3 450 300 150 0 (%) 20 15 10 5 0 14 15 16 17 18 (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) 4,500 3,612 4,059 4,059 4,172 4,264 53.0 48.9 2,039 2,259 3,000 42.2 45.4 45.3 1,842 1,838 1,524 1,500 0 (%) 60 50 40 30 20 10 0 0 14 15 16 17 18 (Years ended March 31) Total assets (left) Mitsubishi Electric Corp. shareholders’ equity (left) Shareholders’ equity ratio (right) Financial Review FINANCIAL POSITION Total assets amounted to ¥4,264.5 billion as of March 31, 2018, an increase of ¥92.2 billion compared to the end of the previous fiscal year. Despite a decrease of ¥63.2 billion in cash and cash equivalents, primary factors contributing to the increase in total assets included an increase of ¥98.7 billion in work-in-process and other inventories recorded in step with progress in construction, as well as an increase in the sum of trade receivables and long-term trade receivables total- ing ¥49.5 billion. Under liabilities, the outstanding balance of debt and corporate bonds fell by ¥40.6 billion compared to the end of the previous fiscal year to ¥311.4 billion, and the ratio of interest-bearing debt to total assets was 7.3%, a decrease of 1.1 percentage points year on year. While trade payables decreased by ¥60.7 billion, retirement and severance benefits declined by ¥23.9 billion largely because of an increase in pension plan assets caused by higher share prices. As a result of these and other factors, total liabilities decreased by ¥131.1 billion to ¥1,900.4 billion. Mitsubishi Electric Corp. shareholders’ equity grew by ¥219.7 billion com- pared to the end of the previous fiscal year to ¥2,259.3 billion and the ratio of Mitsubishi Electric Corp. shareholders’ equity to total assets was 53.0%, up 4.1 of a percentage point year on year. Despite a decrease attributable to the pay- ment of cash dividends totaling ¥68.6 billion, an increase due to the posting of net income attributable to Mitsubishi Electric Corp. amounting ¥271.8 billion for the fiscal year and a rise in accumulated other comprehensive income of ¥16.5 billion reflecting the weaker yen and higher share prices, led to the overall growth in shareholders’ equity. 38 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 CAPITAL EXPENDITURES In line with its policy of improving performance by implementing the Balanced Corporate Management Policy and pursuing sustainable growth, the Mitsubishi Electric Group aims to realize its growth strategies as it increases profitability. To that end, the Group directed its capital investment mainly toward the areas of energy and electric systems, factory automation equipment, automotive 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 operations. For this fiscal year, production capacity was not materially affected by the sale, disposal, damage, or loss due to natural disaster of property, plant and equipment. Capital expenditures / Depreciation (Yen in billions) 194 156 173 132 177 175 181 145 141 154 200 150 100 50 0 14 15 16 17 18 (Years ended March 31) Capital expenditure (cid:674)Based on the recognized value of property, plant and equipment(cid:675) Depreciation CASH FLOWS In the year ended March 31, 2018, net cash provided by operating activities amounted to ¥240.4 billion, while net cash used in investing activities was ¥178.2 billion. As a result, free cash flow was an inflow of ¥62.2 billion, down ¥155.0 billion compared to the previous fiscal year. Taking this into account along with other factors, including net cash used in financing activities of ¥128.2 billion, fiscal year-end cash and cash equivalents amounted to ¥599.1 billion, a decrease of ¥63.2 billion year on year. Net cash provided by operating activities decreased by ¥125.5 billion com- pared to the previous fiscal year. This downturn was largely attributable to an increase in inventories and growth in trade payables. Net cash used in investing activities increased by ¥29.5 billion year on year, due mainly to an increase in cash outflows attributable to the purchase of prop- erty, plant and equipment. Net cash used in financing activities increased by ¥4.7 billion year on year, due mainly to growth in the payment of cash dividends. Cash flows (Yen in billions) 500 440 250 310 378 366 365 217 240 62 180 111 0 -250 -130 -198 14 15 -255 16 -148 -178 17 18 (Years ended March 31) Net cash provided by operating activities Net cash used in investing activities Free cash flows MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 39 Consolidated Balance Sheets Mitsubishi Electric Corporation and Subsidiaries March 31, 2018 and 2017 Assets Current assets: 2018 Yen (millions) 2017 U.S. dollars (thousands) (note 2) 2018 Cash and cash equivalents ¥ 599,199 ¥ 662,469 $ 5,652,821 Trade receivables (notes 4, 6 and 16) 1,087,593 1,037,201 10,260,311 Inventories (note 5) Prepaid expenses and other current assets (notes 1 (aa), 15 and 19) 741,782 177,919 643,040 157,975 6,997,943 1,678,482 Total current assets 2,606,493 2,500,685 24,589,557 Long-term receivables and investments: Long-term trade receivables (note 18) Investments in securities and other (notes 3, 11, 18 and 19) Investments in affiliated companies (note 6) Total long-term receivables and investments 1,965 410,715 203,580 616,260 2,815 421,455 197,480 621,750 18,538 3,874,670 1,920,566 5,813,774 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 112,647 852,574 113,241 807,201 1,062,708 8,043,151 1,964,737 1,891,377 18,535,255 43,313 56,160 2,973,271 2,867,979 2,232,823 2,135,368 740,448 732,611 408,612 28,049,726 21,064,368 6,985,358 Other assets (notes 1 (aa), 8, 10, 19 and 20) 301,358 317,224 2,843,000 Total assets ¥4,264,559 ¥4,172,270 $40,231,689 See accompanying notes to consolidated financial statements. 40 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 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) 2018 Yen (millions) 2017 U.S. dollars (thousands) (note 2) 2018 ¥ 56,042 ¥ 60,868 $ 528,698 66,388 719,404 361,948 33,179 234,406 63,500 780,202 363,849 26,295 231,047 626,302 6,786,830 3,414,604 313,009 2,211,378 Total current liabilities 1,471,367 1,525,761 13,880,821 Long-term debt (notes 7, 18 and 21) Retirement and severance benefits (note 11) Other liabilities (notes 1 (aa),10 and 17) 189,055 171,017 68,975 227,756 194,990 83,055 1,783,538 1,613,368 650,707 Total liabilities 1,900,414 2,031,562 17,928,434 Mitsubishi Electric Corp. shareholders' equity: Common stock (note 12): Authorized 8,000,000,000 shares; issued 2,147,201,551 shares in 2018 and in 2017 Capital surplus (note 12) Legal reserve Retained earnings Accumulated other comprehensive income (loss) (notes 3, 10, 11, 13 and 15) Treasury stock, at cost 1,493,460 shares in 2018 1,059,870 shares in 2017 175,820 213,250 69,382 175,820 212,530 68,482 1,658,679 2,011,793 654,547 1,788,359 1,586,075 16,871,312 14,472 (2,052) 136,528 (1,928) (1,228) (18,189) Total Mitsubishi Electric Corp. shareholders' equity 2,259,355 2,039,627 21,314,670 Noncontrolling interests Total equity 104,790 101,081 988,585 2,364,145 2,140,708 22,303,255 Commitments and contingent liabilities (note 17) Total liabilities and equity ¥4,264,559 ¥4,172,270 $40,231,689 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 41 Consolidated Statements of Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2018, 2017 and 2016 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: 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 13, 15, 16, 17 and 20) Total costs and expenses Income before income taxes Income taxes (note 10): Current Deferred Net income 2018 2017 Yen (millions) 2016 ¥4,431,198 8,611 22,261 29,542 4,491,612 ¥4,238,666 7,653 21,508 31,824 4,299,651 ¥4,394,353 8,573 29,433 22,570 4,454,929 3,030,902 868,812 192,966 19,881 2,727 11,746 4,127,034 2,950,729 829,425 184,964 3,444 3,225 31,615 4,003,402 3,071,435 826,232 187,032 8,482 3,495 39,777 4,136,453 364,578 296,249 318,476 62,213 20,026 82,239 55,518 17,966 73,484 52,691 24,355 77,046 U.S. dollars (thousands) (note 2) 2018 $41,803,755 81,236 210,009 278,698 42,373,698 28,593,415 8,196,340 1,820,434 187,557 25,726 110,811 38,934,283 3,439,415 586,915 188,925 775,840 282,339 222,765 241,430 2,663,575 Net income attributable to noncontrolling interests 10,459 12,272 12,936 98,669 Net income attributable to Mitsubishi Electric Corp. ¥ 271,880 ¥ 210,493 ¥ 228,494 $ 2,564,906 Net income per share attributable to Mitsubishi Electric Corp. (note 14): Basic Diluted See accompanying notes to consolidated financial statements. ¥126.70 — ¥98.07 — Yen ¥106.43 — U.S. dollars (note 2) $1.195 — Consolidated Statements of Comprehensive Income Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2018, 2017 and 2016 2018 ¥282,339 2017 ¥222,765 Yen (millions) 2016 ¥ 241,430 17,023 15,857 (14,875) (88) 17,917 300,256 (22,968) 26,096 42,684 136 45,948 268,713 (70,881) (86,516) (25,498) (8) (182,903) 58,527 U.S. dollars (thousands) (note 2) 2018 $2,663,575 160,594 149,595 (140,330) (830) 169,029 2,832,604 11,852 9,573 4,796 111,811 ¥288,404 ¥259,140 ¥ 53,731 $2,720,793 Net income 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 Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Mitsubishi Electric Corp. See accompanying notes to consolidated financial statements. 42 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Consolidated Statements of Equity Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2018, 2017 and 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 Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2016 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 Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2017 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 Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2018 Balance at March 31, 2017 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 Purchase of treasury stock Reissuance of treasury stock Balance at March 31, 2018 See accompanying notes to consolidated financial statements. Common stock Capital surplus Legal reserve Retained earnings Accumulated other comprehensive income (loss) Total Mitsubishi Electric Corp. shareholders’ equity Non- controlling interests Treasury stock Yen (millions) Total equity ¥175,820 ¥211,155 ¥64,058 ¥1,267,438 ¥124,064 ¥ (332) ¥1,842,203 ¥ 87,964 ¥1,930,167 228,494 228,494 (63,112) (86,123) (25,510) (18) 1,594 (1,594) 844 (57,963) ¥175,820 0 ¥211,999 ¥65,652 ¥1,436,375 ¥ (50,699) (43) 1 ¥ (374) 210,493 (21,312) 27,238 42,610 111 531 2,830 (2,830) (57,963) ¥175,820 0 ¥212,530 ¥68,482 ¥1,586,075 ¥ (2,052) (854) 0 ¥(1,228) 271,880 15,614 15,918 (14,939) (69) 720 900 (900) (68,696) ¥175,820 0 ¥213,250 ¥69,382 ¥1,788,359 ¥ 14,472 (700) 0 ¥(1,928) 12,936 (7,769) (393) 12 10 4,796 33,439 (27,469) ¥ 98,730 12,272 (1,656) (1,142) 74 25 9,573 (7,222) ¥101,081 10,459 1,409 (61) 64 (19) 11,852 (8,143) ¥104,790 (63,112) (86,123) (25,510) (18) 53,731 — — 844 (57,963) (43) 1 ¥1,838,773 210,493 (21,312) 27,238 42,610 111 259,140 — 531 (57,963) (854) 0 ¥2,039,627 271,880 15,614 15,918 (14,939) (69) 288,404 — 720 (68,696) (700) 0 ¥2,259,355 228,494 12,936 (70,881) (86,516) (25,498) (8) 58,527 — 33,439 (26,625) (57,963) (43) 1 ¥1,937,503 210,493 12,272 (22,968) 26,096 42,684 136 268,713 — (6,691) (57,963) (854) 0 ¥2,140,708 271,880 10,459 17,023 15,857 (14,875) (88) 300,256 — (7,423) (68,696) (700) 0 ¥2,364,145 Common stock Capital surplus Legal reserve Retained earnings U.S. dollars (thousands) (note 2) Accumulated other comprehensive income (loss) Total Mitsubishi Electric Corp. shareholders’ equity Non- controlling interests Treasury stock Total equity $1,658,679 $2,005,000 $646,057 $14,962,972 $ (19,359) $(11,585) $19,241,764 $953,595 $20,195,359 2,564,906 2,564,906 147,302 150,170 (140,934) (651) 6,793 8,490 (8,490) (648,076) 0 $1,658,679 $2,011,793 $654,547 $16,871,312 $136,528 (6,604) 0 $(18,189) 147,302 150,170 (140,934) (651) 2,720,793 — 6,793 (648,076) (6,604) 0 $21,314,670 98,669 13,292 (575) 604 (179) 111,811 (76,821) $988,585 2,564,906 98,669 160,594 149,595 (140,330) (830) 2,832,604 — (70,028) (648,076) (6,604) 0 $22,303,255 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 43 Consolidated Statements of Cash Flows Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2018, 2017 and 2016 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 Loss (gain) from sale of subsidiaries 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 Proceed from sale of subsidiary (net of cash disposed) 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 (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2018 2017 Yen (millions) 2016 U.S. dollars (thousands) (note 2) 2018 ¥282,339 ¥222,765 ¥241,430 $2,663,575 154,559 19,330 141,584 3,344 145,249 5,766 (1,122) 20,026 (23,622) 884 680 (22,261) (45,827) (95,357) (21,644) (48,428) (21,328) 1,970 40,251 240,450 (542) 17,966 (2,243) (14,569) 1,216 (21,508) (21,580) (7,576) 19,239 20,853 (31,590) (6,253) 44,844 365,950 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 (186,792) 3,005 (167,165) 9,049 (182,251) 2,400 1,458,104 182,358 (10,585) 188,925 (222,849) 8,340 6,415 (210,009) (432,330) (899,594) (204,189) (456,868) (201,208) 18,585 379,726 2,268,396 (1,762,189) 28,349 (8,518) (6,007) (13,285) (80,358) — — (50,587) — 36,072 (878) (834) (20,274) (178,219) 20,180 (64,186) (5,974) (68,696) (700) 0 — (8,915) 10,774 12,786 13,878 (21,947) (148,632) 145 (58,489) 350 (57,963) (854) 0 — (6,684) 8,511 — (854) (19,377) (255,443) 110,108 (93,163) (13,912) (57,963) (43) 1 (21,825) (5,347) 340,302 (8,283) (7,868)－ (191,264) (1,681,311) 190,377 (605,528) (56,357) (648,076) (6,604) 0 — (84,104) (128,291) (123,495) (82,144) (1,210,292) 2,790 (63,270) 662,469 ¥599,199 (5,524) 88,299 574,170 ¥662,469 (23,437) 5,653 568,517 ¥574,170 26,320 (596,887) 6,249,708 $5,652,821 Note: The name of MELCO Hydronics & IT Cooling S.p.A. was changed and is MEHIT Holding S.r.l. as of March 31, 2018. See accompanying notes to consolidated financial statements. 44 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Notes to Consolidated Financial Statements Mitsubishi Electric Corporation and Subsidiaries (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Mitsubishi Electric Corporation (the “Company”) is a multina- tional organization which develops, manufactures, sells and dis- consolidate the entity as the primary beneficiary when the Company has a controlling financial interest. tributes a broad range of electrical and electronic equipments in the fields as diverse as home appliances and space electronics. (d) Use of Estimates The Company makes estimates and assumptions to prepare The Company and its subsidiaries’ principal lines of business the consolidated financial statements in conformity with gen- are: (1) Energy and Electric Systems, (2) Industrial Automation erally accepted accounting principles, and those estimates and Systems, (3) Information and Communication Systems, (4) assumptions affect the reported amounts of assets and liabili- Electronic Devices, (5) Home Appliances and (6) Others. ties as well as the disclosed amounts of contingent assets and Each line’s sales as a percentage of total consolidated liabilities at the date of the consolidated financial statements sales, before elimination of internal sales, for the year ended and the reported amounts of revenues and expenses during March 31, 2018 are as follows: Energy and Electric Systems – the reporting period. Significant items subject to such esti- 24%, Industrial Automation Systems – 28%, Information and mates and assumptions include valuation allowances for Communication Systems – 9%, Electronic Devices – 4%, receivables, inventories and deferred tax assets; the carrying Home Appliances – 20% and Others – 15%. amount of property, plant and equipment; goodwill and other The operations of the Company and its subsidiaries is intangible assets; and assets and obligations related to employ- mainly conducted in Japan. Net sales for the year ended March 31, 2018 comprises of the following geographical loca- tions: Japan – 55%, North America – 9%, Asia (excluding Japan) – 24%, Europe – 10% and Others – 2%. ee benefits. Actual results could differ from those estimates. (e) Cash and Cash Equivalents The Company considers all highly liquid debt instruments with Our manufacturing operations are conducted principally original maturities of three months or less to be cash equiva- at the Parent company with 23 manufacturing sites located in lents for the consolidated cash flow statements. Japan as well as overseas manufacturing sites located in the United States, United Kingdom, Thailand, Malaysia, China and other countries. (f) Short-Term Investments and Investment Securities The Company classifies investments in debt and equity securities into trading, available-for-sale, or held-to-maturity securities. (b) Basis of Presentation The Company and its subsidiaries maintain their books of Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity account in conformity with financial accounting standards in securities are those securities which the Company has the the countries of their domicile. ability and intent to hold until maturity. All securities not The Company prepares the consolidated financial state- included in trading or held-to-maturity are classified as ments with reflecting the adjustments which are considered available-for-sale. necessary to conform with accounting principles generally Marketable trading and available-for-sale securities are accepted in the United States of America. recorded at fair value. Held-to-maturity securities are recorded (c) Consolidation The Company prepares the consolidated financial statements 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- including the accounts of the parent company and those of its ing gains and losses, net of the related tax effect, on avail- majority-owned subsidiaries, whether directly or indirectly able-for-sale securities are excluded from earnings and are controlled. All significant intercompany transactions, reported as a separate component of other comprehensive accounts, and unrealized gains or losses have been income (loss) until realized. Realized gains or losses from the eliminated. sale of securities are determined on the average cost of the Investments in corporate joint ventures and affiliated particular security held at the time of sale. companies with the ownership interest of 20% to 50%, in A decline in the fair value of any available-for-sale security which the Company does not have control, but has the ability below costs that is other-than-temporary results in a reduction to exercise significant influence, are accounted for by the in carrying amount to the fair value, which becomes the new equity method of accounting. Investments of less than 20% acquisition cost for the security. or on which the Company does not have significant influence To determine whether an impairment of equity security is are accounted for by the cost method. other-than-temporary, the Company considers whether it has The Company evaluates Variable Interest Entities (VIEs) the ability and intent to hold the security until a market price whether it has a controlling financial interest in an entity recovery and considers whether evidence indicating the market through means other than voting rights and whether it should price of the security is recoverable to the carrying amount MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 45 Notes to Consolidated Financial Statements outweighs the counter evidence. Evidence considered in this assets and liabilities and their respective tax basis, operating assessment includes the reasons for the impairment, the severi- loss and tax credit carryforwards. Deferred tax assets and lia- ty and duration of the impairment, changes in value subse- bilities are measured using enacted tax rates expected to quent to year-end, and forecasted performance of the investee. apply to taxable income in the years in which the temporary To determine whether an impairment of debt security is differences are expected to be recovered or settled. The effect other-than-temporary, the Company considers whether it has on deferred tax assets and liabilities of a change in tax rates is the intent to sell the debt security and it is more likely than recognized in income in the period that includes the enact- not that the Company is required to sell until a market price ment date. of the investment is recoverable to the amortized cost. Valuation allowances are established to reduce deferred Other investments are stated at cost. The Company rec- tax assets to their net realizable value if it is more likely than ognizes a loss when there is other-than-temporary decline in not that some portion or all of the deferred tax asset will not value of other investments, using the same policy as described be realized. above for available-for-sale security impairments. The Company recognizes the financial statement effects (g) Allowance for Doubtful Receivables The Company records an allowance for doubtful receivables based on credit loss history and evaluation of specific doubtful receivables. (h) Inventories In work-in-process, the Company records the ordered prod- of unrecognized tax benefits only if those positions are more likely than not of being sustained. (l) Product Warranties The Company generally offers warranties on its products against certain manufacturing and other defects for the spe- cific periods of time and/or usage of the product depending on the nature of the product, the geographic location of its ucts at the acquisition cost and the regular purchased prod- sale and other factors. The Company recognizes accrued war- ucts at the average production costs. Those products are ranty costs based primarily on historical experience of actual recorded at the lower of cost or market. Net costs in excess of warranty claims as well as current information on repair costs. billings on long-term contracts are included in inventories. Raw material and finished product inventories are generally recorded using the average-cost method, and evaluated at the (m) Retirement and Severance Benefits The Company recognizes the funded status (i.e., the differ- lower of cost or market. In accordance with the general prac- ence between the fair value of plan assets and the projected tice in the heavy electrical industry, inventories related to benefit obligations) of its pension plans in the consolidated Energy and Electric Systems include items with long manufac- balance sheet at the end of the year, and records the corre- turing periods which are not realizable within one year. sponding amount to accumulated other comprehensive income (loss), net of tax. The adjustment items for accumulat- (i) Property, Plant and Equipment The Company records property, plant and equipment at cost. ed other comprehensive income (loss) are unrecognized prior service cost and unrecognized net gain or loss. The amounts Depreciation of property, plant and equipment is generally cal- of these adjustments are recognized as net periodic pension culated by the declining-balance method, except for certain cost in future years. assets which are depreciated by the straight-line method, over the estimated useful life of the assets according to general class, type of construction, and use of these assets. (n) Revenue Recognition The Company recognizes revenue when persuasive evidence of The estimated useful life of buildings is 3 to 50 years, an arrangement including title transfer exists, delivery has while machinery and equipment is 2 to 20 years. occurred, the sales price is fixed or determinable, and collect- ability is probable. These criteria are met for mass-merchandis- (j) Leases The Company records capital leases at the inception of the ing products such as consumer products and semiconductors at the time when the product is received by the customer, and for lease at the lower of the discounted present value of future products with acceptance provisions such as heavy machinery minimum lease payments or the fair value of the leased and industrial products at the time when the product is assets. The depreciation of the leased assets is calculated in accordance with the Company’s normal depreciation policy. received by the customer and the specific criteria of the product are demonstrated by the Company with only certain inconse- quential or perfunctory work left to be performed by the cus- (k) Income Taxes The Company recognizes deferred tax assets and liabilities for tomer. Revenue from maintenance agreements is recognized over the contract term when the maintenance is provided and the future tax consequences attributable to differences the cost is incurred. Also, the Company applies the percentage between the financial statement carrying amounts of existing of completion method for long-term construction contracts. 46 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 The Company measures the percentage of completion by com- hedges, changes in fair value of the hedged item and the paring expenses recognized through the current year to the derivative are recognized in current earnings. For derivatives aggregate amount of estimated cost. Any anticipated losses on designated as cash flow hedges, fair value changes of the fixed price contracts are charged to operations when such loss- effective portion of the hedging instruments are recognized as es can be estimated. Provisions are made for contingencies in a component of other comprehensive income (loss) until the the period when they become known pursuant to specific con- hedged item is recognized in earnings. The ineffective portion tract terms and conditions and are estimable. of all hedges is recognized in earnings immediately. For the contract which may consist of any combination of The Company discloses the use and purpose of derivative products, equipment, installation and maintenance, revenue is instruments, accounting for derivative instruments and related allocated to each accounting unit based on its relative fair hedged items. The Company also discloses the effects on the value, when each deliverable is accounted for by each sepa- entity’s financial position, results of operations, and cash flows rate accounting unit. by the derivative instruments and hedging activities. (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 ment and advertising as expense when those costs are incurred. receivables as a sale, if it is determined based on the (p) Shipping and Handling Costs The Company records shipping and handling costs mainly as selling, general and administrative expenses. Company’s evaluation that it has surrendered control over the transferred receivables. Accordingly, the receivables sold under these facilities are excluded from Trade receivables in the accompanying consoli- dated balance sheets. Gain or loss on sale of receivables is cal- (q) Net Income per Share The Company calculates basic net income per share attribut- culated based on the allocated carrying amount of the receivables sold. When a portion of accounts receivables is able to Mitsubishi Electric Corp. by dividing net income attrib- transferred, the participating interest that continues to be utable to Mitsubishi Electric Corp. by the weighted-average held is recorded at the allocated carrying amount of the assets number of common shares outstanding during each year. based on their relative fair values at the date of the transfer. Diluted net income per share attributable to Mitsubishi Electric The Company estimates fair value based on the present value Corp. reflects the potential dilution and is calculated on the of future expected cash flows less credit losses. 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 (u) Impairment of Long-Lived Assets The Company reviews for impairment of long-lived assets assumed to be purchased from the proceeds using the aver- such as property, plant, and equipment and purchased intan- age market price of the Company’s common stock). gibles subject to amortization, to be held and used whenever (r) Foreign Currency Translation The Company translates receivables and payables in foreign 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 currency at the prevailing rates of exchange at the balance the carrying amount of an asset to estimated undiscounted sheet date. Gains and losses resulting from translation of future cash flows expected to be generated by the asset. If receivables and payables are recognized in current earnings. the carrying amount of an asset exceeds its estimated future Assets and liabilities of the Company’s overseas consolidated cash flows, an impairment loss is recognized by the amount subsidiaries are translated into Japanese yen at the prevailing by which the carrying amount of the asset exceeds the fair rates of exchange at the balance sheet date. Income and value of the asset. Long-lived assets to be disposed of other expense items are translated at the average exchange rate than sale continue to be classified as held and used until they prevailing during the year. Gains and losses resulting from are disposed. translation of financial statements are recognized as foreign Long-lived assets classified as held-for-sale are separately currency translation adjustments in other comprehensive presented in the balance sheet and reported at the lower of income (loss). the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed (s) Derivatives The Company recognizes all derivatives as either assets or lia- group classified as held-for-sale are presented separately in the appropriate asset and liability sections of the consolidated bilities in the consolidated financial statements and measures balance sheets. them at fair value. For derivatives designated as fair value MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 47 Notes to Consolidated Financial Statements (v) Goodwill and Other Intangible Assets The Company accounts for business combinations using the construction and development, and (or) from a normal opera- tion of a long-lived asset, except for certain lease obligations. acquisition method. The Company recognizes at fair value the The Company recognizes a liability for an asset retirement assets acquired, the liabilities assumed, any noncontrolling obligation at fair value in the period which it is incurred if a interests in the acquiree, and acquired goodwill at the acquisi- reasonable estimate of fair value can be made. The associated tion date. The Company discloses the nature of business com- asset retirement costs are capitalized as part of the carrying bination to enable the readers to evaluate the effects of such amount of the long-lived asset and subsequently allocated to transaction on the consolidated financial statements. expense over the asset’s useful life. Subsequent to the initial The Company does not amortize goodwill and other measurement of the asset retirement obligation, the obliga- intangible assets with indefinite useful life but tests it for tion is adjusted at the end of each period to reflect the pas- impairment at least annually. In the impairment test, the fair sage of time and changes in the estimated future cash flows value of the reporting unit is compared to its carrying amount underlying the obligation. (including goodwill). Impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, up to the carrying amount of goodwill allocated to the report- (z) Reclassifications The Company has made certain reclassifications of the previ- ing unit. Also other intangible assets determined to have use- ous fiscal years’ consolidated financial statements to conform ful life are amortized over their respective estimated useful to the presentation used for the year ended March 31, 2018. life, and tested for impairment by the same process as impair- ment of long-lived assets. (w) Cost Associated with Exit or Disposal Activities The Company recognizes the costs associated with exit or dis- (aa) Application of New Accounting Standards From the year ended March 31, 2018, the Company has adopted Accounting Standards Update 2015-17 “Balance Sheet Classification of Deferred Taxes” (an amendment of posal activities as liability only when it meets the definition of ASC Topic 740 “Income Taxes”) issued by the Financial a liability in the Statements of Financial Accounting Concepts Accounting Standards Board. Accordingly, all deferred tax No. 6, “Elements of Financial Statements”. The Company assets and liabilities are classified as noncurrent in the consoli- uses fair value for initial measurement of liabilities related to dated balance sheet and subsequently, deferred tax assets and exit or disposal activities. liabilities attributable to the same tax-paying component or tax jurisdiction are offset and presented in the noncurrent cat- (x) Guarantees The Company recognizes the guarantees and indemnification egory. The consolidated balance sheets of previous fiscal years have been reclassified following this adoption. Accordingly, arrangements as liability measured at fair value as they are deferred tax assets previously included in “Prepaid expenses issued or modified by the Company, and discloses the guaran- and other current assets” in the current category and deferred tees that the Company has undertaken, including a rollfor- tax liabilities previously included in “Other liabilities” are each ward of the Company’s product warranty liabilities. The reclassified to “Other assets”. Company continually monitors the conditions of the guaran- The Company is planning to voluntarily adopt International tees and indemnifications to identify occurrence of probable Financial Reporting Standards (IFRS) for its consolidated finan- losses, and when such losses are identified and if estimable, cial statements from the year ending March 31, 2019, in place they are recognized in current earnings. of U.S. generally accepted accounting principles (U.S. GAAP). (y) Asset Retirement Obligations The Company recognizes legal obligations associated with the retirement of long-lived assets that result from an acquisition, (2) U.S. DOLLAR AMOUNTS Therefore, we will not present the U.S. GAAP accounting pro- nouncements that will be effective after April 1, 2018. 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 2018. This translation should not reader, has provided translated amounts in United States dol- lars at the rate of ¥106=U.S.$1, which was the approximate be construed as a representation that the amounts shown could be converted into United States dollars at such rate. 48 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 (3) SECURITIES Marketable securities included in investments in securities and other consists of available-for-sale securities. The cost, gross unre- alized holding gains, gross unrealized holding losses and fair value for such securities by equity securities and debt securities at March 31, 2018 and 2017 are as follows: 2018: Available-for-sale: Equity securities Debt securities 2017: Available-for-sale: Equity securities Debt securities 2018: Available-for-sale: Equity securities Debt securities Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥85,910 200 ¥86,110 ¥176,080 — ¥176,080 ¥1,101 3 ¥1,104 ¥260,889 197 ¥261,086 Gross unrealized holding gains Gross unrealized holding losses Cost Yen (millions) Fair value ¥91,546 200 ¥91,746 ¥199,654 — ¥199,654 ¥903 2 ¥905 ¥290,297 198 ¥290,495 U.S. dollars (thousands) Gross unrealized holding gains Gross unrealized holding losses Cost Fair value $810,472 1,886 $812,358 $1,661,132 — $1,661,132 $10,387 28 $10,415 $2,461,217 1,858 $2,463,075 Debt securities consist of investment trusts. In the years ended March 31, 2018 and 2016, net unrealized gains on available-for-sale securities, net of taxes and noncon- trolling interests, decreased by ¥14,939 million ($140,934 thousand), and ¥25,510 million, respectively, and in the year ended March 31, 2017, increased by ¥42,610 million. As of March 31, 2018 and 2017, the cost of non-marketable equity securities were ¥16,791 million ($158,406 thousand) and ¥15,162 million, respectively. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 49 Notes to Consolidated Financial Statements Maturities of marketable securities classified as available-for-sale at March 31, 2018 are as follows: Due within one year Marketable equity securities Yen (millions) U.S. dollars (thousands) Cost Fair value Cost Fair value ¥ 200 85,910 ¥86,110 ¥ 197 260,889 ¥261,086 $ 1,886 810,472 $812,358 $ 1,858 2,461,217 $2,463,075 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, 2018 are as follows: Available-for-sale: Equity securities Debt securities Available-for-sale: Equity securities Debt securities Less than 12 months 12 months or more Yen (millions) Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses ¥6,839 — ¥6,839 ¥441 — ¥441 ¥1,257 197 ¥1,454 ¥660 3 ¥663 ¥8,096 197 ¥8,293 ¥1,101 3 ¥1,104 Less than 12 months 12 months or more Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses U.S. dollars (thousands) $64,519 — $64,519 $4,160 — $4,160 $11,858 1,858 $13,716 $6,227 28 $6,255 $76,377 1,858 $78,235 $10,387 28 $10,415 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, 2018, 2017 and 2016 are as follows: Proceeds Gross realized gains Gross realized losses 2018 ¥29,166 23,509 23 Yen (millions) 2017 2016 ¥5,037 2,681 593 ¥3,834 1,488 3 U.S. dollars (thousands) 2018 $275,151 221,783 217 For the years ended March 31, 2018, 2017 and 2016, the Company did not recognize any material losses on impairment of mar- ketable 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 2018 ¥ 99,267 999,660 (11,334) ¥1,087,593 Yen (millions) 2017 ¥ 93,612 951,962 (8,373) ¥1,037,201 U.S. dollars (thousands) 2018 $ 936,481 9,430,755 (106,925) $10,260,311 50 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 (5) INVENTORIES Inventories are comprised of the following: Work in process Less accumulated billings on long-term contracts Raw materials Finished products 2018 ¥315,592 25,926 289,666 132,637 319,479 ¥741,782 Yen (millions) 2017 ¥278,237 24,708 253,529 111,641 277,870 ¥643,040 U.S. dollars (thousands) 2018 $2,977,283 244,585 2,732,698 1,251,292 3,013,953 $6,997,943 (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, 2018 and 2017, and for the years ended March 31, 2018, 2017 and 2016 is as follows: Financial Position Current assets Property, plant and equipment Other assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity 2018 ¥1,356,408 115,759 137,926 ¥1,610,093 ¥ 880,835 165,130 1,045,965 564,128 ¥1,610,093 Yen (millions) 2017 U.S. dollars (thousands) 2018 ¥1,309,367 119,389 129,224 ¥1,557,980 ¥ 885,052 127,051 1,012,103 545,877 ¥1,557,980 $12,796,302 1,092,066 1,301,189 $15,189,557 $ 8,309,764 1,557,830 9,867,594 5,321,963 $15,189,557 Results of Operations Sales Net income attributable to affiliated companies ¥1,313,676 60,238 ¥1,290,406 58,124 ¥1,363,861 76,158 $12,393,170 568,283 2018 2017 2016 2018 Yen (millions) U.S. dollars (thousands) The balances and transactions with affiliated companies accounted for by the equity method of accounting as of March 31, 2018 and 2017, and for the years ended March 31, 2018, 2017 and 2016 are as follows: Trade receivables Trade payables Sales Purchases Dividends 2018 ¥70,266 50,971 2018 ¥301,524 138,797 18,739 2017 ¥294,027 141,545 18,538 Yen (millions) 2017 ¥58,497 47,648 Yen (millions) 2016 ¥300 ,524 139,666 18,084 U.S. dollars (thousands) 2018 $662,887 480,858 U.S. dollars (thousands) 2018 $2,844,566 1,309,406 176,783 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 51 Notes to Consolidated Financial Statements Investments in affiliated companies accounted for by the equity method of accounting include the shares of 8 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 2018 ¥42,451 62,490 Yen (millions) 2017 ¥39,379 57,923 2018 ¥56,042 Yen (millions) 2017 ¥60,868 U.S. dollars (thousands) 2018 $400,481 589,528 U.S. dollars (thousands) 2018 $528,698 The weighted average interest rates on borrowings from banks and others outstanding as of March 31, 2018 and 2017 are 0.60% and 0.82%, respectively. At March 31, 2018, the Company and its subsidiaries had unused committed lines of credit that can provide short-term funds from subscribing financial institutions amounting to ¥82,890 million ($781,981 thousand). Long-term debt consisted of the following: Borrowings from banks and other companies, due 2018 to 2025 with bearing interest rate ranging from 0.17% to 6.83% at March 31, 2018: due 2017 to 2025 with bearing interest rate ranging from 0.15% to 5.42% at March 31, 2017 Unsecured 0.27% Japanese yen bonds due 2019 0.43% Japanese yen bonds due 2021 Capital lease obligations Less amount due within one year 2018 Yen (millions) 2017 U.S. dollars (thousands) 2018 ¥193,961 20,000 20,000 21,482 255,443 66,388 ¥189,055 ¥228,910 20,000 20,000 22,346 291,256 63,500 ¥227,756 $1,829,821 188,679 188,679 202,661 2,409,840 626,302 $1,783,538 The aggregate annual maturities of long-term debt outstanding at March 31, 2018 are as follows: Year ending March 31: Yen (millions) U.S. dollars (thousands) 2019 2020 2021 2022 2023 Thereafter Total ¥ 66,388 47,508 41,888 36,974 48,650 14,035 ¥255,443 $ 626,302 448,189 395,170 348,811 458,962 132,406 $2,409,840 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. 52 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 (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, 2018 and 2017 are as follows: 2018: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total 2017: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total 2018: Finite-lived intangible assets Software Customer relationship Others Sub total Indefinite-lived intangible assets Total Gross carrying amount Accumulated amortization ¥119,382 30,050 35,630 185,062 2,617 ¥187,679 ¥ 79,761 5,985 19,853 105,599 — ¥105,599 Gross carrying amount Accumulated amortization Yen (millions) Net carrying amount ¥39,621 24,065 15,777 79,463 2,617 ¥82,080 Yen (millions) Net carrying amount ¥108,287 27,628 33,867 169,782 2,791 ¥172,573 ¥70,359 3,180 16,093 89,632 — ¥89,632 ¥37,928 24,448 17,774 80,150 2,791 ¥82,941 Gross carrying amount Accumulated amortization Net carrying amount U.S. dollars (thousands) $1,126,245 283,491 336,132 1,745,868 24,689 $1,770,557 $752,462 56,462 187,292 996,216 — $996,216 $373,783 227,029 148,840 749,652 24,689 $774,341 Finite-lived intangible assets acquired during the years ended March 31, 2018 and 2017 are ¥19,674 million ($185,604 thou- sand) and ¥19,250 million respectively, mainly acquisition of softwares. Amortization expenses of intangible assets for the years ended March 31, 2018, 2017 and 2016 are ¥24,330 million ($229,528 thousand), ¥22,663 million, ¥19,006 million, respectively. Estimated amortization expenses for the next five years are as follows: Year ending March 31: Yen (millions) U.S. dollars (thousands) 2019 2020 2021 2022 2023 ¥20,365 15,374 9,875 6,192 4,616 $192,123 145,038 93,160 58,415 43,547 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 53 Notes to Consolidated Financial Statements Changes in the carrying amount of goodwill for the years ended March 31, 2018 and 2017 are as follows: Balance at beginning of year Acquisition Foreign currency translation adjustments, etc Balance at end of year 2018 ¥59,890 1,102 3,108 ¥64,100 Yen (millions) 2017 ¥63,979 — (4,089) ¥59,890 U.S. dollars (thousands) 2018 $565,000 10,396 29,321 $604,717 Goodwill is mainly allocated to the Home Appliances segment by ¥58,974 million ($556,358 thousand) as of March 31, 2018 and ¥55,840 million as of March 31, 2017. (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 2018 ¥ 89,661 629,743 ¥719,404 Yen (millions) 2017 ¥127,585 652,617 ¥780,202 U.S. dollars (thousands) 2018 $ 845,858 5,940,972 $6,786,830 2018 ¥82,239 2017 ¥73,484 Yen (millions) 2016 ¥77,046 1,684 6,469 (8,403) (21) ¥81,968 (3,690) 12,542 15,229 38 ¥97,603 (5,551) (40,390) (8,558) (20) ¥22,527 U.S. dollars (thousands) 2018 $775,840 15,887 61,028 (79,274) (198) $773,283 The significant components of deferred tax expense attributable to income taxes are as follows: Change in valuation allowance related to deferred tax assets Other 2018 2017 2016 2018 Yen (millions) U.S. dollars (thousands) ¥ (7,712) 27,738 ¥20,026 ¥ (5,925) 23,891 ¥17,966 ¥ (5,130) 29,485 ¥24,355 $ (72,755) 261,680 $188,925 The Company is subjected to a number of income taxes. The statutory tax rate is approximately 31.0% for the years ended March 31, 2018 and 2017 respectively, approximately 33.0% for the year ended March 31, 2016. 54 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 The effective tax rate for the years ended March 31, 2018, 2017 and 2016 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 undistributed earnings Effect of income tax rate change Other Effective tax rate 2018 31.0% (2.1) (0.9) 0.6 (5.7) (2.5) 0.0 (0.2) 2.4 22.6% 2017 31.0% (2.0) (1.1) 0.6 (6.2) (2.4) 2.8 0.0 2.1 24.8% 2016 33.0% (4.3) (0.5) 1.1 (6.6) (2.5) 1.6 4.4 (2.0) 24.2% The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2018 and 2017 are as follows: Deferred tax assets: Retirement and severance benefits Accrued expenses Property, plant and equipment Inventories Pension liability adjustments Tax loss carryforwards Other Total gross deferred tax assets Valuation allowance Deferred tax assets, less valuation allowance Deferred tax liabilities: Securities contributed to employee retirement benefit trust Property, plant and equipment Net unrealized gains on securities Other Total gross deferred tax liabilities Net deferred tax assets 2018 ¥ 4,694 88,085 42,046 23,417 79,397 11,772 57,248 306,659 (31,249) 275,410 26,122 6,973 36,287 73,924 143,306 ¥132,104 Yen (millions) 2017 U.S. dollars (thousands) 2018 ¥ 9,610 90,683 39,510 21,276 85,928 18,480 59,693 325,180 (38,961) 286,219 26,122 5,556 38,122 68,733 138,533 ¥147,686 $ 44,283 830,991 396,660 220,915 749,028 111,057 540,075 2,893,009 (294,802) 2,598,207 246,434 65,783 342,330 697,396 1,351,943 $1,246,264 The valuation allowance for deferred tax assets as of April 1, reversal of deferred tax liabilities, projected future taxable 2016 was ¥44,886 million. The net change in the total valua- income, and tax planning strategies in making this assessment. tion allowance for the years ended March 31, 2018 and 2017 At March 31, 2018, the certain subsidiaries had net oper- was a decrease of ¥7,712 million ($72,755 thousand) and ating loss carryforwards of ¥51,161 million ($482,651 thou- ¥5,925 million, respectively. In assessing the realizability of sand) and ¥66,115 million ($623,726 thousand) for corporate deferred tax assets, management considers whether it is more and local income tax purposes, respectively, which were avail- likely than not that some portion or all of the deferred tax able to offset future taxable income, if any. A part of the net assets will be realized. The ultimate realization of deferred tax operating loss carryforwards will never expire. The rest of the assets is dependent upon the generation of future taxable net operating loss carryforwards will expire mainly in the years income during the periods in which those temporary differenc- ending March 31, 2020. es become deductible. Management considers the scheduled MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 55 Notes to Consolidated Financial Statements Net deferred tax assets and liabilities at March 31, 2018 and 2017 are reflected in the accompanying consolidated balance sheets under the following captions: Other assets Other liabilities 2018 ¥142,093 (9,989) ¥132,104 Yen (millions) 2017 ¥162,169 (14,483) ¥147,686 U.S. dollars (thousands) 2018 $1,340,500 (94,236) $1,246,264 Deferred tax liabilities have been recognized for the undistrib- of March 31, 2018 and 2017, and interest and penalties for uted earnings of subsidiaries and affiliated companies. the years ended March 31, 2018, 2017 and 2016 are not Deferred tax liabilities have not been recognized for undistrib- 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, 2018 and 2017, future determination by tax authorities could affect the Location 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 penalties accrued as Japan United States Thailand Europe (11) RETIREMENT AND SEVERANCE BENEFITS Open tax years 2011–2018 2015–2018 2013–2018 2013–2018 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, 56 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 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 Service cost Interest cost Plan participants’ contributions Actuarial loss (gain) 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 2018 ¥1,139,913 35,487 7,280 1,010 14,035 (60,193) 1,706 1,139,238 1,015,173 50,178 27,358 833 (39,600) 1,280 1,055,222 Yen (millions) 2017 U.S. dollars (thousands) 2018 ¥1,167,468 35,939 5,835 1,019 (5,969) (66,616) 2,237 1,139,913 964,489 44,942 49,504 825 (45,948) 1,361 1,015,173 $10,753,896 334,783 68,679 9,528 132,406 (567,858) 16,094 10,747,528 9,577,104 473,377 258,094 7,859 (373,585) 12,075 9,954,924 Funded status at end of year ¥ (84,016) ¥ (124,740) $ (792,604) Amounts recognized in the consolidated balance sheets at March 31, 2018 and 2017 consist of: Investments in securities and other Other current liabilities Retirement and severance benefits 2018 ¥ 90,197 (3,196) (171,017) ¥ (84,016) Yen (millions) 2017 ¥ 73,705 (3,455) (194,990) ¥(124,740) Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2018 and 2017 consist of: Actuarial loss Prior service cost 2018 ¥273,229 (9,627) ¥263,602 Yen (millions) 2017 ¥305,590 (20,197) ¥285,393 U.S. dollars (thousands) 2018 $ 850,915 (30,151) (1,613,368) $ (792,604) U.S. dollars (thousands) 2018 $2,577,632 (90,821) $2,486,811 The accumulated benefit obligations for all defined benefit plans are as follows: Accumulated benefit obligations ¥1,131,932 ¥1,132,807 $10,678,604 2018 Yen (millions) 2017 U.S. dollars (thousands) 2018 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 57 Notes to Consolidated Financial Statements 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, 2018, 2017 and 2016 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 2018 ¥ 36,497 7,280 (17,274) (10,570) 14,161 30,094 (1,010) ¥ 29,084 2017 ¥ 36,958 5,835 (16,593) (10,596) 17,551 33,155 (1,019) ¥ 32,136 Yen (millions) 2016 ¥ 33,980 11,403 (16,482) (12,044) 12,077 28,934 (1,033) ¥ 27,901 U.S. dollars (thousands) 2018 $ 344,311 68,679 (162,962) (99,717) 133,594 283,905 (9,528) $ 274,377 Other changes in plan assets and projected benefit obligations recognized in other comprehensive income (loss) for the years ended March 31, 2018, 2017 and 2016 are summarized as follows: Actuarial loss (gain) Amortization of actuarial loss Amortization of prior service cost 2018 ¥(18,200) (14,161) 10,570 ¥(21,791) 2017 ¥(31,951) (17,551) 10,596 ¥(38,906) Yen (millions) 2016 ¥126,876 (12,077) 12,044 ¥126,843 U.S. dollars (thousands) 2018 $(171,698) (133,594) 99,717 $(205,575) 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) ¥ 11,910 (10,118) U.S. dollars (thousands) $112,358 (95,453) Actuarial assumptions Actuarial assumptions used to determine benefit obligations at March 31, 2018 and 2017 are as follows: Discount rate Assumed rate of increase in future compensation levels 2018 0.6% 1.7% 2017 0.7% 1.7% Actuarial assumptions used to determine net periodic retirement and severance costs for the years ended March 31, 2018, 2017 and 2016 are as follows: Discount rate Assumed rate of increase in future compensation levels Expected long-term rate of return on plan assets 2018 0.7% 1.7% 2.5% 2017 0.5% 1.7% 2.5% 2016 1.0% 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. 58 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Plan Assets: The fair values of the Company’s pension plan assets at March 31, 2018 and 2017 are as follows: Assets measured by other than net asset value Equity securities Marketable equity securities Debt securities 2018 Yen (millions) Level 1 Level 2 Level 3 Total ¥230,408 ¥ — ¥ — ¥ 230,408 Government , municipal and corporate debt securities 6,036 14,161 Other assets Life insurance company general accounts Other Assets measured by net asset value Equity securities Pooled funds Debt securities Pooled funds Other assets Other Total plan assets — — — — 102,436 49,407 — — — — — — — 20,197 102,436 49,407 154,156 387,779 — ¥236,444 — ¥166,004 — 110,839 ¥ — ¥1,055,222 Notes: 1 Assets that measure fair value by the net asset value are not categorized in the fair value hierarchy. 2 Marketable equity securities include mainly domestic stocks. 3 Pooled funds of equity securities include approximately 40% domestic stocks and 60% foreign stocks. 4 Pooled funds of debt securities include approximately 50% domestic bonds and 50% foreign bonds. 5 Government, municipal and corporate debt securities of level 1 include government debt securities. Assets measured by other than net asset value Equity securities Marketable equity securities Debt securities 2017 Yen (millions) Level 1 Level 2 Level 3 Total ¥211,657 ¥ — ¥ — ¥ 211,657 Government , municipal and corporate debt securities 5,414 14,804 Other assets Life insurance company general accounts Other Assets measured by net asset value Equity securities Pooled funds Debt securities Pooled funds Other assets Other Total plan assets — — — — 101,100 47,585 — — — — — — — 20,218 101,100 47,585 179,368 373,851 — ¥217,071 — ¥163,489 — 81,394 ¥ — ¥1,015,173 Notes: 1 Assets that measure fair value by the net asset value are not categorized in the fair value hierarchy. 2 Marketable equity securities include mainly domestic stocks. 3 Pooled funds of equity securities include approximately 30% domestic stocks and 70% foreign stocks. 4 Pooled funds of debt securities include approximately 60% domestic bonds and 40% foreign bonds. 5 Government, municipal and corporate debt securities of level 1 include government debt securities. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 59 Notes to Consolidated Financial Statements Assets measured by other than net asset value Equity securities Marketable equity securities Debt securities U.S. dollars (thousands) 2018 Level 1 Level 2 Level 3 Total $2,173,660 $ — $ — $2,173,660 Government , municipal and corporate debt securities 56,944 133,594 Other assets Life insurance company general accounts Other Assets measured by net asset value Equity securities Pooled funds Debt securities Pooled funds Other assets Other Total plan assets — — — — 966,377 466,104 — — — — — — — 190,538 966,377 466,104 1,454,302 3,658,292 — $2,230,604 — $1,566,075 — 1,045,651 $ — $9,954,924 The Company’s investment policies are designed to ensure 1% is deposit in bank. As for selection of plan assets, the adequate plan assets are available to provide future payments Company has examined the contents of investment, and of pension benefits to eligible participants. Taking into appropriately diversified investments. account the expected long-term rate of return on plan assets, See note 19 which shows categorized input for fair value the Company formulates an investment portfolio comprised measurements by the valuation technique into a three-level of the optimal combination of equity and debt securities. Plan hierarchy. assets are invested in individual equity and debt securities Each level into which assets are categorized is based on using the guidelines of the investment portfolio in order to inputs used to measure the fair value of the assets. produce a total return that will match the expected return on Level 1 assets are comprised principally of equity securi- a mid-term to long-term basis. The Company evaluates the ties and government bonds, which are valued using unadjust- gap between expected return and actual return of invested ed quoted market prices in active markets with sufficient plan assets on an annual basis. In addition, taking into the volume and frequency of transactions. Level 2 assets are com- consideration the management environment and the revision prised principally of corporate bonds and investments in life of regulations, the Company revises the investment portfolio insurance company general accounts. Corporate bonds are when and to the extent considered necessary to achieve the valued using quoted prices for identical assets in markets that expected long-term rate of return on plan assets based on the are not active. Investments in life insurance company general pension asset and liability management method. accounts are valued at the amounts that are the conventional The Company’s investment portfolio consists of five major components. The Company’s target asset allocation percentage interest adding to the principle amounts calculated by a life insurance company. is that approximately 18% is invested in equity securities, Assets measured by net asset value are comprised of approximately 65% is invested in debt securities and invest- pooled funds, hedge funds and long-term alternative invest- ments in life insurance company general accounts, approxi- ments which are valued at their net asset values that are cal- mately 8% is invested in hedge funds, approximately 8% is culated by the sponsor of the fund. invested in long-term alternative investments, and approximately 60 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Cash Flows The Company expects to contribute ¥27,107 million ($255,726 thousand) to its pension plan in the year ending March 31, 2019. Estimated future benefit payments are as follows: Year ending March 31: Yen (millions) U.S. dollars (thousands) 2019 2020 2021 2022 2023 2024-2028 ¥ 58,390 56,611 57,052 56,432 55,545 255,681 $ 550,849 534,066 538,226 532,377 524,009 2,412,085 The amount of cost recognized for the Company and certain subsidiaries’ defined contribution plans for the years ended March 31, 2018, 2017 and 2016 are ¥10,881 million ($102,651 thousand), ¥10,155 million and ¥10,265 million, respectively. (12) SHAREHOLDERS’ EQUITY Changes in common stock for the years ended March 31, 2018 and 2017 are as follows: Number of common shares issued: Balance at beginning of year Balance at end of year 2018 2017 Shares 2,147,201,551 2,147,201,551 2,147,201,551 2,147,201,551 Conversions into common stock of convertible debenture Company’s books of account in accordance with accounting issued subsequent to October 1, 1982 and exercise of war- standards of Japan. The adjustments included in the accompa- rants were accounted for in accordance with the provisions of nying consolidated financial statements to have them conform the Japanese Commercial Code by crediting one-half of the with accounting principles generally accepted in the United conversion price and exercise price to each of the common States of America, but not recorded in the books of account, stock account and the capital surplus account. have no effect on the determination of retained earnings The Japanese Corporate Law enforced on May 1, 2006 available for dividends under the Japanese Corporate Law. requires that an amount equal to 10% of dividends and other Retained earnings available for dividends shown in the distributions paid in cash by the Company and its domestic Company’s books of account amounted to ¥697,942 million subsidiaries be appropriated as a legal reserve until the aggre- ($6,584,358 thousand) at March 31, 2018. gated amount of additional paid-in capital and the legal Cash dividends and appropriations to the legal reserve reserve equal to 25% of the common stocks. The additional charged to retained earnings during the years ended March paid-in capital and the legal reserve may be used to reduce a 31, 2018, 2017 and 2016 represent dividends paid out during deficit or transferred to common stock with a resolution of the years and the related appropriations to the legal reserve. the shareholders’ meeting. The amount available for dividends under the Japanese Corporate Law is based on the amount recorded in the (13) OTHER COMPREHENSIVE INCOME (LOSS) Changes in accumulated other comprehensive income (loss) for the years ended March 31, 2018, 2017 and 2016 are as follows: Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments 2018 Yen (millions) Total 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 ¥18,535 ¥(156,993) ¥136,352 ¥ 54 ¥ (2,052) 15,174 13,440 100 (75) 28,639 440 15,614 ¥34,149 2,478 15,918 ¥(141,075) (15,039) (14,939) ¥121,413 6 (69) ¥(15) (12,115) 16,524 ¥ 14,472 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 61 Notes to Consolidated Financial Statements Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments 2017 Yen (millions) Total 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 ¥39,847 ¥(184,231) ¥ 93,742 ¥ (57) ¥(50,699) (21,312) 22,439 44,061 258 45,446 — (21,312) ¥18,535 4,799 27,238 ¥(156,993) (1,451) 42,610 ¥136,352 (147) 111 ¥ 54 3,201 48,647 ¥ (2,052) Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments 2016 Yen (millions) Total 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 ¥102,959 ¥ (98,108) ¥119,252 ¥(39) ¥ 124,064 (63,112) (86,145) (24,547) (8) (173,812) — (63,112) ¥ 39,847 22 (86,123) ¥(184,231) (963) (25,510) ¥ 93,742 (10) (18) ¥(57) (951) (174,763) ¥ (50,699) 2018 U.S. dollars (thousands) Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments Total $174,858 $(1,481,066) $1,286,340 $ 509 $ (19,359) 143,151 126,793 943 (708) 270,179 4,151 147,302 $322,160 23,377 150,170 $(1,330,896) (141,877) (140,934) $1,145,406 57 (651) $(142) (114,292) 155,887 $ 136,528 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 62 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Reclassifications out of accumulated other comprehensive income (loss) for the years ended March 31, 2018, 2017 and 2016 are as follows: 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 gains on sales Unrealized gains (losses) on derivative instruments Total amounts reclassified 2018 Amounts reclassified from accumulated other comprehensive income Yen (millions) U.S. dollars (thousands) Affected line items in consolidated statements of income ¥ 440 440 — 440 (10,570) 14,161 3,591 (1,113) 2,478 (23,486) (23,486) 8,447 (15,039) 6 6 0 6 ¥(12,115) $ 4,151 4,151 — 4,151 Other costs and expenses Total before tax Income tax Net of tax (99,717) 133,594 33,877 (10,500) 23,377 (221,566) (221,566) 79,689 (141,877) 57 57 0 57 $(114,292) See Note See Note Total before tax Income tax Net of tax Other revenues Total before tax Income tax Net of tax Other costs and expenses Total before tax Income tax Net of tax 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 “Retirement and Severance Benefits”. Details about Accumulated other comprehensive income components Amounts reclassified from accumulated other comprehensive income Affected line items in consolidated statements of income 2017 Yen (millions) Pension liability adjustments Amortization of prior service cost Amortization of actuarial loss Unrealized gains (losses) on securities Realized gains on sales Unrealized gains (losses) on derivative instruments Total amounts reclassified ¥(10,596) 17,551 6,955 (2,156) 4,799 (2,088) (2,088) 637 (1,451) (200) (200) 53 (147) ¥ 3,201 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 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 “Retirement and Severance Benefits”. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 63 Notes to Consolidated Financial Statements Details about Accumulated other comprehensive income components Amounts reclassified from accumulated other comprehensive income Affected line items in consolidated statements of income 2016 Yen (millions) Pension liability adjustments Amortization of prior service cost Amortization of actuarial loss Unrealized gains (losses) on securities Realized gains on sales Unrealized gains (losses) on derivative instruments Total amounts reclassified ¥(12,044) 12,077 33 (11) 22 (1,485) (1,485) 522 (963) (18) (18) 8 (10) ¥ (951) 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 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 “Retirement and Severance Benefits”. Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2018, 2017 and 2016 are as follows: Before-tax amount Tax (expense) or benefit Net-of-tax amount Yen (millions) 2018: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Other comprehensive income (loss) ¥ 16,858 ¥(1,684) ¥ 15,174 440 17,298 18,796 3,591 22,387 144 (23,486) (23,342) (96) 6 (90) ¥ 16,253 — 440 (1,684) 15,614 (5,356) (1,113) (6,469) 13,440 2,478 15,918 (44) 100 8,447 8,403 21 0 21 ¥ 271 (15,039) (14,939) (75) 6 (69) ¥ 16,524 64 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 2017: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Other comprehensive income (loss) 2016: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Before-tax amount Tax (expense) or benefit Net-of-tax amount Yen (millions) ¥(25,002) ¥ 3,690 ¥(21,312) — (25,002) 32,825 6,955 39,780 59,927 (2,088) 57,839 — 3,690 (10,386) (2,156) (12,542) (15,866) 637 (15,229) — (21,312) 22,439 4,799 27,238 44,061 (1,451) 42,610 349 (91) 258 (200) 149 ¥ 72,766 53 (38) ¥(24,119) (147) 111 ¥ 48,647 Yen (millions) Before-tax amount Tax (expense) or benefit Net-of-tax amount ¥ (68,663) ¥ 5,551 ¥ (63,112) — — — (68,663) 5,551 (63,112) (126,546) 33 (126,513) (32,583) (1,485) (34,068) (20) (18) (38) 40,401 (11) 40,390 8,036 522 8,558 12 8 20 (86,145) 22 (86,123) (24,547) (963) (25,510) (8) (10) (18) Other comprehensive income (loss) ¥(229,282) ¥54,519 ¥(174,763) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 65 Notes to Consolidated Financial Statements 2018: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Less reclassification adjustments for gains (losses) realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Amount arising during the year on pension liability adjustments Less reclassification adjustments for gains (losses) realized in net income Net change in pension liability adjustment Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on securities Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Less reclassification adjustments for gains (losses) realized in net income Net change in unrealized gains (losses) on derivative instruments Other comprehensive income (loss) Before-tax amount Tax (expense) or benefit Net-of-tax amount U.S. dollars (thousands) $ 159,038 $(15,887) $ 143,151 4,151 — 4,151 163,189 (15,887) 147,302 177,321 (50,528) 126,793 33,877 211,198 (10,500) (61,028) 23,377 150,170 1,358 (415) 943 (221,566) (220,208) 79,689 79,274 (141,877) (140,934) (906) 198 (708) 57 (849) $ 153,330 0 198 $ 2,557 57 (651) $ 155,887 (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. 2018 ¥271,880 — ¥271,880 2017 ¥210,493 — ¥210,493 Yen (millions) 2016 ¥228,494 — ¥228,494 Average common shares outstanding Effect of dilutive securities Diluted common shares outstanding 2018 2,145,808,679 — 2,145,808,679 2017 2,146,291,296 — 2,146,291,296 U.S. dollars (thousands) 2018 $2,564,906 — $2,564,906 Shares 2016 2,146,799,336 — 2,146,799,336 Net income per share attributable to Mitsubishi Electric Corp.: Basic Diluted 2018 2017 2016 2018 Yen U.S. dollars ¥126.70 — ¥98.07 — ¥106.43 — $1.195 — 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, 2018, 2017 and 2016. Note: The average number of the Company’s shares held through the Board Incentive Plan Trust were 969,077 and 490,000 shares for the years ended March 31, 2018 and 2017 respectively. These shares are included in the average number of shares outstanding as treasury stock shares that are deducted from the basis of the calculation of Net income per share attributable to Mitsubishi Electric Corp. 66 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 (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 14 months. The issue financial instruments for trading purposes. Company expects that the amounts of net loss of ¥33 million Contract Amounts, Notional Principal Amounts and (loss) will be reclassified into earnings over the next 12 Credit Risk The Company and its subsidiaries are exposed to risk of credit- months with transactions such as collection of foreign curren- cy receivables and payment of foreign currency payables and ($311 thousand) in accumulated other comprehensive income related losses in the event of nonperformance by counterpar- interests on long-term debt. 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. Derivatives not Designated as Hedging Instruments The Company and certain of its subsidiaries enter into foreign Information with Respect to Fair Value Hedges Certain subsidiaries have entered into foreign currency swaps 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 to hedge currency exposure and designate them as fair value rate exposures. The Company and certain of its subsidiaries hedges. recognize the changes in unrealized gains and losses on such instruments in earnings. Contract amounts of foreign exchange contracts and foreign currency swaps at March 31, 2018 and 2017 are as follows: Foreign exchange contracts: Forwards to sell foreign currencies Forwards to buy foreign currencies Foreign currency swaps 2018 ¥320,257 118,547 144,435 Yen (millions) 2017 U.S. dollars (thousands) 2018 ¥311,630 123,655 127,763 $3,021,292 1,118,368 1,362,594 The estimated fair values of foreign exchange contracts and foreign currency swaps at March 31, 2018 and 2017 are as follows: Derivatives designated as hedging instruments Consolidated balance sheet line item 2018 Yen (millions) 2017 Asset derivatives Estimated fair value U.S. dollars (thousands) 2018 Foreign exchange contracts Prepaid expenses and other current assets ¥30 ¥103 $283 Derivatives designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Other current liabilities 2018 ¥67 Yen (millions) 2017 ¥49 Liability derivatives Estimated fair value U.S. dollars (thousands) 2018 $632 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 67 Notes to Consolidated Financial Statements Derivatives not designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Foreign currency swaps Total Prepaid expenses and other current assets Prepaid expenses and other current assets Derivatives not designated as hedging instruments Consolidated balance sheet line item Foreign exchange contracts Foreign currency swaps Other current liabilities Other current liabilities Total Asset derivatives Estimated fair value U.S. dollars (thousands) 2018 $44,538 — $44,538 Liability derivatives Estimated fair value U.S. dollars (thousands) 2018 $ 4,623 24,915 $29,538 Yen (millions) 2017 ¥1,485 14 ¥1,499 Yen (millions) 2017 ¥2,920 1,414 ¥4,334 2018 ¥4,721 — ¥4,721 2018 ¥ 490 2,641 ¥3,131 The effect of foreign exchange contracts designated as cash flow hedges on the consolidated statements of income for the years ended March 31, 2018, 2017 and 2016 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 Amount of gain or (loss) recognized in OCI on derivative (effective portion) 2018 2017 2016 ¥(96) ¥349 ¥(38) Yen (millions) U.S. dollars (thousands) 2018 $(906) Amount of gain or (loss) recognized from accumulated OCI into income (effective portion) Yen (millions) U.S. dollars (thousands) 2018 2017 2016 2018 Foreign exchange contracts Other revenues (costs and expenses) ¥(6) ¥200 ¥18 $(57) 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, 2018, 2017 and 2016 are set forth below: Derivatives not designated as hedging instruments Line item of gain or (loss) recognized in income on derivative Foreign exchange contracts Other revenues Foreign currency swaps Interest rate swaps Total (costs and expenses) Other revenues (costs and expenses) Other revenues (costs and expenses) (16) SECURITIZATIONS Amount of gain or (loss) recognized in income on derivative Yen (millions) U.S. dollars (thousands) 2018 2017 2016 2018 ¥ 577 ¥ 2,451 ¥(2,090) $ 5,444 (2,246) (2,422) 278 (21,189) — ¥(1,669) — ¥ 29 (32) ¥(1,844) — $(15,745) The Company sells its accounts receivable under several secu- a portion of these, where the Company retains subordinated ritization programs. interests, is not taken off from the balance sheet and is recorded When the Company retains subordinated interests in the at their fair value. Such carrying value is adjusted to reflect the certain accounts receivables after the sale of these receivables, portion that is not expected to be collectible. As of March 31, 68 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 2018, the Company did not retain subordinated interests in the Subsequent to securitization, the Company retains collec- certain accounts receivables after the sale of these receivables. tion and administrative responsibilities for the receivables. The The Company recognized losses of ¥210 million ($1,981 Company has not recorded a servicing asset or liability since thousand), ¥237 million and ¥389 million on the securitiza- the cost of collection effort is approximate to the amount of tions of receivables for the years ended March 31, 2018, 2017 commission income. and 2016, respectively. Certain cash flows received from special purpose entities (SPEs) and banks on the above transactions for the years ended March 31, 2018, 2017 and 2016 are as follows: Proceeds from new securitizations 2018 ¥301,438 2017 ¥336,092 Yen (millions) 2016 ¥381,429 U.S. dollars (thousands) 2018 $2,843,755 Quantitative information about trade receivables including securitized receivables as of March 31, 2018 and 2017 are as follows: Trade receivables Less: Securitized receivables Net balance 2018 ¥1,154,237 66,644 ¥1,087,593 Yen (millions) 2017 ¥1,131,407 94,206 ¥1,037,201 U.S. dollars (thousands) 2018 $10,889,028 628,717 $10,260,311 As of March 31, 2018 and 2017, delinquencies and credit losses of trade receivables including securitized receivables are immaterial. (17) COMMITMENTS AND CONTINGENT LIABILITIES At March 31, 2018, commitments outstanding for the pur- Company’s management is of the opinion that damages, if chase of property, plant and equipment were ¥27,671 million any, would not have a material effect on the Company’s con- ($261,047 thousand). solidated financial position and results of operations, except It is common practice in Japan for companies, in the ordi- for the following cases. nary course of business, to receive promissory notes in settle- Civil lawsuits were filed against the Company related to viola- ment of accounts receivable and to subsequently discount tions of the Antitrust Laws regarding the sales of certain automo- such notes at banks. At March 31, 2018, certain subsidiaries tive parts and others. In this respect, the Company has already were contingently liable to trade notes discounted in the agreed to settle with some of the purchasers of the automotive amount of ¥389 million ($3,670 thousand). Certain subsidiar- parts and others and has made settlement payments. ies account for the discounted notes as sale of receivables. As of March 31, 2018, the Company recorded an esti- As of March 31, 2018, the Company has no significant mated amount of ¥1,695 million ($15,991 thousand) as a concentrations of credit risk. reserve for possible losses of competition-law-related expens- While the Company and certain of its subsidiaries are es in “Other liabilities” mainly relating to certain automotive defendants and co-defendants in various lawsuits and legal parts cases. actions, based upon the advice of legal counsel, the The following table provides the undiscounted maximum amount of potential future payments for each major group of guarantees at March 31, 2018: Guarantees of bank loan: Employees Affiliated and other companies Other Total Yen (millions) U.S. dollars (thousands) ¥1,414 532 6,559 ¥8,505 $13,340 5,019 61,877 $80,236 The guarantees for the employees are principally made for their housing loans, and the term of guarantees is 1 year to 11 years. The guarantees for the affiliated and other companies are made to enhance their credit, and the term of guarantees is 1 year. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 69 Notes to Consolidated Financial Statements Change in accrued product warranty for the years ended March 31, 2018 and 2017 is summarized as follows: Balance at beginning of year Addition Utilization Foreign currency translation adjustments Balance at end of year 2018 ¥57,990 52,250 50,229 (7) ¥60,004 Yen (millions) 2017 ¥55,834 49,956 47,627 (173) ¥57,990 U.S. dollars (thousands) 2018 $547,075 492,925 473,858 (66) $566,076 (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 loans, Trade payables and Other current liabilities The carrying amount approximates fair value because of the (d) Long-term debt The fair value of the Company’s corporate bonds is calculated under market approach using quoted published price, there- 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, 2018 and 2017 are summarized as follows: 2018 Yen (millions) 2017 U.S. dollars (thousands) 2018 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 ¥261,086 1,965 ¥261,086 1,935 ¥290,495 2,815 ¥290,495 2,784 $2,463,075 $2,463,075 18,255 18,538 Liabilities: Long-term debt, including current portion 233,961 231,418 268,910 266,961 2,207,179 2,183,189 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. 70 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 (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 received to sell an asset or paid to transfer a liability in an orderly or liabilities. transaction between market participants at the measurement date”. On that basis, the Company has categorized the inputs Level 2 : Inputs other than quoted prices included within Level 1 that are directly or indirectly observable for for fair value measurement by the valuation technique into the asset or liability. a three-level hierarchy, and placed the order of priority. Level 3 : Unobservable inputs for the asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and 2017. 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. 2018 Yen (millions) Level 1 Level 2 Level 3 Total Assets and liabilities measured by other than net asset value Assets: Equity securities Marketable equity securities Derivatives Liabilities: Derivatives Assets measured by net asset value Assets: Debt securities Investment trusts Assets and liabilities measured by other than net asset value Assets: Equity securities Marketable equity securities Derivatives Liabilities: Derivatives Assets measured by net asset value Assets: Debt securities Investment trusts Assets and liabilities measured by other than net asset value Assets: Equity securities Marketable equity securities Derivatives Liabilities: Derivatives Assets measured by net asset value Assets: Debt securities Investment trusts ¥260,889 — ¥ — 4,751 — 3,198 ¥ — — — ¥260,889 4,751 3,198 — — — 197 2017 Yen (millions) Level 1 Level 2 Level 3 Total ¥290,297 — ¥ — 1,602 — 4,383 ¥ — — — ¥290,297 1,602 4,383 — — — 198 U.S. dollars (thousands) 2018 Level 1 Level 2 Level 3 Total $2,461,217 — $ — 44,821 $ — $2,461,217 44,821 — — 30,170 — 30,170 — — — 1,858 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 71 Notes to Consolidated Financial Statements 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 derivatives are comprised principally of foreign exchange con- tracts, which are valued based on market approach, using quotes obtained from counterparties or third parties. Assets measured by net asset value are comprised of pooled funds, which are valued at their net asset values that are calculated by the sponsor of the fund. Assets that measure fair value by the net asset value are not categorized in the fair value hierarchy. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis At March 31, 2018, a portion of long-lived assets was written an impairment charge of ¥3,444 million, which was included down to their fair value of ¥14,289 million ($134,802 thou- in loss on impairment of long-lived assets for the year ended sand), resulting in an impairment charge of ¥19,881 million March 31, 2017. The impaired long-lived assets are classified ($187,557 thousand), which was included in loss on impair- as Level 3 assets, because they are measured mainly based on ment of long-lived assets for the year ended March 31, 2018. the unobservable inputs such as net sales price under market The impaired long-lived assets are classified as Level 3 assets, approach. because they are measured mainly based on the unobservable The valuation process of long-lived assets is documented inputs such as net sales price under market approach. in “Notes to Consolidated Financial Statements (1) BASIS OF At March 31, 2017, 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 ¥6,475 million, resulting in ACCOUNTING POLICIES (u) Impairment of Long-Lived Assets”. (20) SUPPLEMENTARY INCOME AND EXPENSE INFORMATION Advertising expenses Shipping and handling costs Exchange losses Gain from sale of subsidiary Loss on disaster Loss on impairment of long-lived assets 2018 ¥(34,279) (93,767) (4,046) — — (19,881) 2017 ¥(32,544) (86,990) (9,932) 14,569 (8,326) (3,444) Yen (millions) 2016 ¥(30,498) (86,963) (14,269) — — (8,482) U.S. dollars (thousands) 2018 $(323,387) (884,594) (38,170) — — (187,557) Advertising expenses are included in “Costs and expenses – For the year ended March 31, 2018, the Company and Selling, general and administrative”. certain of its subsidiaries recognized impairment losses of Shipping and handling costs represents the costs included ¥19,330 million ($182,359 thousand) on tangible assets such in “Costs and expenses – Selling, general and administrative”. as buildings and machineries, and ¥551 million ($5,198 thou- Exchange losses are included in “Costs and expenses sand) on intangible assets and others. The impairment losses – Other”. include ¥16,040 million ($151,320 thousand) for Energy and Gain from sale of subsidiary is included in “Revenues Electric Systems business related assets, mainly at a certain – Other”. part of the power systems business in North America due to a For the year ended March 31, 2017, the Company recog- decline in profitability. The impairment losses were mainly nized a gain of ¥14,569 million which is attributable to the measured based on the fair value less cost to sell. sellout of a domestic subsidiary with mobile phone sales as its For the year ended March 31, 2017, the Company and main business at ¥17,400 million. certain of its subsidiaries recognized impairment losses of Loss on disaster is included in “Costs and expenses ¥3,344 million on tangible assets such as buildings and tools, – Other”. and ¥100 million on intangible assets and others. The impair- For the year ended March 31, 2017, the Company recog- ment losses include ¥1,214 million for Information and nized loss on disaster of ¥8,326 million for the repair and Communication Systems business related assets and ¥1,338 removal of facilities, the disposal and inspection of inventories million for Home Appliances business related assets due to a and fixed costs during the low operating period which are decline in profitability. The impairment losses were mainly associated with the recovery from damage suffered from the measured based on the fair value less cost to sell. 2016 Kumamoto earthquake. For the year ended March 31, 2016, the Company and Loss on impairment of long-lived assets is included in certain of its subsidiaries recognized impairment losses of “Costs and expenses – Loss on impairment of long-lived ¥5,766 million on tangible assets such as buildings and assets”. machineries, and ¥2,716 million on intangible assets and 72 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 others. The impairment losses include ¥2,428 million for business related assets due to a decline in profitability. The Energy and Electric Systems business related assets and impairment losses were mainly measured based on the fair ¥2,418 million for Information and Communication Systems value less cost to sell. (21) LEASES The Company and certain of its subsidiaries enter into capital The Company and certain of its subsidiaries lease buildings, lease and operating lease agreements with Mitsubishi Electric machineries and equipments. At March 31, 2018, the aggregated Credit Corporation, an equity method investee. The leased cost and accumulated depreciation of leased assets under capital assets, which are committed under capital lease agreements, leases amounted to ¥29,720 million ($280,377 thousand) and are capitalized. ¥15,252 million ($143,887 thousand), respectively. Future minimum lease payments under capital and non-cancelable operating leases as of March 31, 2018 are as follows: Year ending March 31: 2019 2020 2021 2022 2023 Thereafter Total minimum lease payments Less: Estimated executory costs Net minimum lease payments Less: Amount representing interest Present value of net minimum capital lease payments Less: Current portion of obligations under capital leases Obligations under capital leases, excluding current portion Yen (millions) U.S. dollars (thousands) Capital leases Operating leases Capital leases Operating leases ¥14,437 12,246 10,212 7,931 5,062 4,114 ¥54,002 ¥ 8,443 7,165 4,785 2,501 710 36 23,640 1,448 22,192 710 21,482 7,697 ¥13,785 $136,198 115,528 96,340 74,821 47,755 38,811 $509,453 $ 79,651 67,594 45,142 23,594 6,698 340 223,019 13,660 209,359 6,698 202,661 72,613 $130,048 Rental expenses related to operating leases for the years ended March 31, 2018, 2017 and 2016 amounted to ¥53,380 million ($503,585 thousand), ¥50,435 million and ¥48,786 million, respectively. These operating leases are for office space, warehouses, employee facilities and computer equipment, and are customarily renewed. (22) SUPPLEMENTARY CASH FLOW INFORMATION Cash paid during the year for: Interest Income taxes (23) SEGMENT INFORMATION 2018 2017 2016 2018 Yen (millions) U.S. dollars (thousands) ¥ 2,617 70,022 ¥ 2,552 56,686 ¥ 3,038 69,981 $ 24,689 660,585 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. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 73 Notes to Consolidated Financial Statements 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 switchgears, switch control devices, surveillance-system control and security systems, transmission and distribution ICT systems, large display devices, electrical equipment for locomotives and rolling stock, elevators, escalators, building security systems, building management 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, network camera systems, 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 Room air conditioners, package air conditioners, chillers, showcases, compressors, refrigeration units, air-to-water heat pump boilers, ventilators, photovoltaic systems, hot water supply systems, IH cooking heaters, LED lamps, fluorescent lamps, indoor lighting, LCD televisions, refrigerators, electric fans, dehumidifiers, air purifiers, cleaners, jar rice cookers, microwave ovens, 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 presented as net sales less cost of sales, selling, general, administrative and R&D expenses, and loss on impairment of long-lived assets. Segment Information Segment information for the years ended March 31, 2018, 2017 and 2016 are as follows: As of and for the year ended March 31, 2018 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Yen (millions) Eliminations and Corporate Total I Net sales and operating income Sales: (1) External customers ¥1,233,831 ¥1,431,713 ¥388,799 ¥165,378 ¥1,033,134 ¥178,343 ¥4,431,198 ¥ — ¥4,431,198 (2) Intersegment 8,121 13,215 Net sales 1,241,952 1,444,928 Operating costs 1,190,242 1,254,102 47,269 436,068 424,081 36,916 202,294 187,740 16,235 1,049,369 993,312 586,003 764,346 740,446 707,759 (707,759) — 5,138,957 (707,759) 4,431,198 4,789,923 (677,362) 4,112,561 Operating income ¥ 51,710 ¥ 190,826 ¥ 11,987 ¥ 14,554 ¥ 56,057 ¥ 23,900 ¥ 349,034 ¥ (30,397) ¥ 318,637 II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets ¥1,347,878 ¥1,273,421 ¥379,855 ¥178,061 ¥ 926,684 ¥235,836 ¥4,341,735 ¥ (77,176) ¥4,264,559 Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures 30,042 70,865 18,455 12,569 40,758 6,407 179,096 16,040 30,780 131 83,992 — 17,985 1,514 15,589 1,935 40,618 261 17,366 19,881 206,330 — — — 179,096 19,881 206,330 74 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 As of and for the year ended March 31, 2017 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Yen (millions) Eliminations and Corporate Total I Net sales and operating income Sales: (1) External customers ¥1,219,087 ¥1,297,646 ¥410,599 ¥151,256 ¥ 986,693 ¥173,385 ¥4,238,666 ¥ — ¥4,238,666 (2) Intersegment 8,819 12,490 Net sales 1,227,906 1,310,136 Operating costs 1,183,587 1,170,063 37,155 447,754 435,054 35,298 186,554 178,172 17,722 1,004,415 934,719 540,218 713,603 690,389 651,702 (651,702) — 4,890,368 (651,702) 4,238,666 4,591,984 (623,422) 3,968,562 Operating income ¥ 44,319 ¥ 140,073 ¥ 12,700 ¥ 8,382 ¥ 69,696 ¥ 23,214 ¥ 298,384 ¥ (28,280) ¥ 270,104 II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets ¥1,325,485 ¥1,145,675 ¥353,303 ¥164,845 ¥ 872,666 ¥256,625 ¥4,118,599 ¥ 53,671 ¥4,172,270 Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures 35,948 64,931 As of and for the year ended March 31, 2016 28,476 62,880 18,252 14,371 34,640 6,432 165,051 63 — 1,214 17,412 643 9,493 1,338 43,266 186 3,444 15,481 186,531 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal I Net sales and operating income Sales: — — — 165,051 3,444 186,531 Yen (millions) Eliminations and Corporate Total (1) External customers ¥1,255,062 ¥1,308,776 ¥512,156 ¥180,618 ¥964,172 ¥173,569 ¥4,394,353 ¥ — ¥4,394,353 (2) Intersegment 9,542 13,161 Net sales 1,264,604 1,321,937 Operating costs 1,214,262 1,162,777 48,963 561,119 546,120 30,962 211,580 194,710 17,892 982,064 918,208 534,177 707,746 684,126 654,697 (654,697) — 5,049,050 (654,697) 4,394,353 4,720,203 (627,022) 4,093,181 Operating income ¥ 50,342 ¥ 159,160 ¥ 14,999 ¥ 16,870 ¥ 63,856 ¥ 23,620 ¥ 328,847 ¥ (27,675) ¥ 301,172 II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets ¥1,314,185 ¥1,051,511 ¥391,323 ¥162,772 ¥855,241 ¥245,065 ¥4,020,097 ¥ 39,844 ¥4,059,941 Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures 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 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 75 Notes to Consolidated Financial Statements As of and for the year ended March 31, 2018 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal U.S. dollars (thousands) Eliminations and Corporate Total I Net sales and operating income Sales: (1) External customers $11,639,916 $13,506,726 $3,667,915 $1,560,170 $9,746,547 $1,682,481 $41,803,755 $ — $41,803,755 (2) Intersegment 76,613 124,670 445,934 348,264 153,161 5,528,330 6,676,972 (6,676,972) — Net sales 11,716,529 13,631,396 4,113,849 1,908,434 9,899,708 7,210,811 48,480,727 (6,676,972) 41,803,755 Operating costs 11,228,699 11,831,151 4,000,764 1,771,132 9,370,869 6,985,339 45,187,954 (6,390,208) 38,797,746 $ 487,830 $ 1,800,245 $ 113,085 $ 137,302 $ 528,839 $ 225,472 $ 3,292,773 $ (286,764) $ 3,006,009 Operating income II Assets, depreciation and amortization, loss on impairment of long-lived assets, and capital expenditures Assets $12,715,830 $12,013,406 $3,583,538 $1,679,821 $8,742,302 $2,224,868 $40,959,765 $ (728,076) $40,231,689 Depreciation and amortization Loss on impairment of long-lived assets Capital expenditures 283,416 668,538 174,104 118,575 384,509 60,443 1,689,585 — 1,689,585 151,320 290,377 1,236 — 792,377 169,670 14,283 147,066 18,255 2,463 187,557 383,189 163,830 1,946,509 — — 187,557 1,946,509 Notes: 1 The amount of unallocatable R&D expenditure included in “Eliminations and Corporate” on “Operating costs” for the years ended March 31, 2018, 2017 and 2016 are ¥30,397 million ($286,764 thousand), ¥28,280 million and ¥27,675 million, respectively. 2 The amount of Corporate assets included in “Eliminations and Corporate” on “Assets” for the years ended March 31, 2018, 2017 and 2016 are ¥276,906 million ($2,612,321 thousand), ¥301,522 million and ¥266,378 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, 2018, 2017 and 2016 are as follows: As of and for the year ended March 31, 2018 Sales to external customers % of total net sales Long-lived assets Japan ¥2,423,626 54.7% 593,923 North America ¥417,423 9.4% 29,823 Asia (excluding Japan) ¥1,075,683 24.3% 144,987 Europe ¥431,316 9.7% 62,212 Others ¥83,150 1.9% 2,124 As of and for the year ended March 31, 2017 Sales to external customers % of total net sales Long-lived assets Japan ¥2,405,552 56.8% 569,594 North America ¥422,259 10.0% 50,771 Asia (excluding Japan) ¥940,150 22.2% 142,312 Europe ¥384,075 9.0% 60,407 Others ¥86,630 2.0% 2,601 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 As of and for the year ended March 31, 2018 Sales to external customers % of total net sales Long-lived assets Japan $22,864,396 North America $3,937,953 Asia (excluding Japan) $10,147,953 Europe $4,069,019 54.7% 9.4% 24.3% 9.7% 5,603,047 281,349 1,367,802 586,906 Others $784,434 1.9% 20,038 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. 76 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Overseas Overseas total ¥2,007,572 45.3% 239,146 Overseas Overseas total ¥1,833,114 43.2% 256,091 Overseas Overseas total ¥1,873,159 42.6% 263,069 Yen (millions) Consolidated total ¥4,431,198 100.0% 833,069 Yen (millions) Consolidated total ¥4,238,666 100.0% 825,685 Yen (millions) Consolidated total ¥4,394,353 100.0% 809,948 U.S. dollars (thousands) Overseas Overseas total $18,939,359 Consolidated total $41,803,755 45.3% 100.0% 2,256,095 7,859,142 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, 2018 Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations and Corporate Yen (millions) Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income (loss) II Assets ¥2,633,087 873,153 3,506,240 3,291,367 ¥ 214,873 ¥3,180,817 ¥397,434 20,517 417,951 421,892 ¥ (3,941) ¥270,455 ¥ 888,871 291,877 1,180,748 1,092,598 ¥ 88,150 ¥ 967,844 ¥460,739 15,843 476,582 464,649 ¥ 11,933 ¥403,605 ¥51,067 27 51,094 48,242 ¥ 2,852 ¥38,532 ¥4,431,198 1,201,417 5,632,615 5,318,748 ¥ 313,867 ¥4,861,253 ¥ — (1,201,417) (1,201,417) (1,206,187) ¥ 4,770 ¥ (596,694) ¥4,431,198 — 4,431,198 4,112,561 ¥ 318,637 ¥4,264,559 As of and for the year ended March 31, 2017 Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations and Corporate Yen (millions) Total I Net sales and operating income Sales: (1) External customers (2) Intersegment Net sales Operating costs Operating income II Assets ¥2,617,074 785,058 3,402,132 3,250,105 ¥ 152,027 ¥2,789,475 ¥401,578 19,975 421,553 412,551 ¥ 9,002 ¥300,493 ¥ 765,696 274,402 1,040,098 946,780 ¥ 93,318 ¥ 903,290 ¥407,502 13,571 421,073 408,245 ¥ 12,828 ¥374,081 ¥46,816 38 46,854 44,396 ¥ 2,458 ¥39,498 ¥4,238,666 1,093,044 5,331,710 5,062,077 ¥ 269,633 ¥4,406,837 ¥ — (1,093,044) (1,093,044) (1,093,515) ¥ 471 ¥ (234,567) ¥4,238,666 — 4,238,666 3,968,562 ¥ 270,104 ¥4,172,270 As of and for the year ended March 31, 2016 Japan North America Asia (excluding Japan) Europe Others Subtotal Eliminations and Corporate Yen (millions) 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) ¥4,394,353 — 4,394,353 4,093,181 ¥ 301,172 ¥4,059,941 As of and for the year ended March 31, 2018 Japan North America Asia (excluding Japan) Europe Others Subtotal U.S. dollars (thousands) Eliminations and Corporate Total I Net sales and operating income Sales: (1)External customers (2)Intersegment Net sales Operating costs Operating income (loss) II Assets $24,840,444 8,237,292 33,077,736 31,050,633 $ 2,027,103 $30,007,708 $3,749,377 193,557 3,942,934 3,980,113 $ (37,179) $2,551,462 $ 8,385,575 2,753,557 11,139,132 10,307,528 $ 831,604 $ 9,130,604 149,462 4,496,057 4,383,482 $4,346,595 $481,764 255 482,019 455,113 $ 112,575 $ 26,906 $363,509 $3,807,594 $41,803,755 11,334,123 53,137,878 50,176,869 $ 2,961,009 $45,860,877 $ — $41,803,755 — (11,334,123) 41,803,755 (11,334,123) 38,797,746 (11,379,123) $ 3,006,009 $ 45,000 $40,231,689 $ (5,629,188) 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 Corporate” on “Assets” for the years ended March 31, 2018, 2017 and 2016 are ¥341,006 million ($3,217,038 thousand), ¥361,412 million and ¥330,357 million, respectively, and those amounts are mainly the Company’s deposit in bank and goodwill. (24) SUBSEQUENT EVENT As of June 28, 2018, the date the consolidated financial statements are 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 2018 77 Independent Auditors’ Report 78 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 Corporate Data / Shareholder Information (As of March 31, 2018) Contents 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: 142,340 Major Shareholders 02 03 04 06 08 The Master Trust Bank of Japan, Ltd. (Trust Account) Japan Trustee Services Bank, Ltd. (Trust Account) State Street Bank and Trust Company Meiji Yasuda Life Insurance Company Nippon Life Insurance Company Mitsubishi Electric Group Employees Shareholding Union Japan Trustee Services Bank, Ltd. (Trust Account 5) Japan Trustee Services Bank, Ltd. (Trust Account 7) Japan Trustee Services Bank, Ltd. (Trust Account 4) State Street Bank West Client-Treaty 505234 Note: Shareholder ratio calculations deduct 424,760 company-owned shares. Distribution of Shareholders Individuals and Others 12.7% Foreign Corporations 37.6% Other Corporations 5.9% 13 14 15 Shareholders’ Meeting To Our Shareholders and Investors The annual meeting of shareholders of the Corporation is regularly Research and Development held in June each year. Additionally, special shareholders meetings Financial Highlights may be held as necessary. Stock Exchange Listings Corporate Strategy Japan: Tokyo Intellectual Property CSR at Mitsubishi Electric Group Europe: London At a Glance Fiscal 2018 Topics Review of Operations 08 Energy and Electric Systems 09 Industrial Automation Systems 10 11 12 Information and Communication Systems Electronic Devices Home Appliances 15 17 21 CSR Management G: Governance E: Environment Number of Shares 23 S: Social (thousands) Percentage of Ownership 152,604 Directors and Executive Officers 121,513 7.1% 5.7% 86,049 81,862 Organization 61,639 40,984 4.0% 3.8% 2.9% 1.9% Major Subsidiaries and Affiliates 38,213 1.8% 37,147 36,387 Financial Section 36,279 1.7% 1.7% 1.7% Corporate Data / Shareholder Information 26 27 28 29 79 Note FY2014: April 1, 2013–March 31, 2014 FY2015: April 1, 2014–March 31, 2015 FY2016: April 1, 2015–March 31, 2016 FY2017: April 1, 2016–March 31, 2017 Financial Institutions 42.0% FY2018: April 1, 2017–March 31, 2018 FY2019: April 1, 2018–March 31, 2019 FY2020: April 1, 2019–March 31, 2020 FY2021: April 1, 2020–March 31, 2021 Traders of Financial Instruments Stock Price (Yen) 2,500 2,000 1,500 1,000 500 0 ’15/4 Mitsubishi Electric’s Stock Price Nikkei Stock Average ’16/4 ’17/4 The Nikkei Stock Average is based on information copyrighted by Nihon Keizai Shimbun, Inc. 1.8% 25,000 20,000 15,000 10,000 ’18/4 Nikkei Stock Average (Yen) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2018 79 Aiming to Become 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 are contributing to the realization of a prosperous society, aiming to become a “Global, Leading Green Company.“ The Mitsubishi Electric Group has become a global network of diverse businesses providing cutting-edge technologies that encompass a wide variety of applications ranging from homes, offices, and factories to social infrastructure and outer space. Looking ahead, we will increase collaboration within the Group and continually take on the challenges of “Always improving” and “Always delivering new value.” 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-X01-8-CA196-A(cid:633)HQ 1807(cid:682)IP(cid:683)