Epson 2005 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... offer products and services that exceed your expectations. Epson-Striving to "Exceed Your Vision" ©BAKU SAITO i1: imaging on paper Responding to a range of professional needs, this high-quality inkjet printer is equipped with newly developed K3 ink for monochrome and color prints of exceptional...

  • Page 3
    ... and Progress ...12 Strategies for the Inkjet Printer Business ...14 Strategies for the 3LCD Projector Business ...16 In this annual report, "Epson" refers to the Epson Group, while "the Company" refers to the parent company, Seiko Epson Corporation. Strategies for the Display Business ...18...

  • Page 4
    Seiko Epson Annual Report 2005 05 Consolidated Financial Highlights SEIKO EPSON CORPORATION AND SUBSIDIARIES 2003 Millions of yen Year ended March 31, 2004 2005 Thousands of U.S. dollars Year ended March 31, 2005 Statement of income data: Net sales Gross profit Selling, general and ...

  • Page 5
    ... of Seiko Epson Corporation on April 1, 2005. Headed by this new management team, Epson aims to further enhance its corporate value. Results of Operations Epson's main markets consist of information-related equipment-an area that includes inkjet printers and 3LCD projectors-electronic devices and...

  • Page 6
    ... the cost structure of its information-related equipment business and other finished products businesses. In electronic devices, Sanyo Epson Imaging Devices Corporation, a joint-venture company formed by merging Epson's liquid crystal display businesses with those of the Sanyo Electric Group, opened...

  • Page 7
    ... products in Epson's information-related equipment segment. Here, we have encouraged healthy growth in sales in Japan and markets overseas by strengthening our lineup of multifunction printers and photo printers. In the electronic devices segment, although sales of LCDs for mobile phones are holding...

  • Page 8
    ... business and develop a structure better able to weather market fluctuations. To do so, we are optimizing Epson's strategies for each business in the electronic devices domain. In LCDs, while the number of end-market applications has expanded to include PC monitors, LCD TVs, mobile phones, digital...

  • Page 9
    ...in mind, we are establishing a new R&D site. Tentatively called the Epson Innovation Center, over the medium to long term, this site will help Epson maintain a competitive edge by strengthening the system for developing the next wave of information-related equipment. Operations are set to kickoff in...

  • Page 10
    ... in inkjet printers (imaging on paper: i1), 3LCD projectors (imaging on screen: i2) and displays (imaging on glass: i3). Our goal here is to achieve sustained growth in corporate value. To all of our stakeholders, I ask for your continued guidance and support of Epson and its future endeavors. July...

  • Page 11
    12 Seiko Epson Annual Report 2005 "Action07" Mid-range Business Plan: Overview and Progress Anchored by information-related equipment and electronic devices, Epson is forging a highly profitable business structure. This is being achieved in two ways. One is by enacting extensive cost-cutting ...

  • Page 12
    Seiko Epson Annual Report 2005 13 sales ratio. Epson succeeded in cutting costs in a number of different areas. Instrumental to this were structural reforms, particularly those targeting the production and sales framework in printer operations, one of Epson's key earners. In electronic devices, ...

  • Page 13
    14 Seiko Epson Annual Report 2005 Strategies for the Inkjet Printer Business Achieving "Epson=Photo" Epson is proposing ways to make photography a more integral part of everyday life by appealing to its strengths in high-quality photo printing and durable inks to set itself apart from competitors...

  • Page 14
    ... printer Epson Stylus Photo RX700 (name in Europe) PictureMate Deluxe Viewer Edition (name in the U.S.) Large-format printer Epson Stylus Pro 9800 Single-function printers (Non-direct) Single-function printers (Direct) Multifunction printers Source: Based on data compiled by the Company...

  • Page 15
    ... eyes, and low power consumption. Kenji Uchida Director, Chief Executive, Visual Instruments Operations Division Building a Brand in the Home Market Alongside its 3LCD projectors for the home, Epson launched the sale of LCD projection TVs in the fiscal year ended March 31, 2005. The likely driver...

  • Page 16
    ... technologies. Epson is proud of its high market share for these products, which serve as the key devices in high-performance 3LCD projectors. In the fiscal year ending March 31, 2006, Epson will not only supply HTPS panels and Epson-brand projector products, but will also supply optical engines in...

  • Page 17
    18 Seiko Epson Annual Report 2005 Strategies for the Display Business Aiming for Number One in Small- and Medium-sized LCDs Epson is taking steps to improve its cost structure to develop an operating base more resistant to market fluctuations. Shifting to an exclusive focus on value-added small- ...

  • Page 18
    ... account for a substantial percentage of Sanyo Epson's net sales. For this reason, broadening its business domains to develop a structure that can resist fluctuations in the mobile phone market has emerged as a key issue for Epson to ensure medium- to long-term profit stability. Demand is rising for...

  • Page 19
    ... of core technological strengths. Epson's Development Vision Printers imaging on paper i1 Projectors imaging on screen i2 Development of nextgeneration color laser elemental technologies for digital office markets Core Devices imaging support devices i0 Technological improvement and product...

  • Page 20
    Seiko Epson Annual Report 2005 21 R&D Structure Research and development divisions at the corporate Head Office and the operating divisions form the nucleus of Epson's R&D structure. This arrangement heightens inter-organizational synergies, accelerates R&D and enables Epson to develop ...

  • Page 21
    22 Seiko Epson Annual Report 2005 In 2000, Epson set up a new center for the development of electronic devices, specializing in semiconductor, liquid crystal and other device-based product development, at its Fujimi Plant in Nagano, Japan. The Epson Innovation Center will join this facility as ...

  • Page 22
    ... Player (P2000) multimedia storage device and viewer, acclaimed by professional and amateur digital camera users alike for its photo storage capabilities, is one product that incorporates this technology. Plans are under way to steadily apply AME to other Epson products as well. Epson has developed...

  • Page 23
    ... Inc. Ricoh Company, Ltd. Seiko Epson Corporation Toshiba Corporation Sony Corporation Fuji Photo Film Co., Ltd. Hitachi, Ltd. Sharp Corporation Toyota Motor Corporation Mitsubishi Electric Corporation Denso Corporation Fujitsu Limited Sanyo Electric Co., Ltd. Honda Motor Co., Ltd. Nissan Motor Co...

  • Page 24
    Seiko Epson Annual Report 2005 25 The "Dolphin" Program Epson first began implementing its "Double Leading Patent by Promoting High Quality Innovations," or "Dolphin" program, in 2002. Under this program, Epson selects major research themes, conducts patent searches, explores new inventions and ...

  • Page 25
    ...as to ensure highly transparent and sound management in the eyes of its customers, shareholders, employees and other stakeholders. Corporate Governance vital to business execution. Statutory auditors are thus in a position to conduct their audits with the same level of information as directors. In...

  • Page 26
    ...A Compliance Committee for building and maintaining Epson's compliance structure • A Management Trust by Office responsible for operating the internal Compliance Hotline for reporting compliance issues • In-house compliance training, including a code of conduct manual and Web-based seminars When...

  • Page 27
    ...regarding significant risks is reported directly to the president, Epson has a Crisis Management Committee, composed of a Risks Managed by Epson Political/ Economic/ Social Risks • Country risk Management Risk • Leakage of sensitive information • Crime against company • Product liability...

  • Page 28
    ...the IR section of Epson's corporate website. of its production plants and other facilities. During the fiscal year ended March 31, 2005, Epson held presentations on the development strategy for Organic Light-Emitting Diode (OLED) displays and strategies in the company's inkjet printer business, and...

  • Page 29
    ..., Seiko Epson Corporation and Epson Sales Japan Corporation started participating in the Japanese Bell Mark volunteer program by collecting used ink cartridges from inkjet printers in June 2004. In March 2005, the scope of the collection drive was expanded to include used toner cartridges from laser...

  • Page 30
    ... are not complicit in human rights abuses. Support for the Kids' ISO Program in Nagano Since the fiscal year ended March 31, 2001, Epson has taken part in and sponsored the Kids' ISO Program, an environmental education support program for children developed by the International Art and Technology...

  • Page 31
    ... Epson International Educational Foundation is that long after granting scholarships, the foundation continues to support interaction between international colleagues through a host of different events. The foundation also publishes Rainbow, a newsletter that serves as an information exchange forum...

  • Page 32
    ..., international Chairman and CEO for the Special Olympics, and others associated with the games visited Epson Mizube Corporation's Matsumoto Plant and the Matsumoto Head Office of Sanyo Epson Imaging Devices Corporation to observe work being performed by physically challenged employees at both sites...

  • Page 33
    ... emerging as the leading company in the quartz devices industry. 3LCD Group Formed to Promote Awareness of 3LCD Projection Epson has joined forces with leading 3LCD projector manufacturers to form the 3LCD Group. This Group seeks to educate consumers and market experts alike on the unique features...

  • Page 34
    ... of professional printing paper used to produce artwork. Moreover, the K3 inks make possible black and white prints that are lightfast for up to 200 years. Looking ahead, Epson will seek ways to upgrade its lineup of high-end printer models to further expand its base of users. Seiko Quartz Astron...

  • Page 35
    36 Seiko Epson Annual Report 2005 Corporate History and Epson Milestones 1950-1960 1970 Management Oct. 1964 Seiko Group selected as the official timekeeper for the Olympic Games in Tokyo. 1980 May 1983 Epson Sales Japan Corporation established as a sales company targeting the Japanese market. ...

  • Page 36
    Seiko Epson Annual Repor t 2005 37 1990 Jan. 1990 Epson Europe B.V., Epson's European regional headquarters, established in Amsterdam, the Netherlands. 2000 Feb. 1998 Seiko Group chosen as the official timekeeper for the Olympic Winter Games in Nagano. May 2001 ISO 14001 certification obtained ...

  • Page 37
    .... Epson El Paso, Inc. Epson Europe B.V. Epson (U.K.) Ltd. Epson Deutschland GmbH Epson Europe Electronics GmbH Epson France S.A. Epson Italia s.p.a. Epson Iberica, S.A. Epson Telford Ltd. Epson (China) Co., Ltd. Epson Korea Co., Ltd. Epson (Shanghai) Information Equipment Co., Ltd. Epson Hong Kong...

  • Page 38
    Seiko Epson Annual Repor t 2005 39 Financial Section Contents Management's Discussion and Analysis of Financial Condition and Results of ...in Shareholders' Equity ...55 Consolidated Statements of Cash Flows ...56 Notes to Consolidated Financial Statements . . 57 Report of Independent Auditors ...79

  • Page 39
    ... sales of single-function scanners. In the electronic devices segment, sales increased ¥41,458 million, or 9.4%, to ¥482,611 million. Results by product category were as follows. The start of operations at SANYO EPSON IMAGING DEVICES CORPORATION had the effect of adding two new products to Epson...

  • Page 40
    Seiko Epson Annual Repor t 2005 41 Net Sales by Business Segments Millions of yen, except percentages Year ended March 31 2003 2004 2005 Information-related equipment Electronic devices Precision products Other Total (Eliminations and corporate) Total net sales ¥ 915,857 354,288 79,745 26,...

  • Page 41
    ... sites in the company's display operations, booked as reorganization costs, as well as an increase in net loss on foreign exchange of...in the previous year. This stemmed mainly from the interest of minority shareholders in the loss at SANYO EPSON IMAGING DEVICES CORPORATION. Net Income As a result, ...

  • Page 42
    ...rate of 1.33%. Almost all of these loans are unsecured bank loans with maturities up to July 2011. Epson has organized lines of credit with 13 banks totaling ¥80,000 million with the goal of enabling it to procure...liabilities mainly reflected repayments. Working capital, defined as current assets ...

  • Page 43
    ...in mobile communications devices and related devices could possibly cause prices of electronic components for mobile communications devices, such as color LCDs and LCD-driver ICs, to drop in the future, and could similarly affect other products. Epson is striving to improve profitability by reducing...

  • Page 44
    ...'s sales and profit. There are third parties who supply ink cartridges that can be used in Epson printers. These alternatives products are generally sold at prices cheaper than Epson's brand products, and they are slowly gaining market share in Japan and the United States, but even more so in Europe...

  • Page 45
    ... the business year ending March 2005 were overseas sales. Epson has production bases all over Asia, such as China, Indonesia, Singapore, and Malaysia, and in America, England, Mexico, and Brazil. It has also established many distribution companies all over the world. Epson's employees overseas as of...

  • Page 46
    ..., because it is difficult to procure an alternative component from another company. On the manufacturing side of business, Epson outsources the manufacturing of parts of products, such as laser printers and inkjet printers in the low price range, image scanners, and computers. If demand for such...

  • Page 47
    ...to use or employ enough such qualified engineers and other technical personnel, the carrying out of its business plans could be adversely affected. (15) Fluctuations in foreign currency exchanges create risks to Epson A significant portion of Epson's sales are denominated in U.S. dollars or the Euro...

  • Page 48
    ... an EU Directive dated February 13, 2003, that prohibits the use in electrical and electronic equipment of specific harmful substances (lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE)), so Epson must now design products and procure...

  • Page 49
    ... legal actions being brought against it Epson conducts its businesses both in Japan and overseas, its primary businesses being the development, manufacture, and sales of information-related equipment, electronic devices, and precision equipment. Given the special nature of its businesses, there is...

  • Page 50
    ... a high percentage of Epson's overall sales or operating profit, but Epson is subject to the permissions and other regulations of the Ministry of Health, Labour and Welfare in its manufacturing and sale of those products in Japan. Also, because a distributor subsidiary of Seiko Corporation sells the...

  • Page 51
    52 Seiko Epson Annual Report 2005 Consolidated Balance Sheets SEIKO EPSON CORPORATION AND SUBSIDIARIES Millions of yen March 31 ASSETS Current assets: Cash and cash equivalents Time deposits Notes and accounts receivable, trade Inventories Deferred income taxes Other current assets Allowance for...

  • Page 52
    Seiko Epson Annual Repor t 2005 53 Millions of yen March 31 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term bank loans Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other Income taxes payable Deferred income taxes Accrued bonuses ...

  • Page 53
    54 Seiko Epson Annual Report 2005 Consolidated Statements of Income SEIKO EPSON CORPORATION AND SUBSIDIARIES 2003 Millions of yen Year ended March 31 2004 2005 Thousands of U.S. dollars Year ended March 31, 2005 Net sales Cost of sales Gross profit Selling, general and administrative expenses...

  • Page 54
    ... EPSON CORPORATION AND SUBSIDIARIES Number of shares issued Common stock Additional paid-in capital Millions of yen Net unrealized gains on Retained other earnings securities Translation Treasury adjustments stock Total Balance at March 31, 2002 Net income Cash dividends Bonuses to directors...

  • Page 55
    56 Seiko Epson Annual Report 2005 Consolidated Statements of Cash Flows SEIKO EPSON CORPORATION AND SUBSIDIARIES 2003 Millions of yen Year ended March 31 2004 2005 Thousands of U.S. dollars Year ended March 31, 2005 Cash flows from operating activities: Net income Adjustments to reconcile net...

  • Page 56
    ... later expanded its business to provide key devices and solutions for the digital color imaging markets through the application of its proprietary technologies. The Company operates its manufacturing and sales business mainly in Japan, the Americas, Europe and Asia/Oceania. (2) Basis of presenting...

  • Page 57
    58 Seiko Epson Annual Report 2005 (3) Cash and cash equivalents Cash and cash equivalents included in the consolidated financial statements are composed of cash on hand, bank deposits that may be withdrawn on demand and highly liquid investments purchased with initial maturities of three months or...

  • Page 58
    ... amounts which Epson is obligated to pay to employees after the fiscal year-end, based on services provided during the current period. On March 9, 2004, the Accounting Standards Board of Japan issued new accounting standards concerning accounting for bonuses to directors and statutory auditors...

  • Page 59
    ... from sale of goods is recognized at the time when goods are shipped. Revenue from services is recognized when services are rendered and accepted by customers. (15) Research and development costs Research and development costs are expensed as incurred. (16) Leases Epson leases certain office space...

  • Page 60
    ...agreement, on October 1, 2005, the Company will split-off its quartz device business (excluding optical devices) to Toyo, as the succeeding company, and Toyo will be renamed Epson Toyocom Corporation ("Epson Toyocom"). The Company will purchase 99,000,000 shares of common stock and 20,000,000 shares...

  • Page 61
    62 Seiko Epson Annual Report 2005 5. Inventories Losses recognized and charged to cost of sales as a result of valuation at the ... ¥1,384 million ($12,888 thousand) was recorded against deferred income tax assets relating to other temporary differences as at March 31, 2004 and 2005, respectively...

  • Page 62
    ... by the Company's Forward Exchange Committee (composed of representatives of Epson management) and executed based on authorization of the general manager of Epson in accordance with internal rules and policies developed regarding derivative transaction management. Interest rate swap transactions...

  • Page 63
    ...Seiko Epson Annual Report 2005 Millions of yen March 31, 2005 Instruments Contract amounts Fair values Unrealized gains (losses) Forward exchange contracts... rate swap transactions outstanding at March 31, 2005 other than derivatives eligible for hedge accounting. These forward exchange contracts ...

  • Page 64
    Seiko Epson Annual Repor t 2005 65 9. Short-term bank loans and long-term debt Short-term bank loans and long-term debt from banks at March 31, 2004 and 2005 consisted of the following: Millions of yen March 31 2004 2005 Weighted average interest rate Thousands of U.S. dollars March 31, 2005 ...

  • Page 65
    66 Seiko Epson Annual Report 2005 10. Pension and severance costs The Company and its Japanese subsidiaries maintain defined benefit pension plans and defined contribution pension plans covering substantially all of their employees. The Company and some of its Japanese subsidiaries had maintained ...

  • Page 66
    ...years ended March 31, 2001 and 2002. Further, effective at March 31, 2004, the Company has made amendments to the remaining corporate defined benefit plans by reducing the related interest rate under the pension plans. These amendments have resulted in a negative amount of unrecognized prior service...

  • Page 67
    68 Seiko Epson Annual Report 2005 11. Shareholders' equity The Company's retained earnings consists of unappropriated retained earnings and legal reserves required by the Commercial Code of Japan. The retained earnings accumulated by the Company are initially recorded as unappropriated retained ...

  • Page 68
    ... 2005 were as follows: Millions of yen Year ended March 31 2003 2004 2005 Thousands of U.S. dollars Year ended March 31, 2005 Net income attributable to common shares Less: Bonuses to directors and statutory auditors Weighted average number of common shares outstanding: - Basic - Diluted ¥12,510...

  • Page 69
    70 Seiko Epson Annual Report 2005 13. Income taxes Epson is subject to a number of different income taxes which, in the aggregate, resulted in a statutory income tax rate in Japan of approximately 41.7% for the year ended March 31, 2003, approximately 43.6% for the year ended March 31, 2004 and ...

  • Page 70
    ... income under the consolidated tax return system. Therefore, the aggregated statutory income tax rate for Epson was 40.4% for the year ended March 31, 2005. 14. Research and development costs Research and development costs, which are included in cost of sales and selling, general and administrative...

  • Page 71
    ... above include leased property from the SANYO Group transferred to SANYO EPSON. The acquisition cost, less accumulated depreciation and net book value transferred from the SANYO Group as capital leases that do not transfer the ownership of the assets to the lessee at the end of the lease term at...

  • Page 72
    Seiko Epson Annual Repor t 2005 73 Depreciation expenses for these leased assets for the years ended March 31, 2003, 2004 and 2005 would have been ¥8,422 million, ¥2,997 million and ¥9,435 million ($87,857 thousand), respectively, if they were computed in ...

  • Page 73
    74 Seiko Epson Annual Report 2005 19. Related party transactions The Company has entered into real estate lease agreements and certain other agreements with K.K. Sunritz ("Sunritz") in which Mr. Yasuo Hattori, a Vice Chairman and Director of the Company, and their relatives own 9.5% and 71.3% of ...

  • Page 74
    ... printers, laser printers, dot matrix printers, large format inkjet printers, and related supplies, color image scanners, LCD projectors, HDTV LCD projection television, LCD monitors, label writers, mini-printers, printers for use in POS systems and personal computers. Electronic devices segment...

  • Page 75
    ... Annual Report 2005 Millions of yen Year ended March 31, 2004 Business segment Informationrelated equipment Electronic devices Precision products Eliminations and corporate Other Consolidated Net sales: Customers Inter-segment Total Operating expenses Operating income (loss) Identifiable assets...

  • Page 76
    ..., Chile, Argentina, Costa Rica, Colombia, Venezuela, Mexico and Peru. "Europe" mainly includes the United Kingdom, the Netherlands, Germany, France, Italy, Spain, Portugal and Russia. "Asia/Oceania" mainly includes China (including Hong Kong), Singapore, Malaysia, Taiwan, Thailand, the Philippines...

  • Page 77
    78 Seiko Epson Annual Report 2005 Millions of yen Year ended March 31, 2005 Geographic region The Americas Asia/ Oceania Eliminations and corporate Japan Europe Consolidated Net sales: Customers Inter-segment Total Operating expenses Operating income Identifiable assets ¥ ¥ 694,344 540,694 ...

  • Page 78
    Seiko Epson Annual Repor t 2005 79 Report of Independent Auditors To the Board of Directors of Seiko Epson Corporation We have audited the accompanying consolidated balance sheets of Seiko Epson Corporation and its consolidated subsidiaries as of March 31, 2004 and 2005, and the related ...

  • Page 79
    ...Number of Employees â- Group Companies 116 (domestic: 39, overseas: 77) * Including Seiko Epson Corporation â- Main Businesses • Information-related equipment: includes printers and related supplies, color imaging scanners, 3LCD projectors, large LCD projection TVs, LCD monitors, label writers...