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c1
Annual Report 2003

Table of contents

  • Page 1
    Annual Report 2003 c1

  • Page 2
    ... ...12 Review of Operations ...14 Information-Related Equipment Segment ...14 Electronic Devices Segment...18 Precision Products Segment ...21 Other Business Segment...21 Research and Development ...22 Management Topics ...24 Environmental and Corporate Citizenship Activities ...25 Organization...

  • Page 3
    ... this strategy, we are concentrating our corporate resources in the imaging field, focusing on visual and imaging applications, and drawing on the full range of our capabilities in finished products and devices. Accordingly, we are continuing our R&D and investments in technology, while aiming...

  • Page 4
    ...plant and equipment (net of depreciation)...Total assets...Current liabilities...Long-term liabilities ...Shareholders' equity ...502,251 1,241,161 600,891 357,549 280,349 ¥0,645,310 442,769 1,196,080 493,087 419,069 281,316 $05,368,636 3,683,602 9,950,749 4,102,221 3,486,431 2,340,400 Net Sales...

  • Page 5
    ..., in the Information-Related Equipment segment, demand for PCs slowed as personal consumption remained sluggish, and the major markets for printers-Japan, the United States, and Europe-showed little growth while product prices continued on a down trend. In contrast, in the Electronic Devices segment...

  • Page 6
    ... and related supplies along with the growth in the photo printing area, which has been stimulated especially by the expanding ownership of digital cameras. Also, in the electronic devices market, we were able to grow sales by introducing products drawing on our low powerconsumption technologies...

  • Page 7
    ... primarily because of the dissolution of a semiconductor product manufacturing facility in Japan (Epson Hatogaya) that was closed in October 2002 and the one-time write-down of expenses related to intellectual property in connection with a joint venture in the semiconductor business. As a result of...

  • Page 8
    ...that demand for these units is naturally rising at a fast pace. In the latter half of 2002, major electronics manufacturers introduced Epson's Future Direction Epson offers imaging solutions and is squarely positioned as the leading company in the fields of color printers, LCD projectors as well as...

  • Page 9
    7

  • Page 10
    ... the technologies that have enabled Epson to become number one in sales of inkjet printers in Japan in our large-format inkjet printers and the images produced by these units have won high acclaim in the professional and art reproduction markets. Similarly, for mini-lab photo-processing applications...

  • Page 11
    9

  • Page 12
    ... of developing new products and technologies that other companies cannot imitate. The driving force for our 3i strategy is our Epson Imaging Architecture. This architecture is the common technological base supporting our overall 3i strategy. One example is our Photo Viewer, which displays stored...

  • Page 13
    Focusing on a revolutionary period in communications and broadcasting, Epson will provide advanced imaging solutions through the convergence of imaging domains, bringing color to everybody's life and to the way people communicate. 11

  • Page 14
    ... Segments at a Glance Information-Related Equipment Segment SALES COMPOSITION PRODUCT LINEUP Imaging & Information Products â- Inkjet printers â- Laser printers â- Multi-function printers â- Dot matrix printers â- Image scanners Visual Instruments â- LCD projectors â- LCD color monitors...

  • Page 15
    ... and watch movements, including Seiko-brand watches sold to Seiko Corporation, account for a large portion of the sales of this business segment. Epson manufactures most of Seiko Corporation's watch as its main supplier. Strategies Epson has incorporated its superior micro-precision processing and...

  • Page 16
    ...-based ink to its product line to capitalize on Epson's strong photo-quality printing technology. As a result, Epson's global unit sales of inkjet printers increased in the year ended March 31, 2003, and its global market share for calendar year 2002 also increased. In addition, demand for supplies...

  • Page 17
    ... with growth in internal sales to other business segments. Although sales of LCD projectors were affected by declining prices, the number of units sold increased, especially in the educational market in Asia. Also in Europe, Epson expanded unit sales by stepping up promotional activities, including...

  • Page 18
    ...professionals and mini-labs with digital photo printing solutions that suit their respective needs and attract users of silver halide film to use Epson's inkjet printers. In the home-use market, Epson will not only continue to develop inkjet printers based on Micro-Piezo inkjet technology capable of...

  • Page 19
    ... marketing efforts to increase consumer awareness of the Epson brand in the home projector market. í What Accounts for the Superiority of Epson's Technology? Micro-Piezo Print Heads There are extremely small ink extrusion nozzles on one side of the printer head. These nozzles have a diameter of 25...

  • Page 20
    ...increased. As a result, Epson's sales of mobile phone handset-related components generally increased compared with the prior year. However, an increase in the supply of certain components, including monochrome LCD driver ICs and active color LCD modules, caused significant price erosion with respect...

  • Page 21
    ... LCD driver ICs decreased due to the effect of decreased unit sales related to the shift to handsets with color LCDs. Sales of light valves increased due to increased demand related to growth in the data projector and home LCD projector markets. As a consequence of these developments, sales by...

  • Page 22
    ..., compact, low powerconsumption displays. Epson also has a strong market presence with respect to LCD driver ICs and LCD controller ICs for use in mobile phone handsets. Epson will combine its technological strengths related to these products, its LCDs and its digital image processing technology to...

  • Page 23
    ... lenses and factory automation systems as principal products. Sales of watches and watch movements, including the sale of Seiko brand watches to Seiko Corporation, account for a significant portion of sales of precision products. Epson manufactures most of Seiko Corporation's watches as its...

  • Page 24
    ... of micro-lenses. During fiscal year ending March 31, 2004, we plan to step up the activities of the inkjet open laboratories with a special focus on enhancing production technologies. Development of Organic LED (OLED) Technology Epson's R&D costs in the fiscal year ended March 31, 2003 rose...

  • Page 25
    ... up inkjet open laboratories in Japan and in the United Kingdom to promote the development of mass production versions of this technology and to work together with research partners in employing the process in new applications. Research and Development Structure Epson's R&D structure is led by the...

  • Page 26
    ... technology for use in development and manufacturing of mini-labs. Noritsu Koki began to provide mini-labs incorporating Epson technology to existing and new customers in early 2003. Under this tie-up, Epson is supplying its Micro-Piezo technology (print heads, ink, and image processing technologies...

  • Page 27
    ...the imaging and information products business became the first division in the Epson Group to issue a report on environmental activities by site. Moreover, detailed information not covered by the report is available from the imaging and information products business's Website in line with the policy...

  • Page 28
    ... Assurance Office Intellectual Property Division Board of Directors Executive Vice-Presidents Managing Directors Corporate Research & Development Division Production Engineering & Development Division Chairman Vice-Chairman Production Management Division OLED Technological Development Division...

  • Page 29
    ... level of information as members of the Board of Directors. Internal auditing functions, including audits of subsidiaries, are conducted periodically by the Auditing Office, which reports directly to the president of the Company, and the scope of the department's activities includes the examination...

  • Page 30
    ...use of its Website, and other means. Epson endeavors on a continuing basis to detect any divergences between the views of management and market participants by providing feedback, obtained through investor and public relations activities, to management on the views of persons outside the Company. In...

  • Page 31
    Financial Section MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...30 CONSOLIDATED BALANCE SHEETS ...34 CONSOLIDATED STATEMENTS OF INCOME ...36 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY...37 CONSOLIDATED STATEMENTS OF CASH FLOWS ...38 NOTES TO...

  • Page 32
    ...-related sales of inkjet and multi-function printers and related supplies. For example, sales of imaging and information products for the second half of the year ended March 31, 2003 were 25.5% higher than sales for the first half of that fiscal year. Electronic devices accounted for 25.7% of Epson...

  • Page 33
    ... printers, including related supplies, and LCD projectors which were offset in part by decreases in sales of STN LCD modules and logic ICs. Net sales in Asia/ Oceania in the year ended March 31, 2003 increased due mainly to increased sales of STN LCD modules, logic ICs and MD-TFD LCD modules. Epson...

  • Page 34
    ... of property, plant and equipment related primarily to investments in manufacturing facilities related to electronic devices. In addition, payment of long-term prepaid expenses related to Epson's investment in intellectual property in connection with a joint venture with IBM Corporation, Yasu...

  • Page 35
    ... March 31, 2003. long-term advanced assets and deferred assets. The decreases in the years ended March 31, 2002 and 2003 were due primarily to reductions in the electronic devices segment in response to the slowdown in related markets. The downturn in the global economy has led Epson to become more...

  • Page 36
    ...taxes ...37,916 Other current assets ...43,945 Allowance for doubtful accounts ...(4,753) Total current assets ...Property, plant and equipment: Buildings and structures...Machinery and equipment ...Furniture and fixtures...Land ...Construction in progress ...Other ...Accumulated depreciation ...622...

  • Page 37
    ..., trade ...118,233 Accounts payable, other...85,560 Income taxes payable ...11,495 Deferred income taxes ...678 Accrued bonuses...12,600 Accrued warranty costs...33,904 Other current liabilities ...53,078 Total current liabilities ...Long-term liabilities: Long-term debt ...Accrued pension and...

  • Page 38
    Financial Section CONSOLIDATED STATEMENTS OF INCOME SEIKO EPSON CORPORATION AND SUBSIDIARIES Thousands of U.S. dollars Year ended March 31, 2003 2003 Millions of yen Year ended March 31 2001 2002 Net sales...¥1,340,903 ¥1,274,109 Cost of sales ...942,833 938,001 Gross profit ...398,070 336,108 ...

  • Page 39
    ... Section CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY SEIKO EPSON CORPORATION AND SUBSIDIARIES Millions of yen Number of shares issued Common stock Additional paid-in capital Net unrealized gains on other securities Translation adjustments Treasury stock Retained earnings Total...

  • Page 40
    ...4,509 23,002 Accrual for net pension and severance costs, less payments ...5,201 (9,590) (18,212) Gain on securities contributed to employee retirement benefit trust ...(4,360) - - Net loss on sales and disposal of property, plant and equipment ...6,047 5,067 1,978 Equity in net (gains) losses under...

  • Page 41
    ...manufacturer of watches but 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...

  • Page 42
    ... with the new accounting standards, derivative instruments (i.e., forward exchange contracts, interest rate swaps and currency options) are recognized as either assets or liabilities at their respective fair values at the date of contract, and gains and losses arising from changes in fair value...

  • Page 43
    ... eight to fifty years for buildings and structures and principally range from two to eleven years for machinery and equipment. (7) Intangible assets Amortization of intangible assets is computed using the straight-line method. Amortization of software for internal use is computed using the straight...

  • Page 44
    ...goods are shipped. Revenue from services is recognized when services are rendered and accepted by customers. (13) Research and development costs Research and development costs are expensed as incurred. (14) Leases Epson leases certain office space, machinery and equipment and computer equipment from...

  • Page 45
    ... and charged to cost of sales as a result of valuation at the lower of cost or market value at March 31, 2002 and 2003 were ¥10,997 million and ¥12,493 million ($103,935 thousand), respectively. Finished products...¥ 94,945 Work in process ...41,242 Materials and supplies...36,896 Total...¥173...

  • Page 46
    ... net equity of investments in subsidiaries as at March 31, 2002 and 2003, included in intangible assets, were ¥2,542 million and ¥954 million ($7,937 thousand), respectively. 8. Derivative financial instruments Epson enters into forward exchange contracts, currency options and interest rate swaps...

  • Page 47
    ... on authorization of the director of Epson in charge of the finance function based on the above-mentioned internal rules and policies. Execution and management of transactions are done by the responsible section in the Professional Service Unit and reported to the general manager in charge of the...

  • Page 48
    ... are calculated using weightedaverage interest rates as at March 31, 2003. The maturities of long-term debt outstanding as at March 31, 2003 were as follows: Year ending March 31 Millions of yen Thousands of U.S. dollars Assets pledged as collateral for secured loans and debt at March 31, 2002 and...

  • Page 49
    ... March 31 2002 2003 Discount rate ...3.5% Long-term rate of return on plan assets...3.5 3.0% 3.5 3.0% 3.5 specific reorganization programs, were recorded in reorganization costs for years ended March 31, 2002 and 2003, respectively. The Company has made amendments to the welfare pension plan by...

  • Page 50
    ... assets to be returned to the government was measured at approximately ¥39,677 million ($330,092 thousand) as at March 31, 2003. 11. Shareholders' equity The Company's retained earnings consists of unappropriated retained earnings and legal reserves required by the Commercial Code of Japan. The...

  • Page 51
    ... March 31, 2003 Deferred tax assets: Property, plant and equipment and intangible assets ...Â¥12,964 Net operating tax loss carry-forwards...10,716 Inter-company profits on inventories and write downs...15,084 Accrued warranty costs ...12,489 Accrued bonuses...1,957 Accrued pension and severance...

  • Page 52
    .... Deferred tax assets and liabilities at March 31, 2003 in Japan were calculated based on the consolidated tax return system which will be adopted by Epson in the year ending March 31, 2004. The differences between Epson's statutory income tax rate and the income tax rate reflected in the...

  • Page 53
    ... of two affiliates, Tianjin Epson Co., Ltd. and Seiko Contactlens Inc. As a result, the Company became the majority shareholder of these companies. Upon consolidation, net cash proceeds of ¥444 million represented cash and cash equivalents of ¥444 million held by these companies at the date of...

  • Page 54
    ...at the end of the lease term were capitalized, the capital lease assets at March 31, 2002 and 2003 would have been as follows: Millions of yen March 31 2002 2003 Thousands of U.S. dollars March 31, 2003 Future lease payments for capital leases at March 31, 2002 and 2003 were as follows: Millions of...

  • Page 55
    ..., Seiko Corporation was regarded as a related party of the Company. The Company sells its products, mainly watches, and pays certain expenses to Seiko Corporation under terms and conditions stipulated in sales agreements. The Company and Seiko Corporation have also entered into other various types...

  • Page 56
    ... Japan, Asia, the Americas and Europe, and markets its products internationally through a global network of local sales subsidiaries. Epson is engaged principally in the following three business segments categorized based on the nature of products, markets and marketing methods. Information-related...

  • Page 57
    ... business segment information of Epson for the years ended March 31, 2001, 2002 and 2003: Millions of yen Year ended March 31, 2001 Business segment Informationrelated equipment Electronic devices Precision products Eliminations and corporate Other Consolidated Net sales: Customers ...Â¥866,938...

  • Page 58
    ... below summarizes the geographic segment information of Epson for the years ended March 31, 2001, 2002 and 2003: Millions of yen Year ended March 31, 2001 Geographic region Japan The Americas Europe Asia/Oceania Eliminations and corporate Consolidated Net sales: Customers...Â¥ 704,771 Inter-segment...

  • Page 59
    ..., Chile, Argentina, Costa Rica, Colombia, Venezuela and Mexico. "Europe" mainly includes the United Kingdom, the Netherlands, Germany, France, Italy, Spain and Portugal. "Asia/Oceania" mainly includes China (including Hong Kong), Singapore, Malaysia, Taiwan, Thailand, the Philippines, Australia...

  • Page 60
    ... 31, 2003 2001 2003 Overseas sales: The Americas ...Â¥ 270,885 Europe ...262,370 Asia/Oceania ...216,606 Total ...Â¥ 749,861 Consolidated net sales ...Â¥1,340,...shares of common stock above, a resolution at the board of directors' meeting held on June 16, 2003 was made for the Company to grant ...

  • Page 61
    ... 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, 2002 and 2003, and the related consolidated statements of income, changes in shareholders' equity, and cash...

  • Page 62
    ...Epson Europe Electronics GmbH Epson France S.A. Epson Italia s.p.a. Epson Iberica, S.A. Epson Telford Ltd. Epson Trading S.A. Epson (China) Co., Ltd. Epson Korea Co., Ltd. Epson (Shanghai) Information Equipment Co., Ltd. Epson Hong Kong Ltd. Epson Taiwan Technology & Trading Ltd. Epson Singapore Pte...

  • Page 63
    ...): 73,797 Parent Company: 13,084 (As of March 31, 2003) 114 (domestic: 39, overseas: 75) Development, manufacturing, sales, marketing and servicing of InformationRelated Equipment (printers, including related supplies, imaging scanners, LCD projectors, PCs, and others), Electronic Devices (small and...

  • Page 64
    Investor Information: Seiko Epson Corporation Investor Relations Promotion Department Shinjuku NS Bldg., 2-4-1 Nishishinjuku, Shinjuku-ku, Tokyo 163-0811, Japan Tel: +81-3-3343-5513 62

  • Page 65
    3-3-5 Owa, Suwa, Nagano 392-8502, Japan Tel: +81-266-52-3131 URL: http//www.epson.co.jp/e/ This report was produced from recycled and tree-free paper and soy ink. c4 Printed in Japan