REG - Mitsubishi Elect. - 1st Quarter Results
FOR IMMEDIATE RELEASE
No. 3206
Investor Relations Inquiries
Media Inquiries
Investor Relations Group, Corporate Finance Division
Public Relations Division
Mitsubishi Electric Corporation
Mitsubishi Electric Corporation
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www.MitsubishiElectric.com/news/
Mitsubishi Electric Announces Consolidated Financial Results
for the First Quarter of Fiscal 2019
TOKYO, July 30, 2018 - Mitsubishi Electric Corporation (TOKYO: 6503) announced today its consolidated financial results for the first quarter, ended June 30, 2018, of the current fiscal year ending March 31, 2019 (fiscal 2019).
Consolidated Financial Results
Net sales:
1,050.9
billion yen
(2% increase from the same quarter last year)
Operating income:
61.5
billion yen
(18% decrease from the same quarter last year)
Income before income taxes:
68.7
billion yen
(15% decrease from the same quarter last year)
Net income attributable to Mitsubishi Electric Corp. stockholders:
47.5
billion yen
(17% decrease from the same quarter last year)
The global economy in the first quarter, from April through June 2018, of fiscal 2019 saw a slight slowdown in China, a buoyant expansion in the U.S. and gradual trends of recovery in Japan and Europe. In addition, the yen appreciated against the U.S. dollar and weakened against the euro compared to the same period of the previous fiscal year.
Under these circumstances, consolidated net sales in the first quarter increased by 2% compared to the same period of the previous fiscal year to 1,050.9 billion yen with increased sales in the Industrial Automation Systems, Electronic Devices and Home Appliances segments. Consolidated operating income decreased by 18% compared to the same period of the previous fiscal year to 61.5 billion yen, due to decreased profits in all segments.
Income before income taxes decreased by 15% compared to the same period of the previous fiscal year to 68.7 billion yen.
Net income attributable to Mitsubishi Electric Corporation stockholders decreased by 17% compared to the same period of the previous fiscal year to 47.5 billion yen.
Consolidated Financial Results by Business Segment
Energy and Electric Systems
Total sales:
267.3
billion yen
(substantially unchanged from the same quarter last year which recorded 268.5 billion yen)
Operating income:
5.9
billion yen
(0.7 billion yen decrease from the same quarter last year which recorded 6.7 billion yen)
The social infrastructure systems business saw decreases in both orders and sales from the same period of the previous fiscal year due primarily to decreases in the transportation systems business in Japan and the power systems business outside Japan.
The building systems business saw increases in both orders and sales compared to the same period of the previous fiscal year due primarily to buoyancies in the renewal business in Japan and the new installation of elevators and escalators outside Japan.
As a result, total sales for this segment remained substantially unchanged from the same period of the previous fiscal year. Operating income decreased by 0.7 billion yen from the same period of the previous fiscal year mainly due to a shift in project portfolios.
Industrial Automation Systems
Total sales:
360.9
billion yen
(3% increase from the same quarter last year which recorded 350.8 billion yen)
Operating income:
44.8
billion yen
(5.8 billion yen decrease from the same quarter last year which recorded 50.7 billion yen)
The factory automation systems business saw decreases in both orders and sales from the same period of the previous fiscal year due primarily to a temporary slowdown in capital expenditures in the fields of organic light emitting diodes (OLED) and smartphones outside Japan, despite buoyant demand for exports mainly by machinery and semiconductor-related equipment manufacturers in Japan.
The automotive equipment business saw increases in both orders and sales from the same period of the previous fiscal year due primarily to increases in Japan and other markets in Asia, as well as increased sales in electric-vehicle related equipment in response to market growth worldwide.
As a result, total sales for this segment increased by 3% from the same period of the previous fiscal year. Operating income decreased by 5.8 billion yen from the same period of the previous fiscal year due primarily to increases in material prices and upfront investment for growth drivers.
Information and Communication Systems
Total sales:
79.7
billion yen
(11% decrease from the same quarter last year which recorded 90.0 billion yen)
Operating income (loss):
(1.8
billion yen)
(substantially unchanged from the same quarter last year which recorded a loss of 1.7 billion yen)
The telecommunications systems business saw decreases in both orders and sales compared to the same period of the previous fiscal year due primarily to decreased demand in communications infrastructure equipment.
The information systems and service business saw decreases in both orders and sales compared to the same period of the previous fiscal year, mainly due to a shift in projects for the system integrations business.
The electronic systems business saw an increase in orders compared to the same period of the previous fiscal year mainly due to an increase in large-scale projects in the defense systems business, while sales experienced a decrease compared to the same period of the previous fiscal year due primarily to a shift in project portfolios in the defense systems business.
As a result, total sales for this segment decreased by 11% compared to the same period of the previous fiscal year. Operating income remained substantially unchanged from the same period of the previous fiscal year due primarily to a shift in project portfolios.
Electronic Devices
Total sales:
51.4
billion yen
(7% increase from the same quarter last year which recorded 48.1 billion yen)
Operating income:
1.4
billion yen
(1.5 billion yen decrease from the same quarter last year which recorded 3.0 billion yen)
The electronic devices business saw orders substantially unchanged, while sales rose by 7% from the same period of the previous fiscal year due to an increase in demand mainly for power modules used in industrial, consumer and automotive applications, despite decreased demand for optical communication devices.
Operating income decreased by 1.5 billion yen compared to the same period of the previous fiscal year due primarily to a shift in product mix.
Home Appliances
Total sales:
280.3
billion yen
(4% increase from the same quarter last year which recorded 269.8 billion yen)
Operating income:
20.0
billion yen
(4.1 billion yen decrease from the same quarter last year which recorded 24.1 billion yen)
The home appliances business saw an increase in sales of 4% from the same period of the previous fiscal year due to an increase in sales of air conditioners for Europe, Japan, China and the U.S.A.
Operating income decreased by 4.1 billion yen compared to the same period of the previous fiscal year due primarily to increases in material prices.
Others
Total sales:
155.6
billion yen
(7% increase from the same quarter last year which recorded 144.9 billion yen)
Operating income:
1.1
billion yen
(0.8 billion yen decrease from the same quarter last year which recorded 2.0 billion yen)
Sales increased by 7% compared to the same period of the previous fiscal year due primarily to an increase in sales at affiliated companies involved in materials procurement.
Operating income decreased by 0.8 billion yen compared to the same period of the previous fiscal year due primarily to a shift in project portfolios.
Financial Standing
An analysis on the status of assets, liabilities and equity on a consolidated basis
Total assets as of the end of this fiscal quarter decreased from the end of the previous fiscal year by 99.4 billion yen to 4,206.1 billion yen. The change in balance of total assets is mainly attributable to increases in inventories by 63.6 billion yen as a result of work-in-process as recorded in commensurate with progress in job orders under pertinent contracts, while cash and cash equivalents decreased by 6.7 billion yen, and trade receivables and contract assets decreased by 162.0 billion yen primarily as a result of credit collection.
Total liabilities decreased from the end of the previous fiscal year by 94.3 billion yen to 1,814.0 billion yen. The outstanding balances of debts and corporate bonds decreased by 12.2 billion yen from the end of the previous fiscal year to 299.7 billion yen, resulting in a decline in the ratio of interest bearing debt to total assets to 7.1%, representing a 0.1 point decrease compared to the end of the previous fiscal year. Meanwhile, trade payables decreased by 38.5 billion yen, and other current liabilities decreased by 47.3 billion yen.
Mitsubishi Electric Corporation stockholders' equity decreased by 8.9 billion yen compared to the end of the previous fiscal year to 2,285.2 billion yen. The stockholders' equity ratio was recorded at 54.3%, representing a 1.0 point increase compared to the end of the previous fiscal year. These changes referred to above primarily result from a decrease in dividend payment of 55.8 billion yen, despite recording a net income attributable to Mitsubishi Electric Corporation stockholders of 47.5 billion yen.
An analysis on the status of cash flow on a consolidated basis
Cash flows from operating activities for this quarter decreased by 27.5 billion yen compared to the same period of the previous fiscal year to 97.2 billion yen (cash in), mainly due to an increase in inventories. Cash flows from investing activities increased by 16.4 billion yen compared to the same period of the previous fiscal year to 38.7 billion yen (cash out), due primarily to a decrease in proceeds from sale of short-term investments and investment securities. As a result, free cash flow was 58.5 billion yen (cash in). Cash flows from financing activities were 64.0 billion yen (cash out) mainly due to dividend payments.
Forecast for Fiscal 2019
The current consolidated earnings forecast for fiscal 2019, ending March 31, 2019, is unchanged from the announcement on April 27, 2018 as stated below.
Current consolidated forecast for fiscal 2019
Net sales
4,500.0
billion yen
(1% increase from fiscal 2018)
Operating income
315.0
billion yen
(4% decrease from fiscal 2018)
Income before income taxes
345.0
billion yen
(2% decrease from fiscal 2018)
Net income attributable to Mitsubishi Electric Corp. stockholders
245.0
billion yen
(4% decrease from fiscal 2018)
Note: The results forecast above is based on assumptions deemed reasonable by the Company at the present time, and actual results may differ significantly from forecasts. Please refer to the cautionary statement at the end.
Consolidated Financial Results Summary
(In billions of yen except where noted)
FY '18 Q1 (A)
(Apr. 1, 2017 -
Jun. 30, 2017)
FY '19 Q1 (B)
(Apr. 1, 2018 -
Jun. 30, 2018)
B - A
B/A (%)
Net sales
1,033.9
1,050.9
17.0
102
Operating income
75.4
61.5
(13.9)
82
Income before income taxes
80.4
68.7
(11.7)
85
Net income attributable to Mitsubishi Electric Corp. stockholders
56.9
47.5
(9.4)
83
Basic net income per share attributable to Mitsubishi Electric Corp. stockholders
26.55 yen
22.18 yen
(4.37 yen)
84
Notes:
1) Consolidated financial charts are made in accordance with International Financial Reporting Standards (IFRS).
2) The Company has 208 consolidated subsidiaries.
Condensed Quarterly Consolidated Financial Statements
Condensed Quarterly Consolidated Statements of Profit or Loss and
Condensed Quarterly Consolidated Statements of Comprehensive Income
(Condensed Quarterly Consolidated Statements of Profit or Loss)
(In millions of yen)
FY '18 Q1
(Apr. 1, 2017 -
Jun. 30, 2017)
FY '19 Q1
(Apr. 1, 2018 -
Jun. 30, 2018)
(A)
% of total
(B)
% of total
B - A
B/A
(%)
Net sales
1,033,936
100.0
1,050,982
100.0
17,046
102
Cost of sales
716,965
69.3
741,047
70.5
24,082
103
Selling, general and
administrative expenses
241,610
23.4
250,206
23.8
8,596
104
Other profit (loss)
132
0.0
1,860
0.2
1,728
14-fold
Operating income
75,493
7.3
61,589
5.9
(13,904)
82
Financial income
3,587
0.4
4,758
0.4
1,171
133
Financial expenses
932
0.1
610
0.1
(322)
65
Share of profit of investments accounted for using the
equity method2,298
0.2
2,993
0.3
695
130
Income before income taxes
80,446
7.8
68,730
6.5
(11,716)
85
Income tax expenses
21,236
2.1
18,723
1.7
(2,513)
88
Net income
59,210
5.7
50,007
4.8
(9,203)
84
Net income attributable to:
Mitsubishi Electric Corp.
stockholders56,985
5.5
47,578
4.5
(9,407)
83
Non-controlling interests
2,225
0.2
2,429
0.3
204
109
(Condensed Quarterly Consolidated Statements of Comprehensive Income)
(In millions of yen)
FY '18 Q1 (A)
(Apr. 1, 2017 -
Jun. 30, 2017)
FY '19 Q1 (B)
(Apr. 1, 2018 -
Jun. 30, 2018)
B - A
Net income
59,210
50,007
(9,203)
(Other comprehensive income (loss),
net of tax)
Items that will not be reclassified to
net income
Financial assets measured at fair value
through other comprehensive income(9,134)
7,388
16,522
Share of other comprehensive income of investments accounted for using the equity method
287
131
(156)
Subtotal
(8,847)
7,519
16,366
Items that may be reclassified to net income
Exchange differences on translating foreign operations
12,540
(9,152)
(21,692)
Net changes in the fair value of cash flow hedges
3
(18)
(21)
Share of other comprehensive income of investments accounted for using the equity method
(857)
(1,844)
(987)
Subtotal
11,686
(11,014)
(22,700)
Total other comprehensive income (loss)
2,839
(3,495)
(6,334)
Comprehensive income (loss)
62,049
46,512
(15,537)
Comprehensive income (loss) attributable to:
Mitsubishi Electric Corp. stockholders
59,527
44,730
(14,797)
Non-controlling interests
2,522
1,782
(740)
Condensed Quarterly Consolidated Statements of Financial Position
(In millions of yen)
FY '18 (A)
(ended Mar. 31, 2018)
FY '19 Q1 (B)
(ended Jun. 30, 2018)
B - A
(Assets)
Current assets
2,582,735
2,495,610
(87,125)
Cash and cash equivalents
599,199
592,488
(6,711)
Trade receivables and Contract Assets
1,191,529
1,029,435
(162,094)
Inventories
646,262
709,929
63,667
Other current assets
145,745
163,758
18,013
Non-current assets
1,722,845
1,710,508
(12,337)
Investments accounted for using the equity method
194,308
182,429
(11,879)
Other financial assets
363,171
371,726
8,555
Net property, plant and equipment
724,257
726,490
2,233
Other non-current assets
441,109
429,863
(11,246)
Total assets
4,305,580
4,206,118
(99,462)
(Liabilities)
Current liabilities
1,488,249
1,420,377
(67,872)
Bonds and borrowings
122,895
140,904
18,009
Trade payables
579,566
541,046
(38,520)
Other current liabilities
785,788
738,427
(47,361)
Non-current liabilities
420,112
393,672
(26,440)
Bonds and borrowings
189,055
158,805
(30,250)
Net defined benefit liabilities
171,520
175,751
4,231
Other non-current liabilities
59,537
59,116
(421)
Total liabilities
1,908,361
1,814,049
(94,312)
(Equity)
Mitsubishi Electric Corp. stockholders' equity
2,294,174
2,285,231
(8,943)
Common stock
175,820
175,820
－
Capital surplus
199,442
202,639
3,197
Retained earnings
1,811,348
1,802,907
(8,441)
Accumulated other comprehensive income (loss)
109,492
106,847
(2,645)
Treasury stock at cost
(1,928)
(2,982)
(1,054)
Non-controlling interests
103,045
106,838
3,793
Total equity
2,397,219
2,392,069
(5,150)
Total liabilities and equity
4,305,580
4,206,118
(99,462)
Balance of Debt
311,950
299,709
(12,241)
Accumulated other comprehensive income (loss):
Exchange differences on translating foreign operations
17,549
7,316
(10,233)
Remeasurements of defined benefit pension plans
－
－
－
Financial assets measured at fair value through other comprehensive income
91,952
99,561
7,609
Net changes in the fair value of cash flow hedges
(9)
(30)
(21)
Condensed Quarterly Consolidated Statements of Changes in Equity
(In millions of yen)
Mitsubishi Electric Corp. stockholders' equity
Non-controlling interests
Total equity
Common stock
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock at cost
Total
Balance at April 1, 2017
175,820
198,745
1,593,660
101,166
(1,228)
2,068,163
98,800
2,166,963
Comprehensive income
Net income
56,985
56,985
2,225
59,210
Other comprehensive income (loss)
2,542
2,542
297
2,839
Comprehensive income
－
－
56,985
2,542
－
59,527
2,522
62,049
Transfer to retained earnings
6,948
(6,948)
－
－
Dividends paid
(38,642)
(38,642)
(1,499)
(40,141)
Purchase of treasury stock
(697)
(697)
(697)
Reissuance of treasury stock
－
－
Transactions with non-controlling interests, etc.
－
79
79
Balance at June 30, 2017
175,820
198,745
1,618,951
96,760
(1,925)
2,088,351
99,902
2,188,253
Mitsubishi Electric Corp. stockholders' equity
Non-controlling interests
Total equity
Common stock
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock at cost
Total
Balance at April 1, 2018
175,820
199,442
1,811,348
109,492
(1,928)
2,294,174
103,045
2,397,219
Comprehensive income
Net income
47,578
47,578
2,429
50,007
Other comprehensive income (loss)
(2,848)
(2,848)
(647)
(3,495)
Comprehensive income
－
－
47,578
(2,848)
－
44,730
1,782
46,512
Transfer to retained earnings
(203)
203
－
－
Dividends paid
(55,816)
(55,816)
(2,585)
(58,401)
Purchase of treasury stock
(1,054)
(1,054)
(1,054)
Reissuance of treasury stock
－
－
Transactions with non-controlling interests, etc.
3,197
3,197
4,596
7,793
Balance at June 30, 2018
175,820
202,639
1,802,907
106,847
(2,982)
2,285,231
106,838
2,392,069
Condensed Quarterly Consolidated Statements of Cash Flows
(In millions of yen)
FY '18 Q1
(Apr. 1, 2017 - Jun. 30, 2017) (A)
FY '19 Q1
(Apr. 1, 2018 - Jun. 30, 2018) (B)
B - A
I
Cash flows from operating activities
1
Net income
59,210
50,007
(9,203)
2
Adjustments to reconcile net income to net cash provided by operating activities
(1) Depreciation and amortization
37,295
38,093
798
(2) Decrease in trade receivables and contract assets
157,910
164,962
7,052
(3) Decrease (increase) in inventories
(49,263)
(62,155)
(12,892)
(4) Increase (decrease) in trade payables
(30,910)
(39,220)
(8,310)
(5) Other, net
(49,485)
(54,451)
(4,966)
Cash flows from operating activities
124,757
97,236
(27,521)
II
Cash flows from investing activities
1
Purchase of property, plant and equipment
(42,711)
(36,350)
6,361
2
Proceeds from sale of property, plant and equipment
393
1,102
709
3
Purchase of short-term investments and investment securities
(3,201)
(4,129)
(928)
4
Proceeds from sale of short-term investments and investment securities
25,716
1,944
(23,772)
5
Other, net
(2,469)
(1,288)
1,181
Cash flows from investing activities
(22,272)
(38,721)
(16,449)
I + II
Free cash flow
102,485
58,515
(43,970)
III
Cash flows from financing activities
1
Proceeds from long-term debt and repayment of long-term debt
(2,254)
(12,336)
(10,082)
2
Increase (decrease) in bank loans, net
(11,380)
(1,814)
9,566
3
Dividends paid
(38,642)
(55,816)
(17,174)
4
Purchase of treasury stock
(697)
(1,054)
(357)
5
Other, net
(2,085)
7,001
9,086
Cash flows from financing activities
(55,058)
(64,019)
(8,961)
IV
Effect of exchange rate changes on cash and cash equivalents
3,004
(1,207)
(4,211)
V
Net increase (decrease) in cash and cash equivalents
50,431
(6,711)
(57,142)
VI
Cash and cash equivalents at beginning of period
662,469
599,199
(63,270)
VII
Cash and cash equivalents at end of period
712,900
592,488
(120,412)
Consolidated Segment Information
1. Sales and Operating Income by Business Segment
(In millions of yen)
Business Segment
FY '18 Q1
(Apr. 1, 2017 -
Jun. 30, 2017)
FY '19 Q1
(Apr. 1, 2018 -
Jun. 30, 2018)
C - A
D - B
C/A
(%)
Sales (A)
Operating income (loss) (B)
Sales
(C)Operating income (loss) (D)
Energy and Electric Systems
268,544
6,712
267,397
5,978
(1,147)
(734)
100
Industrial Automation Systems
350,817
50,746
360,999
44,873
10,182
(5,873)
103
Information and
Communication Systems
90,046
(1,783)
79,782
(1,840)
(10,264)
(57)
89
Electronic Devices
48,122
3,056
51,462
1,486
3,340
(1,570)
107
Home Appliances
269,892
24,188
280,334
20,056
10,442
(4,132)
104
Others
144,904
2,013
155,657
1,160
10,753
(853)
107
Subtotal
1,172,325
84,932
1,195,631
71,713
23,306
(13,219)
102
Eliminations and other
(138,389)
(9,439)
(144,649)
(10,124)
(6,260)
(685)
－
Consolidated Total
1,033,936
75,493
1,050,982
61,589
17,046
(13,904)
102
*Notes: Inter-segment sales are included in the above chart.
2. Sales by Location of Customers
(In millions of yen)
Location of Customers
FY '18 Q1
(Apr. 1, 2017 -
Jun. 30, 2017)
FY '19 Q1
(Apr. 1, 2018 -
Jun. 30, 2018)
B - A
B/A (%)
Sales (A)
% of total net sales
Sales (B)
% of total net sales
Japan
527,472
51.0
541,434
51.5
13,962
103
North America
106,481
10.3
103,098
9.8
(3,383)
97
Asia (excluding Japan)
274,426
26.6
270,275
25.7
(4,151)
98
China
140,390
13.6
140,183
13.3
(207)
100
Europe
112,064
10.8
121,637
11.6
9,573
109
Others
13,493
1.3
14,538
1.4
1,045
108
Total overseas sales
506,464
49.0
509,548
48.5
3,084
101
Consolidated total
1,033,936
100.0
1,050,982
100.0
17,046
102
Notes to the Condensed Consolidated Financial Statements
(Notes regarding the going concern assumption)
Not applicable
(Notes if there is any significant change in Mitsubishi Electric Corp. stockholders' equity)
Not applicable
(Summary of key accounting policies)
(a) Disclosure of compliance with IFRS and matters regarding first-time adoption
The Mitsubishi Electric Group has applied IFRS from the first quarter in the current fiscal year. The date of transition to IFRS is April 1, 2017. "Disclosures of transition to IFRS" section describes how the transition to IFRS affected the Mitsubishi Electric Group's reported financial position, financial performance and cash flows at the date of transition to IFRS and in comparative fiscal years.
(b) Financial instruments
The Mitsubishi Electric Group classifies non-derivative financial assets as financial assets measured at amortized cost or financial assets measured at fair value through profit or loss for the year or other comprehensive income. This classification is determined on initial recognition.
Financial assets measured at amortized cost are measured at amortized cost using the effective interest method and considering loss allowance for expected credit losses after initial recognition.
Financial assets that are not measured at amortized cost are measured at fair value. Changes after initial recognition in fair value of financial assets measured at fair value through other comprehensive income are recognized in other comprehensive income. When these financial assets are derecognized, cumulative gains or losses previously recognized in other comprehensive income are reclassified to retained earnings.
Changes in fair value after initial recognition of financial assets measured at fair value through profit or loss for the year are recognized in profit or loss.
(c) Inventories
Inventories are measured at the lower of cost or net realizable value. In determining the cost, work-in-progress for build-to-ordered products are recorded under the specific identification method, make-to-stock products are recorded at the average production costs and raw material and finished product inventories are generally recorded using the average-cost method.
(d) Property, plant and equipment
Property, plant and equipment is measured at cost on initial recognition and depreciated primarily using the declining-balance method over the estimated useful life of each asset. Some assets are depreciated using the straight-line method.
It is determined for property, plant and equipment whether there is an indication of impairment of the asset or cash-generating unit. If there is an indication of impairment, the asset or cash-generating unit is tested for impairment by estimating its recoverable amounts and comparing its carrying amount with the recoverable amount.
(e) Goodwill and intangible assets
Goodwill is stated at cost less accumulated impairment losses. Goodwill is not amortized but is tested for impairment at least annually.
Intangible assets acquired in a business combination are measured at fair value on initial recognition. Other intangible assets are measured at cost on initial recognition. Intangible assets with finite useful lives are depreciated on a straight-line basis over the estimated useful life of each asset.
It is determined for intangible assets with finite useful lives whether there is an indication of impairment of the asset or cash-generating unit. If there is an indication of impairment, the asset or cash-generating unit is tested for impairment by estimating its recoverable amounts and comparing its carrying amount with the recoverable amount.
(f) Income taxes
Deferred tax assets and liabilities are recognized for temporary differences between the accounting carrying amounts of assets and liabilities and their tax bases, the carry forward of unused tax losses and unused tax credits at the end of a reporting period. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized.
Deferred tax assets and liabilities are measured at the tax rates and in accordance with tax laws that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
(g) Post-employment benefits and pension
Net defined benefit liability or asset is determined at the present value of the defined benefit obligation less the fair value of the plan assets. The amount of change in fair value arising from remeasurement of the present value of defined benefit obligations and the fair value of plan assets is fully recognized in other comprehensive income in the periods in which it arises and immediately transferred to retained earnings. Past service costs arising from plan amendments are recognized in profit or loss for the period in which they arise. Contributions to a defined benefit plan are recognized as expenses for the period in which the employees render the related service.
Disclosures of Transition to IFRS
The Mitsubishi Electric Group has applied IFRS beginning with the consolidated financial statements for the first quarter of the current fiscal year. The most recent consolidated financial statements prepared in accordance with US GAAP are for the one-year period ended on March 31, 2018. The date of transition to IFRS was April 1, 2017.
(1) Exemptions and exceptions in IFRS 1
IFRS 1 requires entities adopting IFRS for the first time to retrospectively apply IFRS in principle; however, with regard to certain items, it allows exemption from, or prohibits, retrospective application of IFRS.
The Company and its consolidated subsidiaries use the following exemptions on retrospective application permitted by IFRS 1:
- Business combinations
The Company and its consolidated subsidiaries elected not to apply IFRS 3 Business Combinations retrospectively to past business combinations that occurred on or before December 22, 2015. Consequently, the amount of goodwill that arose from business combinations occurred on or before December 22, 2015 is recorded at the carrying value in accordance with US GAAP. This goodwill was tested for impairment at the transition date irrespective of whether there was any indication of impairment.
- Exchange differences on translating foreign operations
The Company and its consolidated subsidiaries elected to deem the cumulative translation differences for foreign operations at the transition date to be zero. Consequently, the cumulative translation differences for foreign operations at the transition date were transferred from accumulated other comprehensive income (loss) to retained earnings.
- Designation of financial instruments recognized before the date of transition to IFRS
The Company and its consolidated subsidiaries elected to determine the classification of financial instruments on the basis of the facts and circumstances that exist at the date of transition to IFRS.
(2) Reconciliations
Reconciliations for which disclosures are required on first time adoption of IFRS are as follows:
Items that do not affect retained earnings and comprehensive income are presented in "Reclassification," and items that affect retained earnings and comprehensive income are presented in "Recognition and measurement differences."
Reconciliation of Equity as at the Date of Transition to IFRS (April 1, 2017)
(Consolidated Statements of Financial Position) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Assets)
(Assets)
Current assets
2,500,685
3,062
4,810
2,508,557
Current assets
Cash and cash equivalents
662,469
－
－
662,469
Cash and cash equivalents
Trade receivables
1,037,201
15,261
103,004
1,155,466
Trade receivables and contract assets
Inventories
643,040
－
(83,138)
559,902
Inventories
Prepaid expenses and other current assets
157,975
(12,199)
(15,056)
130,720
Other current assets
－
(3,062)
60,950
1,729,473
Non-current assets
Long-term trade receivables
2,815
(2,815)
－
－
Investments
618,935
(618,935)
－
－
－
181,724
5,634
187,358
Investments accounted for using the equity method
－
362,869
27,710
390,579
Other financial assets
Net property, plant and equipment
732,611
－
(33,133)
699,478
Net property, plant and equipment
Other assets
317,224
74,095
60,739
452,058
Other non-current assets
Total assets
4,172,270
－
65,760
4,238,030
Total assets
(In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Liabilities)
(Liabilities)
Current liabilities
1,525,761
7,456
33,082
1,566,299
Current liabilities
Bank loans and current portion of long-term debt
124,368
－
21,987
146,355
Bonds and borrowings
Trade payables
780,202
(145,119)
－
635,083
Trade payables
Other current liabilities
621,191
152,575
11,095
784,861
Other current liabilities
－
(7,456)
6,423
504,768
Non-current liabilities
Long-term debt
227,756
－
－
227,756
Bonds and borrowings
Retirement and severance benefits
194,990
－
8,044
203,034
Net defined benefit liabilities
Other fixed liabilities
83,055
(7,456)
(1,621)
73,978
Other non-current liabilities
Total liabilities
2,031,562
－
39,505
2,071,067
Total liabilities
(Equity)
(Equity)
Mitsubishi Electric Corp. shareholders' equity
2,039,627
－
28,536
2,068,163
Mitsubishi Electric Corp. stockholders' equity
Common stock
175,820
－
－
175,820
Common stock
Capital surplus
212,530
－
(13,785)
198,745
Capital surplus
Retained earnings
1,654,557
－
(60,897)
1,593,660
Retained earnings
Accumulated other comprehensive income (loss)
(2,052)
－
103,218
101,166
Accumulated other comprehensive income (loss)
Treasury stock at cost
(1,228)
－
－
(1,228)
Treasury stock at cost
Noncontrolling interests
101,081
－
(2,281)
98,800
Non-controlling interests
Total equity
2,140,708
－
26,255
2,166,963
Total equity
Total liabilities and equity
4,172,270
－
65,760
4,238,030
Total liabilities and equity
Balance of Debt
352,124
－
21,987
374,111
Balance of Debt
Accumulated other comprehensive income (loss):
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments
18,535
－
(18,535)
－
Exchange differences on translating foreign operations
Pension liability adjustments
(156,993)
－
156,993
－
Remeasurements of defined benefit pension plans
Unrealized gains on securities
136,352
－
(35,223)
101,129
Financial assets measured at fair value through other comprehensive income
Unrealized gains (losses) on derivative instruments
54
－
(17)
37
Net changes in the fair value of cash flow hedges
Reconciliation of Equity as at the End of the First Quarter of the Previous Fiscal Year
(June 30, 2017)(Condensed Quarterly Consolidated Statements of Financial Position) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Assets)
(Assets)
Current assets
2,494,270
3,167
(2,102)
2,495,335
Current assets
Cash and cash equivalents
712,900
－
－
712,900
Cash and cash equivalents
Trade receivables
869,117
15,682
118,436
1,003,235
Trade receivables and contract assets
Inventories
723,340
－
(108,524)
614,816
Inventories
Prepaid expenses and other current assets
188,913
(12,515)
(12,014)
164,384
Other current assets
－
(3,167)
67,398
1,687,334
Non-current assets
Long-term trade receivables
2,644
(2,644)
－
－
Investments
578,353
(578,353)
－
－
－
167,341
5,332
172,673
Investments accounted for using the equity method
－
326,496
27,872
354,368
Other financial assets
Net property, plant and equipment
745,257
－
(32,777)
712,480
Net property, plant and equipment
Other assets
296,849
83,993
66,971
447,813
Other non-current assets
Total assets
4,117,373
－
65,296
4,182,669
Total assets
(In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Liabilities)
(Liabilities)
Current liabilities
1,472,476
7,632
23,356
1,503,464
Current liabilities
Bank loans and current portion of long-term debt
134,310
－
10,819
145,129
Bonds and borrowings
Trade payables
723,525
(118,564)
－
604,961
Trade payables
Other current liabilities
614,641
126,196
12,537
753,374
Other current liabilities
－
(7,632)
19,137
490,952
Non-current liabilities
Long-term debt
217,516
－
－
217,516
Bonds and borrowings
Retirement and severance benefits
187,719
－
19,989
207,708
Net defined benefit liabilities
Other fixed liabilities
74,212
(7,632)
(852)
65,728
Other non-current liabilities
Total liabilities
1,951,923
－
42,493
1,994,416
Total liabilities
(Equity)
(Equity)
Mitsubishi Electric Corp. shareholders' equity
2,063,279
－
25,072
2,088,351
Mitsubishi Electric Corp. stockholders' equity
Common stock
175,820
－
－
175,820
Common stock
Capital surplus
212,530
－
(13,785)
198,745
Capital surplus
Retained earnings
1,683,659
－
(64,708)
1,618,951
Retained earnings
Accumulated other comprehensive income (loss)
(6,805)
－
103,565
96,760
Accumulated other comprehensive income (loss)
Treasury stock at cost
(1,925)
－
－
(1,925)
Treasury stock at cost
Noncontrolling interests
102,171
－
(2,269)
99,902
Non-controlling interests
Total equity
2,165,450
－
22,803
2,188,253
Total equity
Total liabilities and equity
4,117,373
－
65,296
4,182,669
Total liabilities and equity
Balance of Debt
351,826
－
10,819
362,645
Balance of Debt
Accumulated other comprehensive income (loss):
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments
23,023
－
(11,618)
11,405
Exchange differences on translating foreign operations
Pension liability adjustments
(144,517)
－
144,517
－
Remeasurements of defined benefit pension plans
Unrealized gains on securities
114,685
－
(29,380)
85,305
Financial assets measured at fair value through other comprehensive income
Unrealized gains (losses) on derivative instruments
4
－
46
50
Net changes in the fair value of cash flow hedges
Reconciliation of Equity as at the End of the Previous Fiscal Year (March 31, 2018)
(Consolidated Statements of Financial Position) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Assets)
(Assets)
Current assets
2,606,493
(1,434)
(22,324)
2,582,735
Current assets
Cash and cash equivalents
599,199
－
－
599,199
Cash and cash equivalents
Trade receivables
1,087,593
14,225
89,711
1,191,529
Trade receivables and contract assets
Inventories
741,782
－
(95,520)
646,262
Inventories
Prepaid expenses and other current assets
177,919
(15,659)
(16,515)
145,745
Other current assets
－
1,434
63,345
1,722,845
Non-current assets
Long-term trade receivables
1,965
(1,965)
－
－
Investments
614,295
(614,295)
－
－
－
187,828
6,480
194,308
Investments accounted for using the equity method
－
335,474
27,697
363,171
Other financial assets
Net property, plant and equipment
740,448
－
(16,191)
724,257
Net property, plant and equipment
Other assets
301,358
94,392
45,359
441,109
Other non-current assets
Total assets
4,264,559
－
41,021
4,305,580
Total assets
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
(Liabilities)
(Liabilities)
Current liabilities
1,471,367
8,586
8,296
1,488,249
Current liabilities
Bank loans and current portion of long-term debt
122,430
－
465
122,895
Bonds and borrowings
Trade payables
719,404
(139,838)
－
579,566
Trade payables
Other current liabilities
629,533
148,424
7,831
785,788
Other current liabilities
－
(8,586)
(349)
420,112
Non-current liabilities
Long-term debt
189,055
－
－
189,055
Bonds and borrowings
Retirement and severance benefits
171,017
－
503
171,520
Net defined benefit liabilities
Other fixed liabilities
68,975
(8,586)
(852)
59,537
Other non-current liabilities
Total liabilities
1,900,414
－
7,947
1,908,361
Total liabilities
(Equity)
(Equity)
Mitsubishi Electric Corp. shareholders' equity
2,259,355
－
34,819
2,294,174
Mitsubishi Electric Corp. stockholders' equity
Common stock
175,820
－
－
175,820
Common stock
Capital surplus
213,250
－
(13,808)
199,442
Capital surplus
Retained earnings
1,857,741
－
(46,393)
1,811,348
Retained earnings
Accumulated other comprehensive income (loss)
14,472
－
95,020
109,492
Accumulated other comprehensive income (loss)
Treasury stock at cost
(1,928)
－
－
(1,928)
Treasury stock at cost
Noncontrolling interests
104,790
－
(1,745)
103,045
Non-controlling interests
Total equity
2,364,145
－
33,074
2,397,219
Total equity
Total liabilities and equity
4,264,559
－
41,021
4,305,580
Total liabilities and equity
Balance of Debt
311,485
－
465
311,950
Balance of Debt
Accumulated other comprehensive income (loss):
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments
34,149
－
(16,600)
17,549
Exchange differences on translating foreign operations
Pension liability adjustments
(141,075)
－
141,075
－
Remeasurements of defined benefit pension plans
Unrealized gains on securities
121,413
－
(29,461)
91,952
Financial assets measured at fair value through other comprehensive income
Unrealized gains (losses) on derivative instruments
(15)
－
6
(9)
Net changes in the fair value of cash flow hedges
Notes to reconciliation of equity
The principal effects of transition to IFRS in the reconciliation of equity above are as follows:
(1) Reclassification
The main elements of reclassification are as follows:
(a) In accordance with the presentation provisions under IFRS, other financial assets are presented separately.
(b) Part of trade receivables, prepaid expenses and other current assets and other assets, etc. are reclassified based on the definition and recognition criteria of IFRS.
(c) Part of trade payables, other current liabilities and other fixed liabilities are reclassified based on the definition and recognition criteria of IFRS.
(2) Recognition and measurement differences
The main elements of recognition and measurement differences are as follows:
(a) Employee benefits
Under US GAAP, actuarial gains and losses and past service costs are deferred in accumulated other comprehensive income, subsequently amortized for a specified future period and recognized in profit or loss. Current service costs, interest costs and expected return on plan assets are recognized in profit or loss for the fiscal year.
Under IFRS, on the other hand, changes resulting from remeasurement of defined-benefit corporate pension plans, defined benefit obligation on lump-sum payment plans and plan assets required by IFRS are recognized in other comprehensive income, and reclassified from accumulated other comprehensive income directly to retained earnings, not through profit or loss. Past service costs arising from plan amendments are fully recognized immediately in profit or loss. Current service costs are recognized in profit or loss. Interest costs are recognized in profit or loss at the amount determined by multiplying the net amount of the defined benefit obligation and plan assets by the discount rate used to determine the present value of the obligation.
(b) Equity instruments
Under US GAAP, non-marketable equity instruments are recognized at their cost. If fair value of equity instruments has decreased and the decrease is considered not to be temporary, impairment loss is recognized for the amount of the cost of the equity instruments in excess of fair value. Gains or losses on the sale of these equity instruments are recognized in profit or loss.
Under IFRS, on the other hand, all equity instruments are recognized at fair value irrespective of whether there is an active market. Since it is permitted to recognize changes in fair value in other comprehensive income, the Company and its consolidated subsidiaries have elected to recognize changes in fair value of equity instruments in other comprehensive income. Accordingly, loss on impairment and gains or losses on the sale of equity instruments recognized in profit or loss under US GAAP are recognized in other comprehensive income as well.
(c) Income taxes
Under US GAAP, tax expenses incurred by sellers are deferred using the deferral method for differences arising from unrealized profits and losses from intercompany transactions.
Under IFRS, on the other hand, a difference between the carrying amount and the sale price of an asset sold is recognized as a future deductible temporary difference based on the asset-and-liability approach. A deferred tax asset is recognized for the future deductible temporary difference using purchaser's effective tax rate while taking its recoverability into consideration.
Under US GAAP, deferred tax liabilities for temporary differences associated with investments in equity investees are recognized using tax rates applicable on the premise that the temporary difference will be reversed at the time of sale of the equity investees even if a company intends to continue to hold the investments. In principle, deferred tax liabilities are recognized for the undistributed earnings of subsidiaries, etc.
Under IFRS, deferred tax liabilities are in principle recognized for all the taxable temporary differences using tax rates applied when the taxable temporary differences reverse, such as when receiving dividends or selling the investments. Deferred tax liabilities are recognized for the taxable temporary differences associated with investments in subsidiaries etc. which are probable to reverse in the foreseeable future.
(d) Exchange differences on translating foreign operations
Cumulative exchange differences on translating foreign operations are all deemed to be zero at the date of transition to IFRS. Consequently, exchange differences on translating foreign operations included in accumulated other comprehensive income as at the transition date were fully reclassified to retained earnings.
(e) Exclusion of equity investees
Under US GAAP, when an investee no longer qualifies as an equity investee, the difference between the sale price and the carrying amount of the interest sold is recognized in profit or loss. If an investor retains a residual interest, gains or losses recognized in prior periods remain included in the carrying amount of the residual interest.
Under IFRS, on the other hand, when an investee no longer qualifies as an equity investee, the residual interest is measured at fair value if an investor retains a residual interest. The sale price and the difference between the fair value and the carrying amount of the residual interest at the point when an investee no longer qualifies as an equity investee is recognized in profit or loss.
(f) Government grants
Under US GAAP, government grants related to acquisition of assets are not reflected in the carrying amounts of assets because there are no accounting standards for such government grants.
Under IFRS, on the other hand, government grants related to assets are recognized as reducing the carrying amount of the asset by the government grants received.
(g) Impairment of non-financial assets
Under US GAAP, if there is an indication that a fixed asset may be impaired, the carrying amount and the undiscounted estimated future cash flows of the asset is compared. If the carrying amount exceeds the estimated future cash flows, any excess of the carrying amount over the fair value is recognized as an impairment loss.
Under IFRS, on the other hand, if there is an indication that a fixed asset may be impaired, any excess of the carrying amount over the recoverable amount of the fixed asset (the higher of value in use or fair value less costs of disposal) is recognized as an impairment loss of the fixed asset.
(h) Business combinations
Under US GAAP, in business combinations, the acquirer measures the acquiree as a whole (including non-controlling interests) at fair value and goodwill is recognized including the portion of goodwill attributable to the non-controlling interests.
Under IFRS, on the other hand, in business combinations it is permitted to elect to apply either method: the acquirer measures the acquiree as a whole (including non-controlling interests) at fair value and goodwill is recognized including the portion of goodwill attributable to the non-controlling interests; or non-controlling interest is measured as a proportional interest in the fair value of the acquiree's net identifiable assets and goodwill is recognized only for the acquirer's share. The Company elected the method of measuring non-controlling interest as a proportional interest in the fair value of the acquiree's net identifiable assets and recognizing goodwill only for the acquirer's share. Capital surplus is recognized when non-controlling interests are additionally acquired after the date when control was obtained.
Reconciliation of Profit or Loss and Comprehensive Income for the First Quarter of the Previous Fiscal Year (from April 1, 2017 to June 30, 2017)
(Condensed Quarterly Consolidated Statements of Profit or Loss) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
Net sales
1,005,599
－
28,337
1,033,936
Net sales
Cost of sales
681,232
(39)
35,772
716,965
Cost of sales
Selling, general and administrative expenses
250,121
461
(8,972)
241,610
Selling, general and administrative expenses
－
143
(11)
132
Other profit (loss)
Operating income
74,246
(279)
1,526
75,493
Operating income
Other income
28,493
－
－
－
Interest and Dividends
3,587
19,926
(19,926)
3,587
Financial income
Equity in earnings of affiliated companies
2,405
(2,405)
－
－
Other
22,501
(22,501)
－
－
Other expenses
3,491
－
－
－
Interest
677
192
63
932
Financial expenses
Other
2,814
(2,814)
－
－
－
2,405
(107)
2,298
Share of profit of investments accounted for using the equity method
Income before income taxes
99,248
(232)
(18,570)
80,446
Income before income taxes
Income taxes
29,241
(232)
(7,773)
21,236
Income tax expenses
Net income
70,007
－
(10,797)
59,210
Net income
Net income attributable to:
Net income attributable to the noncontrolling interests
2,263
－
(38)
2,225
Non-controlling interests
Net income attributable to Mitsubishi Electric Corp.
67,744
－
(10,759)
56,985
Mitsubishi Electric Corp. stockholders
(Condensed Quarterly Consolidated Statements of Comprehensive Income) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
Net income
70,007
－
(10,797)
59,210
Net income
Other comprehensive income (loss), net of tax
(Other comprehensive income (loss), net of tax)
Items that will not be reclassified to net income
Unrealized gains (losses) on securities
(21,638)
(287)
12,791
(9,134)
Financial assets measured at fair value through other comprehensive income
Pension liability adjustments
12,477
(179)
(12,298)
－
Remeasurements of defined benefit pension plans
－
466
(179)
287
Share of other comprehensive income of investments accounted for using the equity method
－
－
314
(8,847)
Subtotal
Items that may be reclassified to net income
Foreign currency translation adjustments
4,720
855
6,965
12,540
Exchange differences on translating foreign operations
Unrealized gains (losses) on derivative instruments
(63)
3
63
3
Net changes in the fair value of cash flow hedges
－
(858)
1
(857)
Share of other comprehensive income of investments accounted for using the equity method
－
－
7,029
11,686
Subtotal
Total
(4,504)
－
7,343
2,839
Total other comprehensive income (loss)
Comprehensive income (loss)
65,503
－
(3,454)
62,049
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Comprehensive income (loss) attributable to
the noncontrolling interests2,512
－
10
2,522
Non-controlling interests
Comprehensive income (loss) attributable to
Mitsubishi Electric Corp.62,991
－
(3,464)
59,527
Mitsubishi Electric Corp. stockholders
Reconciliation of Profit or Loss and Comprehensive Income for the Previous Fiscal Year (from April 1, 2017 to March 31, 2018)
(Consolidated Statements of Profit or Loss) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
Net sales
4,431,198
－
13,226
4,444,424
Net sales
Cost of sales
3,030,902
－
53,024
3,083,926
Cost of sales
Selling, general and administrative expenses
1,061,778
729
(34,623)
1,027,884
Selling, general and administrative expenses
Loss on impairment of
long-lived assets19,881
(19,881)
－
－
－
(20,990)
15,820
(5,170)
Other profit (loss)
Operating income
318,637
(1,838)
10,645
327,444
Operating income
Other income
60,414
－
－
－
Interest and Dividends
8,611
23,637
(23,637)
8,611
Financial income
Equity in earnings of affiliated companies
22,261
(22,261)
－
－
Other
29,542
(29,542)
－
－
Other expenses
14,473
－
－
－
Interest
2,727
4,726
(657)
6,796
Financial expenses
Other
11,746
(11,746)
－
－
－
22,261
1,686
23,947
Share of profit of investments accounted for using the equity method
Income before income taxes
364,578
(723)
(10,649)
353,206
Income before income taxes
Income taxes
82,239
(723)
5,291
86,807
Income tax expenses
Net income
282,339
－
(15,940)
266,399
Net income
Net income attributable to:
Net income attributable to the noncontrolling interests
10,459
－
185
10,644
Non-controlling interests
Net income attributable to Mitsubishi Electric Corp.
271,880
－
(16,125)
255,755
Mitsubishi Electric Corp. stockholders
(Consolidated Statements of Comprehensive Income) (In millions of yen)
Presentation under US GAAP
US GAAP
Re-classification
Recognition and measurement differences
IFRS
Presentation under IFRS
Net income
282,339
－
(15,940)
266,399
Net income
Other comprehensive income (loss), net of tax
(Other comprehensive income (loss), net of tax)
Items that will not be reclassified to net income
Unrealized gains (losses) on securities
(14,875)
392
14,431
(52)
Financial assets measured at fair value through other comprehensive income
Pension liability adjustments
15,857
(596)
6,062
21,323
Remeasurements of defined benefit pension plans
－
204
(34)
170
Share of other comprehensive income of investments accounted for using the equity method
－
－
20,459
21,441
Subtotal
Items that may be reclassified to net income
Foreign currency translation adjustments
17,023
(1,908)
1,877
16,992
Exchange differences on translating foreign operations
Unrealized gains (losses) on derivative instruments
(88)
(6)
23
(71)
Net changes in the fair value of cash flow hedges
－
1,914
(45)
1,869
Share of other comprehensive income of investments accounted for using the equity method
－
－
1,855
18,790
Subtotal
Total
17,917
－
22,314
40,231
Total Other comprehensive income (loss)
Comprehensive income (loss)
300,256
－
6,374
306,630
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Comprehensive income (loss) attributable to
the noncontrolling interests11,852
－
68
11,920
Non-controlling interests
Comprehensive income (loss) attributable to
Mitsubishi Electric Corp.288,404
－
6,306
294,710
Mitsubishi Electric Corp. stockholders
Notes to Reconciliation of Profit or Loss and Comprehensive Income
The principal effects of transition to IFRS in the reconciliation of profit or loss and comprehensive income above are as follows:
(1) Reclassification
The main elements of reclassification are as follows:
(a) In accordance with the presentation provisions under IFRS, financial income and financial expenses are presented separately.
(b) In accordance with the presentation provisions under IFRS, part of other income and other expenses, etc. is included and presented in operating profit.
(c) Unrealized gains (losses) on securities, pension liability adjustments, foreign currency translation adjustments and unrealized gains (losses) on derivative instruments in other comprehensive income that are attributable to equity investees are reclassified in accordance with the presentation provisions under IFRS.
(2) Recognition and measurement differences
The main elements of recognition and measurement differences are as follows:
(a) Reconciliation of sales and cost of sales
Under US GAAP, if amounts of construction contracts cannot be reliably estimated, all construction costs and construction revenue are recognized when the construction is complete.
Under IFRS, on the other hand, revenue from a performance obligation satisfied over time is recognized using the cost recovery method if the outcome cannot be reliably estimated. Revenues using the cost recovery method are only recognized for costs incurred to the extent that it is probable that the cost will be recovered and costs are recognized as expenses in the period in which they are incurred.
(b) Equity instruments
Non-marketable equity instruments are recognized at their cost under US GAAP. If fair value of equity instruments has decreased and the decrease is considered not to be temporary, impairment loss is recognized for the amount of the cost of the equity instruments in excess of fair value. Gains or losses on the sale of these equity instruments are recognized in profit or loss.
Under IFRS, on the other hand, equity instruments are recognized at fair value irrespective of whether there is an active market. Because it is permitted to recognize changes in fair value in other comprehensive income, the Company and its consolidated subsidiaries have elected to recognize changes in fair value of equity instruments in other comprehensive income. Accordingly, loss on impairment and gains or losses on the sale of equity instruments recognized in profit or loss under US GAAP are recognized in other comprehensive income as well.
Notes to Reconciliation of Cash Flows
There are no significant differences in the statement of cash flows resulting from transition from US GAAP to IFRS.
Cautionary Statement
The Mitsubishi Electric Group (hereafter "the Group") is involved in development, manufacture and sales in a wide range of fields including Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices and Home Appliances, and these operations extend globally, not only inside Japan, but also in North America, Europe, Asia and other regions. While the statements herein are based on certain assumptions and premises that the 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 materials that are denominated in U.S. dollars or euros, as well as its Asian production bases' sales of exported products and purchases of imported materials that are denominated in foreign currencies.
(3) Stock markets
A fall in stock market prices may cause 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 corporate 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 introduction may adversely affect the Group's performance.
(11) Business restructuring
The Group may record losses due to restructuring measures.
(12) Information security
The performance of the Group may be affected by computer virus infections, unauthorized access and other unpredictable incidents that lead to the loss or leakage of personal information held by the Group or confidential information regarding the Group's business such as its technology, sales and other operations.
(13) Natural disasters
The Group's operations, particularly manufacturing activities, may be affected by the occurrence of earthquakes, typhoons, tsunami, fires and other large-scale disasters.
(14) Other significant factors
The Group's operations may be affected by the outbreak of social or political upheaval due to terrorism, war, pandemic by new strains of influenza and other diseases, or other factors.
###
About Mitsubishi Electric Corporation
With nearly 100 years of experience in providing reliable, high-quality products, Mitsubishi Electric Corporation (TOKYO: 6503) is a recognized world leader in the manufacture, marketing and sales of electrical and electronic equipment used in information processing and communications, space development and satellite communications, consumer electronics, industrial technology, energy, transportation and building equipment. Embracing the spirit of its corporate statement, Changes for the Better, and its environmental statement, Eco Changes, Mitsubishi Electric endeavors to be a global, leading green company, enriching society with technology. The company recorded consolidated group sales of 4,444.4 billion yen (in accordance with IFRS; US$ 41.9 billion*) in the fiscal year ended March 31, 2018. For more information visit:
www.MitsubishiElectric.com
*At an exchange rate of 106 yen to the US dollar, the rate given by the Tokyo Foreign Exchange Market on March 31, 2018
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